Yuga Labs has landed a partial win in the latest round of its fight over a collection of non-fungible tokens (“NFTs”) that it claims infringe its Bored Ape Yacht Club (“BAYC”) trademarks. In an April 21 order, Judge John Walter of the U.S. District Court for the Central District of California sided with Yuga in its bid for summary judgment on its false designation of origin and cybersquatting claims, as well as on Defendants Ryder Ripps and Jeremy Cahen’s fair use, First Amendment/Rogers, and unclean hands affirmative defenses, and their first counterclaim, in which they allege that Yuga “knowingly and materially misrepresented” that they infringed its copyright by filing DMCA takedown notices with various NFT marketplaces.
At the center of the lawsuit that it initiated in June 2022 is Yuga Labs’ claim that Ripps and Cahen have used its BAYC marks to sell identical-looking NFTs – known as the Ryder Ripps Bored Ape Yacht Club (“RR/BAYC”) – in the exact same market that Yuga sells its BAYC NFTs and that their infringement has resulted in consumer confusion and harm to Yuga’s brand/goodwill. In their opposition, Ripps and Cahen – who have argued from the outset that the RR/BAYC project uses satire and appropriation to criticize Yuga’s BAYC collection, which they claim is inundated with racist, neo-Nazi, and alt-right dog whistles – assert that Yuga cannot demonstrate ownership of the BAYC marks and thus, cannot prevail on its false designation of origin or cybersquatting claims.
The Bare Bones: The court granted Yuga Labs’ motion for summary judgment as to its false designation and cybersquatting causes of action. It also granted summary judgment for Yuga on the defendants’ First Amendment/Rogers, fair use, and unclean hands affirmative defenses, as well as their “knowing misrepresentation” counterclaim. Not a total win for Yuga, the court denied its motion with respect to a determination of its damages on its false designation of origin and cybersquatting claims.
Hermès v. Rothschild & Rogers v. Grimaldi
Among the interesting aspects of the court’s order is its discussion of NFTs, in which it relies heavily on the district-court-level outcome in the Hermès v. Rothschild case. Reflecting on Yuga’s false designation of origin claim, the court states that Yuga Labs owns the BAYC marks, which are valid and protectable. In furtherance of this determination, the court considers the defendants’ Dastar Corp. v. Twentieth Century Fox Film Corp.-dependent argument that Yuga does not own any trademark rights in the BAYC marks because NFTs are intangible and, as a result, are ineligible for trademark protection.
Unpersuaded, Judge Walter says that he agrees with the court in the Hermès case, in which Judge Jed Rakoff of the U.S. District Court for the Southern District of New York concluded that “neither Dastar nor its progeny require that a defendant’s goods be tangible for Lanham Act liability to attach.” Distinguishing the Hermès case from Dastar, Judge Walter cites Judge Rakoff, who explained that “Dastar said nothing at all about the general applicability of the Lanham Act to intangible goods. Rather, the Supreme Court sought to underscore the subtle distinction between copyright … and trademark,” the latter of which is “aimed principally at preventing confusion regarding consumer goods” not at “encouraging the production of creative content.”
In addition, Judge Walter says that the SDNY court concluded that “although NFTs are virtual goods, they are, in fact, goods for purposes of the Lanham Act,” and cites Andrea McCollum’s paper, Treating Non-Fungible Tokens as Digital Goods Under the Lanham Act, which states that “at the time of Dastar, virtual goods were fungible and more akin to creative works than to unique, traceable products capable of deriving value from their association with their underlying brands.”
McCollum further asserted (as quoted by Judge Walter) that “what has changed is the ability of digital assets to reliably record a source for the good and the selling of virtual goods specifically based on goodwill built by a brand,” and states that “intangibility does not exclude NFTs from having other characteristics of ‘goods,’ including being individually transferrable between owners, storable for indefinite periods of time, exclusively owned by a single owner, and distinguishable based on their source.”
The court similarly shoots down Ripps’ argument that even if NFTs are “tangible goods” subject to trademark law, Yuga cannot meet the Lanham Act’s “use in commerce” requirement. Here, the court maintains that Yuga has used – and continues to use – the BAYC marks in commerce, as Yuga has sold 10,000 BAYC NFTs, and offers “exclusive access to membership perks, including access to the online ‘Bored Ape Yacht Club,’ a collaborative community art canvas, various online games, in person events (such as the music festival Ape Fest), and new product launches and merchandise, all of which incorporate and feature the BAYC marks.”
Beyond that, the court notes that Yuga has entered into “marketing partnerships and collaborations with various brands, including Arizona Iced tea and adidas, which incorporate and feature the BAYC marks,” and that its marks have been featured in various media articles.”
Naked Licensing/Abandonment – In its order, the court touches on the defendants’ attempt to chip away at Yuga’s trademark rights by arguing that it has either transferred all its trademark rights in the BAYC marks to BAYC NFT purchasers or has abandoned its trademark rights through naked licensing and failure to police. Citing Yuga’s Terms and Conditions, the court states that the company “grants each BAYC NFT holder a copyright license for both personal use and commercial use with respect to their respective BAYC ape image, but not a trademark license to use the BAYC marks.” (For what its worth, at least some of the ape images contain BAYC trademarks, including the “BAYC” mark and skull logo.)
“Because Yuga has not granted BAYC NFT holders a trademark license, the defendants’ naked licensing theory fails,” according to Judge Walter. As for the defendants’ abandonment argument, the court holds that under the Lanham Act, “abandonment of a trademark only occurs by nonuse or by a mark becoming generic, and neither apply in this case.” In fact, he contends that “the filing of this action is strong evidence that Yuga enforces its trademark rights in the BAYC marks against infringing third-party users.” (The defendants have argued against this, highlighting the “widespread usage [of the BAYC marks] by competitors.”)
First Amendment/Rogers – The defendants argue that the Rogers test applies in this case because their RR/BAYC NFT collection is an expressive work protected under the First Amendment. Disagreeing with them, Judge Walter states that the Ninth Circuit “only applies the Rogers test when ‘artistic expression is at issue,’ and requires Defendants to make a ‘threshold legal showing that its allegedly infringing use is part of an expressive work protected by the First Amendment.’” Although the defendants argue that “the larger RR/BAYC ‘project’ is an expressive artistic work protected by the First Amendment,” the court holds that their “sale of what is admittedly a collection of NFTs that point to the same online digital images as the BAYC collection is the only conduct at issue in this action and does not constitute an expressive artistic work protected by the First Amendment.”
Even if the court applied the Rogers test, Judge Walter concludes that the defendants’ use of the BAYC marks is “not artistically relevant to [their] ‘art,’” and while “there is a low bar for artistic relevance, as Yuga has pointed out, it is not infinitely low.” Still yet, even if the court concluded that the BAYC marks are artistically relevant to the RR/BAYC project, the defendants’ use of the marks is explicitly misleading, as indicated by their use of the BAYC marks “as the centerpiece of their RR/BAYC NFTs … to make their competing product look identical to Yuga’s product and ensure that the consumer will be explicitly misled.”
This outcome is not surprising given that the court previously denied that the RR/BAYC NFTs are works of artistic expression warranting application of the Rogers test. In its December 2022 order in response to Ripps’ motion to dismiss, the court compared the sale of RR/BAYC NFTs to the sale of a counterfeit handbags, and held that even if the Rogers test applied, Ripps would fall short, as his use of the BAYC marks is not “artistically relevant” and is “explicitly misleading.”
It is worth noting: This finding stands in contrast with that of the court in the MetaBirkins case, which first held in a May 2022 memo order that the Rogers test applied. The court confirmed in its denial of the parties’ cross-motions for summary judgment in February that “the Rogers test applies because the digital images associated with the MetaBirkins NFTs ‘could constitute a form of artistic expression.’” (Hermès argued all along that Rogers did not apply, as Rothschild’s use of “MetaBirkins” explicitly misled consumers into believing that the MetaBirkins NFTs were associated with Hermès, and that the two-prong test of Gruner + Jahr v. Meredith Corp. should be used instead. Hermès’ also asserted that Rothschild was using “MetaBirkins” in a trademark capacity (i.e., as his domain url, social media handles, etc.), thereby, distinguishing his use from the use in Rogers.)
While the jury ultimately sided with Hermès, finding that Rothschild was liable on all counts and that the First Amendment does not shield him from such liability, Dechert LLP’s Jennifer Insley-Pruitt, Noah Leibowitz, Timothy Spangler, and Tommy Kienzle recently noted that Judge Rakoff’s evaluation of the MetaBirkins NFTs under the Rogers framework in the first place “indicates that digital artworks created to be tokenized and sold as NFTs are – or at least can be – ‘expressive works’ conveying speech worthy of First Amendment protection.”
Judge Walter’s determination in the Yuga v. Ripps case represents the latest example of how courts are weighing in on specific NFT projects from a Rogers point of view.
The case is Yuga Labs, Inc. v. Ryder Ripps, et al., 2:22-cv-04355 (C.D. Cal.).