Owner of Bored Ape NFTs fends off challenges from conceptual artists | Holland & Knight LLP

Yuga Labs Inc. (Yuga) – the creator and marketer of the well-known “Bored Ape Yacht Club” collection of non-fungible tokens (NFTs), referred to as Yuga Bored Ape images – filed a complaint in July 2022 against concept artist Ryder Ripps (Ripps) to enjoin his use of Yuga’s Bored Ape Yacht Club trademark and other marks, including logos and acronyms, in connection with Ripps’ own Ryder Ripps Bored Ape Yacht Club NFT collection. Yuga included several allegations in the complaint, but did not allege copyright infringement.

The law governing the use of a third party in online images, particularly in NFTs, continues to evolve. Yuga appears to have deliberately pursued its enforcement under provisions of the US Trademark Act. Copyright law allows parties to make “transformative use” of third-party images. Trademark law prohibits the use of someone else’s trademark as long as consumers are not confused.

Background

On December 27, 2022, Ripps and another artist, Jeremy Cahen, filed a series of counterclaims (the Ripps Counterclaim) that included a number of eye-opening legal questions. The six claims against Yuga included 1) knowing misrepresentation of infringing activity, 2) declaration of no copyright under 17 USC § 102(a), 3) declaratory judgment of no copyright under 17 USC § 204(a) , 4) intentional infliction of emotional distress (IIED), 5) negligent infliction of emotional distress (NIED), and 6) declaratory judgment of no defamation, which was later withdrawn by the defendant.

On January 18, 2023, plaintiff and counter-defendant Yuga filed a special motion to strike and a motion to dismiss the aforementioned counterclaims asserted by Ripps and Cahen.

The United States District Court for the Central District of California (the Court) issued an order on March 17, 2023 granting Plaintiff Yuga’s Special Motion to Dismiss Counterclaims and granting in part and denying in part Plaintiff Yuga’s Motion to Dismiss Counterclaims.

Yuga’s Motion to Strike Emotional Distress Counterclaim

IIED and NIED are torts that can qualify as actionable when statements go beyond the bounds of free speech and, as a result, cause a serious infliction of emotional distress.

Yuga argued that the counterclaimant’s IIED and NIED claims are unlikely to succeed and should be struck under California’s anti-SLAPP statute. Although anti-SLAPP laws vary from state to state, anti-SLAPP provisions are used as a protective mechanism when certain claims are brought in retaliation against someone who brings a legal action to quash the court.

Counterclaimants Ripps and Cahen asserted that their IIED and NIED claims were based on the financial and emotional distress caused by Yuga filing this action and by making additional repeated public statements on various social media and news platforms, filing takedown notices , publish tweets and contact journalists and individuals with public platforms.

The court rejected such arguments under the principle that Yuga’s conduct was “incidental or collateral to a cause based essentially on protected activity,” given that this dispute is a matter of public interest and concern. The court concluded: 1) that California’s anti-SLAPP statute applies, 2) that the counterclaimants have failed to allege extreme or outrageous conduct required for the prevalence of an IIED counterclaim, 3) the counterclaimants have failed to allege that Yuga owed them a special duty as required to prevail on their NIED counterclaims and 4) the counterclaims failed to allege the emotional distress required for their IID and NIED counterclaims.

Because Yuga was the prevailing party in the special strike motion, the court concluded that Yuga is entitled to attorney’s fees.

Yuga’s Motion to Dismiss Copyright-Related Counterclaims

The court granted Yuga’s motion to dismiss the second and third copyright-related counterclaims.

Noting that Yuga did not actually have any US copyright registrations, the counterclaimants sought a court declaration that Yuga does not own any copyright for the Bored Ape images.

Under US law, an interested party cannot make a copyright claim if the works are not registered with the US Copyright Office. In this case, and as the court order explained, Yuga and the counterclaimants “agree that Yuga does not have any copyright registrations.”

As a result, the court concluded that there can be no case or controversy in relation to an issue of copyright infringement. For this reason, there was no case or controversy under copyright law, so the counterclaims were dismissed.

Misrepresentation of claims of infringing activity

The court’s March 17 ruling was not a complete loss for Ripps and Cahen, as the court denied Yuga’s motion to dismiss with respect to the first counterclaim, in which Ripps and Cahen alleged misrepresentation of infringing activity. The court said such cases “are appropriately resolved on a motion for summary judgment.” The counterclaims alleged that Yuga knowingly and materially misrepresented the existence of copyright infringement by submitting a series of Digital Millennium Copyright Act (DMCA) takedown notices. The parties disagree about, among other things, how many takedown notices were submitted pursuant to the DMCA and how many were submitted for reasons other than copyright, including trademark infringement.

Takeaways

Several courts have examined issues related to the use of third-party intellectual property rights (IP) by creators of NFTs. To date, the best avenue to enforce rights appears to be under the provisions of the Federal Trademark Statute.

Ultimately, the court concluded that in this case it would be futile and unnecessary to “give counterclaims an opportunity to amend” most of their claims, with the exception of misrepresentation of infringing activity claims.