Courts offer more guidance on enforcing rights to marks and images used with NFTs | Insight

Non-fungible tokens (NFT) act as flexible mechanisms to verify an underlying asset’s authenticity and/or ownership associated with it.

Currently, minting NFTs to commercialize digital artworks on blockchain domain names continues to be one of the most common schemes for their use.

Background

The ongoing dispute between French luxury brand Hermès International and artist Mason Rothschild continues, with the trial set to begin on January 30, 2023. Defendant Rothschild produced and sold MetaBirkin NFTs, which are digital versions of Hermès’ fur-covered Birkin bags. Plaintiff Hermès claimed that the MetaBirkin NFTs infringed it BIRKIN trademark. Rothschild countered that the NFTs were works of art and therefore protected by the test set out in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), which held that use of a name or mark for artistic purposes does not necessarily constitute infringement. Specifically Rogers test states that claims of infringement will not apply to titles of creative works unless “the title has no artistic relevance to the underlying work whatsoever, or, if it has an artistic relevance, unless the title explicitly misleads as to the source or content of the work.” ID. at 999. In 2022, before setting a trial date, the US District Court for the Southern District of New York denied Rothschild’s motion to dismiss, but held that Rogers test used, setting the stage for the upcoming trial period.

The US District Court for the Central District of California recently decided another case (Yuga Labs, Inc. v. RippsNo. CV 22-4355-JFW(JEMX), 2022 WL 18024480, at *1 (CD Cal. Dec. 16, 2022)) that Rogers The test does not apply to digital works of art NFTs.

Plaintiff Yuga Labs Inc. (Yuga), the creator and marketer of the well-known “Bored Ape Yacht Club” collection of NFTS (Yuga Bored Ape images), filed a complaint against concept artist Ryder Ripps (Ripps) due to his use of Yuga’s MANAGER APE YACHT CLUB trademark and other marks, including logos and acronyms (BAYC Marks) in connection with Ripps’ own Ryder Ripps Bored Ape Yacht Club (RR/BAYC) NFT collection. Ripps claims the Yuga Bored Ape images were created as part of an alt-right conspiracy. Yuga denies this.

Unlike Hermes v. Rothschildthe California District Court held that Rogers sample exemption was not applicable due to the fact that RR/BAYC’s images do not constitute an expressive artistic work as they are exact copies of Yuga’s Bored Ape images. The court said the content on Ripps’ website “is all commercial activity designed to sell infringing products, not expressive artistic speech protected by the First Amendment.” 2022 WL 18024480, at *5. On December 27, 2022, Ripps filed a series of counterclaims (the Ripps Counterclaim), which include two eye-opening legal issues relating to the plaintiff’s copyright in and to its digital artwork.

Artificial intelligence and digital art

Ripps claims that a controversy exists as to whether Yuga Bored Ape images are entitled to copyright protection due to the fact that the Yuga Bored Ape images have been generated by an automated computer algorithm. Ripps claims that no human was involved in deciding which of the 10,000 Yuga Bored Ape images were chosen from more than 1.3 billion possible permutations, “except perhaps for a few custom BAYC images that Yuga may have produced with human involvement.” Case No. 2:22-cv-04355-JFW-JEM, Dkt. No. 65, § 79 (CD Cal. Dec. 27, 2022).

As explained in Holland & Knight’s recent blog post, “Image-Generating AI: Trends and Legal Challenges,” the US Copyright Office considers works partially and not entirely created by artificial intelligence (AI). This criterion harmonizes with the recent court decision rejecting patent applications that list AI as the inventor in Thaler v. Vidal, 43 F.4th 1207, 1209 (Fed. Cir. 2022). Therefore, the scope of protection for the Yuga Bored Ape images will be an important precedent in the virtual landscape for how the court interprets the nature of images partially or fully created by AI.

Copyright ownership and NFT holders

The Ripps counterclaim further raises the issue of whether plaintiff Yuga retains the copyright to the Yuga Bored Ape images that it sold and no longer owns.

According to Defendant Ripps, Yuga’s terms and conditions and its public statements support the idea that purchasers of the Yuga Bored Ape images retain all intellectual property (IP) rights in their NFTs.

These aforementioned legal issues may set important precedents regarding the rights that copyright claimants have in relation to NFTs.

On the other hand, the complaint originally filed by plaintiff Yuga Labs did not include copyright claims. However, 1) Yuga Labs has filed Digital Millennium Copyright Act (DMCA) takedown notices for copyright infringement against Ripps and 2) Yuga Labs owns a few US copyright registrations for the Yuga Bored Ape images.

Issues for badges and images used on NFTs not yet resolved

The courts that deal with the disputes in Hermes v. Rothschild, Yuga Labs v. Ripps and similar cases will help to set some parameters and guide entries, but other issues are not yet resolved. These include the use of disclaimers to distinguish one set of images from other NFT collections, the first sale doctrine, and principles of fair use.

Takeaways

Among other factors – such as the interoperability of blockchain ledgers and platforms – once the legal issues related to IPs associated with NFTs are clearer, companies and industries will have more direction in using NFTs and trading in virtual landscapes .

For more information and additional IP guidance, contact the authors.