NFT digital collection rights protection becomes popular. What actions can lead to pitfalls?

Growing Popularity of NFTs and the Need for Digital Collection Rights Protection Avoiding Potential Pitfalls

Source: Lawyer Liu Honglin

The digital collectibles industry has experienced ups and downs for over a year, and major platforms are all exploring their own positioning and main gameplay. However, regardless of the industry development trend, the relationship between the platform and users in the digital collectibles industry seems to still be stuck in last year’s industry winter, with a very weak foundation of trust between both sides. At the slightest disagreement, it’s time for rights protection.

Many regulations and boundaries regarding the various methods and activities in the digital collectibles industry are not yet clear. The positive development of the industry relies on the efforts of all parties. For the platforms that engage in illegal activities and disrupt the industry ecology, the user rights protection process is precisely the process to regulate the industry’s development. However, in the process of exercising rights, it is important to exercise them rationally, grasp the direction and scale, in order to effectively protect one’s own legitimate rights and interests, and avoid unnecessary troubles.

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Therefore, this article is here to discuss the pitfalls to avoid when exercising rights as a platform user, and how platform owners should deal with irrational rights protection.

01 The Difference Between Exercising Rights Properly and Irresponsibly

To determine whether it is proper rights protection, the following three main aspects can be considered:

1. Is the motive behind rights protection justified?

The motive behind rights protection, that is, the purpose of the rights protection, should not deviate from the real dispute between the parties involved. It should be to protect one’s own rights and interests, rather than purely seeking compensation, like professional counterfeit exposers in the food industry.

1. Are the means of rights protection legal?

The means of rights protection should not affect the legitimate rights and interests of the other party or third parties, and should not violate laws and regulations. It should not involve fabricating reasons, forging evidence, or providing false information in order to carry out illegal rights protection.

1. Is there sufficient basis for the rights protection?

The basis for the rights protection refers to whether there is supporting evidence for the establishment of rights and whether the scope of the rights is reasonably necessary. Whether the claims made have a certain factual basis or legal basis, or whether they are fantasies or fabricated claims, such as “sealing fees,” etc.

02 Key Points to Avoid Pitfalls in Proper Rights Protection

What is not prohibited by law is allowed. As long as the means used by users to protect their rights do not infringe upon the legitimate rights and interests of others and do not violate laws and regulations, they are effective ways to safeguard their rights. In simple terms, the main methods of rights protection in the current digital collectibles industry include: complaint reporting, private negotiation and communication, civil litigation, and criminal charges.

There are various methods and approaches to choose from. To achieve the desired effect and effectively compensate for personal losses, it is necessary to comprehensively consider the details of the platform’s operation. However, in the process of exercising rights, it is important to avoid the following pitfalls.

1. Blindly Following the Trend

In the digital collectibles industry, it is not uncommon for a user to play multiple platforms simultaneously, and users are well aware of the ins and outs of these platforms. Upon closer examination, the gameplay and tactics of these platforms are quite similar, involving swapping, synthesizing, lucky draws, and recruiting new users. Furthermore, some digital collectibles platforms have already faced criminal charges, which have provided a heartening boost to user rights protection.

Under the demand of the industry, professional rights protectors have also emerged, armed with a familiar three-pronged approach: if losing money, it is due to the platform’s false advertising, fundraising fraud, or front-running. However, each platform has its own background, operating details, and IP promotion strategies.

Successful cases where platforms have faced charges do not mean that these arguments can be blindly applied. Sometimes, the evidence provided by users does not align with the actual situation of the platform. Emphasizing “fraud, front-running, pyramid schemes (a term commonly used in the industry as CX)” may seem strong and lethal, but they fail to pinpoint the core issues. Instead, they blur the focus of the relevant authorities’ investigations and impede the process of handling the case.

1. Lack of Legal Awareness

Compliance is the foundation of rights protection. In the first step of asserting one’s rights, it is essential to clarify the basic facts of the infringement. Once we have made a preliminary determination of the existence of the infringement, we can determine the appropriate remedy based on our desired goals. For example, providing clues of fraud or pyramid schemes to the tax bureau is clearly not feasible.

Furthermore, it is important to collect and preserve relevant evidence based on the specific circumstances of the dispute between the two parties. Regardless of the chosen method of rights protection, there is a need for supporting evidence to substantiate one’s claims. Rights protection activities without evidence are often difficult to convince others and may even harm one’s own interests.

1. Being Too Radical

Some digital collectibles users, in their pursuit of catching the platform’s attention, adopt extreme and radical means during the rights protection process. This approach often escalates the situation and completely shatters the potential basis for negotiation and settlement between the two parties.

In addition, some users attempt to extort the platform by demanding compensation far beyond the actual circumstances. These users, driven by the purpose of illegal acquisition, use tactics such as publishing related content and leading the rights protection efforts to mentally pressure the platform. In such cases, they may be suspected of committing extortion crimes.

03 Legal Risks of Irrational Rights Protection

Digital collectibles rights protection often takes the form of collective action. Once a rights protection case emerges, a rights protection group is usually quickly formed, gathering hundreds of users. The composition of these dozens or hundreds of rights protectors is also quite complex, with leaders, supporters, and many adopting a wait-and-see attitude, joining only after the active individuals make substantial progress.

The road to safeguarding rights is long. In order to motivate other users, some individuals may resort to irrational methods such as doxing, personal attacks, insults, fabricating platform-related facts, and causing disturbances. These actions not only affect the normal operation of the digital collectibles platform but may also cause serious distress to the platform’s main staff both physically and mentally. Below is a brief analysis of common provocative behaviors and countermeasures:

1. Legal Risks of Insults and Abuse

Both the company and the main staff have the right to reputation in accordance with the law and shall not be infringed by anyone. No organization or individual shall infringe upon others’ right to reputation through insults, defamation, or other means. If a user insults or defames company personnel or engages in commercial defamation, the platform can, in accordance with the provisions of the Civil Code of the People’s Republic of China, demand the infringer to cease the infringement, eliminate the impact, restore reputation, offer an apology, and compensate for losses. In addition, insulting or defaming company personnel may also violate Article 42 of the Public Security Administration Punishment Law of the People’s Republic of China, which may result in detention, fines, and other penalties.

1. Legal Risks of Fabricating Facts

In the industry, there are also some users who no longer consider compensating for their losses and their behaviors are aimed at “sending the platform boss into prison and confiscating their assets.” Often, they have long-standing grievances and deep conflicts with the platform but lack the ability to act alone. Therefore, they deliberately fabricate non-existent platform situations to gather users for rights protection and use these unverified and unsubstantiated materials as a basis to encourage uninformed users to file reports together.

Such behavior, if minor, may violate Article 42, Paragraph 3 of the Public Security Administration Punishment Law of the People’s Republic of China, which states “fabricating facts and falsely accusing or framing others, attempting to subject others to criminal prosecution or public security administration punishment” and could result in detention or fines. If the behavior is serious, it may also be suspected of the crime of false accusation and harm as stipulated in Article 243 of the Criminal Law of the People’s Republic of China, which not only violates the legitimate rights of citizens but also seriously affects the normal activities of judicial organs.

1. Legal Risks of Causing Disturbance in Public

In addition, due to policy considerations and industry inertia, most digital collectibles platforms have chosen Hainan as their registered office address.

Reliance on the publicly transparent basic business information of the company, several organized digital collectibles users gather at the platform’s office premises to cause disturbances, resulting in severe disorder in public places. In some cases, property damage occurs or physical conflicts erupt due to excessive emotions. Such behavior may constitute provocation and troublemaking, leading to punishment under public security administration. If the behavior is particularly malicious, serious, or causes serious disorder in public order, it may also be suspected of the crime of provocation and troublemaking as stipulated in Article 293 of the Criminal Law of the People’s Republic of China.

1. How should the Digital Collectibles Platform respond?

When handling rights protection issues, digital collectibles platform should maintain a positive attitude, actively face the challenges, and use multiple methods to resolve the crisis.

Firstly, the platform needs to have a comprehensive understanding of the trigger for the rights protection, the scale of users involved, their demands and reasons, as well as the measures they have taken.

Secondly, based on a comprehensive understanding and information obtained from various channels, the platform should conduct internal self-inspection and rectification, and conduct overall analysis and judgment on the rights protection events. They should determine whether there are potential risk points and the size of those risks, and then analyze the adjustment of existing risks and come up with solutions. For platforms that are already under investigation by relevant authorities, they should not ignore the situation or handle it hastily. More importantly, they should not fabricate information about the platform in order to cope with the investigation.

In addition, as a platform in the digital collectibles industry, it is also important to monitor the industry dynamics, cautiously engage in business activities that may trigger user emotions, and pay attention to other platforms that have clearly high-risk business practices. If such practices exist, they should be addressed; if not, they should work harder. The platform should also establish its own emergency response plan and mechanisms, and develop a pre-defined process and point of contact for handling unexpected situations in order to avoid exacerbating conflicts.

Finally, for irrational rights protection actions, the platform can consider using a balanced approach, informing the irrational users about the proper channels for rights protection and the legal consequences of their actions, including civil, administrative, and criminal legal risks. When necessary, the platform can send legal letters or infringement notification letters to those users. At the same time, it is suggested that the platform assign someone to collect and document relevant evidence of infringement, so that when the situation worsens, they can rely on the evidence to take legal action, such as filing civil lawsuits, making administrative complaints, or filing criminal charges, in order to safeguard the platform’s rights and maintain public order.

04 Manning’s Suggestion

In summary, whether it is the platform or the users, acting within the legal framework is the best way to protect their rights and interests.

In this article, it is hoped to remind digital collectibles users that if their rights are violated, they should pursue rights protection rationally. They can report to the police, file lawsuits, seek clarification from legal professionals, and should not let small problems escalate.

At the same time, a reminder to friends from various digital collectibles platforms: if users engage in potentially illegal activities or encounter communication difficulties during the rights protection process, it is advisable to report it directly to the police.

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