Insights Court of Appeal rules that copyright subsistence in the Bitcoin File Format presents a serious issue to be tried

Many know that Craig Wright is embroiled in a lot of difficult litigation. There is Dr Wright’s recent defamation claim against the podcaster Peter McCormack (covered in a previous Wiggin article), a claim concerning whether the Bitcoin Association and developers owe fiduciary and tortious duties to Dr Wright’s company Tulip Trading Limited (also covered in a previous Wiggin article), and multiple claims which hinge on Dr Wright’s claim to be the founder and owner of Bitcoin, Satoshi Nakamoto. These include passing off claims based on ownership of goodwill in Bitcoin and a claim for a declaration that Dr Wright is not the author of an infamous White Paper written by Satoshi Nakamoto.

In anticipation of the upcoming trial to address whether Mr Wright is in fact Satoshi Nakamoto (set for January) we take a look at the most recent Court of Appeal Judgment which provides useful guidance on copyright and the law specifically relating to the requirement that a literary work must be fixed in accordance with s3(2) of the Copyright, Designs and Patents Act 1988.

Wright and others v BTC Core and others was heard in July 2023 before the Court of Appeal (COA) to determine if the High Court was correct in refusing the Claimant permission to serve the claim form on Defendants outside the jurisdiction, specifically with regards to a claim for infringement of copyright in the Bitcoin File Format. The key question before the COA was whether the Claimant had a real prospect of establishing that copyright subsisted in the Bitcoin File Format and, more specifically, if it could be found to have met the requirement of fixation for the subsistence of copyright.

The Claimant, Dr Craig Wright, claims to be Satoshi Nakamoto, the creator of the Bitcoin System who wrote the original Bitcoin source code and authored the infamous White Paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ first made available to the public on 31 October 2008. As such, he claims to own the copyrights in the White Paper and the Bitcoin File Format, as well as various database rights in two parts of the Bitcoin blockchain.

Briefly, a blockchain is a decentralised distributed digital ledger consisting of a growing list of records called blocks used to record transactions across computer networks.  These blocks are cryptographically linked together and their operation depends on ‘mining’, where typically a complex mathematical puzzle or ‘proof of work’ is required to add a block to the ledger, a process designed to be arduous.  Blockchain technology is the basis for cryptocurrency, and it is intentionally designed to be decentralized and remove the need for a clearing house such as a central bank.  It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, the coins provide an incentive for the miners to maintain the blockchain.  New cryptocurrencies are often launched via an ‘airdrop’ promotional event, whereby a cryptocurrency is distributed to numerous wallets, usually for free. (For more detail on blockchain and cryptocurrencies, see previous Wiggin Insight on the topic.)

Dr Wright’s underlying claim objects to two airdrops which he says significantly changed the Bitcoin system without his consent. The first airdrop took place on 1 August 2017 and created a branch in the blockchain called the BTC Network, which ran in parallel to the Bitcoin blockchain from block number 478,558. The second airdrop occurred on 15 November 2018, creating the BCH Network, a third parallel blockchain. The BTC and BCH blockchains contain the Bitcoin blockchain up to and including block 478,558, which Dr Wright claims results in the extraction and/or re-utilisation of the substantial parts of his various database rights. He also claims the two blockchains infringe his copyright in the White Paper, which is included in block 230,009, and—significantly for purposes of this article—the Bitcoin File Format.

The High Court Case

On 15 December 2022, the Claimant applied for permission to serve the Claim Form on those Defendants who are out of the jurisdiction. To grant permission, the High Court must be satisfied that there is a serious issue to be tried and that the claim has a real (as opposed to a fanciful) prospect of success. Mellor J found that the claim presented a serious issue to be tried on all the causes of action, except for the claim of infringement of copyright in the Bitcoin File Format, which was dealt with at an oral hearing on February 2023.

To establish that copyright subsists in the Bitcoin File Format, the Claimant needed to show that it is inter alia an original and protectable work that has been ‘fixed’ by reference to UK and retained EU law.

Mellor J found that Bitcoin File Format was capable of protection as an original literary work but was not convinced that the work had been fixed.

The structure of the Bitcoin File Format, defined by Dr Wright as ‘the structure of each block of the Bitcoin Blockchain’ consists of a header and transaction parts of the block. Dr Wright’s witness statement stated that the Bitcoin Software “creates blocks in the Bitcoin File Format which are added to the Bitcoin Blockchain file“. He contended that the Bitcoin File Format was first fixed in the initial block, known as the Genesis block, created by the Bitcoin Software on 3 January 2009.

Despite acknowledging that each block conformed to the Bitcoin File Format structure, the High Court held this was an embodiment of the structure rather than fixation of the structure in a copyright sense. By way of example, the High Court referred to the example of the XML file format, which had been held to contain sufficient content, such as something indicating the header’s start and end, to satisfy the requirement for fixation[1]. Mellor J found that the Claimant had not provided any evidence that a block contains content indicating the Bitcoin File Format’s structure instead of simply reflecting it.

The High Court drew on SAS Institute Inc v World Programming Ltd [2010] EWHC 1829 (Ch) in concluding that the fact that the Bitcoin Software produced blocks in the Bitcoin File Format only indicates that the Bitcoin Software can read and write in the file format. It does not evidence that the structure of the file format is set out in the software in a manner sufficient to satisfy the requirement of fixation. The file format is produced and read by the Bitcoin Software and embodied in the blocks found in the Bitcoin blockchain, but it is not defined.

Furthermore, the High Court considered that Schedule 2 to the Particulars of Claim, containing content defining the Bitcoin File Format structure, was insufficient to satisfy the fixation requirement. Mellor J held that as it had been prepared for the claim, it was not part of the ‘causative chain’ between the devised Bitcoin File Format and the alleged infringements which predated the claim.

On appeal to the COA

Dr Wright appealed to the COA, contending that the High Court was wrong to find that he had no real prospect of success in establishing that the requirement of fixation of the Bitcoin File Format is satisfied, and the COA agreed.

In his Judgment, Arnold LJ addressed each element required to establish the subsistence of copyright in the Bitcoin File Format,  namely that:

  1. the Bitcoin File Format is a work;
  2. it is a work that falls within one of the categories of protectable work specified in the 1988 Act;
  3. the work has been fixed;
  4. the work is original; and
  5. the work qualifies for copyright protection under the 1988 Act.

Arnold LJ agreed with the High Court that Dr Wright had a real prospect of success in establishing that the Bitcoin File Format is a work. He also agreed that, if found to be a work, the Bitcoin File Format would clearly be a literary work under section 3(1) of the 1988 Act, considering the broad definition of ‘written’ in section 178.

Concerning fixation, however, Arnold LJ found that the High Court had confused the work and the fixation of the work. The work, meaning the Bitcoin File Format, had been clearly identified, and the question of how it was fixed is a different matter.

The High Court had also erred in finding that fixation of the Bitcoin File Format required content defining the structure. Although the work relied upon is a structure, it does not follow that there must be content defining the structure for it to be fixed, only that it is ‘completely and unambiguously recorded’. Arnold LJ explained that just because fixation of the structure of an XML file format was found in its definition within the file format itself does not mean it is a requirement for fixation to be satisfied.

Arnold LJ found that the High Court also erred in not applying Levola[2], which post dates SAS v WPL, under which the fixation relied upon must be identifiable with sufficient precision and objectivity. The evidence presented by Dr Wright indicated that third parties were able to deduce the file format from the blocks in the Bitcoin blockchain, which could be enough to satisfy this condition. Furthermore, the COA held that the Genesis block relied on by Dr Wright evidences the existence of the Bitcoin File Format and delimits the scope of protection. That third parties have deduced the file format from the block supports this.

Finally, the COA also found that the High Court erred in its reasoning that it is necessary for the fixation of a work to form part of the ‘causative chain’ between the copyrighted work and alleged infringements. The protected copyrighted work is an intangible abstraction, and for infringement to be found, it is not necessary for the fixation relied upon in establishing subsistence to have been copied. The COA emphasised that one should not overstress the evidential and definition purposes of fixations, with a reminder that a digital recording relied on for fixation can be erased as fixations do not have to be permanent.

The COA did suggest that Schedule 2 of the Particulars of Claim could not be relied on for fixation as it post-dated the infringement. This implies that there is a temporal rather than causal requirement for fixation to have existed at the time of an alleged infringement for an infringement to be found. However, the COA did not discuss this further as Dr Wright relied on the Genesis block rather than Schedule 2 to the Particulars of Claim in any event.

Next Steps

The decision illustrates that parties should not assume the reasoning for copyright subsistence used for one file format will necessarily be relevant to another. Just because content defining the structure within an XML file format was found to satisfy fixation in that context, does not mean that it is a requirement for fixation in all file formats.

Arnold LJ’s judgment also suggests Dr Wright may encounter further challenges establishing copyright subsistence in the Bitcoin File Format at trial with regards to whether the Bitcoin File Format can be considered a ‘work’ or ‘original’ for the purposes of copyright subsistence.

Arnold LJ suggested it could be argued that the file format simply enables the creation of works, so it is instead an idea, method of operation or mathematical concept excluded as a work within international copyright treaties. However, he the then postulated that for something to be a work, only two conditions identified in Levola needed to the satisfied (i) it must be original, meaning the author’s own intellectual creation, and (ii) it must be an expression of that intellectual creation, identifiable with sufficient precision and objectivity. Ultimately, he found that the Bitcoin File Format could be a work on this basis.

He did however, suggest that the Bitcoin File Format may not be an intellectual creation that would satisfy the originality requirement as it appears to be different from other file formats only by technical considerations.[3]

We will have to wait for the trial in January 2024 to see how the claim progresses. Given Mr Wright’s litigious strategy, it is unlikely to be the final piece of this increasingly complicated puzzle.

To read the High Court decision, please click here.

To read the Court of Appeal decision, please click here.

[1] Technomed Ltd v Bluecrest Health Screening Ltd [2017] EWHC 2142 (Pat) and Software Solutions Ltd v 365 Health and Wellbeing Ltd [2021] EWHC 237 (IPEC)

[2] Case C-310/17 Levola Hengelo BV v Smilde Foods BV [EU:C:2018:899]

[3] Bezpečnostní softwarová asociace – Svaz softwarové ochrany v Ministerstvo kultury [2010] ECR I-13971