Ryder Ripps argues against NFT trademarks in Yuga Labs suit

Arguing against Yuga Labs’ bid for partial summary judgment in the trademark lawsuit against them, Ryder Ripps and Jeremy Cahen argue in a new filing that the company behind Bored Ape Yacht Club (“BAYC”) partially lacks valid trademarks, because such rights do not include non- fungible tokens. The opposition follows Yuga Labs’ earlier this month filing a motion for summary judgment in the US District Court for the Central District of California, arguing that the court should rule on its false designation of origin and cybersquatting claims on the basis that it owns the “valid and enforceable” BAYC marks, that Ripps and Cahen used those marks in connection with their “confusingly similar” RR/BAYC NFT project, and that they are entitled to damages and injunctive relief as a result.

In their recently filed opposition, Ripps and Cahen (“Defendants”) claim that while Yuga Labs — which recently disclosed a multi-year partnership with Gucci — “is seeking[ing] partial summary judgment regarding [its] infringement and cybersquatting claims, as well as a handful of defense and [their knowing misrepresentation of infringing activity] counterclaim, each of Yuga’s arguments is fatally flawed.”

Focuses primarily on Yuga Lab’s false designation of origin claimRipps and Cahen argue that Yuga Labs fails here, as it cannot show any of the threshold elements: ownership of the claimed trademarks—namely, BORED APE YACHT CLUB, BAYC and BORED APE word marks, and the BA YC logo, BA YC BORED APE YACHT CLUB— logo and the Ape Skull logo – or likelihood of confusion.

As to ownership, the defendants attempt to debunk Yuga Labs’ claims by citing Dastar and argues that the Supreme Court “has held that trademarks are limited to ‘tangible goods offered for sale’.” There is a problem here, according to Ripps and Cahen, as “‘the goods for which Yuga claims trademark rights are NFTs,'” which are not “tangibly good”.[s] according to which the Trademark Act applies Dastar.” (The defendants also point to a recent Office action in which the USPTO stated that an “NFT is not a good in commerce,” and thus Yuga must “specifically identify the underlying digital or physical objects represented by the NFT for proper classification and identification. “)

Note: This is not the first time Dastar has been raised in connection with NFTs. Attorney for MetaBirkins maker Mason Rothschild argued in his February 2022 motion to dismiss that “although Rogers was not directly relevant and dispositive in this case – as it is – the Supreme Court’s decision in Dastar would be fatal to” Hermès’ trademark infringement claim, which Dastar “raises unequivocally that mere misrepresentations of the origin of physical goods are searchable under the Lanham Act.” The court disagreed with Rothschild on this, with SDNY Judge Rakoff stating that in making the Dastar argument, Rothschild “ignored decades of application of the Lanham Act to virtual goods and services … including digital goods.”

“Although … NFTs were ‘tangible goods’ subject to trademark law,” the defendants argue that “Yuga—because it lacks any federal registrations [for the allegedly infringed marks] – must meet the ‘use in trade’ requirement’, which it cannot do. This is in part because “Yuga’s sale of BAYC NFTs cannot form the basis of a ‘use in trade’ claim, because those sales were illegal” – as they constitute “unregistered investment vehicles” – and thus “not a lawful use in trade .”

Beyond that, the defendants claim that Yuga Labs lacks rights in the BAYC trademarks because their “terms and conditions gave away all of Yuga’s rights” — “including any underlying trademark rights in Bored Ape that Yuga may have owned” — to buyers of BAYC NFTs. Likewise, and in what appears to be a potentially stronger argument that Dastar Ripps and Cahen argue that Yuga allegedly lacks valid trademark rights because its practice of granting BAYC NFT holders broad rights to exploit the intellectual property associated with those NFTs (including the BAYC trademarks) constitutes bare licensing, a phenomenon that “occurs when a trademark owner grants a license but “fails to exercise quality control over the licensee,” resulting in “an involuntary loss of trademark rights.”

Finally, the defendants allege that Yuga has also failed to police unauthorized use of its marks, and therefore “there is a material dispute as to whether Yuga’s failure to police resulted in abandonment,” according to Ripps and Cahen, who cite “widespread use [of the BAYC marks] by competitors leading to a perception of genericity among the public who see many sellers using the same term.”

Ripps and Cahen argue that there are “many substantive disputes” that weigh against summary judgment. For example, the defendants claim that while their RR/BAYC NFTs may point to the same images as Yuga Labs’ BAYC NFTs, they still constitute “different products in different markets.” Specifically, the defendants allege that the “satirical” RR/BAYC’s NFTs “are distinct tokens on the blockchain that are sold on different marketplaces, the sizes of the pools are different, the prices are different by orders of magnitude, the underlying contracts have different addresses, and the tokens show different name.”

The defendants further state that Yuga Labs has not established a likelihood of confusion, and instead “relies on a handful of anecdotal social media posts and flimsy survey evidence for its conclusion that consumer confusion is indisputable.” And such “anecdotal evidence of presumed confusion cannot support summary judgment either.”

Not done, Ripps and Cahen push back against Yuga Labs’ Anti-cybersquatting Consumer Protection Act claim, and also argue that Yuga Labs is not entitled to summary judgment on their First Amendment (citing Rogers here) or fair use defense or on their counterclaim that it has submitted inappropriate takedown notices in violation of copyright law.

The opposition comes after Yuga Labs was handed a partial victory this month, with John Walter of the US District Court for the Central District of California granting its special motion to strike the intentional infliction of emotional distress and negligent infliction of emotional distress counterclaims that Ripps and Cahen objected to it, ruling that it is entitled to be compensated for its attorneys’ fees and costs as a result. At the same time, the court granted Yuga Labs’ motion to dismiss the defendants’ declaratory judgment action of no copyright, but refused to throw out their “knowing misrepresentation of infringing activity.”

The thing is Yuga Labs, Inc. v. Ryder Ripps, et al.2:22-cv-04355 (C.D. Cal.).