Determination of the legal attributes of digital collections and the validity of their transactions

Author: Metaverse Legal Observation

Typical Cases of Shandong Courts Applying the Civil Code 167

Recognition of the Legal Attributes of Digital Collections and the Validity of Their Transactions

—— Yang Moumou v. a Cultural and Creative Company Sales Contract Dispute

Judgment Summary

Digital collections are a kind of online virtual property. At present, there is no law in my country that explicitly prohibits the issuance and trading of digital collections. As long as the actor has the corresponding civil capacity and the intention is true, the transaction of digital collections between civil subjects should be deemed legal and valid. Digital collections have the dual attributes of collection and investment, and contain higher market risks. Buyers who aim to earn the difference in the secondary market transaction of digital collections should not be identified as consumers under the Consumer Protection Law and should bear the corresponding market price fluctuation risks.

Basic facts of the case

Yang filed a lawsuit with the Changqing District People's Court of Jinan City, claiming that from July to September 2022, Yang was attracted by the promotional announcements of a cultural and creative company on official accounts and communities, registered an account on an APP platform operated by the company, and recharged many times to purchase digital collections sold by the company, with a total recharge payment of 22,685 yuan. However, the cultural and creative company failed to fulfill its promise to deliver on the empowerment, rights and services of the advertised products (such as project dividends, summits of thousands of people, and airdrops of commemorative editions of collections for major holidays and major events), which caused direct property losses to Yang. In addition, a cultural and creative company used false propaganda on WeChat communities, such as the platform had reached a cooperation with a certain organization team, the platform would pull the market, and the platform would take off soon, etc. At the same time, it carried out a series of consumer competitions, new invitation competitions, and recharges to give recharge gold and other activities to induce recharge consumption, creating the illusion that the platform was popular and the products were value-added, and successfully induced fraudulent consumers such as Yang Moumou to continue to recharge and consume. After consumers bought the collections, they did not increase in value but the value was cut in half. Consumers were quickly deeply trapped, while the platform continued to profit from it. A cultural and creative company illegally operated digital collections without a license and qualifications, used false advertising or false propaganda to provide goods or services, and had induced fraud, which violated the Consumer Rights Protection Law and should refund the payment and compensate Yang Moumou for his losses in accordance with the law. Request: Order a cultural and creative company to fully refund Yang Moumou's recharge of 22,685 yuan on the company's platform.

A cultural and creative company argued that Yang's claim had no factual and legal basis, that the money Yang recharged was all in his own account wallet, and that most of Yang's recharged money was collections purchased from other users of the platform. This behavior was purchased by Yang as a person with full civil capacity according to his true will, and that the cultural and creative company did not engage in false propaganda or induce consumption, and requested that Yang's lawsuit be dismissed in accordance with the law.

The Changqing District People's Court of Jinan City found out after trial that a cultural and creative company holds a value-added telecommunications business license, an auction business approval certificate, a publication business license, a blockchain information service filing management system and other licenses. Its business scope includes general projects such as digital cultural and creative software development, blockchain technology-related software and services, and value-added telecommunications services, publication retail; Internet sales of publications; auction business and other licensed projects.

In April 2022, a cultural and creative company developed an APP to engage in the online distribution and platform operation of digital collections, and issued a series of digital collections such as Space River, Guardian Shield, Three Sects, Spirit Beast Cards, and Digital People. During the issuance of digital collections, a cultural and creative company used marketing and promotion methods such as empowering digital products, such as free participation in offline salons and art exhibitions, and using dividends, trading rankings and physical gifts.

Yang Moumou registered an account in the above-mentioned APP in July 2022. After registration, he frequently purchased the above-mentioned series of digital collections issued by the platform. During this process, Yang Moumou also conducted secondary market transactions of digital collections with other registered players on the platform, buying and selling digital collections. In this regard, Yang Moumou stated in the trial that "the digital collections were purchased because they were relatively novel and had room for appreciation" and "the empowerment of digital collections such as dividends, lucky draws, and offline salons" were favored. Yang Moumou has recharged 22,685 yuan on the APP platform in total. After September 2022, as the popularity of digital collections decreased, the above-mentioned digital collections purchased by Yang Moumou with recharge depreciated significantly. Yang Moumou believed that a cultural and creative company had engaged in false propaganda and illegal marketing, and therefore sued the court.

Judgment Result

After trial, the Changqing District People's Court of Jinan City held that: digital collections refer to digital publications that use blockchain technology to generate unique digital certificates corresponding to specific works and artworks, and are digitally issued, purchased, collected and used through the Internet. Based on their artistic characteristics, non-reproducibility, scarcity and other characteristics, digital collections have certain exchange value and can be exchanged as commodities. In addition, there is no legal prohibition on the issuance and trading of digital collections in my country. According to the principle that in civil and commercial activities, if there is no prohibition, it is permitted, the trading of digital collections should not be considered as illegal. Therefore, the transaction of digital collections between the two parties is a civil legal act that occurs voluntarily between the two parties and should be deemed legal and valid.

As a new thing, digital collections have certain collection and investment value, but also contain high market risks. As a person with full civil capacity, Yang should have a full understanding of this and should focus on the artistic or collection value of digital collections themselves, rather than paying too much attention to the so-called "empowerment" and "appreciation space" and other investment attributes outside the digital collections themselves. Judging from Yang's transaction records, there are multiple records of buying and selling on the APP platform involved in the case, and his purpose is to invest in digital collections. Therefore, he should bear the corresponding market risks. The first-instance judgment of the Changqing District People's Court of Jinan: Dismissed Yang's lawsuit.

Yang was dissatisfied with the first-instance judgment and appealed.

After trial, the Jinan Intermediate People's Court held that, combined with the nature and characteristics of the transaction subject matter, transaction process and characteristics of the transaction between Yang and a cultural and creative company, the first-instance court determined that the transaction between the two parties involving digital collections was essentially a sales contract, which had factual and legal basis and was not improper. The sales contract involved in the case does not violate the mandatory provisions of laws and administrative regulations on effectiveness. The first instance court determined that the sales contract involved in the case is legal and valid. The existing evidence is insufficient to prove that the purpose of the contract cannot be achieved due to the breach of contract by a cultural and creative company or other reasons on the part of a cultural and creative company. Yang Moumou's request for a full refund of his recharge by a cultural and creative company lacks factual and legal basis. After trial, the Jinan Intermediate People's Court made a second-instance judgment: the appeal was dismissed and the original judgment was upheld. The second-instance judgment has come into effect.

Case Interpretation

In recent years, with the application of blockchain technology and metaverse scenarios, digital collections have become a hot spot and outlet for investment, and transaction disputes related to digital collections have also followed. Digital collections and virtual digital currencies represented by Bitcoin are both based on blockchain technology, and are unique, tamper-proof, and non-replicable. The transaction of virtual digital currency is prohibited by the laws of our country, but there are no clear laws and regulations to regulate the issuance and transaction of digital collections. How to determine the legal attributes of digital collections and whether their transactions are legal, and many other issues, not only affect the fairness and justice in individual cases, but also have an important impact on the innovation of the industry and the development of new productivity.

1. Whether the transaction of digital collections is legal. At present, the domestic general view is that although virtual digital currencies represented by Bitcoin and digital collections are both based on blockchain technology, they are unique, tamper-proof and non-replicable, but there is a fundamental difference between the two: digital collections are non-homogeneous tokens, and virtual currencies are homogeneous tokens. Therefore, the transaction of virtual currency is expressly prohibited by relevant laws and regulations of our country, but so far, the state has not issued relevant laws and regulations and policies to stipulate that digital collections are illegal objects, nor prohibit the issuance and transaction of digital collections. From the legal status, digital collections are not objects prohibited by law. Therefore, this case is based on the legal principle that in civil and commercial activities, if there is no prohibition, then it is permitted, according to Article 143 of the Civil Code on the judgment standard for the validity of civil legal acts, combined with the characteristics of digital collections, the transaction process and the intention of the parties, etc., it is determined that the digital collection transaction in this case is legal and valid.

2. About the functional attributes of digital collections.As the only digital certificate of specific works and artworks, digital collections are a kind of digital publication after being empowered by blockchain technology. They have many characteristics such as uniqueness, immutability, and non-replicability. They have certain collection value and appreciation value, and can meet people's spiritual needs. Therefore, in this sense, digital collections have the attributes of consumer goods. However, since digital collections are new things, their many characteristics make them have both exchange value and investment value. Digital collections have both consumption and investment attributes, which has led to a large speculation over a period of time and has a high market risk. Buyers should have a full understanding of this. They purchase digital collections for the purpose of earning price difference and "waiting for appreciation". They should not be identified as consumers stipulated in the Consumer Rights Protection Law and should bear the corresponding market volatility risks. This case correctly distinguishes the consumption and investment attributes of digital collections based on the purpose of the parties' transactions in digital collections, guides the parties to rationally participate in the transaction of digital collections, and has a positive judicial guidance effect on the transaction participants.

Third, on the legal attributes of digital collections. At present, there is no consensus in the academic community, mainly including the theory of property rights, the theory of debt rights, the theory of copyright, and the theory of network virtual property. This case adopts the theory of network virtual property and characterizes digital collections as network virtual property. From a legal perspective, digital collections meet the characteristics of network virtual property. First, digital collections are virtual. On the Internet, digital collections are presented as intangible digital codes, free from the constraints of tangible physical forms. Second, digital collections have property. Based on the characteristics of being tamper-proof, digital collections correspond to unique codes and contain detailed transaction information. This makes digital collections scarce, with both use value and exchange value. Third, digital collections are disposable. Although my country has not yet opened up the secondary circulation market, consumers can rely on trading platforms to complete operations such as purchase, collection, transfer, and destruction, and realize exclusive possession, use, and disposal rights. In addition to meeting the characteristics of network virtual property, digital collections can be included in the scope of protection of Article 127 of the Civil Code from the perspective of legislative interpretation. This article stipulates: "Where the law has provisions for the protection of data and network virtual property, it shall be in accordance with such provisions." This provides normative guidance for the formulation of special laws in the future, and at the same time does not affect the protection based on existing legal provisions.

Related laws and regulations

Article 143 of the Civil Code of the People's Republic of China Civil acts that meet the following conditions are valid: (a) the actor has the corresponding civil capacity; (b) the intention is authentic; (c) it does not violate the mandatory provisions of laws and administrative regulations, and does not violate public order and good customs.

Article 2 of the Consumer Protection Law of the People's Republic of China The rights and interests of consumers who purchase, use goods or receive services for their daily consumption needs are protected by this law; if not provided for in this law, they are protected by other relevant laws and regulations.