IP Law Daily, TRADEMARK—C.D. Cal.: Yuga Labs wins infringement suit against artists for copycat versions of BAYC NFTs, (Apr 26, 2023)

By Linda O’Brien, J.D., LL.M.

Artists admitted the intentional use of BAYC NFT marks when creating their own competing NFTs.

There were no genuine issues of material fact in a trademark infringement action by blockchain company Yuga Labs against two artists who copied Yuga’s trademarks for its popular Bored Ape Yacht Club NFT series and incorporated them into their competing NFT series as to create confusion for consumers, the federal district court in Los Angeles, California has held. The plaintiff’s marks were intentionally used by the defendants in their competing NFT series, and there was no factual dispute that the defendants acted with a bad faith intent to profit from the use of the plaintiff’s marks. Thus, the plaintiff’s partial motion for summary judgment on the issues of false designation of origin, cybersquatting, artistic expression and fair use affirmative defenses, and a knowing misrepresentation of infringing activity counterclaim was granted (Yuga Labs, Inc. v. Ripps, April 21, 2023, Walter, J.).

Yuga Labs, Inc. created the well-known and successful Non-Fungible Token (NFT) collection known as Bored Ape Yacht Club (BAYC). The company minted only 10,000 Bored Apes NFTs, which sold out shortly after being launched in April 2021. Yuga owns several unregistered trademarks, including “BORED APE YACHT CLUB,” “BAYC,” “BORED APE,” the BAYC logo, the BAYC BORED APE YACHT CLUB logo, and the Ape Skull logo, which are used in advertising and marketing on its BAYC website, NFT markets, and on social media platforms.

Ryder Ripps is a visual artist and creative designer. In November 2021, Ripps began criticizing Yuga through his social media accounts, podcasts, with investigative journalists, and by creating the website gordongoner.com for purportedly embedding racist, neo-Nazi, and alt-right images in its BAYC NFTs. In May 2022, Ripps and Jeremy Cahen created their own NFT collection, known as the Ryder Ripps Bored Ape Yacht Club (RR/BAYC), which pointed to the same online digital images as the Yuga BAYC NFT collection but used verifiably unique entries on the Ethereum blockchain to bring attention to Yuga’s claimed use of the offensive messages and images.

In July 2022, Yuga filed suit against Ripps and Cahen, alleging causes of action for false designation of origin, false advertising, cybersquatting, common law trademark infringement, unfair competition, unjust enrichment, conversion, intentional interference with prospective economic advantage, and negligent interference with prospective economic advantage. In the complaint, Yuga alleged that the defendants misused the BAYC marks as part of a scheme to harass Yuga, mislead consumers, and unjustly enrich themselves. In December 2022, the defendants filed their answer and counterclaim asserting six causes of action. The court granted Yuga’s motion to dismiss five of the counterclaims, except the first counterclaim for knowing misrepresentation of infringing activity. Before the court was Yuga’s motion for partial summary judgment on its causes of action for false designation of origin and cybersquatting.

False designation of origin. The court found that Yuga owned the BAYC marks, and its marks were valid and protectable. It was undisputed that the BAYC were unregistered. However, an unregistered mark could be enforced against any infringers. It was also undisputed that Yuga first began using the BAYC marks in April 2021 prior to the defendants’ use of those marks in connection with its RR/BAYC NFT collection in May 2022. The defendants’ argument that Yuga did not own any trademark rights in the BAYC marks because NFTs were intangible was rejected. Agreeing with the holding in Hermes International v. Rothschild, 590 F.Supp. 3d 647 (2022), the court noted that blockchain technology allowed for the creation of unique digital goods that are non-fungible. Intangibility did not exclude NFTs from having other characteristics of goods, such as being individually transferable, storable for indefinite periods of time, exclusively owned by a single owner, and distinguishable based on their source. Although NFTS are virtual goods, they are goods for purposes of the Lanham Act and are therefore eligible for trademark protection.

Further, Yuga used the BAYC marks in commerce. It was undisputed that Yuga sold 10,000 BAYC NFTs, holders of BAYC NFTs had exclusive access to membership benefits, Yuga entered into marketing collaborations with various brands, and BAYC marks were featured in media articles. The defendants’ contention that Yuga failed to sue the BAYC marks in commerce was rejected. Since the defendants’ entire defense was premised on their use of the BAYC marks as art to comment and bring attention to Yuga’s alleged use of offensive messages and images, such commentary and attention would not be necessary if Yuga had not established significant brand recognition and goodwill from the use of its BAYC marks in commerce.

Yuga did not transfer or abandon its trademark rights in the BAYC marks when it granted BAYC NFTs holders rights to the underlying art. Yuga had granted each BAYC NFT holder a copyright license for personal and commercial use of the BAYC ape image but not a trademark license to use the BAYC mars. Thus, there was no evidence of licensing of a trademark.

Moreover, Ripps and Cahen’s use of Yuga’s BAYC marks was likely to cause confusion. The BAYC marks were conceptually and commercially strong. The marks conceptually were arbitraty designations for Yuga’s NFTs and prominently used commercially since April 2021. The BAYC NFT collections were consistently one of the top selling and highest valued NFT collections and, due to its advertising and promotion, Yuga developed brand recognition and acquired significant goodwill from its BAYC marks. Regarding the relateness of the plaintiffs and defendants goods and similarity of the respective marks, the defendants sold the exact same product – NFTs that point to Yuga’s BAYC images - and admitted that they intentionally used the BAYC marks in their RR/BAYC NFTs. Yuga and the defendants had convergent marketing channels and they promoted and sold their NFTs through the same online NFT marketplaces and social media platforms. Confusion was also likely given the complexity and specialized knowledge required to authenticate NFTs and some purchasers of the defendants’ RR/BAYC NFTs would have difficulty identifying the RR/BAYC NFTs as a different and distinct product from Yuga’s BAYC NFTs, the court explained.

Cybersquatting. There was no genuine issue of material fact that the defendants acted with a bad faith intent to profit from their use of Yuga’s mark, the court determined. It was undisputed that the defendants registered, used, and continue to use the domain names https://rrbayc.com/ and https://apemarket.com. These domain names incorporate and are confusingly similar to Yuga’s trademarks. The defendants had no trademark or other intellectual property rights in the domain names, and those domain names did not consist of the legal names of the defendants. There was no bona fide prior use of these domains as they were registered after Yuga launched its BAYC NFTs collection. The defendants concealed the registration of the domain names through the use of a proxy service and registered multiple domain names knowing that they were identical or confusingly similar to the BAYC marks.

Affirmative defenses. The defendants’ RR/BAYC NFT collection was not an expressive work protected under the First Amendment. According to the court, the defendants’ sale of a collection of NFTs that pointed to the same online digital images as the BAYC collection did not constitute an expressive artistic work, as it did not express an idea or point of view, contained no artistic expression or critical commentary, and contained no speech. The BAYC marks were the centerpiece of the defendants RR/BAYC NFTs and were made to look identical to Yuga’s product, ensuring that a consumer would be explicitly misled. The court rejected the defendants’ argument that a disclaimer on the rrbayc.com site that Ripps was the creator of the RR/BAYC NFTs and the project used satire to criticize Yuga’s collection negated confusion; the defendants had used other websites—which did not include any disclaimer—to market and sell their NFTs.

There was no factual dispute that the defendants’ use of the BAYC marks did not constitute nominative fair use. The BAYC marks were used prominently and without modification. Also, the defendants were not using the BAYC mark to sell Yuga’s NFTs, but to sell their own competing NFTs. Therefore, the defendants were not entitled to a fair use defense.

Yuga also was entitled to summary judgment on the defendants’ unclean hands affirmative defense. The defendants’ argument that Yuga’s claims were barred due to alleged misconduct regarding celebrity endorsements and securities violations failed because neither of those allegations related to the trademark dispute between the parties; therefore, the unclean hands doctrine was inapplicable.

Counterclaim. Finally, regarding the defendants’ counterclaim alleging a knowing misrepresentation of infringing activity, there were no factual issues in dispute that there were no material representations and Yuga did not act in bad faith by submitting takedown notices for violations of the Digital Millennium Copyright Act (DMCA). The defendants’ contention that Yuga did not have a copyright registration for the Ape Skull logo that was the subject of the only relevant DMCA takedown notice was rejected because registration was not required to own a copyright, and a logo could receive both trademark and copyright protection, the court concluded.

The Case is No. 2:22-cv-04355-JFW-JEM.

Attorneys: Eric J. Ball (Fenwick and West LLP) for Yuga Labs, Inc. Derek A. Gosma (Wilmer Cutler Pickering Hale and Dorr LLP) for Ryder Ripps.

Companies: Yuga Labs, Inc.

Cases: Blockchain Copyright Trademark TechnologyInternet CaliforniaNews GCNNews