Barcelona court rules in favour of defendant in NFT metaverse copyright case

Mango may still get sued by Marvel for Silver Surfer copyright infringement.

A Commercial Court in Barcelona has made a ruling in a novel copyright dispute between fashion shop Mango and the Spanish collective society for artists VEGAP (text of the decision in Spanish here). The dispute involves the adaptation of a number of works by prominent Spanish artists into garments displayed on the Metaverse site, and the court ruled in favour of the defendant Mango.

The facts of the case are that in March 2022, Mango announced that it was going to display a series of unique works by artist Farkas in a virtual museum located in Decentraland. The collection was set to re-interpret several pieces by Joan Miró, Antoni Tàpies, and Miquel Barceló; the original physical artworks were owned by one of the companies in the Mango group, and they ceded them to Mango so that they could be displayed at the opening of a shop in New York; as part of this event, the metaverse versions were made, as well as NFTs of the adaptations. While Mango had permission to display the physical works, VEGAP considered that the creation of digital adaptations, the subsequent minting of NFTs based on those works, as well as display all of the above without permission was an unauthorised act, and therefore sued for copyright infringement in its role as collective manager on behalf of Spanish artists. VEGAP alleged that displaying the works and turning them into NFTs infringed the exclusive moral rights of integrity and disclosure, and also the economic rights of communication to the public, reproduction, and adaptation.

In the initial phases of the proceedings gave rise to a very interesting injunction which asked for the depositing of the allegedly offending NFTs in court of safekeeping (see my earlier discussion here). The court desisted on this after it was explained that the tokens were “lazy minted“, this is the creation of an NFT without immediately recording it on a blockchain, thereby saving the upfront costs and energy usually associated with minting.The court discussed that the process of depositing a physical copy of a token would require a full minting of the works, which would be detrimental to the parties.

The physical artworks can be displayed by their owners, this has never been in dispute, so the legal proceedings arose from the question of whether the works can be adapted into digital versions, and whether these could be displayed in a museum in the metaverse, and whether these adaptations could also be minted. The defendants argued that the digital works on display were non-infringing adaptations of the works, and that the NFT versions had not been minted yet. The court agreed with the defendants and declared that there was no copyright infringement.

The court observed that at the heart of the conflict was the distinction between the rights present in the corpus mysticum (the intellectual work) and the corpus mechanicum (the physical work), particularly when both have different owners (in this case Mango and VEGAP). The physical artwork has property rights, while the corpus mysticum has intellectual property, in this case copyright, and these are subject to different regimes. Adaptation is also an exclusive right of the copyright owner, and not necessarily of the owner of the physical work.

The judge analysed first whether the moral right to publicly display the work had been infringed, and argued that it had not as the work had already been displayed by the authors, and it was allowed for the owner of the physical work to publicly display it. With regards to the public communication of the work, the judge also agreed that there had been such a communication to the public, but that this right was limited by the public exhibition exception, if the work can be displayed, it can also be communicated to the public, unless there has been an express prohibition by the copyright owners, which had not taken place here. The judge also comments that the moral right of attribution had been respected, as the origin of the artworks had always been acknowledged.

The core of the judgement for me is whether the creation of the digital versions of the work is an unauthorised adaptation (“transformación” in Spanish law), which is an exclusive right of the author. The defendants argued that the adaptation should be covered under “uso inocuo” (harmless use), which would roughly apply the principles of fair use, but the problem is that Spain doesn’t have a fair use system. I’m surprised that the defendant’s lawyers didn’t argue pastiche, but I digress.

This is one of the most surprising parts of the ruling for me. The judge agreed that while the system of fair use is alien to Spanish Law, which has a limited number of exceptions, they cite a ruling from the Spanish Supreme Court which in 2012 allowed the incorporation of harmless use as an exception to copyright compatible both with national and international law, as long as they comply with the three step test. The judge then goes on to analyse whether the transformation performed here meets the requirements set out by the Supreme Court, and also using the four point test in fair use. The judge concludes:

“… it must be held that the defendant has not made any use which infringes copyright in the artworks […], but has made a fair, lawful and harmless use of them, without causing any prejudice to the authors of those works or to their successors in title, quite the contrary, since it has thereby enhanced and made known to a wider public (both American and universal, through the metaverse) works which, although transformed, would very probably not have had the dissemination which they had as a result of that inaugural event. Therefore, as this was a legitimate, fair and harmless use of the five works at issue in this lawsuit, the consent and authorisation of the owners of the intellectual property rights in them was not necessary, since requiring their consent or the payment of a licence fee would entail a disproportionate sacrifice for the owner of the material support of those works, which cannot be required of him when it is a question of making a fair and harmless use such as that made by the defendant in this case, under the protection of its right of public exhibition of the works […] exercised in good faith.”

This is a sensible and well-argued decision on a complex topic in which the judge uses excellent analysis of both the law and the technology.

Well, colour me surprised.