On April 21, 2023, the US District Court for the Central District of California rendered a very important decision on the plaintiffs’ motion for a summary judgment in the matter of Yuga Labs, Inc. v. Ripps, et al., involving the questions of protection and enforceability of rights in non-fungible tokens (“NFTs”). Yuga Labs are the creators of “one of the world’s most well known and successful “NFT” collections, known as the Bored Ape Yacht Club (“BAYC”)”, whereas the defendants created their own NFT collection, known as the Ryder Ripps Bored Ape Yacht Club (“RR/BAYC”), this inevitably leading to a conflict.
The decision is truly of foremost significance, at least until – and if – the matter reaches the U.S. Supreme Court, not only for holders of digital assets, such as NFTs, cryptocurrencies and other assets on the blockchain ledger, but for all trademark owners, including those owning brands for more ‘traditional’ products or services, who became apprehensive of the explosive growth of the meta-world and unabated use (and abuse) of trademarks.
A big question, which many trademark owners faced with the not so well-hidden trepidation, was whether the current trademark laws (and since it so happens that most court cases dealing with this topic are in the United States, the US Trademark Law, a.k.a. the Lanham Act), as well traditional doctrines of trademark protection would apply in the metaverse. And what could or should they do in order to protect and enforce their valuable brands against opportunistic entities, ever eager to raise the digital ‘Jolly Roger’ and shout for the abordage of marks.
The first decision in this regard was just earlier this year, by the US District Court for the Southern District of New York, finding the self-proclaimed artist Mason Rothschild liable to Hermès International for trademark infringement, trademark dilution, and cybersquatting based on Rothschild’s creation and online sale of the NFTs based on the Birkin bags owned by Hermès (Hermès International v. Rothschild, a.k.a. the ‘metabirkins’ case). The court rejected the defendant’s Rogers defense and the claim of artwork protection under the First Amendment as well as that trademark law should not give Hermès control over the defendant’s art.
The decision in Yuga Labs over the BAYC NFTs is not less and probably more important, even if a summary judgment and not a full case verdict. Not only was it a decision as a matter of law, but it also establishes a pattern in the decisions by courts in different States and different circuits, both finding that the canons of trademark law would apply to the digital realm just as well. This sends a clear message to the wannabe trademark infringers and, by the same token (no pun!), to digital marketplaces which facilitate or accommodate such unauthorized use, as well as to trademark owners, who already rush to register their marks for digital formats of products and services.
The thoroughly detailed decision in the Yuga Labs summary judgment, not only specifically refers to and quotes the Hermès ‘metabirkins’ decision, but also unequivocally states that “…although NFTs are virtual goods, they are, in fact, goods for purposes of the Lanham Act”, specifically finding that “Blockchain technology has revolutionized digital assets and allowed the creation of unique digital goods that are non-fungible… [and] intangibility does not exclude NFTs from having other characteristics of “goods”. This conveys a clear indication that the change in products’ forms and formats due to evolution of technology does not preclude application of principles of trademark law.
Moreover, the Yuga Labs decision soundly denies the First Amendment/Rogers affirmative defense in the circumstances of this case, finding that “[d]efendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag, making the Rogers test inapplicable” and that even if it was, “[d]efendants’ use of the BAYC marks is explicitly misleading” and it would be an “expressive work meant only to disguise a business profiting from another’s trademark”.
The US Supreme Court is expected to rule on the overall applicability of Rogers doctrine of freedom of artistic expression, and the decision – in the ‘Bad Spaniels’ case where Jack Daniel’s defends its jewel brand against a ‘dog poop’ parody product – is anticipated in June 2023.
To summarize, the importance of Hermès, and now the Yuga Labs, decisions is that they are the guiding beacons for applicability of postulates of trademark law in the blockchain space, an endeavor to uphold the economic equilibrium.
Written by Max Vern, Partner, Amster Rothstein & Ebenstein, LLP