UK Court of Appeal Determines Bitcoin File Format Meets Copyright Fixation Requirement | Dechert LLP

• The UK Court of Appeal’s ruling in Wright and others v BTC Core [2023] EWCA Civ 868 offers valuable clarity on the ‘fixation’ requirement under English copyright law, particularly how UK courts are likely to apply this in relation to digital assets such as Bitcoin. The potential of copyright protection for the BFF signifies a notable development in our understanding and application of English copyright law in the context of virtual currency transactions.

• A hearing scheduled for January 2024 will decide whether the BFF qualifies for copyright protection and will consider Dr. Wright’s claims of being ‘Satoshi Nakamoto’, the creator of Bitcoin.

• The technology sector and businesses that use or invest in digital assets should pay close attention to the final outcome of this case. If the UK courts ultimately rule that the BFF is eligible for copyright protection, it could significantly impact future Bitcoin usage and how businesses interact with Bitcoin and other similar technologies.

The UK Court of Appeal ruled that Dr. Craig Wright who asserts to be Satoshi Nakamoto, the creator of the digital currency known as Bitcoin, has a real prospect of successfully establishing that copyright subsists in the Bitcoin File Format (“BFF”). This decision centered on the legal requirement for fixation under English copyright law, and has paved the way for Dr. Wright to proceed with his copyright infringement claim related to the BFF.

Background

Dr. Craig Wright, an Australian computer scientist, has claimed to be Satoshi Nakamoto, the pseudonym of the individual who created the Bitcoin system. He maintains that he is the author of the original Bitcoin source code and the document known as the “White Paper”, published in 2008 and titled “Bitcoin: A Peer-to-Peer Electronic Cash System”¹. While the true identity of Satoshi Nakamoto remains unknown, Dr. Wright alleges that he owns intellectual property rights, including copyright and database rights, in the Bitcoin Blockchain. He has sought to assert these rights to prevent the operation of two parallel blockchain networks, the BTC Network and BCH Network. He claims these blockchain networks were created from two “airdrops” that brought about “significant changes” to the Bitcoin system without his consent. His case has been the subject of two court decisions in England and Wales to date, as follows:

1. UK High Court Decision²

In February 2023, the UK High Court found that Dr. Wright had no real prospect of establishing that copyright existed in the BFF, as it had not been “recorded, in writing or otherwise” in accordance with section 3(2) of the Copyright, Designs and Patents Act 1988 (the “CDPA 1988”). Under English copyright law, this provision stipulates the need for a literary work to be fixed for copyright to subsist. Consequently, the UK High Court denied Dr. Wright permission to sue the defendants, located outside the jurisdiction of England and Wales, for alleged copyright infringement.

2. UK Court of Appeal Decision³

Dr. Wright subsequently appealed the first instance decision and on 20 July 2023 the UK Court of Appeal reversed the earlier ruling. The UK Court of Appeal found that there is a serious issue to be tried on the merits of the claim and a real prospect of successfully establishing that the fixation requirement is satisfied by the BFF, enabling Dr. Wright to continue with his copyright infringement claim related to the BFF.

Requirements for Copyright Subsistence

For copyright protection to exist under English law, Dr. Wright must demonstrate that the BFF satisfies the following criteria:

(i) The BFF must constitute a “work”;

(ii) The work must fall under one of the categories that are eligible for copyright protection as per the CDPA 1988;

(iii) The work must be fixed;

(iv) The work must be original; and

(v) The work must qualify for copyright protection under the CDPA 1988.

The UK Court of Appeal affirmed that the BFF clearly meets criteria (ii) and (v) as it is a written literary work and Dr. Wright, assuming he is the author of the BFF as he claims, is a qualifying person being an Australian citizen. However, the BFF may encounter challenges in satisfying criteria (i), (iii), and (iv).

Requirement to be a “work”

To qualify for copyright protection, the BFF must be considered a “work” under the CDPA 1988. Lord Justice Arnold noted that it could be argued that the BFF is something that “enables the creation of works rather than a work itself” akin to a procedure, method of operation or mathematical concept, which are not subject to copyright protection. Nonetheless, both the UK High Court and UK Court of Appeal decided that Dr. Wright has a real prospect of successfully contending that the BFF is a work; a claim that is set to be examined at a later hearing.

Requirement to be original

Under English law, according to the traditional ‘sweat of the brow’ doctrine, to be original a work must be a product of the author’s own skill and labour⁴. However, the EU applies a different test for originality, requiring the work to be the author’s own intellectual creation⁵. The UK Court of Appeal applied this EU test to the BFF and expressed scepticism about its originality, noting that the BFF might only differ from other file formats due to technical considerations. Lord Justice Arnold noted this issue will require “a factual investigation, possibly including expert evidence, and detailed argument”. These comments give an indication that Dr. Wright is likely to face challenges over whether the BFF meets the requirement of originality at a later hearing.

Fixation Requirement

Originally the UK High Court found that there was no real prospect of establishing that the BFF is “fixed” – a decision the UK Court of Appeal has now overturned.

Mr Justice Mellor, the UK High Court judge, was not satisfied that the BFF had been recorded, stating that each “block” of the file format must contain “content and not just structure”, and that Dr. Wright had not provided evidence of this. However, the UK Court of Appeal identified several errors in this reasoning. A key error was the assertion that while it is true that the relevant work – the structure – must be unambiguously recorded and fixed, it does not necessarily mean that the content defining the structure needs to be recorded. This directly contradicts the UK High Court finding.

Lord Justice Arnold’s reasoning in the UK Court of Appeal decision also highlighted that the UK High Court ruling had failed to apply the test from Levola Hengelo BV v Smilde Foods BV,⁶ which states that the fixation of the relevant work must be identifiable with sufficient precision and objectivity. Dr. Wright had filed evidence showing that third parties had deduced the structure of the BFF from the blocks in the Bitcoin Blockchain. The UK Court of Appeal determined that, if this evidence is accurate, it would support the argument that the work was identifiable with sufficient precision and objectivity, and therefore is “fixed”.

Next Steps

Following the UK Court of Appeal’s decision, Dr. Wright has been granted permission to sue the defendants located outside of England and Wales. The question of whether copyright subsists in the BFF will be determined at a future hearing. If copyright protection is not found to exist in the BFF, Dr. Wright’s infringement claim will fail on the basis there is no copyright to infringe. Furthermore, the issue of Dr. Wright’s claimed identity as ‘Satoshi Nakamoto’ will also be addressed at a hearing in January 2024. If the UK courts ultimately decide that the BFF is subject to copyright protection and that Dr. Wright is indeed the creator of Bitcoin, it could significantly impact the future use of Bitcoin and the way that businesses interact with Bitcoin and similar technologies.

The authors would like to thank Verity Spragge, Associate in London, for her valuable contributions to this OnPoint.

1. See “Bitcoin: A Peer-to-Peer Electronic Cash System“
2. See Wright & Ors v BTC Core & Ors [2023] EWHC 222 (Ch) (07 February 2023).
3. See Wright & Ors v BTC Core & Ors (Rev1) [2023] EWCA Civ 868 (20 July 2023).
4. See Ladbroke v William Hill [1964] 1 All ER 465.
5. See Infopaq International A/S v Danske Dagblades Forening (C-5/08) [2009] ECR I-6569.
6. See Case C-310/17 Levola Hengelo BV v Smilde Foods BV EU:C:2018:899 (13 November 2018).