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The Dapper Development lawsuit has come to an unexpected end, with over 1.2 million consumers about to split a $7 million settlement. The reason? Dapper collected their private video data without asking. In fact, NBA fans who bought those trendy NBA Top Shot NFTs had no clue that Meta’s tracking pixel was observing them. The Dapper Development lawsuit shows how easily digital innovation can cross privacy lines.
In October 2020, as COVID-19 spread worldwide, Dapper Labs teamed up with the NBA to launch its Top Shot non-fungible tokens to the public. These digital collectibles soon became a hit. But what looked like a cutting-edge Web3 gaming project ran into big legal problems. The deal settles claims that Dapper Labs and NBA Properties Inc. let Meta’s pixel technology track consumer data without permission. This case highlights the rising conflict between NFT enthusiasts and privacy advocates. This case highlights how digital innovations like NFTs and even upcoming devices such as the Tesla Pi Phone are reshaping our understanding of technology and privacy.
Dapper Labs agrees to $7M settlement over pixel tracking
The Dapper Development lawsuit led to a $7.05 million settlement resolving major privacy concerns linked to Meta’s tracking pixel. Dapper Labs and NBA Properties Inc. have decided to pay $7.05 million to resolve a big privacy case that users of their NBA Top Shot NFT marketplace brought against them. This deal stands out as one of the first major legal challenges that target NFT platforms for breaking privacy rules.
This settlement highlights how the Dapper Development lawsuit became one of the first major privacy cases in NFT history.
What started the lawsuit?
The Dapper Development lawsuit began when users discovered Meta’s pixel on the NBA Top Shot site, secretly collecting viewing data. The legal issues kicked off when people suing found out that Dapper Labs and the NBA had put Meta’s tracking pixel on the NBA Top Shot website. This hidden tool collected users’ personal info and shared it with Facebook. It did this without getting the right permission. The lawsuit says that when users watched or bought clips on NBA Top Shot, a tracking pixel sent their viewing and purchase history to Meta. This action violated the federal Video Privacy Protection Act (VPPA). The VPPA stops “video tape service providers” from sharing personal info without clear consent first.
How many users are affected?
The settlement applies to over 1.2 million consumers who bought NBA Top Shot NFTs. The class includes all U.S. residents with active Facebook and NBA Top Shot accounts from June 15, 2020, to January 30, 2025. Settlement administrators believe eligible claimants could receive between $36 and $122 each. However, actual amounts may vary depending on how many valid claims are submitted. Settlement administrators said affected consumers in the Dapper Development lawsuit could receive between $36 and $122 each.
What does the settlement cover?
Along with the money, the settlement brings key changes to Dapper Labs’ privacy practices. The most significant changes are:
- Setting up a $7.05 million common fund to pay eligible claimants, lawyer fees, costs to manage the settlement, and rewards for class representatives
- Stopping the Meta tracking pixel on the NBA Top Shot website unless laws change or the companies make their practices follow the rules
- Neither defendant claims they did anything wrong. However, they decided to settle to avoid the uncertainty and cost of ongoing litigation.
- The Dapper Development lawsuit settlement also forces changes in Dapper’s privacy practices, including removing Meta’s tracking pixel.
To get money, affected users must turn in a valid claim form by December 16, 2025. The final hearing to approve this settlement will happen on December 19, 2025, with deadlines to opt out or object set for November 17, 2025.
SEC investigates Dapper Labs for securities violations
Apart from privacy issues, the Dapper Development lawsuit also drew attention from the SEC over potential securities violations. Dapper Labs faced a major legal challenge beyond privacy issues. The SEC began looking into whether NBA Top Shot NFTs were unregistered securities. The probe, which ended in September 2023, was one of the first serious regulatory checks of NFTs.
What made NBA Top Shot NFTs look like securities?
The main issue centered on how the “Howey Test” applied – a Supreme Court standard from decades ago that helps decide if assets count as securities.
An investment contract exists if you have:
- Money invested
- A shared business
- Expectation of reasonable profits from others’ work
What made Top Shot NFTs look like securities? Judge Victor Marrero pointed to Dapper Labs creating and running a private blockchain for the NFTs. Because Moments existed on Dapper’s Flow blockchain, buyers “pretty much relied on defendants’ know-how and management work”. Also, the court decided that Dapper Labs’ marketing stuff “made buyers think they’d make money”. These points made the Dapper Development lawsuit even more complex, linking NFT privacy issues with securities law concerns.
How did the SEC respond?
The SEC’s cryptocurrency and cybersecurity unit, led by David Hirsch, finished its inquiry into Dapper Labs on September 29, 2023. The SEC kept quiet about why it started or stopped looking into the company. Dapper Labs also faced a class-action lawsuit. Investors claimed that NBA Top Shot Moments were unlicensed securities. Even after the SEC probe ended, the Dapper Development lawsuit continued to shape how regulators view NFTs.
Dapper Labs CEO Roham Gharegozlou said they “didn’t know of any regulator” who thought their NFTs were securities. A lawyer cautioned against rushing to conclusions about the SEC ending its investigation. He noted it “doesn’t mean they won’t look into them again next year.”
How does this affect the future of NFTs?
The court emphasized that its decision was “narrow.” It stated, “Not all NFTs offered or sold by any company will be a security. Each scheme must be assessed case by case.” Still, this ruling has a big impact on NFT projects using private blockchains, where creators talk up possible profits.
In June 2024, Dapper Labs agreed in principle to a $4 million settlement in the securities class action. This deal, while not admitting fault, along with the legal review, sets key examples for how future NFT projects might face regulation. Privacy advocates point out that tools once meant for marketing now blur ethical lines, something explored in our guide on how VPNs improve privacy and security.
NFT market reacts to legal scrutiny of Dapper Labs
The Dapper Development lawsuit sent shockwaves through the NFT industry, raising doubts about compliance and user safety. The legal issues Dapper Labs faced shook up the NFT scene, making collectors and platforms unsure about what would happen next. As the court case played out, people started to see how it could affect the whole market, which had been doing well before.
What effect did the lawsuit have on NFT prices?
The hype around digital trading card NFTs as a speculative investment has dropped since it reached its high point in 2021. In fact, NFT sales fell by 54% in May 2024 when compared to the same month a year earlier. This decline occurred alongside Dapper Labs’ legal troubles. In February 2023, Judge Victor Marrero allowed the securities class action to proceed. As a result, many collectors who first saw NBA Top Shot Moments as a way to invest lost a lot of money as the values went down. The Dapper Development lawsuit directly influenced falling NFT prices and investor confidence.
What do users say about Top Shot?
Users complained about two things:
- Problems taking money out of the platform
- Worries about the closed marketplace system
Top Shot Moment prices fell when Dapper Labs stopped trading on the Marketplace. This caught everyone’s attention. Users voiced their concerns about slow withdrawals so often that Dapper Labs had to make changes. These changes included “updating its customer wallet, improving AML/KYC protocols, raising withdrawal limits, and teaming up with new payments and custody providers”.
Could other NFT platforms face similar issues?
After the Dapper Development lawsuit, other platforms started rethinking how they run their NFT ecosystems. The court’s decision sets a worrying example for other NFT platforms that use private blockchains. After the Dapper Labs case, someone filed a similar lawsuit against DraftKings Inc. on March 9, 2023. This lawsuit claims that DraftKings’ NFTs were also unregistered securities. Courts seem to look at these key factors:
- Control over the underlying blockchain
- Power over the marketplace
- Marketing hinting at investment potential
- Spending of money on purchases
So, experts in the field think clearer rules might help restore faith in the market and bring in new investors. For now, NFT platforms need to look at how they’re set up, what tech they use, and how they market themselves to lower legal risks.
Dapper Labs deals with the long-term effects of legal issues
As legal pressures grow, Dapper Labs has made big changes inside the company that go beyond just fighting in court.
What changes is Dapper Labs making?
In February 2023, Dapper Labs axed 20% of its workforce to restructure the company. This came after earlier job cuts in November when the firm let go of 22% of employees. Founder and CEO Roham Gharegozlou said these cuts were necessary. They aim to boost focus and efficiency, helping strengthen our market position.
As a result, Dapper agreed to make several business changes due to legal challenges. First, Dapper gave up control of the Flow blockchain in October 2021. Then, by March 2022, four other marketplaces got permission to show and sell NBA Top Shot Moments. The company then made withdrawals easier, cutting wait times to 2-10 business days.
What does this mean for Web3 gaming?
Even with setbacks, Gharegozlou stressed that Dapper Labs stays devoted to its main products. The company decided to require employees to take training courses. These courses will cover federal securities laws and honest marketing practices. This hints at tougher rules for the whole Web3 gaming world in the future. The case also signals how Web3 platforms might blend AI tools, similar to what we’re seeing in the future of AI in content creation.
Could this affect Dapper Development Las Vegas?
Apart from NFT-related issues, Dapper’s Las Vegas projects face their own problems. The company bought the Huntridge Theater for $4 million in March 2021, but plans to fix it up stopped because of a fight about a cell tower.
Conclusion
The Dapper Labs story marks a shift for the NFT world. The $7 million fine for collecting data without permission shows that even new Web3 companies must protect basic privacy. Also, the SEC’s looking into whether NBA Top Shot NFTs are securities has shaken up the digital collectibles market.
So, NFT platforms now face a tough choice: use private blockchains or talk up investment potential at your own risk. NFT sales have dropped since 2021, showing this new uncertainty. Many collectors believed their digital items were great investments. However, during these legal fights, their values have crashed.
Outside the courtroom drama, Dapper Labs has changed a lot. Several rounds of job cuts and big changes in how they do business show these problems have shaken up the company. Dapper still supports its main products. However, the new compliance training shows a need for a more careful approach moving forward.
What’s more, this case shows the growing pains of a new industry stuck between new ideas and rules. As Web3 games and NFTs keep changing, the decisions made in Dapper’s legal fights will guide how future platforms work. After all, finding the right balance between new tech and keeping customers safe is tricky. The Dapper Development lawsuit highlights the growing pains of Web3, where innovation often outpaces regulation.
The settlement also provides some justice for the 1.2 million impacted consumers who will get compensation. Yet, doubts remain about how digital ownership, privacy, and securities laws will work together in the fast-changing NFT scene. Until clear rules are set, companies and collectors should proceed carefully. New ideas without proper safeguards can pose significant risks.
FAQs
Q1. How much is the settlement in the Dapper Labs lawsuit?
Dapper Labs and NBA Properties Inc. have agreed to pay $7.05 million to resolve a privacy lawsuit linked to the NBA Top Shot NFT marketplace. The settlement covers over 1.2 million consumers who bought NBA Top Shot NFTs.
Q2. How can affected users claim compensation from the settlement?
Users who qualify need to submit a valid claim form by December 16, 2025. People who file claims can expect to get between $36 and $122 each, though actual amounts may change based on how many valid claims people submit.
Q3. Why did the SEC investigate Dapper Labs?
The SEC looked into Dapper Labs to figure out if NBA Top Shot NFTs were unregistered securities. They focused on using the “Howey Test” to check if these digital assets counted as investment contracts.
Q4. How has the lawsuit affected the NFT market?
The legal troubles Dapper Labs faces have led to a drop in NFT sales and values. NFT sales reportedly fell by 54% in May 2024 compared to the year before, at the same time as ongoing court cases and closer looks by regulators.
Q5. What steps has Dapper Labs taken to address the legal challenges?
Dapper Labs has made big changes, including cutting jobs and changing how it does business. The company has stepped back from controlling the Flow blockchain. Now, other marketplaces can sell NBA Top Shot Moments. Plus, users can easily withdraw their money.