OpenSea Collections Face Delisting Due to Terms and Conditions

OpenSea’s terms of service confers contractual rights to the platform operator to delist assets, but its users are crying foul

By
Chung Yee
on
September 1, 2021
Category:
Blockchain News

OpenSea’s Right to Delist Assets

OpenSea, one of the most popular marketplace for Non Fungible Token (NFT) has come under fire for its decision to delist collection as users absorb all risks from the inappropriate listing. 

OpenSea, is one of the first and largest NFT marketplace for users to create, discover, collect and sell tokenized assets. In a tweet by @NFTmachine, the founder of OpeNFT alleged intentional foul play by OpenSea through manipulation of opaque and unclear rules on Digital Millennium Copyright Act (DMCA). 

Source

DMCA is a digital rights management law aimed to protect copyright owners and consumers. Introduced in 1998, this piece of legislation was meant to deal with copyright issues with the special challenges of regulating digital material. 

In OpenSea’s terms of service, the platform retains the right to take corrective measures by removing inappropriate assets, listings, smart contracts and collections upon discovery, or when it was brought to their attention. 

Source: OpenSea lists five scenarios in their help article that results in the delisting of items and collections

The terms are criticized because an inappropriate or illegal listing would expose the users to risk. Users are burdened with this risk for purchases that they may not be able to curate. The result leaves them with little or no recourse after having paid for it. Users are not able to securely know which NFTs are what is advertised. 

Source: OpenSea’s determination of appropriateness and its right to remove listings at any time has caused uneasiness amongst its users


Unfair Business Practice? 

The furor over OpenSea’s practice is centered on unfair business practices. OpenSea fails to find ‘inappropriate’ items or collections minted on the platform, and that allows access to the listed assets.

The users then put their funds at risk by purchasing these assets with little or no recourse when these assets are flagged and delisted for violating DMCA. 

Unfair business practices come under the purview of the Federal Trade Commission (FTC). In America, consumers are protected from unfair and deceptive practices in the marketplace. The corrective action by OpenSea is the main cause for the complaint. It allows for a ‘list first, take down later’ approach that burdens the user with the risk. 

In a tweet by @oracleofnft, 

‘OS has the technology to know if an image is a duplicate- even if distorted - of another from a verified collection. Ever tried uploading a song to YouTube? It is absolute BS that they are list-first, take down later bc that entire cost is then borne by the users.’

The terms and conditions of the service agreement encompass various rights. These terms are merely contractual in nature. 

Although the right to remove inappropriate or illegal listings has been agreed upon by both the seller and the purchaser, this does not preclude the platform from being scrutinized for unfair business practices. Corrective or remedial action is necessary for all marketplace platforms, but it should only be utilized as a last resort and not as a standard practice. 

An adversely affected user has a contractual right to refer the matter for arbitration, which would mean spending more time and costs. The more relevant issue here is whether OpenSea takes proactive measures in determining whether potential listings are inappropriate or illegal. 

Source: Precautionary steps must be taken prior to listing to protect users

Balancing Rights 

OpenSea is a massive platform with a valuation of $1.5 billion. If the institution stands to profit from activities on its platform, some amount of responsibility must be assumed by the platform.

The risk cannot fall entirely on the user. The platforms usually have better resources to implement procedures to identify DMCA breaches and deny listing from the onset. Curation and proper due diligence is standard practice for a marketplace, and platforms like OpenSea must adopt this practice across the board.

Users should exercise caution by taking steps to research the listed asset or collection. The common Latin axiom of caveat emptor applies; it means ‘buyer beware.’ 

NFT has grown by leaps and bounds, a marketplace operator like OpenSea would have the interest to list as many assets as possible for profitability, but it also owes a corresponding duty to protect its users.

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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