In the latest court decision to grapple with the scope of trademark rights in the metaverse, the Central District of California handed a significant win to Yuga Labs, 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. Buying a BAYC NFT gives the owner a copyright license to the associated image, as well as access to certain owner-only benefits, including digital communities and real-life events. BAYC NFTs can be resold on the NFT marketplace OpenSea and have traded for sums much higher than their original offering price.
The defendants, two individuals named Ryder Ripps and Jeremy Cahen, created a separate series of NFTs on the Etherium blockchain, pointing to the same publicly accessible 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 assert that it is a "satirical conceptual art and performance project" and a work of "appropriation art." They also allege that the RR/BAYC project is intended to, among other things, educate the public about NFTs generally and call attention to what they claim are racist, neo-Nazi, and alt-right messages used by Yuga in connection with its 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 causes of action. Yuga subsequently filed for partial summary judgment on its false designation of origin and cybersquatting claims, as well as on several of defendants' affirmative defenses. The court held in favor of Yuga on all issues except those relating 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 guideposts for other courts considering NFT-related trademark claims. Of particular note are the following points from the opinion:
- NFTs are goods for purposes of the Lanham Act. The court rejected defendants' contention that NFTs, because they are digital and intangible, could not serve as "goods" for which source identifiers can have trademark significance. In arriving at this conclusion, the court followed the lead of the Southern District of New York's opinion in another NFT trademark case, Hermes International v. Rothschild, popularly known as the "MetaBirkins" case.
- Yuga had not transferred or abandoned its trademark rights in the BAYC marks by selling the BAYC NFTs. Even though some of the BAYC marks are featured in some of the images associated with the BAYC NFTs, and even though the owner of a BAYC NFT receives a copyright license to the image, the court found that the BAYC NFTs do not come with a trademark license to the BAYC marks. Thus, Yuga had not licensed its marks without restriction, and had not failed to police them (as underscored, the court noted, by Yuga's trademark infringement suit against Ripps and Cahen).
- A First Amendment defense based on Rogers v. Grimaldi was not applicable to defendant's activities. Under the Rogers test, use of a third party's trademark in the context of an expressive work will not result in infringement liability unless the use of the mark has no artistic relevance to the work, or it explicitly misleads as to the source of the work. The court in the Hermes case found that the Rogers defense was potentially available to defendant Rothschild's "MetaBirkins" NFTs, which could be considered artistic expression (although ultimately, the Hermes jury found that the First Amendment did not shield Rothschild from liability). Here, by contrast, the court found that Ripps and Cahen's accused actions —namely, creating a series of NFTs pointing to the same images as Yuga's BAYC collection —did not amount to "an expressive artistic work," and therefore defendants could not claim a First Amendment defense under Rogers. The court also found, for good measure, that even if 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.
- Ripps 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.
- Ripps and Cahen's affirmative defense of unclean hands, based on allegations of misconduct against Yuga relating to celebrity endorsements and securities violations, could not protect them from liability because the alleged misconduct on Yuga's part 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 submitted online "form" takedown notices 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 touts the court's decision as a major victory, there are still several loose ends in this story. Yuga is facing a Securities and Exchange Commission investigation and a class-action lawsuit alleging that its NFTs constitute an unregistered security (a theory that echoes defendants' unclean hands theory 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 opposition filed by Jeremy Cahen—one of the defendants in the instant case. Cahen filed the opposition in February 2023, while the court case was pending, asserting that the BAYC marks are unregistrable for many of the same reasons Ripps and Cahen pressed in the lawsuit, along with a few other grounds (including that the marks are deceptively misdescriptive because Yuga does not provide yacht club services). The opposition is currently suspended pending final disposition of the district court case. Finally, though it may not have a direct impact on the parties in this case, the Supreme Court seems poised to modify the contours of the Rogers test in the Jack Daniels case that it heard in March, a decision that could have significant implications for the outcome of future NFT trademark cases.
The case is Yuga Labs, Inc. v. Ripps, et al., 2:22-cv-04355 (C.D. Cal. April 21, 2023).
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