In Wright and others v BTC Core and others [2023] EWCA Civ 868, the Court of Appeal allowed an appeal against the High Court's refusal to grant the claimants permission to serve a claim for infringement of copyright in the file format for the Bitcoin system out of the jurisdiction. Contrary to what the High Court had found, the Court of Appeal held there was a real prospect of the fixation requirement being satisfied so as to establish that copyright subsisted in the file format for the Bitcoin system.

Background

This claim is one of four in the High Court of England and Wales involving the First Claimant, Dr Wright, who not only asserts to be the creator of the Bitcoin system and the person who wrote the original Bitcoin source code but also the author of a document published in October 2008 entitled Bitcoin: A Peer-to-Peer Electronic Cash System (commonly known as the White Paper) under the pseudonym Satoshi Nakamoto. The Second and Third Claimants are companies that have joined the proceedings in case they own some or all of the rights instead of Dr Wright who controls the companies.

In this action, Dr Wright claims to be the owner of certain database rights which he says subsist in three databases: the bitcoin blockchain; the bitcoin blockchain as it stood on 1 August 2017 at 14:11– up to and including block 478,558; and another part of the bitcoin blockchain made in a particular period (the details of which do not matter for present purposes). Dr Wright also says he (or one of the claimants) owns the copyright that subsists in both the White Paper and 'the Bitcoin File Format' (the BFF).

Bitcoin involves a blockchain which is a distributed ledger in which transactions are verified in blocks. Each new block is linked to the previous verified block though a process called “mining” and must be in the correct format as referred to in the Particulars of Claim as the BFF.

Dr Wright objects to two 'Airdrops', which occurred on 1 August 2017 and 15 November 2018 whereby the former resulted in the creation of the BTC blockchain and the latter resulted in the creation of the BCH blockchain. His case is that the defendants infringed the claimants’ database rights and copyrights by creating and subsequently operating the BTC and BCH blockchains.

Although some of the defendants are in the jurisdiction, the majority are outside the jurisdiction. As required by Civil Procedure Rule 6.37, the claimants issued an application on 15 December 2022 for permission to serve the claim form on those defendants outside the jurisdiction (the Application).

For this, the claimants needed to satisfy the judge there is a serious question to be tried. The claim must have a real rather than a fanciful prospect of success, a requirement that is imposed on each cause of action to the claim. The decisions in and relate to this procedural consideration and the notion of fixation.

The High Court

The Application was initially heard on the papers by Justice Mellor. He was satisfied that the claims in respect of the database rights and copyright in the White Paper raised a serious question to be tried and so service of those claims out of the jurisdiction was permitted.

Justice Mellor was, however, less convinced that the claimants’ copyrights had been infringed in relation to the BFF and so he invited the claimants to file further written submissions and/or evidence addressing the following question: "When and in what form the alleged literary work in the Bitcoin File Format was first recorded, in writing or otherwise". In response to this, the claimants filed a second witness statement of Dr Wright.

Under section 3(2) of the Copyright, Designs & Patents Act 1988 (the CDPA), copyright will not subsist in a literary work unless and until it is “recorded, in writing or otherwise” - commonly referred to as the “fixation” requirement. Dr Wright's case was that the BFF was fixed, for copyright purposes, when the first block in the bitcoin blockchain was written on 3 January 2009.

Justice Mellor did not agree.

In Technomed v Bluecrest [2017] EWHC 2142 (Ch), Technomed’s ‘XML Format’ was found to be a copyright work because the code in that file format included content describing its structure. In contrast, Justice Mellor stated in this case that: “No relevant ‘work’ has been identified containing content which defines the structure of the bitcoin file format”. That is to say that the files in the BFF did not include code content that recorded their structure.

Justice Mellor found that it was insufficient to show that a particular block on the blockchain is created in the BFF when the bitcoin system software runs. Evidence was required to the effect that a block contains content indicating the structure, as opposed to simply reflecting it. Justice Mellor explained that a flag or symbol in a block which signals start and end points of certain sections or an equivalent of the sort of content found in XML files would have helped to meet this evidential requirement.

In light of this, Justice Mellor concluded that the BFF structure was not set out in any part of the software or blocks written to the bitcoin blockchain and so it had not been "recorded, in writing or otherwise" (ie fixed) in accordance with section 3(2) of the CDPA.

Accordingly, Dr Wright’s claim concerning the infringement of copyright in the BFF had no real prospect of success. On this basis, Justice Mellor required Dr Wright to remove his claim concerning an infringement of copyright in the BFF from the statements of case before serving the same on the foreign defendants.

The Court of Appeal

The claimants applied for permission to appeal Justice Mellor’s decision and permission was granted. The lead judgment allowing the appeal was handed down by Lord Justice Arnold on 20 July 2023, with which Lady Justice Asplin and Lord Justice Warby unanimously agreed.

Has the BFF been fixed?

The Court held that there were a number of flaws in Justice Mellor’s reasoning in relation to establishing fixation so he had been wrong to reach the conclusion that he did.

First, Lord Justice Arnold held that Justice Mellor’s statement that “no relevant ‘work’ has been identified containing content which defines the structure of the bitcoin file format” confused the work and the fixation. The work that the claimants relied upon (ie the BFF) had been clearly identified. How and when that work was fixed is an entirely different issue.

Second, Lord Justice Arnold noted that “it is quite correct that the work, that is to say, the structure, must be fixed in order for copyright to subsist in it; but it does not necessarily follow that content defining (or describing or indicating) the structure is required in order to fix it”. All that is required is that the structure is completely and unambiguously recorded.

Third, Lord Justice Arnold was unhappy that Justice Mellor did not apply the test laid down by the Court of Justice in the European Union in C-310/17 Levola Hengelo BV v Smilde Foods BV (2018) which asks whether the fixation relied upon by the claimants made the BFF identifiable with sufficient precision and objectivity. While Justice Mellor said that evidence that third parties have been able to deduce the structure of the BFF from the blocks in the bitcoin blockchain would not assist the claimants, Lord Justice Arnold disagreed.

Fourth, Lord Justice Arnold stated that Justice Mellor did not consider the rationale for the requirement of fixation and explained that fixation services two purposes: to evidence the existence of the work and to delimit the scope of protection. The claimants contended that the fixation upon which they relied served these purposes and, having considered the evidence, Lord Justice Arnold agreed.

Finally, in 2022 (post-dating the alleged infringement) and for the purposes of the proceedings, the claimants prepared Schedule 2 of the Particulars of Claim which described the components of the BFF. Lord Justice Arnold clarified that it was not necessary for the claimants to show that Schedule 2 formed part of a causative change between the alleged copyright work and alleged infringement.

This is because copyright in literary work protects the work as an intangible abstraction, not the tangible medium in which that work may be fixed. Thus, it is not necessary for the copyright owner to prove that the fixation relied upon for the purpose of subsistence has been copied, only that the work had been copied. This distinction is made clear by section 3(2) of the CDPA read together with section 3(3).

On the basis of the flaws identified by the Court of Appeal in Justice Mellor’s reasoning, it held that the BFF had, in fact, been fixed and so the fixation requirement in section 3(2) of the CDPA was met.

The Requirements to Establish Copyright

Lord Justice Arnold explored the following requirements that the claimants had to establish to show that copyright subsisted in the BFF:

1. The BFF is a work. Lord Justice Arnold noted it could be argued that the BFF was something that enabled the creation of a work rather than a work itself. He also noted, however, that Justice Mellor evidently considered that the claimants had a real prospect of successfully contending that the BFF was a work and felt there was no reason to differ from this assessment.
2. The BFF is a work that falls within one of the categories of protectable work specified in the CDPA. There was no difficulty satisfying this requirement. The BFF was plainly a literary work within section 3(1) of the CDPA.
3. The work has been fixed. The Court of Appeal held that the BFF had been fixed, contrary to the decision of Justice Mellor, for the reasons explored above.
4. The work is original. It was clear that Justice Mellor accepted that the claimants’ work was original and Lord Justice Arnold saw no reason to depart from this position. Based on the materials before him, Lord Justice Arnold said that it seemed there was a strong argument that the BFF was differentiated from other file formats by technical considerations.
5. The work qualifies for copyright protection under the CDPA. There was no difficulty satisfying this requirement.

Given that the above requirements were held to be satisfied, it was decided that copyright certainly subsists in the BFF.

The Court of Appeal, therefore, allowed the claimants’ appeal. It was decided that there was a real prospect of the fixation requirement being satisfied so as to establish that copyright subsisted in the BFF. On this basis, the Court of Appeal allowed the claimants to serve the statements of case on the foreign defendants, including the claim concerning an infringement of the copyright in the BFF.

Comment

Justice Mellor is an eminent judge. The fact that his decision was overturned by the Court of Appeal highlights that the relationship between copyright law, cryptocurrency and software is still developing. The landscape remains uncertain as precedent law continues to be established.

Lord Justice Arnold’s judgment also indicates that there is a serious question to be tried: that the claimants have a real prospect of success in establishing that copyright subsists in the BFF. However, the judgment does not confirm that copyright definitely subsists in the BFF. This is a matter to be determined at trial. Interestingly, in his judgement, Lord Justice Arnold remarked that he is “sceptical as to whether the Bitcoin File Format is an intellectual creation”. Although his scepticism was not sufficient for him to depart from the finding of Justice Mellor, it may be that the trial judge decides the BFF is not an intellectual creation and is not, therefore, an original work in which copyright can subsist.

In his decision, Lord Justice Arnold provided interesting analysis of the relevant legislation and case law on fixation as it applies to file formats such as the BFF. This will undoubtedly be valuable in future cases that deal with similar subject matter to that of the BFF and XML file types, thereby providing significant guidance on what is required for fixation to be established in such cases.