In the NFT (Non-Fungible Token) frenzy that swept the country a couple of years back, one of the collections that became among the most popular, and very valuable, is known as the Bored Ape Yacht Club (“BAYC”). Its creator, Yuga Labs, sued Ryder Ripps and Jeremy Cahen for trademark infringement.
Ripps maintained that Yuga embedded racist and alt-right dog whistles in the BAYC NFTs. Defendants therefore created their own NFT collection, known as the Ryder Ripps Bored Ape Yacht Club (“RR/BAYC”). As the court explained, according to Defendants, the RR/BAYC NFT collection point to the same online digital images as the BAYC NFT collection but use verifiably unique entries on the Ethereum blockchain. Defendants contended that their “use of pointers to the same images is a form of ‘appropriation art’ that serves several purposes,” including: (1) bringing attention to Yuga’s use of racist, neo-Nazi, and alt-right messages and imagery; (2) exposing Yuga’s use of unwitting celebrities and popular brands to disseminate offensive material; (3) creating social pressure demanding that Yuga take responsibility for its actions; and (4) educating the public about the technical nature and utility of NFTs.
In a decision dated April 1, 2023, district Judge John F. Walter of the Central District of California granted Yuga summary judgment in connection with a number of its claims. In doing so, the court addressed various issues concerning trademark law and NFTs.
First, the law recognizes that unregistered trademarks can be enforced against would-be infringers. Thus, it did not matter that the BAYC Marks are unregistered,
Second, Defendants argued that Yuga did not own any trademark rights in the BAYC Marks because NFTs are intangible and, as a result, ineligible for trademark protection. The court held that the Lanham Act did not require that goods be tangible in order for trademark protection to attach. And the court held that, although NFTs are virtual goods, they are, nevertheless, “goods” for purposes of the Lanham Act.
Third, Defendants also argued that, even if NFTs are “tangible goods” subject to trademark law, Yuga could not meet the “use in commerce” requirement. The court disagreed. It noted that Yuga used the BAYC Marks in commerce and continues to use the BAYC Marks in commerce. Yuga has sold 10,000 BAYC NFTs. In addition, holders of BAYC NFTs have 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.
Fourth, on the issue of likelihood of confusion, the court pointed out that the BYAC Marks were “strong” marks, because of the arbitrary designation. Also relevant was the fact that Defendants’ marks were identical. Further, because Defendants knowingly and intentionally used Yuga’s BAYC Marks, the court concluded they did so in an effort to confuse consumers. The court “easily” concluded that Defendants’ use of Yuga’s BAYC Marks was likely to cause confusion.
Turning to Defendants’ affirmative defenses, the court rejected Defendants’ argument that they had First Amendment protection. It held that the so-called Rogers test did not apply:
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 Defendants’ argue that the larger RR/BAYC “project” is an expressive artistic work protected by the First Amendment, Defendants’ 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. In particular, the RR/BAYC NFTs do not express an idea or point of view, but, instead, merely point to the same online digital images associated with the BAYC collection.
Likewise, the court rejected the defense of nominative fair use because Defendants did not use the BAYC Marks to sell Yuga’s BAYC NFTs, but to sell their own competing RR/BAYC NFTs. And, finally, the court rejected the defense of “unclean hands” based on Yuga’s alleged misconduct regarding celebrity endorsements and securities violations because neither of these allegations related to the trademark dispute between the parties.
In sum, the court granted Yuga summary judgment on its claim for false designation of origin (as well as for cybersquatting, which was not discussed above). The court deferred until trial questions of damages, including whether this was a case in which enhanced damages would be appropriate.