Boring monkeys, Hermès suits Foreshadow What comes in NFT requirements

In June 2022, Yuga Labs Inc., the parent company of the Bored Ape Yacht Club non-fungible token pool, filed a federal lawsuit against artist Ryder Ripps, one of the most vocal critics of the BAYC NFT project.

Ripps created his own NFT project around May 2022, which he named RR/BAYC, using online digital images from the BAYC NFT collection by generating new NFTs using URLs embedded in Bored Ape Yacht Club smart contracts .

Yuga alleges that Ripps and co-founder Jeremy Cahen used some of the same digital art images as the BAYC collection, relying on Yuga’s trademarks for marketing in an alleged scheme to mislead consumers, harass Yuga and enrich themselves.

Yuga’s complaint alleged causes of action in false designation, false advertising, cybersquatting, trademark infringement, unfair competition, unjust enrichment, conversion and tortious interference against RR/BAYC founders. In particular, the complaint does not mention copyright infringement.

Subsequent litigation

Whether Ripps’ copycat project happened as alleged or is an example of protectable artistic expression, this lawsuit has plenty of precedent-setting potential and is worth following.

A notable development came from the court’s decision on the defendants’ motion to dismiss Yuga’s lawsuit, in which they argued that RR/BAYC was protected free speech under the test of Rogers v. Grimaldiand that the project is entitled to nominative fair use protection.

In deciding the motion to dismiss, the United States District Court for the Central District of California held that the defendants failed to meet the threshold shown under Rogers because the Ninth Circuit requires that “artistic expression” be involved, and the allegedly infringing use must be part of the expressive work.

The defendants claimed that they meet the element of artistic relevance below Rogers because their activity, taken together – website, NFTs offered for sale, social commentary the NFTs imply – should be seen as an expressive artistic work.

The court disagreed, observing that the defendants’ NFT sales were the only conduct at issue, and that the conduct did not constitute an expressive artistic work deserving of First Amendment protection.

In fact, the court found that RR/BAYC does not express an idea or point of view and merely uses an exact copy of Yuga’s BAYC marks without any expressive content.

The court described the defendants’ conduct as commercial activities designed to sell infringing products, rather than expressive artistic speech protected by the First Amendment.

The California federal court’s decision in Yuga Labs contrasts with the Southern District of New York’s opinion i Hermes v. Rothschild case, in which the New York court refused to rule on a motion to dismiss whether the “MetaBirkin” NFTs satisfied the low artistic relevance of Rogers test.

The SDNY court held that it sufficiently alleged that Rothschild’s use of the name “MetaBirkin” was explicitly misleading to the public and thus still actionable under the Lanham Act. IN Yuga Labsthe defendants could not get past the low artistic relevance threshold below Rogers.

The Yuga Labs the court also noted that Rogers The test would also have failed because the RR/BAYC marks are sufficiently misleading and Yuga has alleged sufficient facts to withstand a motion to dismiss.

Takeaways

The Yuga Labs and Hermes decisions are important because many creators are often quick to duplicate successful projects without considering the potential legal ramifications.

In light of decision i Rothschildand now Yuga LabsNFT copycats are aware that their First Amendment defenses may not succeed in the motion to dismiss, and that they cannot easily escape early-stage litigation.

Held in Yuga Labs can act to deter copycats from stealing intellectual property for use in other NFTs for financial gain.

The Yuga Labs the court also held that the defendants were not entitled to the nominative defense of fair use, which is available where the defendant uses a trademark to describe the plaintiff’s product rather than its own. IN Yuga Labsdefendants used Yuga’s trademarks to sell their own competing NFT collection.

An NFT copy may therefore have difficulty being protected by the nominative fair use doctrine unless they are selling the works on behalf of or in connection with the original project – i.e. the trademark owners – rarely the case in the NFT area.

The processes in Yuga Labs appears determined to litigate this case to its fullest extent, as the recent volley of motions and the defendants’ recent appeal to the Ninth Circuit suggest.

In the continued absence of NFT regulation, the legal landscape for the larger NFT marketplace will continue to be shaped by legal precedent and regulatory decisions.

Yuga Labs is poised to remain one of the key cases to watch. And while the holdings from this and similar lawsuits won’t eliminate bad actors, the risk of costly lawsuits might dissuade them enough, and perhaps help NFT projects gain further legitimacy in the eyes of consumers.

The thing is Yuga Labs Inc. v. RippsCD Cal., No. 2:22-cv-04355, 1/24/22.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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John Cahill is an associate at Wilson Elser who focuses on blockchain technology and digital assets.

Jana S. Farmer is a partner in Wilson Elser. She leads the firm’s art law practice and is a member of the firm’s intellectual property and technology practice.

Eian Weiner is an associate at Wilson Elser representing corporate entities, insurance companies and individual insureds in all aspects of civil litigation.