An important win in the Central District Court of California by Yuga Labs, Inc., the creator of the renowned Bored Ape Yacht Club ("BAYC" or "Bored Ape"), has underlined the point that when it comes to enforcement against imitators or copycats in the NFT space, trade mark infringement may be the best course of action.
And for all its ethos of freedom and decentralization, the Web3 world, at least where intellectual property rights are concerned, is still firmly entrenched in traditional intellectual property laws.
This is especially true given the continued legal uncertainty surrounding copyright for computer-generated work.
Last September we reported that Yuga Labs had sued artist Ryder Ripps, a US-based digital artist, known for his satire and stunts, and his associates for infringing Yuga Labs' intellectual property rights in the BAYC NFT collection by selling his own "RR/BAYC" NFT collection1.
But, even though Ripps had issued identical copies of Yuga Labs' Bored Ape NFTs, Yuga Labs did not rely on copyright infringement in its claims.
Instead it based its case exclusively on trade mark infringement, trade mark dilution, unfair competition, false advertising and economic torts.
In our article, we suggested this was due to the weaknesses inherent in Yuga Labs' copyright claims. In particular, the uncertainty about whether computer-generated work is protected by copyright, particularly in the US context.
On 21 April 2023, Yuga Labs scored an important victory in the case, with the Honorable Judge John F. Walters granting summary judgment2 in respect of a number of Yuga Labs' most important claims3 and dismissing a number of Ripps' defences and counterclaims.
In his decision, Judge Walters granted Yuga Labs summary judgment for its "false designation of origin" claims (i.e. unregistered trade marks) and cybersquatting claims in relation to Ripps' use and registration of the rrbayc.com and ' use and registration of the rrbayc.com and apemarket.com domains.
The Judge found that:-
- NFTs are virtual goods with commercial value for the purpose of trade mark laws, as opposed to mere receipts of ownership as Ripps argued;
- Yuga Labs has strong brand recognition and thus trade mark rights in the BAYC trade marks;
- Ripps used Yuga Labs' BAYC marks in minting and selling his own RR/BAYC NFT collection4;
- Ripps "intentionally designed" the RR/BAYC NFTs and sales websites to resemble Yuga Labs' branding;
- Ripps' use was likely to cause confusion. Indeed, Yuga Labs had submitted evidence of actual confusion.
As a result, Judge Walters "easily conclude(d)" that Ripps' minting and sale of "RR/BAYC" NFTs infringe BAYC's trade mark rights.
The Judge refused to grant summary judgment on the question of damages suffered by Yuga Labs and left that issue to trial.
Ripps argued the entire RR/BAYC project was an act of expressive work/performative art protected by the First Amendment of the US Constitution., but the Judge rejected this, saying the "RR/BAYC NFTs do not express an idea or point of view" and the sale of RR/BAYC NFTs "contain no artistic expression or critical commentary."
Rather damningly, the Judge went as far as stating the actions by Ripps were "all commercial activities designed to sell infringing products, not expressive artistic speech protected by the First Amendment" and "(the) Defendants' sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag."
The Judge said even if he was to find Ripps' acts to be "artistically relevant", he would still have concluded they were "explicitly misleading" and not protected by the First Amendment as Ripps "used the BAYC Marks in the same marketplaces to identify and sell NFTs bearing the exact same images underlying the BAYC NFTs and without adding any expressive content."
The Judge also rejected Ripps' defence his use constituted "nominative fair use,"5 pointing out Ripps made the BAYC Marks "a centrepiece" of the RR/BAYC NFT collections, and Ripps made his NFTs identical to Yuga Labs, thereby using the BAYC marks to sell his own competing RR/BAYC NFTs.
Put simply, trade mark infringement may be the best course of action when defending against imitators or copycats in the NFT space.
In relying on trade mark claims alone, Yuga Labs was able to sidestep several significant weaknesses it might otherwise have encountered in a copyright infringement case, for example, whether copyright subsists in procedurally generated work or whether Yuga Labs owns any actionable rights as it already granted exclusive copyright licences in the BAYC imagery to token holders.
It also pre-empted the fair use and free speech defences available to Ripps in a copyright infringement action, a point not lost on the Judge, who pointed out multiple times in the judgment that Yuga Labs' claims were based on "trademark, not copyright infringement."
The key objective of trade mark laws is to prevent consumer confusion as to the origins of goods or services. Using other people's trademarks in artistic expression is not permissible when such use is "explicitly misleading" as to the source or content of the work.
Even free speech concerns have to take a backseat to this objective.
One thing that should be noted, however. Yuga Labs was able to establish its unregistered trade mark rights rather easily as BAYC is perhaps the highest profile and most widely recognized NFT project in the world.
For lesser-known projects, it would be advisable to have trade mark registrations in the relevant markets and countries.
1. Yuga Labs, Inc. v. Ryder Ripps, et al., 2:22-cv-04355 (C.D. Cal.), reported in https://www.haldanes.com/intellectual-property-rights-in-the-nfts-web3-era-could-belong-to-boomers/;
2. Under US federal law, summary judgment is to be granted where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law".
4. The Judge observed that Ripps were in fact selling the exact same product as Yuga Labs - NFTs that point to Yuga Labs' BAYC images.
5. Ripps argued that his use falls under "normative fair use" as he was using the BAYC marks to purportedly identify Yuga Labs' NFTs as a target of criticism.
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