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Arnold & Porter Secures Victory in Landmark NFT Ownership Dispute

March 21, 2023

Arnold & Porter successfully defended Sotheby's, Inc., against myriad claims made by an anonymous plaintiff, Free Holdings Inc., alleging that it was the owner of the world's first non-fungible token (NFT). The NFT, created by digital artist Kevin McCoy in 2014 and associated with his digital artwork Quantum, sold through Sotheby's in 2021 for $1.47 million.

Free Holdings Inc. v. Kevin McCoy and Sotheby's, Inc. is one of the first cases in the U.S. to analyze and involve the blockchain technology behind NFTs. The court's 43-page decision includes a deep dive into blockchain fundamentals and found that standard legal tenets govern the ownership of NFTs. The plaintiff alleged that McCoy had used an older blockchain to create his NFT but later chose to preserve his original metadata using a different and more modern blockchain, Ethereum, which was included in the sale of Quantum.

The court's Order dismissed Free Holdings' claims—including false advertising, slander of title, deceptive business practices and unjust enrichment—under principles of subject matter jurisdiction and for failing to state any claim for relief, finding, in part, that Free Holdings had not identified any harm to their separately created NFT based on McCoy's sale of Quantum and its associated Ethereum token. The court also held that Free Holdings' claims were an attempt to exploit open questions of ownership in the still-developing NFT field to lay claim to the profits of a legitimate artist and creator.

Sotheby's was represented in this precedent-setting case by Evan Rothstein and Theresa House in Arnold & Porter's Intellectual Property practice and Marcus Asner and Anna Kaul in Litigation. Kevin McCoy was represented by Pryor Cashman. The court's ruling can be accessed here.