Did the Delhi High Court just invalidate the business of digital collectibles?
Use of collectibles as a branding and marketing strategy helps build a connect between a brand and consumers of the brand’s products. When those collectibles are facilitated online, the same may be referred to as a digital collectible. Until the emergence of the blockchain backed technology for Non Fungible Tokens (“NFTs”), the idea of digital collectibles could not arise chiefly because the ability to create unlimited copies of digital content on the internet would mean absence of any scarcity, uniqueness, or exclusive possession.
However, with the advent of NFTs, it is now possible to produce digital collectibles that are unique, rare and capable of exclusive possession with the buyer who purchases the NFTs. This is made possible because NFTs are backed by a supporting blockchain infrastructure that verifies the authenticity, historicity and ownership of the digital collectible, and they could be hosted on Web3 wallets to the exclusion of others.
With that being said, it becomes clear that digital collectibles backed with NFT technology are capable of becoming digital merchandize, a form unavailable to simple digital content as they can be infinitely duplicated thus destroying any potential of imputing economic value to the latter.
However, the legal status of NFTs and their ownership has not been discussed in India, either through any statute or a case law, until the Delhi High Court’s decision in the case of Digital Collectibles v. Galactus and Anr. This case dealt with the issue of whether usage of cricketers’ images on NFTs used in an OFS game violated the publicity rights of such cricketers?
Holding the answer in the negative, the court went onto state at para 70 that:
“Therefore, in my considered view, there is no difference between an OFS game with NFT enabled Player Cards and an ordinary OFS game insofar as use of the name or artistic impression/photograph of a player is concerned.”
Furthermore, at para 71, the court stated that:
“The plaintiffs cannot claim to have an exclusive right over the use of an NFT technology. NFT is a technology that is freely available. The defendants used the NFT technology to ensure security and authenticity as a means of proof of ownership of its cards and to keep a record of transactions on a blockchain.”
About the judgement, Roland Landers, CEO of All India Gaming Federation had this to say on a linkedin post,
“The Hon’ble Court, through the order, has recognised that the use of Web 3 technologies and classic formats of online games cannot be restricted unless a clear violation of law is established, and has upheld the rights of small developers to build for India."
This author submits that the court’s remarks regarding the use of NFT technology were not connected to the issues raised in the case, and hence they are in the nature of ‘obiter dicta’, i.e., off-handed remarks having no binding force as a precedent. This is because the question of exclusive use of NFT technology was not in dispute, or even raised by the litigants.
The legal issue involved was about infringement of cricketers’ publicity rights, a nebulous concept in the Indian legal sphere as it has no statutory backing. The court firstly summarized past Indian judgments concerning publicity rights and categorized them as cases of ‘passing off’, i.e., unauthorized merchandizing and false endorsements. Thereafter, it held that using publicly available information on NFTs used as a feature in an OFS game won’t amount to unauthorized merchandizing. As Striker's NFTs were not treated as 'merchandizes', but rather as a feature of an OFS game, the argument of such NFTs violating the cricketers' publicity rights wouldn't arise in the first place. While the court did look into the scope of publicity rights in India, it also took the view that those cannot be used to control free speech as the nature of such rights is not absolute.
The court definitely did not say or suggest that usage of publicly available information of cricketers (and by extension celebrities), in any manner is free from illegality, as even public domain information may be used by way of merchandizing or in a manner that is not protected as a form of free speech. Nor did the court suggest that anyone could now mint NFTs using fan-made art of celebrities and sell them in the open market. Finally, the court certainly did not mean to indicate that it was open to anyone to use NFT technology disregarding the rights of intellectual property owners and licensees.
The net effect of the decision is fairly narrow, having created no new legal innovation, and the only thing that the judgment could be credited for is the novelty of the facts that were resolved, and establishment of clarity around 'publicity rights' as really a right against unauthorized association.
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