NFT legal issues: copyright, fraud, and recovery - Murphy's Law

Murphy’s Law: The Crypto Law Firm

The NFT market has matured into a legal minefield. Major brands sue artists for trademark infringement. The SEC has issued Wells notices to NFT projects. Creators discover their work tokenized without consent on multiple marketplaces simultaneously. Investors lose millions to projects that turn out to have been exit scams from day one. Buying an NFT does not transfer the underlying copyright. Owning an NFT does not protect you when the marketplace freezes the asset, the project rugs, or the IRS asks where the income went.

If you create NFTs, collect them, run a project, or were victimized by an NFT scam, your legal exposure is broader than most general-practice IP and finance lawyers can handle. This post covers the three main categories of NFT legal issues, the cases that are actively shaping how courts treat them, and what to do when something goes wrong on any side of the transaction.

The three categories of NFT legal issues

NFT legal problems sort into three main buckets that often overlap:

IP problems: copyright and trademark disputes
Fraud problems: rug pulls, exit scams, stolen NFTs, wash trading
Regulatory problems: securities classification, FTC false advertising, tax compliance

A single project can generate all three. A creator mints a collection that incorporates copyrighted imagery (IP), promotes it with false claims about utility and team credentials (fraud), then walks away with the proceeds (more fraud), having sold it with promises of profit from team efforts (securities). When NFT lawsuits land, they almost always touch more than one category.

NFT copyright and IP problems

The single most misunderstood fact about NFTs is this: buying an NFT does not give you the copyright to the underlying work. It usually does not even give you a license to use the work for commercial purposes. What you own is a token on a blockchain that points to a digital file, plus whatever rights the original creator chose to grant you in the terms of sale.

Most marketplace default terms grant buyers limited personal-use rights only. SuperRare, for example, expressly tells buyers they do not acquire a copyright interest in the underlying artworks. OpenSea operates similarly. Unless a collection explicitly transfers commercial rights (as some collections like Bored Ape Yacht Club do under specific terms), the buyer cannot make merchandise, license the artwork, or commercialize derivatives without infringing the creator’s copyright.

The cases shaping NFT IP law

A handful of lawsuits have defined how courts treat NFT intellectual property claims.

Herm’s v. Mason Rothschild (MetaBirkins). Artist Mason Rothschild created NFTs depicting Birkin handbags covered in fur. Herm’s sued for trademark infringement, dilution, and cybersquatting. A New York jury sided with Herm’s in February 2023, awarding $133,000 in damages and rejecting Rothschild’s First Amendment defense. The case established that NFT artwork is not automatically protected speech and that trademark law applies to digital products.
Nike v. StockX. Nike sued the resale platform for selling NFTs tied to Nike sneakers. The court granted Nike summary judgment on a counterfeiting claim involving 37 fake sneakers, with other claims still being litigated. The case put marketplaces on notice that tokenizing branded goods can create trademark exposure even when an underlying physical product exists.
Nike RTFKT shutdown. Nike acquired the Web3 brand RTFKT in 2021, then wound it down. NFT holders sued in April 2025 alleging breach of contract, false advertising, and securities violations, claiming Nike effectively abandoned the project and rendered their NFTs worthless. The case raises live questions about brand obligations to NFT communities and whether ongoing project commitments make NFT sales look like investment contracts.
Miramax v. Tarantino. Quentin Tarantino announced plans to sell NFTs tied to his original Pulp Fiction script. Miramax sued for breach of contract, copyright infringement, trademark infringement, and unfair competition. The case settled in 2022 but produced meaningful motion practice on the boundaries between auctioned NFT content and underlying IP rights retained by other parties.
Yuga Labs v. Ryder Ripps. Yuga Labs, creator of the Bored Ape Yacht Club, sued artist Ryder Ripps for launching a copycat collection called RR/BAYC. A federal court ruled for Yuga on trademark claims in 2023, with damages awarded in the millions. The case confirmed that NFT collections can hold trademark protection and that copycat collections are not automatically protected as commentary or parody.

The IP problems that never make headlines

The major cases get attention, but most NFT IP problems are smaller and never reach a jury. The recurring patterns:

Artists discover their work has been minted as NFTs without permission, often on multiple marketplaces at once. Each marketplace has its own takedown process, and blockchain immutability means the underlying token cannot be removed even after a takedown succeeds.
Buyers purchase NFTs believing they own commercial rights they do not actually own, then receive cease-and-desist letters when they try to make merchandise or license the image.
Brand owners find counterfeit NFT collections trading on OpenSea, Blur, and other marketplaces. Without a coordinated legal effort, these collections often persist for months.
Collaborators on NFT projects dispute ownership of the underlying art, the smart contract, or the project’s IP after launch, particularly when one party did the design work and another did the technical work.

NFT fraud

NFT fraud has been one of the most damaging scam categories of the past several years. Industry analysts at Elliptic reported over $100 million in NFT-related fraud in 2022 alone. More recent estimates put annual NFT piracy and fraud losses between $1 billion and $2 billion. The most common fraud patterns:

Rug pulls and exit scams

A team hypes a collection through Discord, Twitter, and influencer promotion. They mint to sellout. Then they abandon the project and disappear with the proceeds. The promised roadmap, utility, secondary collections, and “community” benefits never materialize. The team often used fake identities, paid bot promotion, and manufactured engagement to build the appearance of legitimacy.

Rug pulls can be prosecuted as wire fraud, securities fraud, and money laundering. The Atlanta film producer Ryan Felton pleaded guilty to 12 counts of wire fraud, 10 counts of money laundering, and two counts of securities fraud after running two crypto exit scams. He is not the last person to face that combination of charges.

Wash trading

Sellers use multiple wallets to trade NFTs back and forth at inflated prices, creating the false appearance of demand. Real buyers see the apparent volume and price history, then purchase at the inflated price. The DOJ has charged wash trading as wire fraud in multiple cases, and the SEC has flagged it as a market manipulation concern across digital asset markets.

Fake marketplaces and malicious mints

Phishing sites that mimic OpenSea, Blur, or specific project mint pages remain one of the dominant attack vectors for stealing NFTs and crypto. When users connect their wallets to “mint” what looks like a new collection or “claim” an airdrop, malicious smart contracts drain everything in the wallet. The collector signs one transaction and loses an entire holdings.

Stolen NFTs

NFTs are stolen through phishing, social engineering, compromised Discord servers, and exchange exploits. Once moved, the stolen NFTs are typically flipped quickly on marketplaces with limited fraud screening, transferred through privacy mixers, or held until the original owner’s pursuit cools off. Some marketplaces have implemented theft-flagging systems. Many have not.

Celebrity-promoted scams

Paid celebrity promotions of NFT collections have produced both private lawsuits and SEC actions. Kim Kardashian settled an SEC enforcement action for $1.26 million in 2022 for promoting EthereumMax without disclosing the $250,000 payment she received and accepted a three-year ban on promoting crypto asset securities. Multiple class actions have followed against celebrities who promoted later-collapsed NFT projects.

NFT securities and regulatory exposure

For most of the NFT boom, the SEC took a wait-and-see approach. That changed. The agency has issued Wells notices to NFT projects, brought enforcement actions where collections were marketed as investments, and signaled that fractional NFTs (where multiple buyers hold a piece of a single token) generally qualify as securities.

Whether a specific NFT collection counts as a security depends on the Howey test. Was there an investment of money in a common enterprise with an expectation of profit derived from the efforts of others? Marketing language matters enormously. A project that promotes “guaranteed returns,” “passive income from holding,” or “revenue share from the team” looks much more like a security than one that markets aesthetics, community access, or in-game utility. The March 2026 SEC/CFTC joint interpretation introduced the principle that investment contracts can terminate once a project is functional and sufficiently decentralized, but most NFT collections do not reach that bar.

The FTC also enforces against NFT projects, particularly around false advertising claims about utility, scarcity, partnerships, or celebrity endorsements. “Limited to 10,000” becomes a problem when a follow-up collection appears. “Endorsed by Celebrity X” creates exposure when Celebrity X never agreed.

On the tax side, IRS Form 1099-DA broker reporting now applies to NFT sales above $600 per year. NFT activity is taxable as a capital gain or, for active traders and creators, as ordinary income. See our crypto tax issues guide for more detail on what 1099-DA reporting changes.

What to do if you were the victim of NFT fraud

NFT fraud cases follow most of the same recovery playbook as other crypto fraud, with a few NFT-specific elements.

Preserve everything. Screenshot the project’s Discord, Twitter, website, and any communications you had with the team. Save transaction hashes, wallet addresses, and the URL where the NFT is currently held. Project websites often disappear within days of a rug pull.
Notify the marketplace. OpenSea, Blur, Magic Eden, and other major platforms have theft-reporting and freezing procedures. Reporting quickly may allow the marketplace to prevent further sales while you pursue legal action.
File a report with the FBI’s IC3 at ic3.gov. Include all wallet addresses, transaction hashes, and documentation. For larger losses, the IC3 Recovery Asset Team may initiate emergency freeze procedures.
Report to the SEC and FTC if the project was marketed as an investment or made false advertising claims. These reports can connect your case with broader enforcement actions already underway.
Engage a crypto lawyer. Blockchain tracing, civil litigation, exchange and marketplace preservation requests, and federal forfeiture claims all require legal expertise. For more on the recovery process, see our crypto fraud recovery guide.

What to do if you are a creator whose work was tokenized without permission

If your art, photography, music, writing, or other work has been minted as NFTs without your permission, you have real options. The technical challenges of blockchain immutability complicate enforcement, but they do not eliminate it.

Document the infringement. Save screenshots of every listing, the URL, the seller’s wallet address, the transaction history, and the original creation date of your work.
Send DMCA takedown notices to the marketplaces. OpenSea, Blur, Magic Eden, Foundation, and most other major platforms accept DMCA notices and will delist infringing collections, even though they cannot remove the underlying tokens from the blockchain.
Send a cease-and-desist to the seller. When the seller’s identity can be determined (sometimes through their wallet history or social media), a formal cease-and-desist demand often produces removal of remaining listings and transfer of any remaining proceeds.
File a copyright lawsuit if the scale of infringement justifies it. Statutory damages for registered copyrights can reach $150,000 per work for willful infringement, which becomes the basis for negotiating substantial settlements.
Register your copyrights if you have not already. Registration is required to file in U.S. federal court and to recover statutory damages and attorney’s fees. For NFT creators, registering work shortly after creation positions you for stronger enforcement when something goes wrong.

What to do if your NFT project is facing legal scrutiny

If your project has received a Wells notice, a cease-and-desist, an FTC inquiry, a class action complaint, or an SEC subpoena:

Stop talking publicly about the matter. Discord announcements, Twitter threads, and statements to journalists about pending legal issues create discoverable evidence that almost never helps the project’s position.
Engage experienced crypto counsel immediately. How a project responds in the first days of a regulatory inquiry often determines whether the matter resolves as a settlement, a consent order, or a full enforcement action.
Preserve all internal communications. Discord, Telegram, Slack, and email records will be required in any litigation. Implement litigation holds before evidence is lost.
Review your team’s representations. Statements made on Twitter, in Discord, in marketing materials, and in mint announcements form the basis for many NFT-related lawsuits. Knowing what was said and by whom matters for crafting a defense.
Coordinate with marketplaces and infrastructure providers. If your project depends on third-party platforms, those platforms may receive their own subpoenas and may freeze project-related activity pending resolution.

How Murphy’s Law helps

Murphy’s Law is a crypto law firm founded by Liam Murphy, Esq., a University of Pennsylvania Law School graduate whose practice covers the full range of legal issues facing crypto and NFT clients. At Paul Hastings, Liam defended DeFi and NFT companies from government scrutiny and aided three white-collar defense acquittals. At Selendy Gay, he drafted complaints against crypto fraudsters, including Terraform Labs, and represented the liquidators of the Bernard L. Madoff Ponzi scheme. At McKool Smith, he represented the Celsius trust in post-bankruptcy litigation.

For NFT clients, Murphy’s Law handles:

NFT fraud recovery through blockchain tracing, marketplace outreach, civil litigation, and federal forfeiture claims for victims of rug pulls, theft, and exit scams
Copyright and trademark enforcement for creators whose work has been tokenized without permission, including DMCA takedowns, cease-and-desist demands, and federal copyright litigation
Regulatory defense for projects facing SEC, FTC, or DOJ inquiries, Wells notices, subpoenas, and enforcement actions
Project structuring and compliance for new NFT collections, including securities analysis, marketing review, terms-of-sale drafting, and IP licensing
Class action defense for projects facing investor lawsuits
Counter-counterfeiting for brand owners pursuing infringing NFT collections

Frequently asked questions

Do I own the copyright when I buy an NFT?

Almost never. Most NFT purchases grant limited personal-use rights only. Commercial rights, derivative rights, and exclusive licenses require an explicit transfer from the creator. Read the terms of sale of any NFT before assuming you can use the underlying image for merchandise, licensing, or commercial projects.

Can I recover NFTs that were stolen from my wallet?

Sometimes. Recovery depends on how quickly you act, whether the stolen NFTs were moved to a marketplace where the platform can intervene, and whether the thief’s wallet can be linked to a regulated exchange. Reporting to the marketplace and engaging a crypto lawyer immediately maximizes the chance of recovery.

Are NFTs securities?

Most NFTs are not, but some are. The classification turns on the Howey test and how the project was marketed. Fractional NFTs, NFTs sold with explicit profit promises, and NFTs that function as investment instruments are most likely to be classified as securities. NFTs sold as art, collectibles, or community membership are less likely.

Can I sue a marketplace that hosted a fraudulent NFT collection?

It depends on the facts. Most marketplaces include broad liability disclaimers and arbitration clauses in their terms of service. Where a marketplace had knowledge of fraud and failed to act, or where it provided material assistance to the scheme, civil claims may be viable. A crypto lawyer can evaluate the specific facts of your case.

What if my NFT loses value because the project team disappeared?

Loss of value alone usually does not create a legal claim. If the team made specific representations that turned out to be false, sold the NFT as an investment, or engaged in fraud or securities violations, civil and regulatory claims may exist. The evidence record matters: what was promised, by whom, when, and on what platform.

Does Murphy’s Law offer free consultations?

Yes. Contact Liam Murphy through murphyslawcrypto.com or call 913-575-0540 to discuss your NFT legal issue.

NFTs are not above the law

The cases of the past few years have made one thing clear: the legal frameworks that govern art, commerce, and investment apply to NFTs the same way they apply to anything else. Trademark, copyright, securities, consumer protection, tax, and fraud law all reach tokens on a blockchain. The technical wrapper does not change the underlying obligations or rights. If you are a creator, a collector, a project team, or a victim, getting the right legal advice early is the difference between a manageable situation and a permanent loss.

Contact Liam Murphy today for a free consultation or call 913-575-0540.