A Landmark NFT Lawsuit Seeks To Determine How Creators, Owners, And Investors Can Protect Their Intellectual Property And Monetize Assets Moving Forward

What Happened

Yuga Labs, the creator of the popular Bored Ape Yacht Club (“BAYC”) non-fungible token (NFT) collection, has sued an artist in Los Angeles federal court, accusing him of selling identical NFTs that are confusing potential buyers.

Yuga Labs asserts that Ryder Ripps (“Ripps”) is intentionally causing consumer confusion under the guise of satire and has earned millions in “ill-gotten profit” while “celebrating the harm he causes.”

Ripps has allegedly infringed onYuga Labs by creating a complete copy of BAYC’s NFT images. The lawsuit alleges trademark infringement, false advertising, unfair competition and cybersquatting (the practice of registering, trafficking in, or using an Internet domain name, with bad faith intent to profit from the goodwill of a trademark belonging to someone else).

Yuga Labs also said in the complaint that Ripps targeted the company in a “campaign of harassment based on false accusations of racism.” The Yuga Labs’ creators published an angry letter refering to Ripps as a “demented troll” and claiming people are “spreading ridiculous conspiracy theories online and using them to sell knockoff NFTs.” Yuga Labs further characterized Ripps’ accusations that the BAYC creators are secret Nazis as a “crazy disinformation campaign.”

A statement on Ripps’ NFT website says Bored Ape Yacht Club has “extensive connections” to “subversive internet nazi troll culture” and that Ripps’ NFTs recontextualize the pieces.

Although Ripps has a First Amendment constitutional right to criticize and comment on an influential project (as fair use or parody), Yuga Labs claims his work is diminishing the Bored Ape’s brand and creating confusion in the NFT markets.

Key Actors

Yuga Labs, Inc.

Ryder Ripps

Context

NFTs are unique blockchain tokens that prove ownership of a digital or physical asset, such as a piece of artwork or memorabilia.

Ripps is the creator of RR/BAYC, a NFT collection that features identical BAYC NFT images created by Yuga Labs. He does not own any of the original assets himself.

Ripps’ RR/BAYC project started from an argument with prominent NFT influencer j1mmy.eth. Ripps wanted to disprove the notion that holding an NFT gives the owner unique claim over the image and so he minted a version of j1mmy’s Bored Ape twitter profile picture.

Yuga Labs sent Ripps a DMCA (Digital Millennium Copyright Act) takedown claim but rescinded it when Ripps contested. OpenSea, the largest NFT marketplace, saw nearly $3.5 million in total volume but has removed Ripps’ collection because of “a claim of intellectual property infringement.”

The lawsuit alleges trademark infringement, false advertising, unfair competition and cybersquatting. Yuga Labs asked the court for an order blocking Ripps from using its trademarks and an unspecified amount of monetary damages. Yuga Labs, valued at $4 billion, is seeking a jury trial to fight Ripps’ “slanderous claims” and “continuous infringement.”

Yuga Labs said its applications for federal trademarks on the “Bored Ape Yacht Club” name are pending, but it has common-law rights in the name already.

Yuga Labs also said Ripps made a copycat version of the Bored Ape Yacht Club Twitter account, causing further confusion.

Ripps’ claims to use satire “to protest and educate people regarding The Bored Ape Yacht Club and the framework of NFTs.”

As NFTs have seen a wave of popularity the last year or so, investors are finding out that not all collections are created equal and the outcome of lawsuits will depend on what rights and privileges that accompany the associated NFT.

Trademark Law

A trademark can be any word, phrase, symbol, design, or a combination of these things that identifies someone’s goods or services. Trademark infringement is the unauthorized use of a trademark on or in connection with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.

There is statutory protection for a parody as a defense to a trademark dilution claim, but not for a trademark infringement claim.

Under a trademark infringement claim, the parodist’s use may trigger liability under trademark laws prohibiting infringement or dilution or through common law unfair competition claims.

To say it simply, a parody defense requires the parody to be effective. In order to be effective the parody must clearly communicate that the parodist is making a commentary about a brand through humor or criticism.

Besides Ripps’ public statements on the Yuga Lab’s Bored Ape project and the attempt to show that an NFT can be copied by someone who does not own the NFT, it is difficult to detect the commentary and instead only the Yuga Labs brand attributes are readily apparent in Ripps’ NFTs.

In the case of Ripps, there is great potential for confusion. The logo and images are the same, even if the meaning is different and this is likely a problem. Ripps promotes and sells these RR/BAYC NFTs using the very same trademarks that Yuga Labs uses to promote and sell authentic BAYC NFTs.

The lawsuit correctly notes that not only does RR/BAYC use its logo on their website, Twitter, etc., but “the NFTs depicted on the website also contain BAYC Marks.”

The crypto industry may have many informed buyers but it also has individuals who are new and looking to buy the next big NFT. Unfortunately for Ripps, at a basic glance, the logos are identical and could cause confusion and dilution.

Fair Use & Parody in Other Industries:

Court cases on Trademark Infringement and Fair Use have existed for a long time. Rogers v. Grimaldi is a trademark and intellectual freedom case, known for establishing the “Rogers test” for protecting uses of trademarks that implicate intellectual freedom issues. The Rogers Test, which may only be applied to non-commercial marks, determines that the title of an artistic work is protected under free speech from the Lanham Act (also known as the Trademark Act of 1946) when the title of the work has some artistic relevance to the underlying work and the title is not explicitly misleading as to the source of the content of the work.

The fair use doctrine, consistent with the First Amendment, allows a person to use another’s trademark either in its non-trademark, descriptive sense to describe the user’s own products (descriptive fair use) or in its trademark sense to refer to the trademark owner or its product (nominative fair use). The Lanham Act expressly protects fair use from liability for trademark infringement and dilution.

In a more recent case involving handbags and NFTs, Hermes International persuaded a federal judge not to throw out its trademark lawsuit against an artist for selling “MetaBirkins” NFTs depicting Hermes’ Birkin bag.

Mason Rothschild began offering MetaBerkin NFTs in December 2021, and within a month had sold over $1 million worth of NFTs. Hermes sued Mason Rothschild in January 2022 over his MetaBirkins NFTs, which depict the company’s Birkin bags covered in colorful fur.

Rothschild argued the NFTs comment on the “cruelty inherent in Hermes’ manufacture of its ultra-expensive leather handbags” and are protected by the First Amendment. The filing also said his art “does not lose its First Amendment protection just because he sells it” or uses NFTs to authenticate it.

The court said Hermès had presented enough evidence to claim, plausibly, that Rothschild’s use of the name “MetaBirkin” was not artistically relevant to the works and that it was explicitly misleading as to source, sponsorship or affiliation.

The case is being watched for its potential to clarify how trademark law will be applied to NFTs, newly popular digital assets that can be used to verify an artwork’s authenticity.

Copyright Law

Copyrights of an original work exist as of the moment of “fixation” of the work. Failing to register a work with the U.S. Copyright Office and or failing to mark a work with a copyright notice does not result in loss of the basic rights of copyright holders.

However, it is worth pointing out that Yuga Labs does not claim copyright infringement in its complaint.

There are three basic requirements for copyright protection:

1. A work of authorship

2. That is original and

3. Fixed in a tangible medium of expression.

The original work is different from copies of the original work. Someone can own a copyright of a piece of work but not a specific copy of their work, or vice versa. Copyrights are a limited set of exclusive rights that are not tied to any specific physical or, some would argue, digital object. Owning the copyright to a creative work includes the right to make more copies of the work and prevent anyone else from doing so. It also includes the right to make derivative works, such as a movie adaptation or sequels to a narrative work.

US copyright law explicitly states that transfers of copyrights and transfers of copies are legally different. Ensuring that NFT owners have the copyrights they think they do is a more complicated problem than it appears.

Yuga Labs’ Terms & Conditions states “You Own the NFT. Each Bored Ape is an NFT on the Ethereum blockchain. When you purchase an NFT, you own the underlying Bored Ape, the Art, completely.” The terms allow owners to make other things with the NFT image they own, like shirts or comics and merchandise.

However, it isn’t that simple. If a Board Ape NFT owner really does own the art completely, then Yuga Labs is left without any further rights to grant and the commercial-use license would be unnecessary. It’s likely that the owner of a Bored Ape NFT actually has a license to the artwork itself and the creator of the art maintains the copyright.Yuga Labs’ complaint points out that Ripps uses the very same trademarks to promote their RR/BAYC NFT collection and they attempt to sell these RR/BAYC NFTs on the same NFT marketplaces that Yuga Labs uses to sell its Bored Ape NFTs, such as OpenSea.

However, the complaint does not mention copyright infringement. As noted by Preston Bryne, Partner at crypto law firm Anderson Kill, “Ryder Ripps’ appropriation of the BAYC branding is clearly unlawful. The fact that counsel for Yuga Labs elected to not pursue a copyright claim is unusual, and suggests that the Ape images themselves were not registered with the Copyright Office (which is a prerequisite to bringing suit for copyright infringement).”

This may also be because raising copyright infringement in the lawsuit would contradict Yuga Labs’ Terms & Conditions and could be negative from a marketing perspective.

The RR/BAYC Terms of Service include a disclaimer, that Ripps’ NFTs are “re-minted” versions. Ripps also claimed Yuga Labs’ terms for BAYC token holders are “unclear and do not meet current copyright standards.” Adding, “Clearly defining what we are buying when we purchase an NFT is one of the primary goals of this work.”

Outlook

The Yuga Labs lawsuit will very likely succeed on trademark infringement and the other claims. Yuga Labs losing would set precedent for others to potentially copy work with another’s trademark as parody.

The larger question remains about Yuga Lab’s other NFTs that do not include a Yuga Labs’ trademark and instead would involve copyright issues not raised in the suit.

Copyright Infringement would have been a much more direct claim against Ripps than the Lanham Act/trademark infringement claims that are being pursued, and one that would have allowed much more substantial statutory damages on account of the obvious willfulness of the infringement. Which begs the question, why wasn’t it?

The lesson here for NFT collection issuers is to ensure that they take the same steps to protect IP from unlawful appropriation as any traditional media company would. And for purchasers to understand the rules of the road.

Further Reading

• Yuga Labs Inc v. Ryder Ripps
• Louis Vuitton Malletier, S.A. v. My Other Bag, Inc
• Hermes International v. Rothschild
• Rogers v. Grimaldi