12 September 2022
Metaverse September 2022/1 – 1 of 3 Insights
As explained in our introductory article that you can read here, Yuga Labs Inc. (Yuga), a blockchain technology company that specialises in developing digital collectibles, has filed a lawsuit against Ryder Ripps (Ripps) before the Central District of California over the sale of alleged copycat NFTs and a consumer scam related to the Bored Ape Yacht Club.
Yuga claims that Ripps, a self-proclaimed “conceptual artist”, scammed consumers into purchasing a copycat NFT collection consisting of the original Bored Ape Yacht Club images.
In this case, Ripps’ NFTs allegedly used the exact same images that were created by Yuga. Ripps’ “new” collection was named “RR/BAYC” and was promoted on the artist’s website. The website contained several of Yuga’s trade marks, such as the designation “BAYC”, the “BAYC” logo as well as the logo of an ape skull. The “RR/BAYC” NFTs could also be traded on OpenSea, one of the leading NFT marketplaces. The images linked to Ripps’ NFT also contained the brands depicted in the images, Ripps’ using Yuga’s exact same images.
The lawsuit is notably based on unfair competition, false advertising, cybersquatting and trade mark infringement. For the trade mark perspective of the case see our previous article here.
Surprisingly enough, Yuga did not bring any copyright infringement claim, the lack of which can be explained by the numerous uncertainties concerning NFTs further explained below. In the below article we will look at this aspect from a French and German copyright law perspective.
As a preliminary remark, the NFTs as such are not copyrightable. What can be protected by copyright is the work of art underlying the NFT – in this case – the Bored Apes images. That being said, a question arises as to whether Yuga holds the copyright on the Bored Apes.
In the United States, Yuga registered nine of its Bored Apes before the United States Copyright Office, but none of them has been reproduced by Ripps.
In France and in Germany, this lack of registration would not be an obstacle for the acknowledgment of copyright protection in the Bored Apes. Indeed, there is no registration requirement so that a creation benefits from protection as soon as it is original. Courts acknowledge the originality of a creation as soon as the said creation is endowed by the personality of his/her author.
Thus, at first glance, the Bored Apes could be protected by copyright as they seem to show a minimum amount of creativity, but that is without mentioning the fact that they result from a collection composed of 10.000 images generated by an artificial intelligence.
The Bored Ape collection is composed of highly similar images. The differences merely consist in a change of the expression of the Apes, accessories and the color background. As the Bored Ape Yacht Club’s website states: “Each Bored Ape is unique and programmatically generated from over 170 possible traits, including expression, headwear, clothing, and more”.
Considering the little differences between the Apes and the importance of the collection, certain commentators around the world claim that the copyrightability of each Bored Ape is uncertain, which is in our opinion open to criticism as each image shows some creativity.
The Review Board of the U.S. Copyright Office recently reiterated its position regarding the impossibility to register a creation autonomously created by a computer algorithm (you can read our article regarding this issue here). So far, most of jurisdictions, including France and Germany, do not grant protection for AI created works.
In France, any work of the mind is eligible for copyright protection. Moreover, the work must be original and as such bear the imprint of the personality of its author(s). Finally, as per a well-established case-law, the author of a work must be a natural person, thus excluding legal persons, animals and software.
In Germany, generally, the same principles apply. The German Copyright Act even explicitly states that only the author’s own intellectual creations constitute works within the meaning of the German Copyright Act. Therefore, the author of a work has to be a natural person.
Hence, any works that were created entirely autonomously by AI will not be protected under French or German copyright law. As explained, according to Yacht Club’s website the Bored Apes are “programmatically generated from over 170 possible traits”, which could explain why Yuga did not base its action on copyright.
On the other hand, one could argue that at least the first ape was created by a natural person and also the “170 possible traits” will most likely have been defined by a natural person - which could open the door for copyright protection at least a little bit. However, Yuga might have considered this approach too risky.
Obviously, Yuga would not be able to file an action based on copyright without being the holder of such rights. A question thus arises as to whether or not it remains the holder of copyright when selling the Bored Apes.
According to the terms and conditions (T&C) of The Bored Ape Yacht Club, the buyer holds the NFT and “the underlying Bored Ape, the Art, completely” and the “Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network”. However, the T&C also indicate that Yuga grants to the buyer a license to “use, copy, and display the purchased Art” in various situations such as for the creation of derivative works based upon the Art (e.g., merchandising products such as T-Shirts) or for non-commercial use.
Thus, since the NFT holder receives a copyright license and the T&C do not state that the license is exclusive, it seems that Yuga still has the right to use and exploit the work of art after the NFT has been sold.
This is all the more true in France as the local legislation is very strict with respect to assignments which need to specify a number of elements to be valid, including each right assigned as well as the purpose, destination, territory, duration and price of the said assignment.
In Germany, the author may grant to another the right to use the work in a particular manner or in any manner (right of use). A right of use may be granted as a non-exclusive right or as an exclusive right, and may be limited in respect of place, time or content. If the types of use were not specifically designated when a right of use was granted, the types of use to which the right extends is determined in accordance with the purpose envisaged by both parties to the contract. A corresponding rule applies to the questions of whether a right of use has in fact been granted, whether it is a non-exclusive or an exclusive right of use, how far the right of use and the right to forbid extend, and to what limitations the right of use is subject.
In view of these principles, it could therefore be argued that Yuga has granted the NFT holders only a non-exclusive license. If this was true, Yuga was (still) entitled to file a lawsuit in Germany. On the other hand, the specific wording used, particularly the use of the word “completely”, allows also for a different interpretation, leading to an exclusive license – and, hence, excluding Yuga from asserting its rights, at least in Germany. Again, this uncertainty might have deterred Yuga from including copyright claims in its complaint.
Anyone can copy the image underlying an NFT, as it is as easy as taking a screenshot of the image and saving it on a computer. However, the NFT holder has nothing more than a unique hash on the blockchain with a transactional record and a hyperlink leading to the file of the work of art.
Ripps thus argues that it is impossible for him to copy the NFTs as NFTs are merely used to exchange digital tokens linking to digital file assets (please see here Ripps’ declaration on his website). In other words, Ripps contends that the use of a mere hyperlink leading to the authentic Bored Ape does not amount to copyright infringement.
NFTs thus raise a legal question regarding the nature of the link between the work of art and the token. As Ripps argues, NFTs merely contain an URL leading to the work of art. Therefore, they do not reproduce or represent the work as such.
In the European Union, the main question would be whether or not such hyperlink amounts to a “communication to the public” within the meaning of Article 3(1) of Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society (the so-called “InfoSoc Directive”).
Since Svensson (CJEU, 13 February 2014, Svensson and Others v Retriever Sverige AB, C-466/12), the provision of hyperlinks to protected works freely available on another website does not constitute copyright infringement as there is no communication of those works to a new public, namely “a public not taken into account by the copyright holders when they authorised the initial communication to the public”.
Where the work of art is not freely available elsewhere and has not been communicated to the public on the Internet by the rights holders, there could be a communication to a new public and thus copyright infringement.
Furthermore, according to the GS Media decision (CJEU, 8 September 2016, GS Media BV v Sanoma Media Netherlands BV, C-160/15), in order to determine whether or not a hyperlink to a work placed online without the consent of the rights holder is a communication to the public, it must be determined whether the link is provided other than for financial gain by someone who did not know, and could not reasonably have known, that the linked-to publication was unauthorized. If so, the link is not a communication to the public. In other words, if the link is provided by someone acting for financial gain, then the knowledge of illegality is presumed and the link amounts to a communication to the public.
Here, the key elements rely on the question as to whether or not the links provided in Ripps’ NFTs relate to already publicly available to all Internet users and the commercial nature of Ripps’ activities.
In the case at hand, it is clear that Ripps did not seek the authorization from Yuga and engaged in profit-making activities as the latter did not give away his NFTs for free. Therefore, we believe that the act of communication is characterized so that Ripps’ argument would be vain in Europe.
It is therefore certain that this case raises unprecedented legal questions and it is regrettable that these will not be examined further by the Central District of California. It is likely that Yuga did not want a clear decision on the ownership and scope of protection of its Bored Apes.
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