Editor's Note: This article is the third in a series by Katten attorneys examining NFTs and various novel legal issues raised by NFTs.
NFTs are a new medium that embodies traditional forms of intellectual property, including trademarks and copyrights. NFT creators can be simultaneously accused of infringing both trademark and copyright rights. In 2021, Yuga Labs, Inc. (Yuga Labs) launched a collection of NFTs featuring graphic images of apes — known as the Bored Ape Yacht Club (BAYC). The collection garnered over $2 billion in sales, finding fans among high-profile celebrities and prominent consumer brands. Part of what makes the Bored Ape NFTs so coveted is their rarity. There are only 10,000 unique Bored Ape NFTs in existence.
In June 2022, Yuga Labs filed suit against “conceptual artists” Ryder Ripps and Jeremy Cahen, alleging that their knock-off NFT collection — the “RR/BAYC” NFTs — infringed Yuga Labs’ trademark rights in its BORED APE YACHT CLUB, BAYC and BORED APE marks, as well as other logo marks. See Yuga Labs, Inc. v. Ripps, et al., C.D. Cal., No. 2:22-cv-04355. Interestingly, when filing the complaint, Yuga Labs asserted a claim for, among other things, common law trademark infringement (as opposed to a federal infringement claim under the Lanham Act). Fast forward, and the relationship between Yuga Labs and the defendants has become so acrimonious that Jeremy Cahen recently opposed 10 different Yuga Labs trademark applications for BORED APE YACHT CLUB, BAYC, BA YC, BA YC BORED APE YACHT CLUB and the Yuga Labs logo before the US Patent and Trademark Office Trademark Trial and Appeal Board (TTAB). See TTAB Oppn. No. 91283323. Cahen argued that, under the Yuga Labs Terms and Conditions, Yuga Labs relinquished its rights to the trademarks by providing purchasers of the Bored Ape NFTs “all rights” associated with the applicable NFT, which, claimed Cahen, includes any trademark rights therein that Yuga Labs may have. Cahen also alleged, among other things, that Yuga Labs did not have a bona fide intent to use the applied-for marks in commerce when filing the applications because the Bored Ape NFTs should be classified as securities under applicable federal securities laws.
On March 21, Yuga Labs filed a motion to suspend the opposition proceeding pending the outcome of the civil litigation between Yuga Labs, Cahen and Ripps described above. The TTAB granted the motion on April 20.
As the civil litigation between the parties progressed last year, the defendants filed an answer and asserted various counterclaims against Yuga Labs last December. The second counterclaim sought a declaratory judgment that Yuga Labs is not entitled to copyright protection in the BAYC ape images because each image is “of an anthropomorphized ape cartoon that includes certain traits that are programmatically assembled with a computer algorithm.” The defendants contend that there are no copyrights in the BAYC images “to the extent that they were not created by a human.”
While the Central District of California denied the artists’ counterclaim for a declaratory judgment of no copyright on March 17, the counterclaim does raise the timely hot topic of copyright protection in generative artificial intelligence (AI). Under a different set of facts, if the imagery underlying the BAYC NFTs had unquestionably been generated exclusively by AI tools, the case could have presented a unique opportunity for a ruling on this landmark issue.
On April 21, the Court granted Yuga Labs’ motion for summary judgment on its causes of action for false designation of origin and cybersquatting. The court also awarded Yuga Labs summary judgment on the defendants’ sole surviving counterclaim alleging that Yuga Labs knowingly and materially misrepresented that the RR/BAYC NFTs infringed Yuga Labs’ copyright by filing improper takedown notices under the Digital Millennium Copyright Act. In granting Yuga Labs summary judgment on its claim for false designation of origin under the Lanham Act, the Court issued a significant finding, relying on the recent decision in Hermes International v. Rothschild, 590 F.Supp. 3d 647, 655 (S.D.N.Y. 2022). Importantly, the Court concluded that “although NFTs are virtual goods, they are, in fact, goods for purposes of the Lanham Act,” thereby rejecting the defendants’ position that NFTs should be treated as unregistered securities. The Court also determined that, despite the defendants’ argument that Yuga Labs transferred “all rights” to purchasers of the Bored Ape NFTs under the Yuga Labs Terms and Conditions, Yuga only grants each BAYC NFT holder a copyright license, not a trademark license.
In light of the fact that the Central District of California held that Yuga Labs owns the various trademarks that are the subject of the pending opposition before the TTAB, and that those marks are valid and protectable, it is likely that Cahen’s opposition will likewise fail. We will be watching this case closely to see if the defendants appeal the summary judgment decision, as well as the determination of damages to be calculated at trial.
This article is part of a Katten NFT Thought Leadership series.