Pryor Cashman Wins Dismissal of Case Regarding World’s First NFT

NEW YORK--(BUSINESS WIRE)--Pryor Cashman won the complete dismissal of claims brought against its client, renowned and revolutionary digital artist Kevin McCoy, regarding his creation in 2014 of what is generally understood to be the world’s first non-fungible token (“NFT”). McCoy created his NFT in association with his digital artwork Quantum, which McCoy later sold through Sotheby’s in 2021 for $1.47 million.

The case, Free Holdings Inc. v. Kevin McCoy and Sotheby’s, Inc., is one of the first in the U.S. to deal with the blockchain technology behind NFTs. While acknowledging the “novel” issues presented by such technology, the court, in a detailed, 43-page decision, agreed with Pryor Cashman’s arguments and held that traditional legal principles govern the ownership of NFTs.

The plaintiff in the case was anonymous and sued through Free Holdings, a Canadian holding company. Its claims centered on the fact that McCoy, in 2014, had created his NFT using a blockchain known as Namecoin. McCoy later chose to preserve his original metadata using a token on a different and more modern blockchain, Ethereum. McCoy’s sale of Quantum in 2021 included the Ethereum token.

Shortly prior to that sale, Free Holdings created a new NFT on the Namecoin blockchain, using the same namespace that McCoy had used seven years earlier and duplicating McCoy’s original metadata. Free Holdings then alleged that it was actually the owner of the “first-ever NFT.”

The court rejected that position and awarded judgment to McCoy and co-defendant Sotheby’s. In particular, the court agreed that Free Holdings had not identified, and could not identify, any harm to its separately created NFT based upon McCoy’s sale of Quantum and its associated Ethereum token. The court also agreed that Free Holdings’ claims, which included claims of false advertising, slander of title, deceptive business practices, and unjust enrichment, were all invalid as a matter of law.

In a decision that carefully analyzes the relevant technology and issues, the court found, among other things, that Free Holdings “demonstrated nothing more than 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. It does not allege that it took any part in the creation of Quantum or the blockchains used to record it.”

This precedent-setting case was led by Litigation Partner William Charron, who co-chairs Pryor Cashman’s Art Law practice, with assistance from Partners Robert deBrauwere and Megan Noh (who co-chairs the Art Law practice with a focus on NFT issues), and Litigation Associates Nicholas Saady and Maya Katalan.

Read the full decision here.

About Pryor Cashman

Pryor Cashman is a premier, midsized law firm headquartered at 7 Times Square in New York with offices in Los Angeles and Miami. With broad and sophisticated transactional and litigation practices, Pryor Cashman provides a full range of services to meet the complex legal needs of institutions, mid-market businesses, bold emerging entities, entrepreneurs, and individuals.