Yuga Labs Scores Another Win With Summary Rating | Ingram Yuzek Gainen Carroll & Bertolotti, LLP
In our previous post, we wrote about the closely monitored Yuga Labs v. Ryder Ripps case and how the defendants’ motion to dismiss and anti-SLAPP motion were denied. Since then, Yuga Labs has filed a motion for partial summary judgment seeking summary judgment in favor of a pair of its false designation of origin and cybersquatting claims, as well as seeking dismissal of certain of the defendants’ affirmative defenses and counterclaims. On April 21, 2023, the District Court for the Central District of California granted Yuga’s motion in part and denied it in part on the issue of whether the case merited an award of enhanced damages and attorney’s fees, because Yuga has reserved the issue of damages for trial.
Yuga, the team behind the popular Bored Ape Yacht Club (“BAYC”) NFTs, is suing Ryder Ripps and Jeremy Cahen, who used the same BAYC images through a process of reminting and sold them as Ryder Ripps (“RR”)/ BAYC NFTs. Defendants view their RR/BAYC project as “appropriation art,” seeking to bring attention to, among other things, Yuga’s alleged use of racist and neo-Nazi dog whistles in their images, and to educate the public about its technical nature. of NFTs. Yuga alleges that the defendants reaped millions in sales and resale royalties by selling the RR/BAYC NFTs.
There are at least three interesting things from the court’s decision. First, in granting summary judgment to Yuga on the false designation of origin claim (which is essentially a trademark infringement claim for unregistered marks), the court recognized that NFTs could constitute “goods” under the Lanham Act, and dismissed the argument that Yuga’s NFTs are not eligible for trademark protection under Dastar Corp. v. Twentieth Century Fox Film Corp., 539 US 23 (2003). The same argument was raised by Mason Rothschild in Hermès v. Rothschild fight, and the argument goes like this: in Dastarthe United States Supreme Court held that the Lanham Act makes fair misrepresentations about the origin of tangible goods, but not misrepresent the author of any idea, concept or communication embodied in those goods. Because NFTs are intangible, the defendant argued that Dastar indicates that trademark legislation does not apply. In support of this point, the defendant claimed that the US Patent and Trademark Office communicated to Yuga in an office filing against one of its trademark applications that “Applicant [Yuga] should note that a non-fungible token or NFT is no good in commerce….NFTs are downloadable data units stored on a blockchain…that authenticate and prove ownership rights to digital or physical objects. An NFT is not the digital or physical item itself, nor does it contain the digital or physical item; rather, it only contains information about the item. It can be compared to a certificate of authenticity/ownership for a physical object.”
The court was not convinced. It adopted the analysis of Hermès the court, who said Dastar imposed no requirement that goods be tangible, finding that NFTs constitute “goods within the meaning of the Lanham Act.” In so finding, the court also relied on a law review article that analyzed that “focusing only on tangibility misses important characteristics of NFTs that suggest they may be treated as “goods” under the Lanham Act.” The court rejected the notion of treating NFTs as mere ownership receipts or software code containing functional instructions that tell a computer what to do, instead adopting the view that the value of NFTs lies in their association with a particular brand, creator or content , and thus able to of being treated more like “goods”. In this spirit, the court again relied on reasoning from Hermès court, which held that MetaBirkin’s NFTs should be understood to refer to both the NFT and the associated image, because “[i]individuals do not buy NFTs to own a “digital title” separate from other assets: they buy them precisely so that they can exclusively own the content associated with the NFT.”
Rothschild is currently seeking to vacate the jury verdict on a motion for judgment as a matter of law or for a new trial citing several grounds, including that Dastar excludes the trademark claim.
Second, the court rejected the defendants’ argument that Yuga did not own any trademark rights because it transferred them to buyers or abandoned them through bare licensing and failure to police. As mentioned earlier, Yuga’s terms of use provide, among other things, that “[w]When you buy an NFT, you completely own the underlying Bored Ape, the Art.” Defendant also referred to testimony from Yuga’s former CEO, who was still serving as CEO at the time of his ouster, who testified that “All IP rights are effectively granted to the member and to the owner. We don’t have any of those rights, and we don’t actually charge a license fee.” Defendants further alleged that many NFT buyers created their own brands using the BAYC brands, including uncritical copy collections, which BAYC failed to police or exercise quality control.
Rejecting the arguments, the court interpreted Yuga’s terms of use to grant only a copyright license, but not a trademark license, to use the Bored Ape marks. The court did not discuss the effect, if any, of Yuga’s former CEO’s testimony. Accordingly, the defendant’s bare licensing theory failed, because no trademark license was at issue. The defendant’s theory of abandonment was similarly rejected, and the court stated that the filing of the lawsuit was strong evidence that Yuga had not abandoned his rights.
Third, the court reiterated its earlier rejection of Rogers v. Grimaldi as the applicable test for determining whether the defendant’s actions should be examined through the lens of the First Amendment. In advocating this test, defendants pointed to websites they created (GordonGoner.com and rrbayc.com), which contain their criticism of Yuga and BAYC and an artistic statement, and argued that the inquiry to determine whether the work was expressive required to look not only at the work itself, but the activity “aid” to the work. The court again disagreed, finding that “Defendant’s sale of what is admittedly a collection of NFTs pointing to the same online digital images as the BAYC collection is the only conduct at issue in this action and does not constitute an expressive artistic work protected by the First Amendment.” The court did not specifically address the argument that it was required to look not only at the defendant’s NFTs but at “ancillary matters.
The obvious effect of this decision is that it confirms or strengthens Yuga’s trademark rights. That positions Yuga well with the ability to pursue, potentially, even a bona fide purchaser of BAYC NFTs operating under the impression that they have purchased a valid license can freely use the Bored Ape trademarks. The decision should warn these purchasers that the rights they purchased do not include any trademark rights, and that use of the marks may render them liable to Yuga for trademark infringement unless the use falls within the protection of Rogersor the doctrine of fair use, which — if the decision of this court and that Hermès the judgment is an indication – is not easy to achieve.
