The Ethereum “Merge” is being touted as one of the most important events in the history of crypto, with the blockchain-based software platform describing it as “a truly exciting step in realizing the Ethereum vision – more scalability, security, and sustainability.” At its core, the highly-anticipated event, which went live on Thursday, acts as a significant software upgrade for Ethereum, bringing a new Beacon Chain proof-of-stake system into the equation in furtherance of a move to shift Ethereum’s security mechanism away from a proof-of-work method. In doing so, the Merge is expected to reduce Ethereum’s energy consumption by roughly 99.95 percent by removing the need for energy-intensive mining operations.

Looking beyond the sustainability elements that come into play with the Merge and the potential for more security and “future scaling upgrades,” there are likely to be impacts for token holders in the event that there is a post-merge hard fork (i.e., a blockchain split) that enables Ethereum miners to continue operating a proof-of-work chain. “If the Ethereum Merge results in the blockchain getting split into two chains, duplicate NFTs will exist due to the ETH proof-of-work (‘ETHPOW’) chain and other potential forks,” alongside the ETH proof-of-stake (“ETHPOS”), per Outlook, which notes that there is “likely to be some level of confusion, including around which assets are ‘official’ or ‘authentic,’” among other things.

“For many fungible ‘store of value’ tokens, hard forks have a relatively straightforward impact,” Latham & Watkins’ Jenny Cieplak, Adam Fovent, Ghaith Mahmood, Justin Tzeng, Yvette Valdez, and Stephen Wink state in a recent note. “Each chain ends up with a different version of the token, but each set of tokens is still used in a similar fashion on its respective, newly forked chain.”

The results for non-fungible tokens (“NFTs”), specifically, ones that are tied to content and thus, give holders certain usage rights in connection with the underlying artwork, are likely to be muddier. For these types of tokens, the Latham & Watkins attorneys say that “a hard fork may present challenges because it takes a single record commonly presumed to be unique and splits it in two, creating potential confusion as to how rights might be administered post-fork across the two sets of tokens.”

Such a scenario raises an array of questions, according to DLA Piper’s Mark Radcliffe, Michael Fluhr, Tom Ara and Spencer Hodson, such as, “which [of the post-fork] NFTs holds the license to the artwork that was granted to the purchaser when they bought the NFT from the creator? Does the license exist on the ETHPOW blockchain or the ETHPOS blockchain? And who decides?” Beyond that, what if the NFT holder sells the NFT to a buyer on the ETHPOW blockchain, but continues to hold the NFT on the ETHPOS blockchain, “does the license remain with the holder or transfer to the new purchaser?” 

These potential issues are intensified by the importance of the licenses attached to NFTs (both in terms of copyrights and trademarks) and the frequency with which the terms of such licenses can vary – quite widely – from one project to another. 

“In the absence of clear guidance from license agreements, the ownership of the license may be ambiguous, and disputes may arise between the parties,” according to the DLA Piper attorneys, who claim that as a matter of best practice, “NFT issuers” – and NFT-trading platforms, as well – “should provide clear guidelines on how they will deal with forks in their license agreement” – or for platforms, in their terms of service – in order “to avoid disputes later on.” 

There are examples of projects providing such guidance, they note, including the CryptoPunks License Agreement from Yuga Labs, which “expressly permits Yuga Labs to ‘designate’ which NFT on which chain holds the license agreement,” an approach that has since been adopted by the a16z Can’t Be Evil template licenses. 

Chances are, most NFT creators will “only seek to grant rights to holders of tokens on the most widely adopted, ‘mainstream’ version of the chain post-fork,” per Cieplak, Fovent, Mahmood, Tzeng, Valdez, and Wink, as granting rights to all versions of the tokens across forked chains “could reduce the uniqueness and corresponding value of such rights, or simply make it untenable for the project to allow redemptions of a single off-chain asset for duplicate tokens.” Concerns on this front are particularly pronounced for tokens that can be redeemed for items of value, such as the USDC stablecoin, thereby, prompting fintech firm Circle, for instance, to announce pre-Merge that the USD Coin “can only exist as a single valid ‘version’ and … our sole plan is to fully support the upgraded ETHPOS chain.” 

Such concerns can extend to content-linked NFTs, especially in the event that such tokens come with robust usage rights, and as such, Cieplak, Fovent, Mahmood, Tzeng, Valdez, and Wink assert that creators would benefit from making similar clarifications. “If any holder of an NFT on ‘an Ethereum chain’ could sell merchandise using the underlying NFT art,” they hypothesize, “the value of such a commercial right could be significantly diminished if two sets of tokens now hold the same rights to the same artwork.” As such, limiting rights to the most widely adopted chain could not only “preserve such uniqueness,” but could also “provide assurance to partners that might be sensitive to the degree of influence they can exert over tokens featuring their IP.” 

In order to actually implement this, they contend that “projects could state that rights associated with a particular token will only be granted to owners as recorded on the Mainnet recognized as the legitimate successor of the original chain.” 

As for platforms, Radcliffe, Fluhr, Ara, and Hodson point to precedent that allows blockchain service providers to establish their responsibilities in the event of a fork. “In Archer v. Coinbase, a California appellate court affirmed summary judgment in favor of [the Defendant] cryptocurrency exchange against a user who had claimed that the exchange was obligated to provide him access to all forked versions of the Bitcoin he had in his exchange account.” Siding with Coinbase, the court determined that its user agreement “contained no term obligating [it] to support all forks.” Following Archer, they note that “blockchain asset trading platforms (including NFT trading platforms) often expressly provide in their terms of service that they retain the right to determine which of any blockchain forks they may support.” 

But even still, the results will of a hard fork will inevitably vary. While OpenSea, for instance, says that it will be “solely supporting NFTs on the upgraded [ETHPOS] chain,” Rarible’s Standard Collectibles Sale and License Agreement specifically states that in the event of an “Ethereum Persistent Fork” that it will recognize the authenticity of copies of NFTs created in the same wallet address when they were held on Ethereum. The likely purpose of this approach, according to Cieplak, Fovent, Mahmood, Tzeng, Valdez, and Wink? It “may be beneficial to reduce consumer confusion, promote an open and inclusive ethos, and avoid forcing the project to take a stance on a contentious issue regarding what is the ‘true’ blockchain upon a fork.”

While hard forks are not without precedent in the mark, it is, nonetheless, “impossible to predict what the actual outcome will be,” Rarible’s chief strategy officer and co-founder Alex Salnikov said in a statement to Forkcast this week. “Especially for less experienced NFT collectors.”

The rising popularity of non-fungible tokens (“NFTs”) has brought with it no shortage of lawsuits, as companies and creators look to navigate the volatile market for such digital tokens, and in many of the most interesting cases to date, the intellectual property issues that have come hand-in-hand with the use of the relatively novel technology. A growing number of lawsuits over NFTs – including the case that Nike filed against StockX over its use of Nike trademarks on NFTs tied to hot-selling sneakers and Hermès’ trademark battle against artist Mason Rothschild – are raising novel legal questions, while also parlaying some of brands’ biggest “real world” issues into the virtual world. And at the same time, these cases stand to provide some guidance for companies, as more and more brands look for ways to adapt their existing models for an increasingly Web3-focused world. 

The following is a running list of some of the most noteworthy lawsuits over NFTs that have been filed in the United States … 

Yuga Labs, Inc. v. Ryder Ripps, et al. – June 2021 (C.D. Cal)

The company behind the popular collections of Bored Ape Yacht Club (“BAYC”) tokens is suing a group of defendants, including Ryder Ripps in a headline-making trademark case, accusing the artist and other defendants of “trolling Yuga Labs and scamming consumers into purchasing RR/BAYC NFTs by misusing Yuga Labs’ trademarks.” In the complaint that it filed in a California federal court on June 24, Yuga Labs claims that Ripps, Jeremy Cahen, and a number of other affiliated defendants are on the hook for trademark infringement, false designation of origin, cybersquatting, and conversion for creating and selling NFTs that bear “the very same trademarks that Yuga Labs uses to promote and sell authentic BAYC NFTs.” 

Bored Ape Yacht Club NFTs on OpenSea

In furtherance of his alleged quest to “devalue the Bored Ape NFTs by flooding the NFT market with his own copycat NFT collection using the original Bored Ape Yacht Club images and calling his NFTs ‘RR/BAYC’ NFTs,” Yuga Labs alleges that Ripps has reaped “millions of ill-gotten profits from these sales” (an estimated $5 million), all while simultaneously using its trademarks to promote “the imminent launch of an entire NFT marketplace called ‘Ape Market’ solely to sell the RR/BAYC NFTs alongside authentic Yuga Labs NFTs.”

Yuga sets out claims of common law trademark infringement (as its long list of BAYC-centric trademark applications are still pending before the U.S. Patent and Trademark Office), false designation of origin and false advertising under the Lanham Act, cybersquatting, conversion, unjust enrichment, violations of California Business and Professions Code, intentional interference with prospective economic advantage, and negligent interference with prospective economic advantage. (Note: Yuga does not appear to have any copyright registrations for its ape images and does not claim copyright infringement in its complaint.)

UPDATED (Aug. 16, 2022): Counsel for Ryder Ripps has responded to the lawsuit waged against him and his business partner Jeremy Cahen by Yuga Labs, arguing in an anti-SLAPP motion that Yuga is looking to silence him for calling out the allegedly “racist and neo-Nazi” nature of the popular – and expensive – collection of NFTs.

Jeeun Friel v. Dapper Labs, et al – July 2021 (SDNY)

In a non-IP case, Jeeun Friel filed suit against Dapper Labs, Inc., on behalf of a purported class of similarly situated individuals, arguing that Dapper Labs and its founder and CEO Roham Gharegozlou sold NFTs called “NBA Top Shot Moments” in violation of federal securities laws, as the NFTs amount to unregistered securities. Specifically, Friel asserts that the Top Shot NFTs amount to securities because they “constitute an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” a nod to the test in SEC v. Howey, which established what qualifies as an “investment contract” and thus, is subject to U.S. securities laws.

Dapper Labs has pushed back against Friel’s claims, arguing that he has failed to establish that the NFTs meet the Howey test because the NFT buyers do not share either horizonal nor vertical commonality, and the NFTs at issue do not come with a reasonable expectation of profits, as they are “objects of play and not for investment or speculative purposes.”

(Given that the NBA Top Shots NFTs are hosted on a blockchain that is exclusive to Dapper Labs and can only be bought, sold, and traded on that blockchain, which is distinct from how the bulk of other NFTs work, this likely means that any decisions in this lawsuits (or other lawsuits like it) when it comes to the issue of whether the NFTs are securities could have relatively limited precedential value.)

Nike, Inc. v. Stockx LLC – Feb. 2021 (SDNY)

Nike filed suit against StockX early this year, alleging the Detroit-based marketplace is on the hook for trademark infringement and dilution, as well as unfair competition, in connection with its offering up of NFTs tied to images and physical versions of Nike footwear – albeit without receiving its authorization. To make matters worse, Nike claims that StockX is “selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those ‘investible digital assets’ (as StockX calls them) are, in fact, authorized by Nike.” 

A listing for a StockX Vault NFT feating a Nike sneaker

Nike amended its complaint in May to add counterfeiting and false advertising claims.

StockX has since responded to Nike’s complaint, denying the bulk of the claims that Nike has lodged against it and asserting that they “lack merit, disregard settled doctrines of trademark law … and show a fundamental misunderstanding of the various functions NFTs can serve.” At the core of StockX’s defense is its claim that the NFTs at issue are little more than “claim tickets” or “digital receipts” used to “track ownership of a specific physical Nike product that StockX has purportedly authenticated using its ‘proprietary, multi-step authentication process’” – putting the sale of the sneakers (and corresponding NFTs) firmly within the realm of the First Sale Doctrine. 

Hermès International v. Mason Rothschild – January 2021 (SDNY)

In January, Hermès filed a trademark infringement, federal trademark dilution, false designations of origin, false descriptions and representations, cybersquatting, injury to business reputation, misappropriation, and unfair competition lawsuit against Mason Rothschild, the individual behind the collection of 100 MetaBirkins NFTs. Tied to images depicting furry renderings of its famous Birkin Bag, Hermès claims that in furtherance of his sale of the NFTs, Rothschild simply “rip[s] off Hermès’ famous BIRKIN trademark by adding the generic prefix ‘meta,’” which refers to “virtual worlds and economies where digital assets such as NFTs can be sold and traded.”

MetaBirkins NFT listings on OpenSea

Rothschild recently pushed for a dismissal of Hermès’ lawsuit on the basis that his “fanciful depictions of fur-covered Birkin bags and his identification of his artworks as ‘MetaBirkins’ are artistically relevant and do not explicitly mislead about their source or content,” and thus, are protected as artistic expression under the First Amendment. Unsuccessful, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York sided with Hermès, holding that while there may be an “artistic aspect” to the images tied to the MetaBirkins NFTs (making the Rogers test applicable), Hermès has, nonetheless, sufficiently set out allegations that Rothschild’s use of “MetaBirkins” was not artistically relevant or was explicitly misleading.

A rep for Rothschild told TFL on July 27, “The judge ruled that MetaBirkins are artistic speech protected by the First Amendment. There are two remaining questions that the judge said need to be addressed. First, is the title “MetaBirkins” artistically relevant to the artwork? In our view the answer is clearly yes—the artworks are illustrations of imaginary fur-covered Birkin bags, and the title MetaBirkins describes what the artworks are about. The second question is whether I’ve made any explicit claim that Hermes is responsible for the MetaBirkins artwork, and again we look forward to showing that I’ve always identified myself as the creator, not Hermes.”

Halston Thayer v. Matt Furie, et al – March 2022 (C.D. Cal)

An aggrieved NFT buyer filed suit against cryptoartist Matt Furie for allegedly misrepresenting the number of NFTs that would ultimately be offered up in furtherance of a “scheme to artificially inflate the value” of his FEELSGOOODMAN Rare Pepe Card NFT. In the complaint, Halston Thayer alleges that Furie and the other defendants, including a decentralized autonomous organization set up in order to “feature and sell Furie’s cryptoarto,”duped him into “grossly overbidding” for the digital token he acquired for a cool $507,084 last fall by falsely advertised that only one of Furie’s Pepe NFTs would be made available. Thayer set out claims of fraudulent inducement, intentional misrepresentation, negligent misrepresentation, violation of unfair competition law, violation of the Consumer Legal Remedies Act, mistake of fact, breach of contract, breach of good faith and fair dealing, unjust enrichment. 

Roc-A-Fella Records, Inc. v. Damon Dash – June 2021 (SDNY)

Roc-A-Fella named Damon Dash in a copyright case (one of the first copyright lawsuits involving NFTs) in a bid to stop him from auctioning off the copyright to Jay-Z’s debut album “Reasonable Doubt” as an NFT. In its complaint, Roc-A-Fella – which Jay Z founded with Damon Dash and Kareem Burke in 1995 – alleged that Dash was planning to auction off the copyright rights to the famed album as an NFT despite not owning the copyright. Setting out claims of breach of fiduciary duty, conversion, replevin, and unjust enrichment, the record label argued that Dash does not own the copyright (Roc-A-Fella does), and as a shareholder in Roc-A-Fella, Dash is entitled to part of its profits, indirectly giving him some of the royalty income from Reasonable Doubt.

A judge swiftly blocked the NFT sale by granting a temporary restraining order in favor of Roc-A-Fella, and the parties settled the case in June 2022, clarifying ownership in a filing with the court that “RAF, Inc. owns all rights to the album ‘Reasonable Doubt,’ including its copyright. No shareholder or member of RAF, Inc. holds a direct ownership interest in ‘Reasonable Doubt’” – and explicitly limiting Dash’s ability to sell “any property interest in ‘Reasonable Doubt’” going forward. 

Miramax, LLC v. Quentin Tarantino et al – Nov. 2021 (C.D. Cal) – SETTLED

In November 2021, Miramax filed suit against Quentin Tarantino, seeking to enjoin the Pulp Fiction director from auctioning off “exclusive” memorabilia associated with the film in the form of “secret” NFTs. In its complaint, Miramax alleges claims of copyright infringement, trademark infringement, and unfair competition. In addition to arguing that Tarantino is likely to confuse consumers about the source of the Pulp Fiction-linked NFTs, Miramax alleges that Tarantino is on the hook for breach of contract, as his “narrowly-drafted” Reserved Rights (as distinct from Miramax’s “broad, catch-all rights,” which include “all rights . . . now or hereafter known. . . in all media now or hereafter known”) do not extend to his offering up of used excerpts of the screenplay as NFTs. 

Counsel for Tarantino has pushed back, asserting, “Miramax is wrong — plain and simple. Quentin Tarantino’s contract is clear: he has the right to sell NFTs of his hand-written script for Pulp Fiction and this ham-fisted attempt to prevent him from doing so will fail.”

UPDATED (Sept. 8, 2022): In a notice of settlement filed on Sept. 8, the parties alerted the court that they “have settled this case and expect to file their dismissal papers within two weeks.”

This article was initially published on July 1 and has been updated to reflect developments in the cases/new case filings.

An interesting lawsuit involving a paparazzi photo is currently unfolding before a federal court in California. The matter got its start just like many of the paparazzi photographer-initiated cases that have flooded dockets in New York and California in recent years, with a paparazzi filing a copyright infringement lawsuit against a fashion brand (or a celebrity) for posting one of his photos on Instagram without authorization or a license. In this case, Carlos Vila filed a lawsuit against Deadly Doll in July 2021 for posting one of his images – a photo of model Irina Shayk walking down the street in a pair of the brand’s sweatpants – on its Instagram. The infringing photo is “an exact copy of the entirety of [Vila’s] original image that was directly copied and [posted] by Deadly Doll on [its Instagram] account,” Vila asserted in the 8-page complaint that he filed with the U.S. District Court for the Central District of California. 

Instead of quietly settling the lawsuit out of court, which has been the pattern for the majority of the long list of paparazzi-waged copyright lawsuits, Deadly Doll responded to Vila’s complaint in September 2021 with claims of its own. Primarily, Deadly Doll alleged that in taking the photo of Shayk and subsequently offering it up for license to media outlets, Vila captured “a ‘Pin-up’ girl image in which Deadly Doll owns the copyright that was on clothing Deadly Doll created without [its] permission.” In doing so, Deadly Doll claims that Vila created an unauthorized derivative work. (Who else is not buying this argument?)

In asserting its counterclaims, Deadly Doll also took issue with Vila’s “alleged ‘copyright’ in the unauthorized derivative photograph” of Shayk, and sought a declaration from the court that its copyright in the artwork is valid, while the “alleged copyright in [Vila’ photo] is invalid.” (Both Vila and Deadly Doll maintain copyright registrations for their respective works: the photo for Vila and the pin-up girl artwork for Deadly Doll.)

On the heels of filing his answer to Deadly Doll’s counterclaims, complete with a fair use affirmative defense, Vila lodged a motion for judgment on the pleadings this spring, angling to get Deadly Doll’s counterclaims tossed out on the basis that his photo containing Deadly Doll’s pin-up girl art is not a “derivative work” as a matter of law – and thus, does not infringe the brand’s copyright in the artwork. Beyond that, Vila argued that he is entitled to judgment on the pleadings because “Deadly Doll is not entitled to declaratory judgment, Deadly Doll’s copyright in the artwork is invalid, and [his] photograph constitutes fair use of the artwork.” 

Deadly Doll artwork and photo of Irina Shayk

(Deadly Doll – which was founded by musician Jesse Jo Stark, whose parents Richard Stark and Laurie Lynn Stark are the duo behind cult label Chrome Hearts – pushed back in a subsequent opposition filing. The company argued that since Vila’s photograph incorporated “virtually all of” its pin-up girl art, which is “conceptually separable, copyrightable, and copyrighted,” the photo qualifies as a derivative work that infringes Deadly Doll’s copyright, making it “ineligible for independent copyright protection under the law of the Ninth Circuit and other courts.”)

Fast forward to August 23 and the Judge Otis Wright of the U.S. District Court for the Central District of California sided with Deadly Doll, finding that Vila is not entitled to judgment on the pleadings on all four fronts. 

Derivative Work – First, the judge states that Vila argues that his photograph is “highly unlikely to be considered a derivative work under Ninth Circuit precedent, which protects photographers from their inherent vulnerabilities to copyright infringement suits based on the individual copyrighted elements necessarily captured in their photographs.” However, he “does not—and cannot—cite to any precedent stating that photographs can never be derivative works of any artwork displayed therein,” Judge Wrights states. 

“Accordingly, the question of whether the photograph is a derivative work still requires the Court to determine whether the photograph recasts, transforms, or adapts the artwork” – a question of fact to be established on summary judgment or determined at trial. 

Vila’s Copyright – Vila’s second argument – in which he claims that Deadly Doll cannot possibly prevail on its claim for declaratory relief because his photo meets the Ninth Circuit’s “extremely low” threshold for originality and thus, is sufficiently original to warrant its own copyright protection – similarly fails. “By citing precedent that merely suggests Deadly Doll is unlikely to prevail on its claim, instead of citing precedent holding that Deadly Doll’s claim is untenable as a matter of law,” the court contends that Vila “does not meet his burden to show he is entitled to judgment.” 

Deadly Doll’s Copyright – Third, Vila argues that he is entitled to judgment as a matter of law because Deadly Doll’s copyright in the artwork is invalid since the dates of creation, first publication, and registration alleged in the brand’s counterclaims do not match those dates as displayed on the U.S. Copyright Office’s webpage. This peculiar argument fails for a number of different reasons, according to Judge Wright, but “most significantly” because Vila does not provide “any precedent to support a finding that inconsistencies between copyright dates alleged in a complaint and those dates depicted on the copyright registration, render the copyright registration void or cancellable so as to entitle a movant to judgment on the pleadings.”

At the same time, the court notes that Deadly Doll submitted a supplemental copyright registration for its artwork, which displays dates of creation, first publication, and registration that are consistent with the relevant allegations in the counterclaims, thereby, making Vila’s argument moot. 

Fair Use – Vila finally argues that he is entitled to judgment on the pleadings “because in any case, [his] incorporation of the artwork into the photograph constitutes fair use and therefore, is not copyright infringement,” the court summarizes. Quickly shooting down this argument, the courtly states that the determination of whether a work constitutes fair use requires “a case-by-case analysis and a flexible balancing of relevant factors,” which it simply “cannot do on a motion for judgment on the pleadings.” Citing Deadly Doll’s opposition motion, Judge Wright states that “Vila’s fair use arguments are not properly raised on this motion because fair use is a mixed question of law and fact that is not generally resolvable by motions to dismiss or for judgment on the pleadings.” As such, Vila “cannot show, looking only to the counterclaims,” that his photograph is fair use as a matter of law. 

With the foregoing in mind, Judge Wright found that Deadly Doll has stated sufficient claims for copyright infringement and declaratory relief, and accordingly, Vila is not entitled to judgment on the pleadings. 

The case is Carlos Vila v. Deadly Doll, Inc., 2:21-cv-05837 (C.D. Cal.)

Fashion Nova has famously been on the receiving end of a long list of infringement lawsuits; the since-settled copyright and trademark infringement case that Versace filed against it for allegedly selling “deliberate copies and imitations of [its] most famous and recognizable designs, marks, symbols and other protected elements,” including the design of its famous “J.Lo dress,” for instance, comes to mind. But a new Fashion Nova lawsuit flips the script, with the fast fashion giant accusing a fellow Los Angeles-based fast fashion retailer of copyright infringement for taking product images from Fashion Nova’s website and using them on its own site in order to compete with its well-established competitor.

Setting the stage in the complaint that it filed with the U.S. District Court for the Central District of California on August 29, Fashion Nova claims that it has experienced “explosive growth since the launch of the e-commerce website in 2013,” with its website “now rank[ing] as one of the most viewed fashion sites in the United States.” By way of its “dynamic e-commerce site,” Fashion Nova says that it “markets and sells a diverse range of lifestyle clothing and accessories for men, women, and children, with as many as 200,000 different styles offered for sale, including over 1,000 new styles per week, and up to several hundred new styles per day, with price points generally within the $10-$50 range.” 

At the heart of its e-commerce site and corresponding social media channels, Fashion Nova claims in its newly-filed lawsuit, are “visually appealing, striking photographic images and videos of [models] wearing or using [its] products – which serve to attract consumer interest and, ultimately, purchases of Fashion Nova products.” 

A product listing from Fashion Nova and a product listing from Blush Mark

In light of the success of its e-commerce-centric venture, Fashion Nova claims that budding young rival Blush Mark has “intentionally and wrongfully stolen [its] valuable product images and is using them on its website to market and sell products that directly compete with the very same Fashion Nova products depicted in those product images.” Specifically, Fashion Nova points to eleven images that it maintains copyright registrations for, which it alleges that the almost-two-year-old Blush Mark has “downloaded digital copies of from the Fashion Nova website,” removed the file names from (in furtherance of an attempt to “conceal [its] infringement of Fashion Nova’s copyright rights in and to product images owned and/or exclusively licensed by Fashion Nova”), and published to its own site without Fashion Nova’s authorization.

Blush Mark “engaged in its infringing uses of the images at issue for the purpose of marketing, advertising, promoting, offering, and selling products that directly compete with Fashion Nova’s products,” Fashion Nova contends, “with the intention of obtaining an unfair business advantage against Fashion Nova and avoiding the investment of time, money and resources that would otherwise be necessary to develop and create its own product imagery.” 

With the foregoing in mind, Fashion Nova sets out a single claim of copyright infringement, as well as copyright management information violations due to Blush Mark’s alleged removal of Fashion Nova’s copyright management information for the product images at issue. The retailer is seeking monetary damages, namely, “all damages sustained by Fashion Nova as a result of Blush Mark’s infringements of Fashion Nova’s copyright rights in and to the images, as well as all gains, profits, and advantages realized by Blush Mark from said infringements,” along with injunctive relief barring Blush Mark from continuing to infringe its imagery and from removing or altering the copyright management information tied to such imagery. 

A Case Over Copyright or Competition? 

A read between the lines of the Fashion Nova lawsuit suggests that there is more going on here than just a straightforward copyright infringement battle; the case seems to center more significantly on competition between the two fast fashion companies, with Fashion Nova asserting that Blush Mark’s infringement comes as the newer market entrant has been busy “pursu[ing] a business model that replicates [the] successful business model that has led Fashion Nova to be the ‘fast fashion’ industry leader,” including offering up “products are the same as and highly similar to Fashion Nova’s products, targeted to the same customers, and sold at comparable price points.”

In short, Fashion Nova alleges that “Blush Mark and its products directly compete with Fashion Nova.” 

Fashion Nova has been accused in the past of trying to monopolize the market and maintain its spot on the fast fashion totem pole in the U.S., and the company may be feeling threatened given that its competitive advantage rests largely on its ability to offer up substantial quantities of trendy garments and accessories for low, low prices. After all, Blush Mark is offering at least some of the exact same products for even lower prices (it boasts that its “styles start as low as $5”), and gaining rising media attention and a growing number of Instagram and TikTok tags in the process. It is worth noting that Fashion Nova’s wares come from a collection of “hundreds of manufacturers … which are hired by middlemen to produce garments for fashion brands.” Given the lack of exclusivity at play in at least some of its supplier arrangements, those garments can be purchased by other brands, such as Blush Mark, which seems to be what is going on here. 

Since replicating the fast fashion business model (without going so far as to interfere with Fashion Nova’s existing contracts with vendors to boost its business, for instance, or misappropriating its trade secret-protected customer and/or supplier lists) does not give rise to an actionable offense, Fashion Nova appears to be left with the copyright infringement claims that it has lodged against Blush Mark as a means of chipping away at its burgeoning competitor.

Another striking takeaway: The overarching push towards ESG in fashion and the oft-reported penchant among Gen-Z and millennial consumers for sustainably-made wares has not put much of a dent in the global fast fashion market, which was worth an estimated $91.23 billion as of 2021, and enduring competition among established entities and rising new players.

A rep for Blush Mark was not immediately available for comment about the Fashion Nova lawsuit. 

The case is FASHION NOVA, LLC, v. Blush Mark, Inc., 2:22-cv-06127 (C.D.Cal.)

Tiffany & Co swiftly pre-sold a collection of 250 “digital passes” to holders of non-fungible tokens (“NFTs”) from the popular CryptoPunks collection on Friday. Entitled NFTiffs, the passes can be redeemed by current CryptoPunks holders (and current CryptoPunks holders, alone) for the creation of a custom designed pendant – made of gold and gemstones – that resembles their individual CryptoPunks, the LVMH-owned jewelry company revealed. In addition to the tangible jewelry items, which are expected to be available for the pass holders beginning in early 2023 (assuming these individual still own their CryptoPunks), NFTiff buyers also get a “standalone custom 1 of 1 NFT on the Ethereum blockchain” that is tied to digital artwork that resembles the final jewelry design. 

CryptoPunks holders were quick to snap up Tiffany & Co.’s NFTiffs, which were initially offered up – in conjunction with blockchain-based technology company Chain – for 30 ETH (the equivalent of $50,000). But in the wake of the launch, the venture was met with some pushback, primarily on social media, stemming from the terms of the offering. In particular, most attention centered on a provision in the NFTiff Terms and Conditions that previously stated, “By purchasing an NFTiff and linking it to your CryptoPunk, you grant Tiffany and Company, its affiliates, agents and others working for it or on its behalf, an irrevocable, nonexclusive, royalty-free license to use your CryptoPunk and its underlying intellectual property, if any, to design, manufacture and sell the corresponding pendant, including any and other Intellectual Property Rights.” (Emphasis courtesy of TFL.)

For the most part, the provision makes sense in that it gives Tiffany the ability to make use of the intellectual property in the various CryptoPunks to manufacture and offer up pendants – and digital imagery of the pendants – without engaging in copyright infringement and/or trademark infringement, with the latter coming into play given Tiffany’s use of the “CryptoPunks” mark on and/or in connection with the NFTiffs and pendants. It is worth noting that Tiffany & Co. can get such a license from the CryptoPunk NFT holders, themselves, and thus, does not need authorization from Yuga Labs because when Yuga acquired the CryptoPunks collection, including the “brand and logo,” earlier this year from Larva Labs, it announced that it would grant “IP, commercial, and exclusive licensing rights to [the] individual [CryptoPunks] NFT holders.” 

NFTiff

(While the exact terms of the impending license that CryptoPunks is offering to its NFT holders are not clear, the Tiffany & Co.-crafted pendants and corresponding NFTs “perfectly illustrate the license that’s coming out,” CryptoPunks’ brand lead Noah Davis told CNN in the wake of the NFTiff launch, a nod to the “certain rights” that CryptoPunk NFT holders have “with regards to what you can do with your CryptoPunk, what kind of IP you can build around it.” In this instance, Davis says that the owners of Cryptopunks are “essentially commissioning Tiffany’s to create new IP out of their CryptoPunk, and that new IP is a pendant.” (Is that really “new IP” – or it is simply a new application of existing copyrights/trademarks?))

“A reasonable interpretation” of this section of the NFTiff terms “is that the purchaser is granting Tiffany’s a limited royalty-free license to use the purchaser’s CryptoPunk and its underlying intellectual property, solely for designing, manufacturing and selling the corresponding pendant,” attorney Dean Wolf stated on Twitter. However, the inclusion of the terms “any and other Intellectual Property Rights” related to the CryptoPunks at the end of the NFTiff license provision raised eyebrows (and in some cases, prompted claims that Tiffany & Co. was looking to suck rights from CryptoPunks holders, which seems unlikely).

Reflecting on the “any and other Intellectual Property Rights” clause, Wolf noted that “a broader interpretation” could be that “the purchaser is granting Tiffany’s a royalty-free license to: 1) use the purchaser’s CryptoPunk and its underlying intellectual property (in any capacity); and (2) to design, manufacture and sell the corresponding pendant.” 

The NFTiff terms were updated over the weekend to remove the “any and other Intellectual Property Rights” language, thereby, clarifying questions and/or concerns about whether the jewelry company was angling to amass broader rights in various CryptoPunks. (It is not.)  

NFTiff

As for what can be taken away from the NFTiff terms debacle, among other things, it seems to serve as a reminder of the apparent clash that can arise between the web3 approach to ownership, namely, a push to distribute ownership more evenly between companies and individuals, and the approach that companies traditionally take – and the very-standard legal language that they use – when it comes to things like licensing. (Tiffany is, of course, not alone in utilizing such language. Instagram, for example, enjoys a “a non-exclusive, royalty-free, transferable, sub-licensable, worldwide license” that gives it the ability to make use of users’ content.)

It is difficult (as of now) to see big-name luxury companies, like Tiffany & Co., drastically changing their approach to drafting, including and/or not including well-established terms to better fit into the web3 mentality. That does not mean, however, that there is not something of a middle ground. University of Kentucky Law professor Brian Frye claims that “Tiffany’s attorneys should have made the agreement clearer and easier to understand,” for example, given that “the customers for this project” (and maybe NFT holders generally?) “are antsy about ‘IP’ and the lawyers should have anticipated these concerns.” 

This sheds light on a larger issue that has also been coming up in a number of NFT and metaverse-centric lawsuits: As companies venture into this web3 (either via projects of their own or lawsuits that they are initiating), they need to collaborate closely with lawyers that not only understand the law in this area but that appreciate the ethos of the web3 space. This is true both from a transactional perspective (anticipating the response from CryptoPunks holders could have potentially helped Tiffany & Co. to avoid the backlash over the NFTiff terms), and from a litigation point of view given that in more than one case (Hermès v. Rothschild and Nike v. StockX come to mind), brands that have landed on the receiving end of web3-centric infringement lawsuits are arguing that the suits are misguided and that the plaintiffs simply do not understand what NFTs are and how they actually work. 

Potential missteps could prove costly from a litigation POV, but beyond that, claims, such as those from Mason Rothschild’s counsel that Hermès is looking to “suppress Rothschild’s art and to restrain his protected speech,” or those from StockX, which has argued that Nike’s lawsuit is little more than an “anticompetitive” attempt to “stifle the secondary market [and] hurt consumers,” could also cost brands by way of unfavorable PR.

Ultimately, this appears to be the latest example of why “brands and trademark practitioners, alike, [need] to wrap their heads around what is taking place” in web3, as Frye previously told TFL, and that they would likely benefit from enlisting counsel that is well-versed in the nuances of this arena in order to successfully engage in it – and/or to successfully wage and/or defend against lawsuits that involve it. And this is especially important in light of one of the biggest takeaways from the successful NFTiff launch: It demonstrates the desire of consumers (and increasingly, luxury brands) to become part of this space and their willingness spend sizable sums to do so.