In the latest court decision to wrestle with the scope of trademark rights in the metaverse, the Central District of California handed a significant victory to Yuga Labs, the creator of a collection of 10,000 NFTs (non-fungible tokens) marketed under the name BORED APE YACHT CLUB or BAYC.
The BAYC NFTs are built on the Etherium blockchain and are associated with a series of unique computer generated cartoon images of monkeys with varying clothing, accessories and facial expressions. Purchasing a BAYC NFT grants the owner a copyright license to the associated image, as well as access to certain owner-only benefits, including digital communities and real-world events. BAYC NFTs can be resold on the NFT marketplace OpenSea and have traded for sums much higher than the initial offer price.
The defendants, two individuals named Ryder Ripps and Jeremy Cahen, created a separate series of NFTs on the Etherium blockchain, pointing to same publicly available digital images of monkeys associated with the BAYC NFTs. Ripps and Cahen called this NFT collection RYDER RIPPS BORED APE YACHT CLUB (“RR/BAYC”), and they claim it is a “satirical conceptual art and performance project” and a work of “appropriation art.” They also claim that the RR/BAYC project is intended to, among other things, educate the public about NFTs in general and draw attention to what they claim are racist, neo-Nazi and alt-right messages used by Yuga in connection with BAYC. business.
In July 2022, Yuga filed suit against Ripps and Cahen for unauthorized use of BORED APE YACHT CLUB and related trademarks, asserting claims of false designation of origin under the Lanham Act, common law trademark infringement, unfair competition, cybersquatting and related claims. Yuga then moved for partial summary judgment on its false designation of origin and cybersquatting claims, as well as on several of the defendants’ affirmative defenses. The court found in favor of Yuga on all issues except those related to damages, which the court found Yuga had reserved for trial. The ruling rests on detailed findings on a number of key facts and legal issues that may serve as guidance for other courts considering NFT-related trademark claims. It is particularly important to note the following points from the statement:
- NFTs are commodities under the Lanham Act. The court rejected the defendant’s contention that, because they are digital and intangible, NFTs could not serve as “goods” for which source identifiers could be trademarked. In reaching this conclusion, the court followed the lead of the Southern District of New York’s opinion in another NFT trademark case, Hermes International v. Rothschildpopularly known as the “MetaBirkins” case.
- Yuga had not transferred or abandoned its trademark rights in the BAYC Marks by selling the BAYC NFTs. Although some of the BAYC Marks are featured in some of the images associated with the BAYC NFTs, and although the owner of a BAYC NFT receives a
copyright license to the image, the court found that the BAYC NFTs do not come with one trademark license to the BAYC brands. Thus, Yuga had not licensed its marks without restriction, and had not failed to police them (as emphasized, the court noted, by Yuga’s trademark lawsuit against Ripps and Cahen). - A First Amendment defense based on Rogers v. Grimaldiwas not applicable to the defendant’s business. Under
Rogers test, use of a third party’s trademark in connection with an expressive work will not result in infringement liability unless the use of the mark has no artistic relevance to the work, or is expressly misleading as to the source of the work. The court in Hermes the case found that
Rogers defense was potentially available to Defendant Rothschild’s “MetaBirkins” NFTs, which could be considered artistic expression (although ultimately
Hermes the jury found that the First Amendment did not protect Rothschild from liability). Here, however, the court found that Ripp’s and Cahen’s accused actions — namely, creating a series of NFTs that point to same images such as Yuga’s BAYC collection — did not constitute “an expressive artistic work,” and therefore defendants could not assert a First Amendment defense under Rogers. The court also found for good reason that although Rogers were applicable, it would not shield Ripps and Cahen from liability, because their use of the BAYC marks was not artistically relevant and was explicitly misleading. - Ripp’s and Cahen’s use of the BAYC trademarks was not protected as nominative fair use, because they used the marks to refer, not to Yuga’s goods, but to their own competing goods.
- Ripp’s and Cahen’s affirmative defenses of unclean hands, based on allegations of misconduct against Yuga relating to celebrity endorsements and securities violations, could not shield them from liability because the alleged misconduct by Yuga was unrelated to the parties’ trademark dispute.
- Yuga was not liable under Section 512(f) of the Digital Millennium Copyright Act (DMCA) for knowingly misrepresenting infringing activity. Yuga had filed takedown notices of online “forms” alleging trademark infringement, but because the notices did not identify any copyrighted works and did not explicitly purport to be DMCA notices, they were not actually DMCA notices and could not result in section 512(f) liability .
While Yuga hails the court’s decision as a major victory, there are still several loose ends in this story. Yuga is facing an investigation by the Securities and Exchange Commission and a class-action lawsuit alleging that its NFTs constitute an unregistered security (a theory that echoes the defendants’ theory of unclean hands in the RR/BAYC case). Meanwhile, Yuga’s applications to register the BAYC marks with the United States Patent and Trademark Office are being held up by an objection filed by Jeremy Cahen – one of the defendants in the present case. Cahen filed an opposition in February 2023, while the trial was pending, arguing that the BAYC marks are unregisterable for many of the same reasons that Ripps and Cahen pressed in the lawsuit, along with a few other reasons (including that the marks are deceptively misdescriptive because Yuga does not offer yacht club services). The opposition is currently suspended pending a final decision on the district court case. Finally, although it may not have a direct impact on the parties in this case, the Supreme Court appears to be changing the contours of Rogers test i Jack Danielscase that was heard in March, a decision that could have significant consequences for the outcome of future NFT trademark cases.
The thing is Yuga Labs, Inc. v. Ripps, et al.2:22-cv-04355 (CD Cal. Apr. 21, 2023).
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