Who owns the intellectual property rights relating to a stolen NFT?

Question

Bored Ape non-fungible blockchain tokens (NFTs) change hands for tens to hundreds of thousands of dollars. For this money you get two things, A) the technical ability to create transactions involving these NFTs (as one gets with fungible blockchain tokens such as bitcoin) and B) the right to "use, copy, and display the purchased Art" and "creating derivative works" for personal and commercial use. "Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network".

These are frequently the target of scams, such that it is reported that they get "stolen". Eg. Businessman Timothy McKimmy is the former owner of Bored Ape #3475, an NFT he purchased in December for 55 ETH (then about $232,000). A security vulnerability allowed an outside party to access his wallet, in order to list and sell Plaintiff's Bored Ape at about $30 and then sell it for a bit over $300,000.

While the buyer in this situation undoubtedly gets the technical ability to create transactions involving this NFT, what about the intellectual property rights? I am quite sure the buyer paid the money in the assumption that they were gaining the IP, and the ability to exploit this commercially in the future. The seller did not agree to a contract, so there was no "meeting of minds" that would usually be required for the creation of a contract. The document that appears to assign the IP appears to defer to the blockchain to define ownership (quote above).

Any jurisdiction would be interesting, any that differ particularly so.

Bored Ape #3475 that was "stolen"

Answer 1

It may be useful to draw a distinction between the NFT and the Art referenced by this NFT. There is no intellectual property in an NFT itself because an NFT is not a creative work, invention, or trade secret.

Ownership of the NFT. As far as I'm aware, no laws recognize the Ethereum blockchain as an arbiter of ownership. However, NFTs and other “crypto” assets seem to be recognized as property. Thus, it can be the case that lawful ownership diverges from the ownership records on the blockchain. In the referenced scenario, someone gained control over an NFT but likely did not receive the property rights in that NFT (i.e. stole it).

License to use the Art. The “Bored Ape Yacht Club” terms define ownership of the NFT purely in terms of the Ethereum blockchain, and ignore legal ownership:

Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network

The blockchain-owner of the NFT is then granted a license to use the Art via these terms.

This leads to the following conclusions:

• There are no intellectual property rights in the NFT.
• Any intellectual property rights in the Art are held by Yuga Labs LLC, the company behind the “Bored Ape Yacht Club”. Nothing in the terms transfers ownership in the Art.
• Yuga Labs LLC grants the blockchain-owner of the NFT a license to use the Art. Here, this means that the thief held the license, then after the sale the subsequent buyer.
• Yuga Labs LLC does not grant the legal owner of the NFT any rights, in case the legal owner and the blockchain-owner are distinct.

Of course, nothing would prevent Yuga Labs LLC from also granting a license to the legal owner of the LLC. They can still do so retroactively, as their license grant to the blockchain-owner is probably not exclusive. But I would be surprised if they would do so, since it would shatter the “NFT = Art” and “Blockchain = Ownership” illusion that their business model relies on.

Answer 2

The same person who owns the lifetime maintenance rights to a stolen car

In both cases, this is a matter of contract law, not property law.

Under the terms of the contract, Bored Ape agrees to licence the work to the current holder of the token. Contractually, they are not interested in if the current holder is a legitimate holder or not. Essentially, not their problem. If you have the token, you can "use, copy, and display the purchased Art" and "create[e] derivative works". Just like if you turn up at the car dealership with the car, they will perform the service.

In practical terms, this means that if the current holder breaches copyright (save for the licence), Bored Ape will not sue them. Similarly, if a previous owner breaches copyright (save for the licence), Bored Ape can sue them and will likely succeed because the terms of the contract say you must possess the token as defined on the blockchain; not that you are the legal owner of the token.

Who legitimately owns the token?

Ownership or Title can get messy.

For example, suppose A steals from B something that B had previously bought in good faith from C and that C had earlier stolen from D and that had been an heirloom of D's family for generations but had originally been stolen centuries earlier (though this fact is now forgotten by all) from E. Here A has the possession, B has an apparent right of possession (as evidenced by the purchase), D has the absolute right of possession (being the best claim that can be proven), and the heirs of E, if they knew it, would have the right of property, which they, however, could not prove. A good title consists of the combination of these three (possession, right of possession, and right of property) in the same person(s).

In this case, the current holder has possession and Mr McKimmy has both the right of possession and the right of property. Bored Ape's contract is only concerned with possession. If Mr McKimmy wishes to regain possession, and the current possessor refuses, he will need to sue the current possessor and obtain a court order for the blockchain to be altered to show him as the possessor.

Answer 3

The original owner of a stolen item retains all the rights to its use.

Purchasing a stolen item entitles the buyer to exactly nothing. The purchase was not legitimate, so there is no value to be gained. This principle of ownership is to prevent a thief from selling an item and making the original owner lose ownership permanently.