Milan Fashion Week and Fashion Law Trends: the liability of NFT marketplaces for infringing content

After two years of digital shows, the Milan Fashion Week finally returns to the city and we are proud to announce that also our fashion law column is back. In this series of articles (one for each day of the MFW) we will highlight those that in our view are the main trends in fashion from a legal perspective under intellectual property, data protection and consumer law. We thus hope you will enjoy our return as much as that of fashion shows and cocktail parties! This all the more because all the authors of the contributions are the female (and hopefully fashionable) lawyers of the IPT Italian team.

Anyone knows the importance of the debut for a designer in a fashion show, so with our first article we also want to start big introducing the topic that in the last year has revolutionized many industries including certainly fashion: NFTs, crypto art and the protection of intellectual property rights in the metaverse. In fact, it is now clear that the real value of NFTs and unique avatars like the CryptoPunks collection is that they are status symbols, ensuring their owners recognizability and membership of an exclusive community, exactly like it happens with luxury and fashion.

Those who regularly follow us know that we have already been dealing with the main legal implications of NFTs and the first cases related to them in the fashion industry here and here, so we will now take a step further and try to figure out the remedies available for rights holders and the regime of liability applicable to NFT marketplaces for infringing contents. If you are approaching this market either as a seller or a buyer, you probably happened to question how does platforms like OpenSea, Rarible, etc. guarantee that the NFTs on sale do not infringe the intellectual property rights of third parties? What can a brand do to remove the infringing contents from the platforms and which obligations do the platforms have in this respect? And what if meanwhile the NFT has already been sold?

Given the incredible amount of moneys involved, especially when successful brands or collections are at stake, we are assisting to the proliferation of fake NFTs tied to others’ artworks and trademarks without the right owner’s authorization as well as of fake accounts selling them, resulting in allegations of trademark and/or copyright infringement.

In fact, since the marketplaces do not provide a system to authenticate their users and verify that they have secured the proper rights before minting and/or selling the digital asset, NFTs can guarantee ownership but not authenticity because if the information originally entered is false or in error from the start, the NFTs will confirm and perpetuate that falsehood in all its future sales. Just to give you the idea of the phenomenon, OpenSea recently reported that it has experienced an “exponential” increase in “misuse” of its free minting tool and that “more than 80 percent of the items created with this tool were plagiarized works, fake collections, and spam”.

However, in most cases it is impossible to identify the seller who listed the NFT on the platform and, especially when there is a high number of fakes, the right holders are taking action directly against the platforms.

Just a few days ago a lawsuit was filed in the United States against OpenSea after a famous Bored Ape NFT was stolen in a hack on the ground that according to the NFT owner the platform breached its fiduciary duty, trust, contract and implied contract by failing to adopt a proper security system. In another case involving the Cipher Punks collection with 450 NFTs featuring the fathers of blockchain and cryptocurrency without their consent to use their image, the platform did not act fast enough and the creators team decided to destroy the collection, buy back the purchased NFTs from the buyers, and refunded those who had already invested.

In particular, like social media platforms and e-commerce marketplaces, also NFTs and crypto art platforms can be qualified as hosting provider and they are subject to the liability regime which applies to Internet Service Providers.

Under Italian law, pursuant to article 17 of Legislative Decree no. 70 of 9 April 2003, which implemented the E-commerce Directive 2000/31/EC, as hosting providers, marketplaces like OpenSea, Rarible, etc. do not have a general obligation to monitor the lawfulness of the content published by users on their platform. However, upon notification by the rights holder, they have the obligation to take action for the removal of unlawful content when its infringing nature is evident.

Moreover, in its decision of 3 October 2019 in case C-18/18, the EUCJ held that the Internet Service Provider may also be required to remove contents equivalent to the content deemed unlawful. Therefore, the platforms can be requested to remove any other NFT with the same characteristics (i.e. including the same infringing content) as the contested NFTs.

To this end, the main marketplaces have adopted a notice and takedown system not so different from that of eBay or YouTube, enabling rights holders to ask the removal of the infringing contents directly through the platform by including the relevant URLs. In most cases, the platforms seem to be collaborative, but the timing might be delayed and such procedure does not allow the complainant to know if meanwhile the NFT has already been sold, to whom and at what price.

Therefore, rights holders might also consider to send a cease and the desist letter to the platform in order to ask it not only to remove the infringing contents and accounts but also to disclose the above mentioned information about sales.

Should the provider not comply with such requests, under Italian law an interim proceedings can be started to request a so-called “dynamic injunction”, i.e. an injunction extended not only to the NFTs available on the platform at the time when the lawsuit is filed but – upon  indication of the right holder – also to the following NFTs offered for sale that present an objective and subjective continuity with those subject to the initial injunction.

These are some steps that – based on the existing laws – rights holders might take to enforce their intellectual property rights in the metaverse. However, some lawsuits have already been brought (mainly in the US) and the main platforms are considering additional tools and measures to police the market, so more metaverse-related remedies are probably going to be adopted.

If you would like to know more about NFTs and fashion law in general, please contact