Seth Green’s Stolen Bored Ape and the Rights of the Innocent Downstream Purchaser
In 2021, Seth Green of Family Guy and Robot Chicken fame[1] became the proud owner of an NFT––Bored Ape Yacht Club #8398[2]––which he affectionately named Fred Simian.[3] Much like his Bored Ape siblings, Fred is an ape with a disinterested look on his face, but his look is set apart by his teary eyes, his scruffy facial hair, his skeleton t-shirt, a skinny cigarette hanging from his mouth, and a halo above his head.[4] For months, Mr. Green worked to develop a television show entitled White Horse Tavern in which an animated version of Fred was set to star.[5] However, in May 2022, development came to a halt when tragedy struck––Fred had been kidnapped (virtually) and was subsequently purchased by an online user named DarkWing84.[6] DarkWing84 claims to have made this purchase “in good faith,”[7] which designates them as an innocent downstream purchaser of a stolen work. To ensure ownership of the intellectual property rights associated with Fred, Mr. Green paid DarkWing84 $260,000 for Fred’s safe return and once again maintains sole and complete ownership of Fred and his associated intellectual property rights.[8] But did Mr. Green need to make this payment, or did he hold those intellectual property rights all along?
Before repurchasing his stolen NFT, Mr. Green seemed confident that he still held Fred’s intellectual property rights, tweeting “[a] buyer who purchased stolen art with real money and refuses to return it is not legally entitled to exploitation usage of the underlying IP.”[9] According to Bored Ape Yacht Club’s Terms and Conditions, “[o]wnership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network,” and the holder of the NFT has “an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art.”[10] This means that whoever holds the bored ape is the one with the right to “spin it into whatever film, music, TV, book, or media project they want.”[11] This seems to contradict Mr. Green’s claim and imply that at the time that DarkWing84 was the good faith holder of Fred, they (not Mr. Green) also held the intellectual property rights to make a derivative television show such as White Horse Tavern.
Proposed amendments to the Uniform Commercial Code by the Uniform Law Commission and the American Law Institute Emerging Technology Committee seem to support this view.[12] The amendments, addressing property rights transfers in controllable electronic records (CERs), which are defined as “record[s] stored in an electronic medium that can be subjected to control” such as NFTs, would establish that “[p]urchasers that obtain control of a CER for value, in good faith and without notice of a property claim, would be deemed to be ‘qualifying purchasers’ and would benefit from the take-free rule that would see them acquire the CER free from any adverse property claims.”[13] Because DarkWing84 made their purchase “long before Green tweeted about [Fred’s] status,”[14] one could argue that they, as an innocent downstream purchaser, control the Fred CER and its associated intellectual property rights.
However, as stated by Jake Chervinsky, the Chief Policy Officer at The Blockchain Association, “[i]f Seth can prove the NFT was stolen, it’s very unlikely a court would just throw up its hands [and] say ‘oh well, the thief gets the legal rights too.’”[15] Possession and ownership are not the same thing. Although the common law regarding ownership of digital assets is an emerging field, we can look to art law for some guidance. It is well established in United States art law that “a thief conveys no title as against the true owner.”[16] Different states treat innocent downstream purchaser cases differently.[17] In New Jersey, “the discovery rule applies to an action for replevin of a painting,” which holds that the cause of action for the original owner of a stolen work accrues “when she first knew, or reasonably should have known through the exercise of due diligence, of the cause of action.”[18] Meanwhile in New York, the “demand and refusal rule” applies, which holds that such a cause of action does not accrue until the original owner has made a demand for the return of the stolen work and the innocent downstream purchaser refuses that demand.[19] Regardless of these differences, both rules were formulated with the goal of protecting the original owners of stolen works (the Seth Greens) over the innocent downstream purchasers (the DarkWing84s).[20] Were Mr. Green to timely sue DarkWing84, the demand and refusal rule would likely apply because “OpenSea—the digital marketplace where the stolen Bored Ape was later sold—makes all transactions on its platform subject to New York law.”[21] Under this rule, “[t]he thief doesn’t get good title to Seth Green’s IP, nor does anyone who buys it from said thief with notice,”[22] such as DarkWing84. Additionally, the New York rule “places the burden of investigating the provenance of a work of art on the potential purchaser.”[23] According to Santa Clara University School of Law Professor Eric Goldman, the nature of the blockchain “which records a chain of ownership” could make it difficult for DarkWing84 to claim ignorance of Fred’s stolen nature despite their purchase after Green’s tweet, because a court may find that they failed to do their due diligence before purchasing the stolen work.[24] With all of this in mind, DarkWing84’s downstream purchase ceases to look so innocent.
In conclusion, had Seth Green chosen to sue for the return of Fred, he likely could have avoided paying DarkWing84 $260,000 to get Fred and Fred’s associated intellectual property rights back. Indeed, Mr. Green may have never lost these intellectual property rights in the first place. Whether Mr. Green would have wound up paying even more money in legal fees is a separate question.
Footnotes
