Spanish Court finds that virtual exhibition of NFTs based on paintings is "harmless use"

In a recent decision (original Spanish here: link) Barcelona's Ninth Mercantile Court (the Court) ruled in favour of Mango in a lawsuit brought against it by the Spanish copyright society VEGAP over the creation of NFTs based on the works of three well-known Catalan artists, finding that Mango could rely on available defences.

Background

As previously reported by the IPKat last year, VEGAP, a collective management organisation for intellectual property rights in Spain, brought a claim against Punto Na SA, the IP holding company for the well-known clothing brand Mango, seeking compensation in respect of the alleged infringement of copyright in certain artworks. 

The context was that, on the occasion of the opening of a new store in New York, Mango had commissioned the creation of a collection of NFTs based on digital copies of works of famous artists such as Miró, Tàpies and Barceló (of which Mango owned the physical originals), incorporating various outfits of the collection available at the store, to be displayed in the Decentraland metaverse platform. 

During the opening of the store, the works were simultaneously exhibited in three distinct 'dimensions': physical (in the physical store itself), digital (on the Opensea platform) and virtual (in the Decentraland metaverse).

The main issues for the court were, summarily: 

1. Whether the right of public exhibition enjoyed by the owners of physical artworks extended to exhibition of digital versions online;
2. Whether the digitisation of physical paintings and storage online required the consent of the authors or rightsholders in such paintings; and
3. Whether the relevant works had been transformed by their conversion into digital form, including by the inclusion of new elements, such that the rights of adaptation (under Spanish law) and communication to the public were engaged. 

It is worth noting that the NFTs in question were "lazy minted", meaning that they were not actually on the blockchain, such that they could not be transferred to the wallets of any third parties (or even the cold wallet of any entity within the Mango group). 

One of Mango's virtual fashion week runways

(Mango)

The Court's ruling

Moral rights

The Court began by examining the moral right of dissemination under Spanish law, and found that - seeing as the relevant works had already been displayed to the public at large - such rights had been exhausted, and there was no further infringement. 

Communication to the public

As for the right of communication to the public, the Court observed that there clearly was a new communication here, given the breadth of people to whom the works could be shown online, and this required the authorisation of the works' authors or the owners of the copyright therein. 

However, there was no evidence that the right to public exhibition of the works had been expressly carved out from the contractual arrangements governing the sale of the physical artworks to Mango, and the Court considered that Mango (as the new owner) was accordingly entitled to display the works publicly in any environment of its choosing, whether physical or virtual. 

Further, the Court found that there had been no damage to the reputation of the authors of the works, as the original works had been exhibited at the same time as their digital counterparts, with attribution to their respective authors. 

Pierre Bonnard's White Cat is just waiting to be NFT-ed... 

(Musee d'Orsay)

Adaptation

The main crux of the Court's judgment revolved around whether the digitisation of the works constituted an adaptation which would have required the consent of the authors / rightsholders. 

The Court went to some length here discussing the doctrine of harmless use (or "uso inocuo"), despite the fact that such a doctrine does not actually exist in Spanish statutory law. The Court referred to a 2012 decision of the Spanish Supreme Court in the Google case (Sentencia no. 172/2012) in which the Supreme Court had effectively created an ad hoc doctrine of harmless use in Spanish law, including by reference to the Berne three-step test and, somewhat curiously, the four factors set out in section 107 of the US Copyright Act for fair use in US law, namely: 

1. The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; 
2. The nature of the work protected by copyright;
3. The amount and substantiality of the portion used in relation to the work as a whole; and 
4. The effect of the use upon the potential market for or value of the copyrighted work. 

Applying the same four factors, the Court found that, in this case: 

1. The use by Mango of the works was non-commercial, as it was merely for the purpose of exhibiting the works to commemorate the opening of the New York store, and it did not obtain any compensation from such exhibition, not was there any evidence that sales of Mango products had increased as a result thereof. Further, whereas the physical works may initially have been created for commercial (albeit creative) purposes, the Court considered that their digital/virtual counterparts had been created for purely sentimental reasons. 
2. As for the nature of the work, the Court observed that although the physical works had been used to create new, digital works, the new works respected the spirit of the originals and gave their authors proper attribution and recognition. 
3. Although the entirety of the original works had been copied through their digitization, the Court observed that there were precedents where the use of a complete work was considered legitimate.  
4. Given that the new digital works were not being marketed or offered for sale, the Court found that they did not interfere with or cause any damage to the value of the original physical works. 

Taking the above into account, the Court held that the digitisation of the physical works by Mango constituted "harmless use" such that the authorisation of the copyright rightsholders in the original works was not required. 

Comment

This decision is an interesting early insight into the approach courts might take when dealing with IP rights in virtual / digital scenarios, and particularly striking given the application of a fair use-like exception where no such exception exists in Spain's statutory copyright laws. It may be the case that national courts will increasingly borrow from other jurisdictions' IP jurisprudence if they feel that their own is not suited to a specific virtual or novel use which would not have been accounted for by the legislators, and it is encouraging to see courts apply that sort of flexibility. 

It seems that in this case, having decided that Mango did have the right to exhibit the physical works in public, the Court then worked to find a way of accommodating its virtual equivalent.