Decoding Bitcoin Ownership: “Real prospect” that copyright may subsist in Bitcoin file format

What is a blockchain?

A blockchain is a distributed database that maintains a continuously growing list of ordered records, called blocks. These blocks are linked using cryptography. It operates as a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network. The system does not need to rely on trust in a third-party institution and is free from the shackles of a single entity’s ownership.

What is Bitcoin?

Bitcoin is a digital currency that operates independently from traditional financial systems. Blockchain was invented by Satoshi Nakamoto—the pseudonym of an unknown person—in 2008 to serve as the public transaction ledger of the cryptocurrency Bitcoin.

Bitcoin introduces a decentralised network where transactions are verified and recorded through complex mathematical equations known as “mining.” When a transaction is verified, or “mined”, the machine or person who has done the “mining” receives a new Bitcoin, or a fraction of a Bitcoin. From there, it can be treated like a digital currency and traded anonymously. As of 3 August 2023, a single Bitcoin is worth £22,978.05.

What is copyright?

Copyright is the ownership right of a legal person (i.e., a person or a company) that arises automatically without the need for formal registration. Copyright can exist in literary, dramatic, artistic, or design works. The work needs to have some skill, labour, and judgment of the author and be of the author’s own intellectual creation. Notably, the work must be recorded for copyright protection to exist.

Background

Dr Craig Wright is an Australian computer scientist who claims to be “Satoshi Nakamoto”, the inventor of Bitcoin.  Dr Wright brought proceedings 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.

Dr Wright brought an application to serve the proceedings on certain defendants outside the jurisdiction. To obtain the court’s permission, he was required to demonstrate that there was a serious issue to be tried, meaning the claim must have a real prospect of success.

In February 2023 the High Court decided that the claim had a real prospect of success in relation to copyright in the White Paper in which copyright could subsist as a conventional literary work, but not in relation to the Bitcoin file format because they believed that it lacked content indicating its structure, and therefore, it did not meet the fixation requirement for copyright protection. In the context of copyright law, the concept of “fixation” refers to the requirement that a work must be in a tangible or recorded form to qualify for copyright protection. Fixation ensures that the work is sufficiently permanent or stable to be perceived, reproduced, or communicated over time. In the case of digital works, such as software, fixation is typically achieved through coding, writing, or recording the work in a digital format.

Court of Appeal’s decision

The Court of Appeal (“CoA”) overturned the decision of the High Court, ruling that Dr Wright has a real prospect of successfully establishing the fixation requirement. In doing so, the court found that:

• The judge’s statement that “no relevant ‘work’ has been identified containing content which defines the structure of the Bitcoin File Format” confuses the work and the fixation. The work Dr Wright relies upon, the Bitcoin File Format, has been clearly identified. The question of how and when that work was fixed is a different one.
• The work Dr Wright claims copyright in is a structure. Whilst the work/structure must be fixed for copyright to subsist, it does not necessarily follow that content defining (or describing or indicating) the structure is required to fix it. All that is required is that the structure be completely and unambiguously recorded.
• Whilst the contents of a work must be recorded to be protected, the specific content does not need to be explicitly recorded for copyright protection to apply. In the case of the Bitcoin file format, third parties could deduce the structure of the format from the blocks, making the copyright work identifiable with sufficient precision and objectivity.

This ruling expands the understanding of fixation in the digital context, indicating that the structure and relationships within digital works could satisfy the fixation requirement, even if the precise content is not directly recorded.

It should be noted that the Court of Appeal’s decision does not mean that copyright definitely subsists in the Bitcoin File Format; merely that this is a serious issue for trial. Whether Dr Wright is indeed Bitcoin creator Satoshi Nakamoto will be determined at a trial listed to begin in January 2024. If he proves this, there will be a full trial to decide whether the Bitcoin file format should receive copyright protection and whether that copyright belongs to Dr. Wright.

Wider implications

The Court of Appeal’s decision highlights the evolving nature of copyright law as it adapts to the intricacies of digital creations and the complexities of new technologies. This nuanced interpretation of fixation has potential implications for copyright protection of digital works beyond the realm of Bitcoin, impacting how intellectual property law navigates the digital age and possibly inviting further claims for copyright protection within file formats, which could give a much broader level of protection to software generally.

However, the Bitcoin Legal Defense Fund (which is supporting the defendants to Dr Wright’s claims) described allowing Dr Wright’s arguments to be heard as setting “a dangerous precedent where developers can be sued for violating the file format of open-source software that someone else claims to have created”.

If your business requires assistance with any cryptocurrency, copyright or other intellectual property matters, get in touch with our Commercial Services and Commercial Disputes teams.