New York Judge Dismisses Lawsuit Over Ownership of Quantum NFT

News | March 27, 2023 By:

On Friday, March 17, 2023, James Cott, a judge for the U.S. District Court for the Southern District of New York, dismissed Canadian holding company Free Holdings’ lawsuit claiming ownership of “Quantum,” a digital artwork certified by a non-fungible token (NFT).

Free Holdings filed a complaint on February 1, 2022, against auction house Sotheby’s and digital artist Kevin McCoy alleging that it claimed the rights to the Quantum NFT after McCoy failed to renew his ownership. The Quantum NFT was sold in 2021 for almost $1.5 million via the auction house.

In 2014, McCoy created the Quantum NFT on the Namecoin blockchain, a blockchain derived from Bitcoin’s code, but did not update his registration in 2015. This left the Quantum Namecoin record free to claim, and a crypto wallet controlled by Free Holdings did so on or around April 5, 2021.

In 2021, McCoy, through Sotheby’s started promoting the sale of an Ethereum-based NFT called “Quantum,” which they claimed was “originally minted on May 3, 2014 on Namecoin blockchain, and preserved on a token minted on May 28, 2021 by the artist.” They also claimed that Quantum on the Namecoin blockchain had been “burned” or otherwise removed from the Namecoin blockchain. But according to Free Holdings, the blockchain record for Quantum has not been “removed” or “burned” and that the Namecoin blockchain record for Quantum remains active and under the control of Free Holdings.

“Sotheby’s and McCoy unjustly profited from the false and misleading marketing of their Ethereum-based NFT, which they deceitfully and intentionally promoted as having previously been “burned” or “removed” from the Namecoin blockchain,” The complaint stated. “Despite notice to McCoy that their representations were false, Sotheby’s and McCoy improperly orchestrated the marketing, promotion, and sale of their NFT, all while causing damage to Free Holdings, the true owner of the original Quantum NFT.”

In 43-page decision, Judge Cott stated that Free Holdings “failed to allege a proprietary interest in Quantum.”

“Free Holdings has 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,” Judge Cott said in his dismissal. “It does not allege that it took any part in the creation of Quantum or the blockchains used to record it. Free Holdings has thus failed to plausibly allege that unjust enrichment occurred in these circumstances.”

A copy of the original filing can be found here.