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Court in China Determines That NFTs Represent Virtual Property and Are Protected by Law

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A court in Hangzhou, China has ruled that non-fungible tokens (NFTs) are considered virtual property and are protected by Chinese law. This ruling came from a case involving a dispute between a customer and a platform that was hired to sell a collection of tokens.

The court stated that NFT collections have the characteristics of property rights such as value, scarcity, controllability, and readability, while also possessing “unique attributes of network virtual property.” 

According to the court,

“The contract involved in the case does not violate the laws and regulations of our country, nor does it violate the actual policy and regulatory guidance of our country to prevent economic and financial risks, and should be protected by the law of our country.”

The NFTs bear the creator’s artistic expression and have the value of related intellectual property rights, it added, while also being digital assets created on the blockchain. 

“Therefore, NFT digital collections belong to the category of virtual property […] different from tangible or intangible objects in general sales contracts,” it stated. “NFT collections, a new type of online virtual property, should be protected by the laws of our country as the object of transactions between the two parties.”

The court also noted, however, that when it comes to legal attributes of NFT collections, Chinese law “currently does not clearly stipulate them.” 

That said, transactions in these types of cases are equal to selling digital goods online, and as such, they are e-commerce activities – regulated by China’s E-commerce Law, the court argued.

Company v. Wang

The statement explained that the defendant in the case is a digital company based in Hangzhou, which operates an e-commerce platform specializing in the sale of digital artwork. On the other side of this court battle, as the plaintiff stood the platform’s user, referred to by the pseudonym Wang.

What led to the lawsuit is that the platform canceled a purchase of an NFT collection – which Wang claimed was done without his consent. 

In February, the company announced that an “NFT digital collection blind box” would be sold in limited quantities. It also stated that a mobile phone number “consistent with the real-name authentication must be filled in” when making a purchase, while invalid orders without real-name authentication, wrong personal information, etc., would be eliminated and the purchase refunded.

Wang claimed that he purchased one such box for ¥999 ($143) after filling in his mobile phone number and personal information, but that the company never delivered it, returning the money to Wang after 10 days instead. Therefore, he asked for the contract to be fulfilled, or for compensation of ¥99,999 ($14,325) to be paid out.

The company, meanwhile, claimed that the mobile phone number and ID number provided by Wang when placing the order were inaccurate, so it made a refund. Furthermore, per the company, the contract had not been concluded at that point, and even if it had, it would have been terminated according to the agreement due to inaccurate information provided by the buyer. Lastly, the digital box has already been sold, so sending it to Wang following the lawsuit would be impossible.

Claims rejected

The announcement issued by the company, with all the instructions it provided, was a formal invitation for interested parties to make an offer, said the court. When Wang “successfully submitted” the order for a blind box, it formed a binding contract agreement between the two parties.

However. The announcement made it clear that the platform had the right to terminate any contract in case of inaccurate information. Judging from the details of the order submitted by Wang, “the fourth digit of the mobile phone number and the sixth digit of the ID card he filled in did not meet the requirements,” said the court. This, along with the refund sent to Wang, gave the company the right to terminate the contract. 

While Wang requested for the contract to be fulfilled, there was no legal basis for it as there was no longer a contract. Furthermore, since there was no breach of contract, Wang’s alternative claim for compensation of ¥99,999 had “no corresponding factual and legal basis,” and the court did not grant it.

Therefore, the court rejected Wang’s claim.

 
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