In the legal battle between Yuga, creator of the acclaimed Bored Ape Yacht Club (BAYC) NFT collection, and Ripps, a visual artist, the court recently granted Yuga’s motion for summary judgment (mostly).
We have already covered the matter extensively in previous articles (see a summary of the facts here, the copyright overview here and the trademark perspective here). The recent decision provides insight into the complex terrain of balancing trademark rights and artistic freedom in the ever-evolving NFT space. More specifically, it elucidates whether NFTs should be treated as (virtual) goods in their own right or only serve as proof of authenticity.
Of particular importance from an EU perspective is the court’s reasoning about the likelihood of confusion. Essentially, Yuga claimed in its first case (ie, false designation of origin) that Ryder Ripps et al. (the “Defendants”), among others, used several of their trademarks (the “BAYC Marks”) to sell RR/BAYC NFTs, without the consent of Yuga and in a manner likely to cause confusion. In this regard, the Court pointed out that a claim for false designation of origin requires proof of the same elements as a claim for trademark infringement under US law:
Yuga owns the BAYC marks and these marks are valid and protectable
It was undisputed that the BAYC marks were unregistered. On the other hand, “an unregistered trademark is enforceable against potential infringers.” And Yuga first began using the BAYC Marks in April 2021 in connection with the BAYC NFT Collection, before the Defendants used the Marks. The Court then went on to explain how this use gave rise to Yuga’s trademark rights.
NFTs are goods under US trademark law
Defendants argued that Yuga owned no rights in the BAYC marks because NFTs are intangible and, as a result, ineligible for protection. However, the court agreed with the court in Hermès (see our report here), which concluded that the goods did not need to be tangible for the Trademark Act to apply. Although “NFTs are virtual goods, they are actual goods” for trademark legislation. Again points to Hermesthe Court held that 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.“
Yuga used the BAYC marks in trade
The court confirmed that Yuga has used the BAYC marks in commerce and continued to do so. Yuga has sold 10,000 BAYC NFTs. In addition, holders of BAYC NFTs had exclusive access to membership benefits, including access to the online “Bored Ape Yacht Club”, various online games, in-person events (such as the Ape Fest music festival), and new product launches and merchandise, all of which incorporated and featured BAYC- the brands. In addition, Yuga has entered into marketing partnerships and collaborations with various brands, including adidas, which featured the BAYC brands.
Yuga has not transferred or abandoned its rights in the BAYC brands
Defendants also alleged that Yuga has either transferred all of its trademark rights in the BAYC Marks to BAYC NFT purchasers or abandoned their rights through bare licensing and omission to police. According to the Court, a “bare license” occurs when a trademark owner grants a license but “then fails to monitor the quality of goods that the licensee produces under this trademark to such an extent that the trademark may be considered abandoned.” Under its terms and conditions, as the court pointed out, Yuga granted each BAYC NFT holder a copyright license for both personal and commercial use with respect to their respective BAYC monkey image, but not a trademark license to use the BAYC Marks. Since Yuga has not granted BAYC NFT holders a trademark license, the court said, the defendants’ bare licensing theory failed.
Defendant’s use is likely to cause confusion
The most intriguing aspect of the decision – at least from an EU perspective – is the court’s thorough examination of the likelihood of confusion. The Court concluded that the majority of the relevant factors weighed in favor of Yuga, in particular:
The strength of the previous brands
The BAYC brands were found to be both conceptually and commercially strong. Conceptually, the BAYC marks were arbitrary designations for the NFTs and NFT-related products offered by Yuga. Commercially, although the NFT market was relatively new, Yuga has prominently used the BAYC brands since April 2021. In addition, Yuga’s BAYC NFT collection was consistently one of the best-selling and highest-valued NFT collections, and Yuga has used its BAYC marks to mark this success in conjunction with Yuga’s website, events, social media pages, etc. As a result, Yuga has developed recognition for its goods and services under the BAYC Marks and has acquired significant goodwill from its BAYC Marks.
Proximity to the goods
Admittedly, since Defendants have used Yuga’s BAYC Marks in connection with Defendants’ RR/BAYC NFT collection, the consuming public was likely to associate Defendants with Yuga. The defendants were found to have sold the exact same product – NFTs pointing to Yuga’s BAYC images.
Similarity between the brands
The defendants have admitted that they intentionally used the (identical) BAYC marks in their RR/BAYC NFTs.
The defendant’s intention to use the allegedly infringing mark
The court concluded that the defendant used the BAYC marks in an attempt to confuse consumers. They intentionally designed the RR/BAYC NFTs and sales websites to resemble Yuga’s branding. For example, Defendants listed the RR/BAYC NFTs on rrbayc.com under the same Ape ID number associated with BAYC NFTs, despite having their very own unique and distinct ID numbers.
The degree of care customers are likely to exercise
According to the court, the defendants knew that their RR/BAYC NFTs were likely to be confused with Yuga’s BAYC NFTs and that at least some buyers of their RR/BAYC NFTs would have difficulty identifying the RR/BAYC NFTs as a different and distinct product from Yuga’s BAYC NFTs.
In light of the above, the court found that the defendant’s use of Yuga’s BAYC marks was likely to cause confusion.
Defense
None of the defenses invoked by the defendant were successful.
Defendant’s First Amendment/Roger’s Affirmative Defense
The defendant claimed that Rogers test applied because their RR/BAYC NFT collection was an expressive work protected under the First Amendment. Under Rogers tests, an artistic work’s use of a trademark that would otherwise be in violation of trademark law is not actionable”unless the use of the mark has no artistic relevance to the underlying work whatsoever, or, if it has an artistic relevance, unless it is expressly misleading as to the source or content of the work.”
The court concluded that the Rogers test did not apply. Defendant’s sale of what was admittedly a collection of NFTs pointing to the same online digital images as the BAYC Collection was the only conduct at issue and, in the Court’s view, did not constitute an expressive artistic work protected by First Amendment. Notably, the RR/BAYC NFTs did not express an idea or point of view, but instead merely pointed to the same digital digital images associated with the BAYC collection.
In addition, the court confirmed that the defendant’s use of the BAYC marks was – in any case – explicitly misleading. Defendants admitted that they have used the BAYC Marks in the same marketplaces to identify and sell NFTs that have the exact same images underlying the BAYC NFTs and without adding any expressive content. Thus, defendants used Yuga’s BAYC marks to make their competing product look identical to Yuga’s product and ensure that the consumer will be explicitly misled in the token tracker, which is the place where a consumer should be able to authenticate and verify who created the NFT .
Defendant’s Affirmative Defense of Fair Use
The court concluded that the defendant’s use of the BAYC marks did not constitute nominative fair use either. The defendants did not use the BAYC marks to sell Yuga’s BAYC NFTs, but to sell their own competing RR/BAYC NFTs. They have failed to establish the requirements for the nominative defense of fair use. For example, defendants often used the entire BAYC marks without modification, including the “visual embellishments” of Yuga’s mark.
Defendant’s unclean hands affirmative defense
Defendants argued that the affirmative defense of unclean hands applied because Yuga allegedly “dirty hands” by compensating celebrity endorsers without disclosing that compensation and by selling unregistered securities. However, none of these claims, the court said, were related to the trademark dispute between the parties.
Outlook
In conclusion, Yuga was granted summary judgment with respect to its first cause of action for false designation of origin. Brand owners in the EU will take particular note of the Court’s view of NFTs as inherently virtual goods. This is particularly interesting in light of the recent guidance issued by several IP offices, which consider NFTs rather a certificate of authenticity (see our reports here and here). The court quoted one commentator and explained:
Blockchain technology has revolutionized digital assets and allowed the creation of unique digital goods that are not fungible. New digital goods such as NFTs built with ledgers have essentially imported the external attribution tagging functionality into the file of the digital asset itself, but in an intangible form. Furthermore, intangible NFTs do not preclude having other characteristics of “goods”, including being individually transferable between owners, stored for indefinite periods, solely owned by a single owner, and distinguishable based on their source.
Exciting times for brands in the virtual space.
