Lawsuit Against Sotheby’s and Kevin McCoy Dismissed

BY Erika Lee

March 21, 2023

The Alpha

  • A New York federal judge dismissed the Canadian corporation Free Holdings Inc.’s lawsuit claiming ownership of the digital artwork Quantum on March 17, 2023. Created in 2014 by Jennifer and Kevin McCoy, Quantum is the first known NFT. It was auctioned for $1.47 million by Sotheby’s in June 2021.
  • The judge, U.S. Magistrate Judge James L. Cott, noted that the litigation appeared to be an “attempt to exploit open questions of ownership in the still-developing NFT field.” Further, the suit did not allege “a concrete or particularized injury sufficient for standing to sue in federal court.”
  • While the NFT was minted on Namecoin, an early blockchain controlled by Free Holdings, the judge says Kevin McCoy later minted it on Ethereum, making them two different NFTs.

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According to Ledger Insights, in order to maintain ownership of a digital item minted on the Namecoin blockchain, users must renew it every 250 days. However, after the McCoys minted Quantum in 2014, they did not renew it, leading to a user named EarlyNFT to acquire the ownership rights. Court documents state that the user EarlyNFT was a “pseudonym for Free Holding’s sole member.”

Free Holdings argued that McCoy and Sotheby’s statements in the NFT auction’s promotional materials, calling it the “first NFT ever created,” harmed its chances of profiting from the $1,472,000 sale of Quantum. The company cited in its amended complaint that the materials did not distinguish the difference between “Ethereum-Quantum” and “NamecoinQuantum.”

Yet, the ruling determined that Free Holdings “failed to allege a proprietary interest in Quantum,” meaning the company did not sufficiently allege a claim that they had sole ownership of the Quantum sold by Sotheby’s even though they had the basis to support its ownership of the Namecoin NFT.

Ultimately, the fact that the NFTs were on two different blockchains drove the final decision. This case is a prime example demonstrating how blockchain technology can be used to confirm ownership of NFTs.

This story was breaking and has been updated.

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