With the rapid development of blockchain technology, digital collectibles, as a new type of digital asset that integrates cultural value, technological innovation, and investment attributes, have become a new hotspot in the digital economy. This is achieved through the unique and traceable characteristics enabled by non-fungible token (NFT) technology.

Recently, the Wenzhou Data Resource Court, as the first specialized court in the country named after "data resources," has provided important references for judicial practice with its pioneering judicial recognition of the legal attributes of digital collectibles. The introduction of the first blockchain × NFT digital collectible standard in the country marks a key step in the construction of industry norms.

The Sa Jie team will systematically analyze the legal attributes of digital collectibles in conjunction with the aforementioned judicial practices and industry standards, comprehensively sorting out the legal risks present in the transaction process, and providing legal perspectives and suggestions for market entities' compliance operations, investor rights protection, and the improvement of the regulatory system.

Previously, there were no clear legal provisions regarding digital collectibles in China, leading to various disputes in the theoretical community, such as "property object theory," "intellectual property object theory," and "virtual property theory." The Wenzhou Data Resource Court, as the first specialized court named after "data resources," has provided a judicial practice sample for defining the legal attributes of digital collectibles through its pioneering recognition in related case hearings.

Company A's business scope includes the sale, collection, and second-hand trading of digital collectibles. In June 2022, Chen purchased digital collectibles through a registered account on the platform operated by the company, having recharged a total of 54,428 yuan. In September 2022, Company A announced a dividend for the collectibles, and a month later issued a refund announcement, proposing to refund users at 30% of the original price. Chen disagreed with this refund plan, leading to a dispute.

During the court proceedings, the focus was on examining the legal attributes of digital collectibles, the validity of the transaction contract, and the legality of the refund plan, resulting in three key determinations: First, it was confirmed that digital collectibles have exchange value and are protected by law as digital assets.

The court held that digital collectibles achieve uniqueness and traceability through blockchain technology. The digital collectibles obtained by users through legal transactions not only have use value (such as appreciation and collection) but also form a market-recognized exchange value.

In this case, Company A sold digital collectibles in a market-oriented manner, and users voluntarily invested to purchase them, forming a legally valid transaction relationship. As the subject of the transaction, the property interests of digital collectibles should be protected by law. This determination breaks through the traditional dispute of whether "virtual property has exchange value," clarifying the property attributes of digital collectibles.

Second, the validity of the digital collectible transaction contract must be based on legality.

The court pointed out that Company A's business scope includes services related to digital collectibles, and its sale of digital collectibles did not violate mandatory legal or administrative regulations. The registration agreement and transaction rules between users and the platform constitute a legally valid contractual relationship, and both parties should abide by the contractual agreements.

It was also emphasized that digital collectible transactions must not violate national regulations on financial supervision, intellectual property protection, data security, etc.; otherwise, the contract may be deemed invalid.

Third, it was clarified that the platform must bear liability for breach of contract if it unilaterally changes transaction rules.

The court found that after users purchased digital collectibles, Company A issued a refund announcement without mutual agreement, refunding at a standard far below the user's purchase price, which constituted a unilateral change to the main content of the contract and constituted a breach of contract.

Users have the right to choose to accept the refund or require the platform to continue fulfilling the contract, and the platform cannot unilaterally exempt itself from contractual obligations citing industry risks.

In summary, this determination resonates with the views of the Hangzhou Internet Court in the country's first NFT digital collectible infringement case, which clarified that digital collectibles, as "new digital publications," should follow the relevant provisions of copyright law for intellectual property protection, jointly constructing a dual legal protection framework of "virtual property attributes + intellectual property protection" for digital collectibles.

Recently, the Zhihui Standard Center organized the drafting of the first series of blockchain intellectual property standards in the country, including the "NFT Digital Collectible Intellectual Property Management Specification Based on Blockchain," which, as the first domestic NFT digital collectible intellectual property management specification, covers the full process management requirements of "selection-chain-review-confirmation-authorization-circulation-rights protection-termination," providing standardized and implementable digital collectible intellectual property management tools to promote the high-quality development of the NFT digital collectible industry within a compliance framework. Its seven key links form systematic management requirements:

The standard specifies that digital collectible transactions should choose blockchain infrastructure that complies with national laws and regulations, ensuring the legality, security, and traceability of on-chain data, and prohibits the use of anonymous blockchains for transactions to prevent risks such as money laundering and illegal fundraising.

It requires platforms to establish a strict pre-review mechanism for intellectual property, where creators must provide proof of ownership or legal authorization documents. The platform should review the originality and legality of digital collectibles to avoid the launch of infringing works. At the same time, it encourages the completion of rights confirmation for digital collectibles through blockchain proof methods to clarify rights ownership.

It regulates the authorization model of digital collectibles, clarifying the rights and obligations between creators, platforms, and users, and requires that authorization documents clearly stipulate core terms such as scope of use, duration, and profit distribution. In the circulation link, it emphasizes the public transparency of transaction information and prohibits price manipulation through wash trading, false advertising, etc.

It establishes a complaint handling mechanism for intellectual property infringement of digital collectibles, requiring the platform to take necessary measures such as deletion and removal promptly after receiving an infringement notice. At the same time, it clarifies the conditions and processes for terminating digital collectible transactions to protect users' legal rights in cases of platform shutdown or removal of collectibles.

The concurrently released "Blockchain-based Intellectual Property Proof Management Specification" serves as a supporting standard, providing full-process operational guidelines for the proof of intellectual property of digital collectibles, covering all categories of IP such as text, audio and video, AI-generated works, and forming a complementary synergy with the digital collectible standard to build a complete compliance system of "proof-confirmation-authorization-circulation-rights protection."

Although judicial recognition has clarified the legal attributes and industry standards have delineated compliance paths, digital collectible transactions still face multiple legal risks. In conjunction with judicial practice and industry chaos, the following core risks need to be prioritized for prevention:

Intellectual property infringement is the most common risk in digital collectible transactions, mainly manifested in three forms:

First, unauthorized minting and issuance, where some platforms or individuals mint others' works into digital collectibles for sale without the copyright owner's permission. For example, in the "Fat Tiger Vaccination" NFT infringement case heard by the Hangzhou Internet Court, the defendant platform was ordered to compensate for losses due to allowing users to upload infringing works.

Second, using beyond the scope of authorization, where the creator has obtained partial authorization but issues digital collectibles or engages in commercial use beyond the agreed scope.

Third, derivative work infringement, where works are simply modified and minted as digital collectibles, potentially infringing on adaptation rights.

Some platforms engage in illegal digital collectible trading, suspected of illegal operations. Typical manifestations include:

First, conducting trading activities without obtaining relevant qualifications. According to relevant regulations, digital collectible trading involves network cultural operations, value-added telecommunications services, etc., and platforms must obtain corresponding licenses. Operating without permission may constitute illegal operations.

Second, engaging in disguised secondary market trading, evading regulation under the guise of "gifting" or "consignment," forming a concentrated trading market, suspected of violating national financial regulatory provisions.

Third, issuing large quantities of homogeneous collectibles, undermining the non-homogeneous attributes of digital collectibles, and manipulating prices through self-buying and selling, false advertising, etc. A certain NFT platform in Zhejiang was investigated by public security for illegal operations due to such behavior.

Additionally, some platforms link digital collectibles with financial products, offering services such as "pledge financing," "dividend rebates," and "fixed income," which essentially amounts to disguised issuance of financial products, suspected of illegal fundraising and financial fraud.

Digital collectible transactions rely on platforms to provide technical support and transaction services, and the platform's performance capability directly affects user rights:

First, the platform unilaterally changes transaction rules, such as arbitrarily modifying collectible attributes, shutting down transaction functions, or lowering refund standards, which constitutes a breach of contract. For instance, in the aforementioned case heard by the Wenzhou Data Resource Court, Company A's unilateral refund at 30% of the original price was deemed a breach of contract.

Second, poor platform operation or malicious exit leads to users being unable to withdraw digital collectibles or cash out, resulting in property losses.

Third, platform technical failures lead to the loss or theft of collectibles, or data breaches due to hacker attacks, infringing on users' property rights and privacy rights.

The dual breakthroughs of judicial recognition and standards together promote the digital collectible industry from disordered exploration to standardized development. However, the Sa Jie team still recommends:

For creators and rights holders: They should complete rights confirmation for their works through blockchain proof and clarify the scope and duration of authorization; choose compliant platforms to issue digital collectibles and sign standardized authorization agreements; promptly fix evidence of infringement and protect their rights through complaints and litigation.

For investors and users: They should choose platforms with complete qualifications and good reputations for transactions; carefully read platform transaction rules and risk warnings to avoid participating in high-risk speculation; protect personal accounts and identity information, and not casually disclose passwords, verification codes, and other sensitive information; rationally view the value of digital collectibles and not blindly follow investment trends.

Related: The Japan Financial Services Agency (FSA) plans to classify cryptocurrencies as financial products, with a target tax rate of 20%.

Original article: “Double Breakthrough! Legal Definition of Digital Collectibles + New Industry Regulations, Impacting Every Participant”

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