Editor’s Note: This article is the third in a series by Katten Lawyers examining NFTs and various emerging legal issues raised by NFTs.
NFTs are a new medium that embodies traditional forms of intellectual property, including trademarks and copyright. NFT creators can also be accused of infringing both trademark and copyright rights. In 2021, Yuga Labs, Inc. (Yuga Labs) launched a collection of NFTs with graphic images of monkeys – known as the Bored Ape Yacht Club (BAYC). The collection grossed over $2 billion in sales, finding fans among high-profile celebrities and prominent consumer brands. Part of what makes the Bored Ape NFTs so desirable is their rarity. There are only 10,000 unique Bored Ape NFTs.
In June 2022, Yuga Labs filed suit against “conceptual artists” Ryder Ripps and Jeremy Cahen, alleging that their collection of NFTs—the “RR/BAYC” NFTs—infringed Yuga Labs’ trademark rights in BORED APE YACHT CLUB, BAYC and BORED APE marks, as well as other logo marks. See Yuga Labs, Inc. v. Ripps, et al., CD Cal., No. 2:22-cv-04355. Interestingly, when Yuga Labs filed the complaint, it asserted a claim for, among other things, common law trademark infringement (as opposed to a federal infringement claim under the Lanham Act). Fast forward, and relations between Yuga Labs and the defendants have become so bitter that Jeremy Cahen recently opposed 10 different Yuga Labs trademark applications for BORED APE YACHT CLUB, BAYC, BA YC, BA YC BORED APE YACHT CLUB and the Yuga Labs logo before the US Patent and Trademark Office Trademark Trial and Appeal Board (TTAB). See TTAB Opn. No. 91283323. Cahen argued that under Yuga Labs’ terms and conditions, Yuga Labs relinquished its rights to the trademarks by granting purchasers of the Bored Ape NFTs “all rights” associated with the applicable NFT, which, Cahen argued, includes any trademark rights that Yuga Labs may have. Cahen also alleged, among other things, that Yuga Labs did not have one bona fide intent to use the applied for marks in commerce at the time of filing the applications because the Bored Ape NFTs should be classified as securities under applicable federal securities laws.
On March 21, Yuga Labs filed a motion to suspend the opposition proceeding pending the outcome of the civil litigation between Yuga Labs, Cahen and Ripps described above. The TTAB granted the motion on April 20.
As the civil trial between the parties progressed last year, the defendants filed an answer asserting various counterclaims against Yuga Labs last December. The second counterclaim sought a declaratory judgment that Yuga Labs is not entitled to copyright protection in the BAYC monkey images because each image is “of a human-made monkey cartoon that includes certain characteristics programmatically assembled by a computer algorithm.” The defendants claim that there is no copyright in the BAYC images “to the extent that they were not created by a human being”.
While the Central District of California dismissed the artists’ counterclaim for a declaratory judgment of no copyright on March 17, the counterclaim raises the topical topic of copyright protection in generative artificial intelligence (AI). Under a different set of facts, if the images underlying the BAYC NFTs had undoubtedly been generated solely by AI tools, the case could have provided a unique opportunity for a decision on this landmark issue.
On April 21, the court granted Yuga Labs’ motion for summary judgment on the false designation of origin and cybersquatting causes of action. The court also granted Yuga Labs summary judgment on the defendants’ sole surviving counterclaim alleging that Yuga Labs knowingly and materially misrepresented that RR/BAYC NFTs infringed Yuga Labs’ copyright by submitting improper takedown notices under the Digital Millennium Copyright Act. In granting Yuga Labs summary judgment on its false designation of origin claim under the Lanham Act, the Court made a significant finding, based on the recent decision in Hermes International v. Rothschild, 590 F.Supp. 3d 647, 655 (SDNY 2022). Importantly, the Court concluded that “although NFTs are virtual goods, they are in fact goods under the Lanham Act,” thereby rejecting the defendants’ position that NFTs should be treated as unregistered securities. The court also held that despite the defendants’ argument that Yuga Labs transferred “all rights” to purchasers of Bored Ape NFTs under Yuga Labs’ terms and conditions, Yuga only grants each BAYC NFT holder a copyright license, not a trademark license.
In light of the fact that the Central District of California held that Yuga Labs owns the various trademarks that are the subject of the pending opposition before the TTAB, and that those marks are valid and protectable, it is likely that Cahen’s opposition will also fail. We will follow this case closely to see if the defendants appeal the summary judgment decision, as well as the determination of compensation to be calculated during the trial.
