30 May 2023
May 2023 – 1 of 5 Insights
In the legal battle between Yuga, the creator of the renowned Bored Ape Yacht Club (BAYC) NFT collection, and Ripps, a visual artist, the Court has recently granted Yuga's motion for summary judgment (for the most part).
We have already covered the case extensively in previous articles (see a summary of the facts here, the copyright take here and the trade mark perspective here). The recent decision offers insights into the complex terrain of balancing trade mark rights and artistic freedom in the ever-evolving NFT space. More specifically, it sheds light on whether NFTs should be treated as (virtual) goods themselves or merely serve as certificates of authenticity.
Of particular importance from an EU perspective is the Court’s reasoning on the likelihood of confusion test. Essentially, Yuga argued in their first cause of action (i.e. false designation of origin) that Ryder Ripps et al. (the “Defendants”), among other things, used several of their trade marks (the “BAYC Marks”) to sell RR/BAYC NFTs, without the consent of Yuga and in a manner likely to cause confusion. In this regard, the Court pointed out that a claim for false designation of origin requires proof of the same elements as a claim for trade mark infringement under US law:
It was undisputed that the BAYC Marks were unregistered. However, “an unregistered trademark can be enforced against would-be infringers.” And Yuga first began using the BAYC Marks in April 2021 in connection with its BAYC NFT collection, prior to Defendants use of the marks. The Court then went on to set out how that use gave rise to Yuga’s trade mark rights.
Defendants argued that Yuga did not own any rights in the BAYC Marks because NFTs are intangible and, as a result, ineligible for protection. However, the Court agreed with the court in Hermès (see our report here), which concluded that the goods did not need to be tangible for trade mark law to apply. Although “NFTs are virtual goods, they are, in fact, goods” for purposes of trade mark law. Pointing again to Hèrmes, the Court considered that individuals “do not purchase NFTs to own a ‘digital deed’ divorced from any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT.”
The Court confirmed that Yuga has used the BAYC Marks in commerce and continued to do so. Yuga has sold 10,000 BAYC NFTs. In addition, holders of BAYC NFTs had exclusive access to membership perks, including access to the online “Bored Ape Yacht Club,” various online games, in person events (such as the music festival Ape Fest), and new product launches and merchandise, all of which incorporated and featured the BAYC Marks. In addition, Yuga has entered into marketing partnerships and collaborations with various brands, including adidas, which featured the BAYC Marks.
Defendants also argued that Yuga has either transferred all its trade mark rights in the BAYC Marks to BAYC NFT purchasers or abandoned their rights through naked licensing and failure to police. According to the Court, a “naked license” occurs when a trade mark owner grants a license but “then fails to monitor the quality of goods that the licensee produces under that trademark to such an extent that the trademark can be deemed abandoned.” Under its Terms and Conditions, as the Court pointed out, Yuga granted each BAYC NFT holder a copyright license for both personal use and commercial use with respect to their respective BAYC ape image, but not a trade mark license to use the BAYC Marks. Since Yuga has not granted BAYC NFT holders a trade mark license, said the Court, Defendants’ naked licensing theory failed.
The most exciting aspect of the decision – from an EU perspective at least – is the Court’s thorough likelihood of confusion examination. The Court concluded that the majority of the relevant factors weighed in favour of Yuga, in particular:
The BAYC Marks were found both conceptually and commercially strong. Conceptually, the BAYC Marks were arbitrary designations for the NFTs and NFT-related products offered by Yuga. Commercially, although the NFT market was relatively new, Yuga has prominently used the BAYC Marks since April 2021. In addition, Yuga’s BAYC NFT collection was consistently one of the top-selling and highest-valued NFT collections and Yuga has used its BAYC Marks to brand this success in connection with Yuga’s website, events, social media pages etc. As a result, Yuga has developed recognition for its goods and services under the BAYC Marks and has acquired significant goodwill from its BAYC Marks.
Since Defendants have admittedly used Yuga’s BAYC Marks in connection with Defendants’ RR/BAYC NFT collection, the consuming public was likely to associate Defendants with Yuga. Defendants were found to have sold the exact same product – NFTs that point to Yuga’s BAYC images.
Defendants have admitted that they intentionally used the (identical) BAYC Marks in their RR/BAYC NFTs.
The Court concluded that Defendants used the BAYC Marks in an effort to confuse consumers. They intentionally designed the RR/BAYC NFTs and sales websites to resemble Yuga’s branding. For example, Defendants listed the RR/BAYC NFTs on rrbayc.com under the very same Ape ID number associated with BAYC NFTs, despite having their very own unique and different ID numbers.
According to the Court, Defendants knew that their RR/BAYC NFTs were likely to be confused with Yuga’s BAYC NFTs and that at least some purchasers of their RR/BAYC NFTs would have difficulty identifying the RR/BAYC NFTs as a different and distinct product from Yuga’s BAYC NFTs.
In view of the above, the Court found that Defendants’ use of Yuga’s BAYC Marks was likely to cause confusion.
None of the defences relied on by Defendants were successful.
Defendants argued that the Rogers test applied because their RR/BAYC NFT collection was an expressive work protected under the First Amendment. Under the Rogers tests, an artistic work’s use of a trade mark that otherwise would violate trade mark law is not actionable “unless the use of the mark has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless it explicitly misleads as to the source or the content of the work.”
The Court concluded that the Rogers test did not apply. Defendants’ sale of what was admittedly a collection of NFTs that point to the same online digital images as the BAYC collection was the only conduct at issue and, in the Court’s view, did not constitute an expressive artistic work protected by the First Amendment. In particular, the RR/BAYC NFTs did not express an idea or point of view, but, instead, merely point to the same online digital images associated with the BAYC collection.
Additionally, the Court confirmed that Defendants’ use of the BAYC marks was – at any rate – explicitly misleading. Defendants admitted that they have used the BAYC Marks in the same marketplaces to identify and sell NFTs bearing the exact same images underlying the BAYC NFTs and without adding any expressive content. Thus, Defendants used Yuga’s BAYC Marks to make their competing product look identical to Yuga’s product and ensure that the consumer will be explicitly misled in the token tracker, which is the place where a consumer should be able to authenticate and verify who created the NFT.
The Court concluded that Defendants’ use of the BAYC Marks did not constitute nominative fair use either. Defendants were not using the BAYC Marks to sell Yuga’s BAYC NFTs, but to sell their own competing RR/BAYC NFTs. They have failed to establish the requirements of the nominative fair use defence. For example, Defendants frequently used the entirety of the BAYC Marks without modification, including the “visual trappings” of Yuga’s brand.
Defendants argued that the affirmative defence of unclean hands applied because Yuga allegedly “dirtied its hands” by compensating celebrity endorsers without disclosing that compensation and by selling unregistered securities. However, neither of these allegations, said the Court, related to the trade mark dispute between the parties.
In conclusion, Yuga was granted summary judgment as to its first cause of action for false designation of origin. Brand owners in the EU will take note, in particular, of the Court’s perception of NFTs as, in themselves, being virtual goods. This is particularly interesting in view of the recent guidance issued by several IP offices, considering NFTs rather a certificate of authenticity (see our reports here and here). Quoting a commentator, the Court explained:
Blockchain technology has revolutionized digital assets and allowed the creation of unique digital goods that are non-fungible. New digital goods like NFTs that are built with ledgers have essentially imported the external labeling function for source indication into the file of the digital asset itself, although in an intangible form. Further, intangibility does not exclude NFTs from having other characteristics of “goods,” including being individually transferrable between owners, storable for indefinite periods of time, exclusively owned by a single owner, and distinguishable based on their source.
Exciting times for brands in the virtual space indeed.
30 May 2023
2 May 2023
16 May 2023
Thorsten Troge looks at regulation of dark patterns in the EU and at whether this is sufficient as they become increasingly AI-driven.
9 May 2023
Issue #13 | We keep you up to date with everything you need to know about the Metaverse.
by multiple authors
by multiple authors