Pokémon No: Federal Court issues injunction against misleading NFT project

12 January 2023

Pokémon’s ‘Gotta Catch ‘Em All!’ quest seems to square neatly with the promise of NFTs as digital collectibles. For those unfamiliar with NFTs, our primer is available here.

While there are a number of NFT projects which involve games with Pokémon-inspired conceits, one group took this a step further by promoting their own forthcoming ‘PokeWorld’ NFT game, featuring recognisable Pokémon like Pikachu, Bulbasaur, Charmander and Eevee.

Taking the blatancy a step further, the PokeWorld website even advertised the game ‘brought to you by The Pokémon Company International’, displaying The Pokémon Company’s logo.

A studious Pokémon fan would have recognised a number of tell-tale signs that the PokeWorld website was not legitimate. True Pokémon masters know that the plural of the word ‘Pokémon’ is ‘Pokémon’, and, in that context, phrases from the PokeWorld website such as the following are clear giveaways:

Filled with fascinating Pokemons, that players can collect as pets. Players aim to battle, evolve, feed and raise their Pokemons.

Notwithstanding, the website was clearly trying to convey that this was a legitimate Pokémon project, and could potentially have been quite successful in doing so.

There were even suggestions that the operators had been trying to convince media outlets to run stories publicising a non-existent partnership with The Pokémon Company, and that a fabricated licensing agreement with The Pokémon Company had been used to attempt to show the validity of the project.

Naturally, The Pokémon Company took issue with this conduct.

While the exact proprietors of the PokeWorld website appear unclear, an Australian company Pokemon Pty Ltd and its director Xiaoyan Liu were linked to the conduct, and so an urgent injunction was sought from the Federal Court of Australia just prior to the holiday break.

While there were a range of potential issues that could have been raised with the conduct, such as trade mark and copyright infringement, those intellectual property rights were not the focus of the claim at this stage.

Instead, the injunction was sought pursuant to the Australian Consumer Law, with the PokeWorld website said to be misleading or deceptive in a number of different ways, including giving the false impression that it is affiliated with, associated with or otherwise connected in the course of trade with, approved by, or authorised by The Pokémon Company or Nintendo.

Justice Collier agreed, stating:

I am satisfied that a significant proportion of consumers would be misled by the conduct of the respondents into believing that there is a legitimate connection in the course of trade between the [operators of PokeWorld], and [The Pokémon Company]. I am satisfied that if the respondents were to commence operating a game under the name PokeWorld, or selling Pokémon NFTs, a substantial number of consumers and traders would be likely to be deceived into using the PokeWorld game or buying Pokémon NFTs. I further consider that there is a real prospect of reputational risk to [The Pokémon Company] from the conduct of the respondents (both historical and proposed), and that it is likely to suffer damage to its interests should the respondents not be immediately restrained pending final determination of the originating application.

An injunction was accordingly granted restraining the ongoing operation of PokeWorld pending full trial of the matter.
Given the flagrancy of the conduct here, the Court’s decision is unsurprising, but perhaps the bigger question is one of enforcement. As of 11 January 2023, the infringing website (which we have chosen not to link to) remained operational, and continued to feature the Pokémon characters, insignia and even The Pokémon Company’s name and logo. All of these activities were clearly impermissible before the Federal Court hearing, and are now unambiguously in breach of the Court’s injunction.

Efforts to track down the people behind PokeWorld business ahead of the Federal Court hearing proved inconclusive, with the Court accepting The Pokémon Company ‘genuinely and meaningfully attempted to serve’ proceedings via email, Twitter direct message, and personally at physical addresses potentially associated with the business. While that may have been sufficient for the purpose of the Court being comfortable to hear the matter in the absence of the other party, there remains the practical matter of ensuring the relevant individuals are aware of and comply with the Court’s orders.

While it does not appear that PokeWorld had yet begun selling its Pokémon character NFTs, should it have done so (or begin to do so in breach of the Court’s infringement) that would also have raised an interesting enforcement question. As we noted in our previous article:

Given the [blockchain] ledger’s role as a canonical, immutable record of NFT creation and ownership, no party can later amend or correct that record. If someone were to mint an NFT of a copyright image they did not own, no amount of legal threats could remove that NFT from the ledger.

Notwithstanding this, we also pointed out in our previous article that:

Because storing large amounts of data on a blockchain is typically cost and computationally prohibitive, most NFT implementations today do not store the digital asset itself on the chain. Instead, the token on the blockchain will merely record an owner against a URL linking to the relevant asset. An NFT of an artwork, for example, would involve storing a JPG or PNG of that image on a normal webserver, with the NFT effectively containing a hyperlink to the URL of that image. This creates a great degree of uncertainty, especially as time goes on – files on servers could change, a server could malfunction, or the associated domain name could lapse or otherwise change hands, for example.

If there are any PokeWorld NFTs in existence, then a Court order which shuts down any servers with underlying assets (and any associated videogame) will likely go much of the way to blunting any appeal of the tokens.

After our article last year, we have now seen issues associated with assets underlying tokens being stored off-chain come to pass, though in a slightly different context, following the collapse of crypto company FTX. NFTs minted via FTX linked to assets stored at FTX URLs. When the relevant domain names were redirected to pages associated with bankruptcy proceedings, those linked images no longer function as specified here. These include a number of high profile NFT projects, including those issued by music festival Coachella.

While the PokeWorld case marks one of the first major examples of an Australian Court being called upon to consider NFTs, the outcome is hardly surprising given the blatant infringement involved, and the case leaves open some of the curlier questions around NFTs that were not necessary to consider here, like what proprietary rights (if any) might be conveyed by token ‘ownership’. Still though, the case is a clear illustration that NFTs and other crypto projects do not operate outside the bounds of existing law.

This article was written by Daniel Kiley, Partner

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