NFT Disputes FAQ

NFT purchases in California involve complex property and intellectual property rights that buyers should understand. When you purchase an NFT, you acquire the token itself (recorded on the blockchain), but this typically does not include copyright or intellectual property rights in the underlying artwork or content. Under California Civil Code property provisions, NFT ownership constitutes personal property with associated rights. The specific rights conveyed depend on the NFT's terms of sale and any license agreement.

California Business and Professions Code Section 17500 requires accurate representations about what you're purchasing - if sellers misrepresent the rights conveyed, this may constitute false advertising. California Civil Code Section 1709 addresses fraud if material rights were misrepresented. Many NFTs include licenses permitting personal display but restricting commercial use. Read the specific NFT project's terms to understand whether you receive any intellectual property rights, commercial use rights, or merely a token representing ownership of a digital receipt. California Contract law governs interpretation of any license terms. Document all purchase representations for potential disputes.

Counterfeit and stolen art NFTs present significant legal issues under California law. If you purchased an NFT representing art that was actually stolen or created without the original artist's authorization, you may have multiple legal claims. California Civil Code Section 1709 establishes liability for deceit when sellers misrepresent ownership or authenticity. California Business and Professions Code Section 17200 provides remedies for unfair business practices including selling counterfeit goods.

Under the Digital Millennium Copyright Act (17 U.S.C. Section 512), marketplaces must respond to takedown notices for infringing content. Report the counterfeit NFT to the marketplace (OpenSea, Blur, etc.) for removal. If you purchased the NFT before discovering the issue, seek refunds through marketplace dispute processes. California Civil Code Section 1689 allows contract rescission for material misrepresentation. Document the false authenticity claims, your purchase, and discovery of the counterfeit nature. For significant purchases, consider whether the seller can be identified and sued for fraud. Original artists whose work was stolen can file DMCA takedowns and pursue infringement claims. California courts have jurisdiction over NFT disputes involving California residents or marketplace operations.

NFT rug pulls (where creators abandon projects after raising funds) may violate multiple California laws depending on the circumstances. California Business and Professions Code Section 17200 (Unfair Competition Law) prohibits fraudulent business practices, including making false promises about future project development. California Civil Code Section 1709 establishes fraud liability when creators make false representations about roadmap deliverables with no intention of fulfilling them.

If the NFT sale constituted a securities offering (promising future value from creator efforts), California Corporations Code Section 25401 prohibits securities fraud and Section 25110 requires registration. California Penal Code Section 484 addresses theft by false pretenses when funds are obtained through deception. Document all creator promises including roadmap commitments, Discord announcements, and marketing materials. Preserve evidence of abandoned promises and creator disappearance. Report to California DFPI and FBI IC3. For significant losses, consult an attorney about whether the NFT sale constituted a securities offering, which would trigger additional regulatory protections. Class actions may be possible if many buyers were defrauded. California Civil Code Section 3294 authorizes punitive damages for fraud.

Suing NFT marketplaces for fraudulent listings in California faces significant legal hurdles but isn't impossible. The Communications Decency Act Section 230 (47 U.S.C. Section 230) provides broad immunity for platforms hosting user-generated content, including NFT listings. Courts have generally applied this immunity to marketplace platforms.

However, several theories may overcome Section 230 immunity. If the marketplace itself made representations about NFT authenticity or verification, those representations may create direct liability outside Section 230. California Civil Code Section 1709 fraud claims require showing the marketplace made false representations, not just hosted third-party content. California Business and Professions Code Section 17200 may apply to marketplace practices beyond content hosting, such as verification badges suggesting authenticity. Marketplace Terms of Service may create contractual obligations - failure to follow stated fraud prevention procedures could support breach of contract claims. For marketplaces operating as money transmitters, California Financial Code Section 2000 et seq. imposes regulatory obligations. Document any marketplace representations about verification, authentication, or fraud protection that proved false. Consider regulatory complaints to California DFPI alongside any litigation strategy.

Intellectual property disputes significantly impact NFT ownership and value in California. Copyright ownership is separate from NFT ownership - the underlying artwork copyright belongs to the creator unless explicitly transferred. Under 17 U.S.C. Section 106, copyright holders have exclusive reproduction, distribution, and display rights. NFT purchases typically grant limited licenses, not copyright transfer.

If you purchase an NFT and later discover the seller didn't own the underlying copyright, you may own the token but cannot legally display or commercialize the art. California Civil Code Section 1689 allows rescission for material misrepresentation about rights conveyed. Trademark issues arise when NFTs use branded content without authorization - Nike, Hermès, and others have pursued trademark claims against NFT creators. California Business and Professions Code Section 14340 addresses trademark violations. For NFT creators, ensure you own or have licensed rights to mint any artwork. For buyers, investigate the creator's rights before significant purchases. DMCA takedown notices can result in NFT delisting regardless of your ownership. California courts apply federal intellectual property law with jurisdiction over California residents and transactions.

When NFT projects fail to deliver promised utilities (access, airdrops, physical items, etc.), California law provides several potential remedies. California Civil Code Section 1549 defines a contract as requiring offer, acceptance, and consideration - if you purchased based on utility promises, a contract exists. Failure to deliver constitutes breach of contract under California Civil Code Section 3300, entitling you to damages.

California Business and Professions Code Section 17500 prohibits false advertising - utility promises in marketing materials that weren't delivered may violate this statute. If creators never intended to deliver utilities, California Civil Code Section 1709 fraud claims apply. Document all utility promises including website claims, social media posts, Discord announcements, and whitepaper commitments. Compare promised utilities against actual delivery. California Business and Professions Code Section 17200 provides broad remedies for unfair practices. For significant purchases, evaluate whether class action may be appropriate given many similarly situated buyers. Calculate damages including the utility value you expected and price premium you paid for those utilities. California small claims court handles disputes up to $10,000. For larger amounts or systematic failures, consult an attorney about contract and fraud claims.

California's comprehensive consumer protection laws apply to NFT purchases, providing multiple protections for buyers. The California Consumer Legal Remedies Act (Civil Code Section 1750-1784) prohibits unfair and deceptive acts in consumer transactions, including misrepresenting goods' characteristics or qualities - applicable to NFT sales making false claims about artwork, rarity, or utility. CLRA provides actual damages, statutory penalties up to $5,000, and attorney's fees.

California Business and Professions Code Section 17200 (Unfair Competition Law) prohibits unlawful, unfair, or fraudulent business practices in NFT sales. California Business and Professions Code Section 17500 (False Advertising Law) applies to misleading NFT marketing claims. California Civil Code Section 1770 specifically prohibits practices including misrepresenting a product's characteristics, making false statements about affiliation, and representing goods are of a particular quality when they are not. For NFT purchases involving California sellers or buyers, these laws provide private rights of action. Document all seller representations about the NFT including rarity, authenticity, utility, and value. California law interprets terms against the drafter (seller), potentially favorable in license disputes. File complaints with the California Attorney General for systematic consumer protection violations.

NFT marketplace closure raises important considerations for California owners about asset preservation and potential legal claims. Unlike centralized platforms, NFTs exist on public blockchains independently of marketplaces - your NFT ownership persists regardless of marketplace status. However, marketplace closure affects discoverability, liquidity, and any marketplace-specific features.

For NFTs dependent on off-chain metadata hosted by the marketplace, closure may break links to images and attributes - prioritize downloading and preserving metadata. Under California Commercial Code principles, your property rights in NFTs survive marketplace closure. If the marketplace held funds or pending transactions, California Financial Code Section 2000 et seq. requirements for money transmitters may provide recovery rights. California Business and Professions Code Section 17200 may apply if marketplace closure was fraudulent or harmed users unfairly. If the marketplace files bankruptcy, file claims immediately for any held funds. California creditor rights govern distribution priorities. Before closure, transfer NFTs to personal wallets rather than marketplace custodial wallets. Document your holdings, any marketplace-held funds, and closure circumstances. For significant losses from sudden closure without notice, evaluate whether the marketplace's conduct supports fraud or breach of contract claims.

NFT creator royalty disputes in California involve both smart contract mechanics and contractual rights. Creator royalties are typically encoded in smart contracts, automatically distributing a percentage of secondary sales to original creators. However, marketplaces increasingly allow buyers to opt out of royalties, reducing creator income.

Under California Civil Code Section 1549, if you sold NFTs with stated royalty terms and buyers agreed to those terms, a contract exists. Marketplace changes that eliminate royalties may constitute tortious interference with contract under California law. California Business and Professions Code Section 17200 may apply to marketplace practices that unfairly deprive creators of promised royalties. For NFT sales involving explicit royalty agreements separate from smart contracts, California contract law provides enforcement mechanisms. Document your original sale terms including royalty percentages, any marketplace representations about royalty enforcement, and royalty payments received versus expected. If marketplaces make changes eliminating royalties contrary to original terms, consider whether breach of contract or unfair business practice claims apply. The California Resale Royalty Act (Civil Code Section 986) created physical art resale royalties (currently unenforceable due to litigation), showing legislative interest in creator compensation. Monitor legislative developments that may specifically address NFT creator royalties.

California NFT owners face both federal and state tax obligations that require careful attention. The IRS treats NFTs as property, with sales triggering capital gains taxes. California conforms to federal treatment under Revenue and Taxation Code Section 17024.5. For NFTs held over one year, long-term capital gains rates apply (0-20% federal, plus California rates up to 13.3%). For NFTs held under one year, short-term gains are taxed as ordinary income. California doesn't have preferential long-term capital gains rates, so all gains are taxed at ordinary income rates.

NFT-to-NFT trades may be taxable events - California doesn't recognize like-kind exchange treatment for personal property NFTs. Airdrops are taxable as ordinary income at fair market value when received. Creator royalties are ordinary income. California Franchise Tax Board requires reporting all cryptocurrency and NFT transactions. California Revenue and Taxation Code Section 19183 imposes penalties for underreporting. Keep detailed records of purchase prices, sale prices, dates, and gas fees (which may be deductible). For significant NFT activity, consult a tax professional familiar with cryptocurrency taxation. The statute of limitations for California tax assessment is four years, or six years for substantial understatement.