Those following the saga of the numerous proceedings brought by Dr Craig Wright (who claims to be Satoshi Nakamoto, the inventor of Bitcoin) may have spotted that July was a busy month for the English Court of Appeal in relation to these claims.
First, the Court of Appeal in Wright and others v. BTC Core and others  EWCA Civ 868 found that Dr Wright has a real prospect of success in establishing that copyright can subsist in the Bitcoin File Format (overturning a decision of the High Court).
Second, in Wright v McCormack  EWCA Civ 892, the Court of Appeal dismissed Dr Wright’s appeal against a High Court order awarding him £1 damages for libel, finding he advanced a “deliberately false” case at trial where he alleged serious reputational harm.
There is a “real prospect” that copyright can subsist in the Bitcoin File Forma
Dr Wright previously sought to bring claims against BTC Core (and others) for infringement of his alleged intellectual property rights in relation to both: (i) the White Paper titled Bitcoin: A Peer-to-Peer Electronic Cash System (the White Paper); and (ii) the file format used to create blocks on the Bitcoin blockchain (the Bitcoin File Format). The High Court found that, while the claim had a real prospect of success in relation to copyright in the White Paper, the Bitcoin File Format did not meet the test for a ‘work’ to which copyright can attach and therefore Dr Wright did not have a real prospect of success in relation to that aspect of the claim. For more detail on the High Court decision, and the applicable legal test, see our previous blog here.
The Court of Appeal overturned the High Court’s decision for several reasons:
- First, in relation to the High Court’s finding that “no relevant ‘work’ has been identified containing content which defines the structure of the Bitcoin File Format”, the Court of Appeal held that:
- this confused the work and the fixation. The Bitcoin File Format has been clearly identified by Dr Wright, and the question of when that work was fixed is different; and
- even if the High Court meant to say ‘fixation’, this presupposes that ‘fixation’ requires content which defines the structure of the Bitcoin File Format, which is not necessarily correct. While the structure must be fixed, the content defining (or describing or indicating) the structure does not necessarily need to be. Rather, “[a]ll that is required is that the structure be completely and unambiguously recorded”.
- Second, the Court of Appeal found that the High Court had not correctly applied the test from Levola Hengelo BV v Smilde Foods BV (EU:C:2018:899), which requires the fixation relied upon to be identifiable with sufficient precision and objectivity. The Court of Appeal found that third parties were able to deduce the structure comprising the Bitcoin File Format from the first block in the Bitcoin blockchain that was written on 3 January 2009, and noted that the purpose of the fixation requirement is to: (i) evidence the existence of the work; and (ii) to delimit the scope of protection.
As a result, the Court of Appeal allowed the appeal, holding that Dr Wright had a real prospect of successfully establishing that copyright can subsist in the Bitcoin File Format, and Dr Wright will be able to proceed with his claim alleging infringement of his alleged copyright in the Bitcoin File Format, as well as the White Paper. Importantly, the decision does not mean that Dr Wright has in fact established that copyright can exist in either the White Paper or the Bitcoin File Format – that will be a question for the High Court to determine on the facts of the case.
Interestingly, the Court noted that copyright protects the work as an intangible abstraction, not the tangible medium in which the work may have been fixed. Therefore, it would not have been necessary for Dr Wright to show that Schedule 2 of the Particulars of Claim (which described the Bitcoin File Format) formed part of a causative chain between the alleged copyrighted work and the alleged infringements. Ultimately, as Dr Wright had not actually sought to rely on Schedule 2 for the fixation element, the Court decided not to discuss the issue further. Nonetheless, the judgment potentially leaves the door open to copyright owners to rely on a fixation created posthumously for infringement claims.
Damages for libel can be reduced as a result of claimant’s conduct
In April 2019, cryptocurrency blogger and podcaster Peter McCormack posted a series of tweets alleging that Dr Wright was not being truthful when claiming to be the creator of Bitcoin. Although Mr McCormack admitted responsibility for the tweets and advanced no other defence to the claim, the High Court found that Dr Wright made a case for serious harm that was “deliberately false” and reduced his award from a sum “worthy of six-figure damages” to a nominal £1.
The issue before the Court of Appeal was whether damages for defamation can be reduced to reflect the claimant’s fraudulent exaggeration of the claim. Dr Wright appealed on the basis the High Court was wrong in law to do so, claiming this is not a legitimate ground for such a reduction.
The Court of Appeal dismissed Dr Wright’s appeal, finding that the reduction could be grounded in an application of principles of compensation, vindication, justice, relevance, necessity and proportionality in defamation law and damages in tort. The Court found Dr Wright, in putting forwards a “deliberately false” case to the court in an attempt to obtain an advantage, had committed litigation misconduct which was relevant to the reduction of damages.
The Court of Appeal found that the High Court did not ascertain the appropriate level of damages and then reducing the award to reflect the claimant’s “litigation misconduct” (which would be prohibited) but rather “took account of the claimant’s lies and his attempt to deceive the court as part of the process of ascertaining the claimant’s entitlement, namely a sum in damages that would be proportionate to the aims of compensating and appropriately vindicating the relevant aspect of the claimant’s reputation”. As the libel was an accusation of dishonesty, the Court found Dr Wright’s dishonest conduct of the litigation was relevant, in a way that the reduction would not have been appropriate in a personal injury claim.
In Wright and Others v BTC Core and others, the Court of Appeal has again overturned a decision of the High Court in circumstances where the High Court’s decision was determinative of an issue. In Tulip Trading v van der Laan  EWCA Civ 83 the Court of Appeal also overturned the High Court’s decision, finding that developers of Bitcoin networks may owe fiduciary duties to bitcoin owners, and that this is an issue to be determined at trial. Similarly, in overturning the High Court’s decision in this case, the Court of Appeal is not necessarily saying that the High Court was wrong to find that copyright could not subsist in the Bitcoin File Format, rather, that the issue should be considered at trial, where the Court has the benefit of the facts upon which to make its determination. The fact that the Court of Appeal considers that these issues should not or cannot be determined on an interim basis (without the benefit of the full facts and evidence) is indicative of the cautious approach the Courts are taking when considering how to apply existing laws to disputes involving digital assets.
The decision in Wright v McCormack provides helpful confirmation that the honesty of the claimant can impact the damages award in a libel claim.
As well as the issue of copyright, the key question in each of the proceedings brought by Dr Wright before the English Courts, namely whether he is in fact the creator of Bitcoin, will be determined at trial in January 2024.