Trademarks and NFTs Trademarks and NFTs

Copyright Law Overview

The Lanham Act created a national trademark registration system (15 U.S.C. § 1051 et seq.) and also promulgated the laws surrounding trademarks in the United States. In order for a trademark to be eligible to be registered and therefore receive protection, the mark must both be used in commerce and must be distinctive. A trademark is registered for a specific good or service (or multiple goods and services). The Lanham Act was passed on July 5, 1946, and was named for Fritz Lanham, a representative from Texas. The Lanham Act deals exclusively with trademarks, and does not address copyrights, which are outlined in Title 17 of the United States Code, which was passed in 1976 and enhanced by the Digital Millennium Copyright Act of 1998 – we will address copyright in another article.

My suggestion is to think of trademarks as the brand and the logo associated with a company and think of copyrights as the artistic media associated with the actual artwork or written word.

In this article, we are addressing the lawsuit between Yuga Labs and Ryder Ripps. Yuga Labs is the company that dropped Bored Ape Yacht Club and is one of the most successful and valuable NFT collections. So, for the purposes of the BAYC (Bored Ape Yacht Club) and Yuga Labs, the trademarks owned by Yuga Labs are the brand names, BAYC, Bored Ape Yacht Club, and the copyrighted media are the actual pictures of the apes that appear when you see the NFT. The Ethereum blockchain houses the ERC 721 tokens (“NFTs”) that were sold by Yuga Labs as the BAYC collection. These tokens contain a URI (uniform resource identifier) that connects to a server that contains the pictures of the apes. Each picture of an ape is unique, and that unique ape is then represented on the blockchain by an individual token that is also unique. On the Ethereum blockchain there is only one token for each ape. There are 10,000 unique BAYC NFTs in the collection.

Yuga Labs v. Ryder Ripps

CV 22-4355-JFW(JEMx)
Yuga Labs, Inc. -v- Ripps, et al.
United States District Court for the Central District of California

Yuga Labs, Inc. v. Ripps, No. CV 22-4355-JFW(JEMx), 2023 WL 3316748 (C.D. Cal. Apr. 21, 2023).

On or around May 19, 2022, Ryder Ripps began minting the RR/BAYC NFT collection, which used the exact BAYC base URI (uniform resource identifier) meaning RR/BAYC used the exact media that Yuga Labs BAYC used for each of the NFTs that were minted. Ryder Ripps claimed that his NFTs fell under the fair use doctrine, under the Lanham Act, and that his use didn’t infringe on any Yuga Lab rights but fit within the exception of fair use. Ryder Ripps stated that he created RR/BAYC to point out the Nazi roots of Yuga Labs and that his use was a criticism of the BAYC NFT collection and therefore he didn’t infringe against Yuga Labs, and had a first amendment right to mint his NFT collection.

Yuga Labs obviously disagreed with that proposition, and on June 24, 2022, Yuga Labs decided to defend its trademarks including the name, Bored Ape Yacht Club, and the various logos associated with its brand. It filed suit against Ryder Ripps and some other parties associated with RR/BAYC.

On April 21, 2023, the Honorable John F. Walter agreed with Yuga Labs. The opinion recognizes that Yuga Labs does indeed own the trademarks including the logos associated with the BAYC NFT collection. Yuga Labs did not register these trademarks with the USPTO but was the first entity to use these particular marks starting in April 2021.

Yuga Labs filed a motion for partial summary judgment asking the court to rule that it (1) owns the BAYC Marks which are valid and enforceable, and that (3) Ryder Ripps used the BAYC Marks to sell RR/BAYC NFTs without the consent of Yuga and in a manner likely to cause confusion. [1]

Ryder Ripps argues that “Yuga [Labs] does not own the [trademarks] due to transferring all trademark rights to the NFT purchasers and abandoned all trademark rights through naked licensing and failure to police.”[2]

The court correctly finds that Yuga Labs did not register the BAYC Marks, but under both Matal v. Tam, 582 U.S. 218, 225 (2017)[3], Halocki Films v. Sanderson Sales & Marketing, 547 F. 3d 1213, 1226 (9th Cir. 2008)[4], “unregistered trademark[s] can be enforced against would-be infringers.” The court also finds that Yuga Labs began using the BAYC Marks prior to Ryder Ripps.

One of the most important rulings by the Court is that for protection under the Lanham Act, goods do not have to be tangible. The court stated, “This Court agrees with the court in Hermes International v. Rothschild, 590 F.Supp. 3d 647, 655 (S.D.N.Y. 2022), which concluded that “neither Dastar nor its progeny require that a defendant’s goods be tangible for Lanham Act liability to attach. [5]” The Dastar Court stated that the Lanham Act “does not provide individuals or other entities with a copyright-like protection in originality, creative ideas, or other abstractions but only against misrepresentations that generate consumer confusion as to the origin of a good for sale.[6]”

The court means that this case has nothing to do with whether or not RR/BAYC has the same art as BAYC, but that the Lanham protects Yuga Labs from Ryder Ripps using their BAYC Marks to sell RR/BAYC because the consumer could easily be confused about the origin of RR/BAYC. This is a fine distinction, but nonetheless important since Yuga Labs did not bring any claims regarding copyright in this lawsuit but based the entire suit on trademark.

More importantly, the court ruled that “although NFTs are virtual goods, they are, in fact, goods for purposes of the Lanham Act.[7]” The court went a bit further stating that NFTs are purchased to own both the token (NFT) and in this case the digital image associated with the token.[8] The court went on to state that NFTs are good protected under the Lanham Act because they are in fact in commerce. For those of us degens, this statement is a no-brainer after scooping up free NFT mints only to sell them for .001 ETH a few hours later. NFTs satisfy the 2-prong test: “For both goods and services, the ‘use in commerce’ requirement includes (1) an element of actual use, and (2) an element of display.[9]”

The court then made quick work of Ryder Ripps’ defense that Yuga Labs had a naked license since they transferred rights to the BAYC Marks to the BAYC owners. The court actually looked at the Terms and Conditions that Yuga Labs posts on its website outlining the actual licenses it gives to the owners of the BAYC apes. It is clear that they give the owner both the ownership of the digital artwork as well as a commercial license allowing the owners to use their apes for commercial purposes. There are restaurants, digital comics, food trucks, video games, hot sauce brands, music labels, production companies, and more.”

For the lawyers reading this, you will understand the painstaking lengths the court made to discuss whether or not the Cytosport eight factors show that RR/BAYC’s use of the BAYC Marks would cause confusion.[10] For those non-lawyers looking at the collection, it is very clear that that use causes confusion. I have anecdotally read a few twitter comments of people that accidentally bought RR/BAYC instead of the real BAYC. Anyway, here are the eight factors: “factors that should be considered in determining whether there is a likelihood of confusion: (1) the strength of the plaintiff’s mark; (2) the proximity or relatedness of the parties’ goods; (3) the marks’ similarity in appearance, sound, and meaning; (4) evidence of actual confusion; (5) evidence of the defendants’ intention in selecting and using the allegedly infringing name; (6) the degree to which the parties’ marketing channels converge; (7) the type of goods and the degree of care customers are likely to exercise in purchasing them; and (8) the likelihood that the parties will expand their product lines.[11]”

The rest of the opinion deals with the DMCA notice and whether or not Ryder Ripps is entitled to damages and other defenses by the Defendants. The court also granted Yuga Labs cause of action for cybersquatting. You can read the opinion to get these parts if you like.

I think that this case along with the Hermes case is a significant turning point for intellectual property rights and NFTs.[12] After these cases, owners of trademarks that represent NFT collections (registered or not) are able to defend their brands against infringers, get to avail themselves of the US Trademark Laws (Lanham Act), and are put on the map as legitimate owners even if the SEC doesn’t want to give them the same respect as this court.

In conclusion, this is a big step for NFT owners. I would suggest, however, that you should register your trademarks and copyrights. I also suggest you find a lawyer that you like, respect, and that respects you and your project. This is not specific legal advice to your project, and this does not create a lawyer/client relationship. If you would like more information about our services, please reach out.

Quantum Counsel
Jarred Bradley
www.cryptolawyer.info
www.theBradleylaw.com

[1] Yuga Labs, Inc. v. Ripps, No. CV 22-4355-JFW(JEMx), P. 4 (C.D. Cal. Apr. 21, 2023); 2023 WL 3316748.

[2] Yuga Labs, at pg 5.

[3] Matal v. Tam, 582 U.S. 218, 137 S. Ct. 1744, 1748, 198 L. Ed. 2d 366 (2017).

[4] Halicki Films, LLC v. Sanderson Sales & Mktg., 547 F.3d 1213, 1217 (9th Cir. 2008)

[5] Yuga Labs at pg 4.

[6] Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33, 123 S. Ct. 2041, 156 L. Ed. 2d 18 (2003)

[7] Yuga. Labs at pg 7.

[8] Yuga. Labs at pg 8.

[9] Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1159 (9th Cir. 2001) (citing 15 U.S.C. §1127).

[10] Cytosport, Inc. v. Vital Pharms., Inc., 617 F. Supp. 2d 1051, 1065 (E.D. Cal. 2009)

[11] Yuga. Labs at pg 10.

[12] Hermes Int’l v. Rothschild, 590 F. Supp. 3d 647, 649 (S.D.N.Y. 2022)