Crypto in the courts – the Bitcoin cases

As cryptocurrency becomes more and more accepted in the mainstream, the law is now starting to grapple with how this relatively new technology can be protected and controlled using older legal concepts. One of the most well-known cryptocurrencies is now the subject of several cases before the UK courts and beyond.

Dr Craig Wright, an Australian computer scientist, claims he wrote an article on Bitcoin using the pseudonym "Satoshi Nakamoto", and holds various intellectual property rights as the author of the original Bitcoin source code.

Interlinked cases

There are several ongoing cases involving Wright and his claims in relation to Bitcoin. In the UK, cases relate to IP issues such as copyright, database rights and passing off, whilst also considering questions of defamation.

The four active IP cases have all now been docketed to Mr Justice Mellor since early 2023. It is positive to see the court take such a proactive case management step, which should lead to consistency in approach and decisions across the claims despite differing factual backdrops and legal arguments. Already we have seen parties from different cases make applications for joint hearings, and judgments handed down that relate to multiple claims or select defendants/claimants across Wright's litigation portfolio.

Despite different contexts and reliance on different IP legal constructs, the cases share some key questions. Most critically is whether or not Wright is indeed Satoshi (the so-called "Identity Issue"). On 25 July this year, it was agreed that the Identity Issue will be dealt with once at a trial listed for January 2024, and the other actions will be bound by that decision (Crypto Open Patent Alliance v Wright (Rev1) [2023] EWHC 1894 (Ch))

Unsurprisingly, given the amount of litigation Wright is busy working on, security for costs has been raised in several of the cases. In both the Coinbase and Kraken Actions (discussed further below), Wright has been ordered to pay significant security for costs.

IP cases

As mentioned above, there are four active IP related cases.

The furthest progressed IP claim is known as the "COPA Claim", where Crypto Open Patent Alliance (aka "COPA") has issued a claim against Wright. The principal relief sought by COPA are declarations of non-infringement. These are three-fold: that (1) Dr Wright is not the author of the article entitled "Bitcoin: A Peer-to-Peer Electronic Cash System" dated 2008, known as the "White Paper", (2) Dr Wright is not the owner of copyright in the White Paper; and (3) any use by COPA of the White Paper will not infringe any (potential) copyright owned by Dr Wright.

In the other cases, Wright is seeking to assert his alleged ownership of IP rights. The Coinbase and Kraken Actions were issued by Wright on the same day. Coinbase and Kraken are both online platforms for buying, selling, transferring, and storing cryptocurrency, including Bitcoin. Both cases relate to passing off based on a claim to ownership of the goodwill in the term Bitcoin by Wright as an individual and his company Wright International Investments Ltd as his co-claimant.

The final case, known as the "BTC Core Action" relates to Wright's claim to copyright and database rights in the Bitcoin format and White Paper to prevent the operation of two parallel blockchain networks, the BTC network and BCH network. There are some 26 defendants in this case, some of which sit outside the UK jurisdiction.

Defamation claim

Wright has also been embroiled in a defamation claim before the UK courts.

The latest judgment relates to an appeal regarding whether damages for defamation can properly be reduced to reflect the claimant’s fraudulent portrayal of the claim (Wright v McCormack [2023] EWCA Civ 892).

The High Court had previously held (Wright v McCormack [2022] EWHC 2068 (QB)) that Wright had suffered serious harm to his reputation due to tweets that queried Wright's claim to be Satoshi Nakamoto and the creator of Bitcoin and called Wright fraudulent.

However, despite the win, Wright came under fire for his conduct during the litigation, namely deliberately seeking to deceive the court by exaggerating the seriousness of the harm. Due to this, only nominal damages were awarded.

Wright appealed this judgment, however the Court of Appeal upheld the earlier decision. As defamation protects dishonest attacks, Wright's own dishonest behaviour in the case was a relevant consideration in deciding appropriate damages.

On a side note, some readers may wonder how the court was able to decide the defamation case when Mr Wright's identity remains in question. Mr McCormack abandoned a defence of truth (i.e. that Wright was not Satoshi) as pleading that defence would have resulted in a lengthy trial and McCormack couldn’t afford those legal fees. Accordingly, the identity of Satoshi was not among the issues for the court to determine, and this remains a critical point for the COPA trial in January 2024.

Anonymous parties

The final case covered by this article also related to alleged infringement of Wright's copyright, however this was never considered due to the defendant's refusal to identify itself.

In Wright v Persons Unknown [2022] EWHC 2982 (SCCO), Wright obtained judgment against the unknown operators of a website, bitcoin.org, which had published a copy of the White Paper. Wright claimed it was without his consent and therefore infringed his copyright. Following a lack of any acknowledgment of service of the claim, Wright applied for default judgment. When it came to costs, the defendants continued to refuse to identify themselves.

The judgment held that it was necessary for a defendant to identify themselves to be able to properly participate in detailed assessment proceedings. There are various authorities that allow unknown but identifiable parties to defend claims, however parties' names need to be known unless there is a clear and justifiable argument to depart from the principle of open justice.

In the words of Mr Justice Smith in the Court of Appeal, "The court cannot entertain that state of affairs" where a defendant wanted anonymity from both the public at large and the claimant and the court as well. The judge held this raised a number of concerns and would hamper the court's power to supervise and control proceedings and conduct them fairly. In the absence of identification, Wright was entitled to a default costs certificate.

Upcoming decisions

Whilst there are a number of active issues and decisions being handed down thick and fast across the various cases, two points are of particular interest.

Identity Issue

The first is the factual question posed by the Identity Issue discussed above.

The COPA Claim trial is scheduled for January 2024. If the court holds that Dr Wright is not Satoshi Nakamoto, then (subject to an appeal on that decision) the Coinbase, Kraken and BTC Core Actions will end at that point. By contrast, if the court decides that Dr Wright is Satoshi, then all three actions will proceed in full.

We will be sure to provide an update once this judgment has been handed down.

Copyright in Bitcoin

Secondly, the BTC Core claim is soon to grapple with a key question of copyright law. Under English copyright law, a literary work needs to be 'fixed' for copyright to subsist.

In February 2023, the High Court held that Dr Wright had no real prospect of establishing that copyright existed in the Bitcoin File Format (“BFF”), as it had not been “recorded, in writing or otherwise” in accordance with section 3(2) of the Copyright, Designs and Patents Act 1988 (the “CDPA 1988”).

However, on 20 July this year, the Court of Appeal then overturned that earlier decision (Wright v BTC Core [2023] EWCA Civ 868). Having considered the merits of the BTC Core Claim, the Court of Appeal decided that there is a serious issue to be tried and ruled that Wright does have a real prospect of establishing that copyright subsists in the BFF. This element of the claim is therefore now moving forward and permission has been granted for Wright to serve on the defendants outside of the jurisdiction.

Looking ahead, if copyright is found to subsist in the BFF this could have serious consequences for the use of Bitcoin and other crypto currencies in the future.

Global perspective

Wright is not only busy in the UK courts. There are a number of cases in the US and other jurisdictions such as Norway. We will track the consistency of decisions across the various jurisdictions and how the interplay between the various cases may impact Wright's litigation strategy.

Next steps

It seems the next substantive development will likely be the January 2024 trial in the COPA case. Clarity on whether copyright may subsist in the context of databases and computer programmes could be pivotal for businesses in the tech sector for protecting their assets.

This judgment will also impact the other three IP cases as the claim by Wright to be Satoshi Nakamoto will be decided and they are bound by that decision, which is integral to all three claims.

We will be sure to keep tracking this saga as it unfolds and report back with significant developments. Whatever the outcome, these cases will have an impact for the cryptocurrency industry and the application of copyright and database rights in computer software generally.