What Happens When NFTs are Stollen?

Julie Min

NFTs—surely, you’ve heard the buzzword. NFTs, or non-fungible tokens, are crypto assets on a blockchain that has unique identification codes that were developed in part to assure that the digital assets would always be traced back to their owners.[1] As “non-fungible,” non-replaceable tokens, NFTs are basically one-of-a-kind trading cards that represent proof of ownership. But what happens if they get stolen?

The hottest news addressing NFT theft surrounds the kidnapping of Fred Simian, aka Bored Ape #8398, aka actor and director Seth Green’s treasured Bored Ape NFT. Green had bought an NFT created by the Bored Ape Yacht Club only to have it stolen from his crypto wallet after a phishing attack this May. The scammer then sold the NFT two hours later to someone named “Mr. Cheese” aka @DarkWing84, who paid $268,000 in good-faith.[2]

The problem is that no precedent exists around ownership of stolen NFTs. In this specific incident, it is unclear whether Mr. Cheese (the good-faith purchaser) or Seth Green (the original owner) holds true ownership over Fred. Should courts treat an NFT as property in and of itself and apply state property law? The NFT marketplace on which these transactions occurred, OpenSea, falls under New York jurisdiction. Under New York law, a thief never has good title, and neither does the subsequent good-faith purchaser.[3] Yet courts seem to appear undecided on whether the same laws will apply to digital assets. While lawyers hoped that this case would help set precedent and add clarity to the issue, Green decided to “make a deal” with Mr. Cheese by buying back the stolen ape at a premium.[4]

IP licensing related to ownership and possession adds complications. In the real world, ownership of physical art does not come with licensing rights. For example, even if you owned the Mona Lisa, you would not own its underlying copyright. Licensing rights in a standard NFT sale usually work in a similar fashion.[5] Earlier this year, a decentralized anonymous NFT group called Spice DAO acquired a rare art book called Jordorowsky’s Dune, a guidebook to the film adaptation of Frank Herbert’s science-fiction book series, Dune. The group had purchased the three-million-dollar book with a plan to convert the book into NFTs and create an animated series.[6] This grand idea was quickly shot down when they found out that owning the book did not mean they actually owned the copyright to Dune as well. 

The sale of Bored Ape Yacht Club’s NFTs deviates from this norm in that the purchaser of the NFT also gets licensing rights to artistically and commercially exploit the art, hence why Green was planning to create a TV show featuring his Bored Ape, Fred.[7] However, this creates an additional layer of uncertainty around ownership:  not only is it unclear as to who owns the stolen NFT, but also as to who owns the licensing and sub-licensing IP rights to the stolen artwork. Even in the hypothetical case that Green had sold his NFT instead of having it stolen, whether the IP rights transfer over to the new owner is still a question in murky waters.

While courts try to figure out what laws to apply to this novel creation, perhaps NFT marketplaces can take the lead in drafting clearer contracts in addition to creating preventive measures that protect its users in advance of theft.[8] After all, who would want to spend millions on a digital token that fails to ensure what was supposed to be the purpose of its very existence:  ownership? 


[1] Rakesh Sharma, Non-Fungible Token (NFT):  What It Means and How It Works, Investopedia (June 22, 2022), https://www.investopedia.com/non-fungible-tokens-nft-5115211 [https://perma.cc/A25K-DQJ8] [https://web.archive.org/web/20220924180220/https://www.investopedia.com/non-fungible-tokens-nft-5115211].

[2] Daniel Van Boom, Seth Green’s Bored Ape NFT Was To Star in New Show. Then It Got Stolen, CNET (May 24, 2022), https://www.cnet.com/personal-finance/crypto/seth-greens-bored-ape-nft-was-to-star-in-new-show-then-it-got-stolen/ [https://perma.cc/R7QU-Q3ED] [https://web.archive.org/web/20220924180511/https://www.cnet.com/personal-finance/crypto/seth-greens-bored-ape-nft-was-to-star-in-new-show-then-it-got-stolen/].

[3] Riddhi Setty, Seth Green’s Stolen ‘Bored Ape’ Muddles NFT Legal Ownership, Bloomberg Law (June 8, 2022), https://news.bloomberglaw.com/ip-law/seth-greens-stolen-bored-ape-muddles-nft-legal-ownership [https://perma.cc/P5DL-R4ZS] [https://web.archive.org/web/20220924180622/https://news.bloomberglaw.com/ip-law/seth-greens-stolen-bored-ape-muddles-nft-legal-ownership].

[4] Amah-Rose Abrams, ‘Scooby-Doo’ Star Seth Green Just Bought Back His Stolen Bored Ape NFT for $100,000 More Than He Originally Paid for It, Artnet (June 10, 2022), https://news.artnet.com/market/seth-green-bored-ape-returned-2128272 [https://perma.cc/XXT5-K6JJ] [https://web.archive.org/web/20220924180656/https://news.artnet.com/market/seth-green-bored-ape-returned-2128272].

[5] Eamon Barrett, An IP Lawyer Explains What Counts as NFT Theft when ‘Stealing’ Is as Easy as Right-Click and Save, Fortune (Feb. 5, 2022), https://fortune.com/2022/02/04/nft-theft-stealing-copying-right-click-save-law-lawyer/ [https://perma.cc/96KZ-36CR] [https://web.archive.org/web/20220924180724/https://fortune.com/2022/02/04/nft-theft-stealing-copying-right-click-save-law-lawyer/].

[6] Adrienne Westenfeld, The Saga of the Dune’ Crypto Bros and Their Very Pricey Mistake Is At Its End, Esquire (July 28, 2022), https://www.esquire.com/entertainment/books/a38815538/dune-crypto-nft-sale-mistake-explained/ [https://perma.cc/S6V4-6UT7] [https://web.archive.org/web/20220926200021/https://www.esquire.com/entertainment/books/a38815538/dune-crypto-nft-sale-mistake-explained/].

[7] Noor Al-Sibai, Lawyers Ponder Whether Stealing an NFT Should Give You Legal Rights To It, Futurism (June 8, 2022), https://futurism.com/seth-green-ape-ip [https://perma.cc/V5WD-VNUT] [https://web.archive.org/web/20220924180827/https://futurism.com/seth-green-ape-ip].

[8] Elaine Hu, Here’s how OpenSea NFT Hacks Hurt Owners, Buyers and Even Entire Collections, Cointelegraph (Apr. 12, 2022), https://cointelegraph.com/news/here-s-how-opensea-nft-hacks-hurt-owners-buyers-and-even-entire-collections [https://perma.cc/ANU5-HEAD] [https://web.archive.org/web/20220924180937/https://cointelegraph.com/news/here-s-how-opensea-nft-hacks-hurt-owners-buyers-and-even-entire-collections].