Yuga Labs, the makers of the popular NFT collection Bored Ape Yacht Club, has won a major legal victory on their ongoing litigation against artist Ryder Ripps. The claimants filed a motion for summary judgement, and the District Judge has granted some of their requests, while denying others. What is interesting is the strength of the arguments presented, as well as some of the reasoning in the granted claims, which could have wider implications for the NFT market (ruling here).
I’ve talked about the case before. The case involves conceptual artist Ryder Ripps and Yuga Labs. Ripps has been a very vocal critic of BAYC, he claims that BAYC is filled with racist dog-whistles, and has created a website to document this, as well as participating in documentaries. As part of this campaign, RR also created his own competing Bored Ape collection, the RR/BAYC. This takes the entirety of the Bored Ape collection of 10k “unique” apes and re-minted it. BAYC proceeded to respond to this provocation by suing Ryder Ripps.
I’m not going to go into detail on every point of the current decision, for that you can read the excellent threads from @eliana_esq, and @NeerMcD. But there are a few interesting points emerging that could have considerable relevance to the NFT space as a whole.
One of the first things of note is that Yuga Labs didn’t sue for copyright infringement, but rather for trademark infringement. I’ve commented before that this could be because of two reasons, the first is that Yuga never registered any copyright over their 10k Bored Ape images, so they wouldn’t be able to sue for copyright. The second is that none of the RR/BAYC NFTs copied a single image, all NFTs are clones of the “originals”, and even link to the IPFS files from Yuga. These two facts together would make it more difficult to sue for copyright in my opinion, so the trademark suit makes more sense.
Because this is a trademark case, Yuga Labs asked the judge to decide whether their marks are being infringed by false designation of origin. In order to do that, the judge had to declare that Yuga Labs has an unregistered trademark on the Bored Apes Yacht Club, that NFTs are goods, and that Yuga had used the NFTs in the course of commerce. Those are important questions that could allow the judge to undertake a more traditional trademark analysis about confusion. The judge decided affirmatively in all relevant NFT elements of the decision.
Firstly, Yuga Labs had an unregistered trademark, which is perhaps the least controversial part of the decision. Secondly, the Court concluded that NFTs are goods for purposes of the US Lanham Act, citing both the Hermès decision, as well as an article from Andrea McCollum on the subject. The Court argued that focusing only on tangibility misses important characteristics of NFTs that suggest they can be treated as “goods” under the Lanham Act. Thirdly, the Court concluded that Yuga used the BAYC marks in commerce. The Court explained that the Lanham Act grants trademark protection only to marks that are used to identify and distinguish goods or services in commerce, which typically occurs when a mark is used in conjunction with the actual sale of goods or services. The Court rejected Defendants’ argument that Yuga could not meet the “use in commerce” requirement, and instead found that Yuga had provided sufficient evidence of use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind. Therefore, it appears that the judge decided that Yuga did indeed use the BAYC marks in commerce for purposes of this case.
This is a truly interesting part of the case, because it has relevance to how courts will be dealing with NFTs in the future. To me the most interesting part of the ruling is how the Court defines what an NFT is. First the judge cites the following from McCollum:
“Those that argue for NFTs to be considered only as ownership receipts often focus on the fact that blockchain-based technologies essentially comprise software code that provides a new way to store and synchronize encrypted data about purchases. Inside that software code lies a sequence of instructions that cause a computer to perform a certain process. However, viewing the NFTs as ownership receipts treats the NFTs as mere written instructions while ignoring their documented commercial value. Software is created to contain instructions to tell a computer what to do, and it is most often this functionality, not brand association or creative content, that causes consumers to buy software. In contrast, NFTs and some other blockchain-based assets are sold specifically for their connection to a particular brand, creator, or associated creative work…”
And then discussing and agreeing with Hermès:
“Moreover, as the court in Hermes concluded, “[i]ndividuals do not purchase NFTs to own a ‘digital deed’ divorced from any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT.” Hermes International v. Rothschild, F.3d , 2023 WL 1458126 (S.D.N.Y. Feb. 2, 2023) (“Thus, the title “MetaBirkins” should be understood to refer to both the NFT and the digital image with which it is associated. Indeed, a reasonable inference from the admissible evidence presented on these motions is that the relevant consumers did not distinguish the NFTs offered by Mr. Rothschild from the underlying MetaBirkins images associated with the NFTs and, instead, tended to use the term “MetaBirkins NFTs” to refer to both”).”
The implications of all of the above are massive. NFT critics (myself included) often stress the fact that these tokens are nothing more than metadata, links to images. While the courts are recognising this technical fact, they are also willing to go with the commercial reality, namely that buyers are expecting that they’re purchasing more than that. This has also been recognised in English courts in cases that we have also covered here, namely Osbourne and D’Aloia, which have recognised that NFTs are property.
So the court granted the motion to dismiss declaring that RR/BAYC had incurred in a false designation of origin, as well as granting the claim for cybersquatting. It also dismissed some of Ripps defences, particularly important the claim that RR/BAYC was a work of artistic expression and therefore protected by freedom of speech.
The case continues and damages will be determined at trial, but seems like Ryder Ripps is in trouble.
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