Case Review: Yuga Labs, Inc. v. Ripps, et al., 2:22-cv-04355 (C.D. Cal. April 21, 2023)

August 21, 2023

Atreya Mathur

In an ongoing legal dispute between Yuga Labs, the creator of the Bored Ape Yacht Club (BAYC) NFT collection, and the artist Ripps, on April 21, 2023, Central District Court of California has issued a ruling in favor of Yuga’s motion for summary judgment, addressing various legal facets within the context of non-fungible tokens (NFTs). The decision delves into the intricate interplay of trademark rights and artistic freedom in the evolving realm of NFTs. A pivotal issue arises: whether NFTs should be treated as virtual goods in their own right or as certificates of authenticity.

Background and Facts of the Case

Yuga Labs, a prominent entity in the NFT space, is the creator of the Bored Ape Yacht Club (BAYC) collection. This collection, comprising 10,000 NFTs, has gained significant recognition and value. Yuga Labs’ BAYC has attracted attention of celebrities like Seth Green and Jimmy Fallon, and the NFTs have received media coverage in publications like Rolling Stone.^[1] Yuga Labs was also valued at $4 billion. Notably, the NFTs in this collection grant holders a license for personal and specific commercial use, which has prompted legal debates regarding its scope.

Ryder Ripps is a self-described “conceptual artist” known for previous unconventional projects that have sparked controversy and discussion. Ripps has faced past claims under the Digital Millennium Copyright Act (DMCA) and allegations of artistic plagiarism.^[2] In or around spring of 2022, Ripps began making NFTs called “Ryder Ripps Bored Ape Yacht Club” (RR/BAYC) with blockchain pointers referencing BAYC. In May 2022, Ripps and associates established a website enabling users to reserve NFTs to be minted by Ripps. These NFTs purportedly employed the exact images created by Yuga. The website prominently featured Yuga’s trademarks, including the “BAYC” designation and logo, along with an ape skull logo. The “RR/BAYC” NFTs were also made available for trading on the OpenSea NFT marketplace.

The legal conflict emerged when Yuga Labs initiated a lawsuit against Ryder Ripps and others, presenting a range of claims including trademark infringement, unfair competition, false advertising, and cybersquatting. The lawsuit was filed in the Central District of California.^[3]

Yuga contends that Ryder Ripps engaged in deceptive practices aimed at duping consumers into acquiring a copycat NFT collection resembling the original Bored Ape Yacht Club images. This alleged scheme involves the use of identical trademarks and misleading marketing to present Ripps’ collection as on par with the authentic Bored Ape Yacht Club NFTs.^[4] Furthermore, Yuga accuses Ripps of promoting the upcoming marketplace “Ape Market” to foster confusion about the association between his NFTs and the legitimate Bored Ape Yacht Club.^[5]

On December 27, 2022, Ripps filed their Answer and Counterclaim, alleging six claims against Yuga: (1) knowing misrepresentation of infringing activity; (2) declaratory judgment of no copyright under 17 U.S.C. § 102(a); (3) declaratory judgment of no copyright under 17 U.S.C. § 204(a); (4) intentional infliction of emotional distress (“IIED”); (5) negligent infliction of emotional distress (“NIED”); and (6) declaratory judgment of no defamation. In the Counterclaim, defendants also alleged that Yuga’s lawsuit against them is Yuga’s “attempt to silence creators who used their craft to call out a multi-billion-dollar company built on racist and neo-Nazi dog whistles.”^[5] Ripps also argued that his NFTs of the apes were a type of “appropriation art” meant as criticism and satirization of the original images and were therefore protected by the First Amendment as against Yuga Labs NFTs which Ripps alleged contained coded racist imagery.

On March 15, 2023, Yuga moved for partial summary judgment with respect to the unfair competition and cybersquatting claims as well as several affirmative defenses. The court granted Yuga summary judgment in part. The Yuga decision comes on the heels of the MetaBirkins case, in which a Southern District of New York case jury found that the NFTs representing “MetaBirkins”—stylized digital depictions of handbags created by defendant artist Mason Rothschild, allegedly to critique the luxury manufacturer’s use of fur—were not artistic expression protected under the First Amendment and instead infringed plaintiff Hermès’ BIRKIN and HERMÈS trademarks and trade dress.^[6]

Issues and Analysis

The court commenced its examination with regard to Yuga’s initial cause of action under the Lanham Act, specifically pertaining to false designation of origin. In this context, the plaintiff was required to substantiate two key elements: 1) protectable ownership interest in the mark; and (2) the defendant’s use of the mark is likely to cause consumer confusion. Yuga posited that it should prevail in its claim based on several grounds:^[7] (1) the lawful and enforceable possession of the BAYC marks, (2) the unauthorized employment of these marks by the defendants in a manner likely to confuse consumers, (3) Yuga’s entitlement to reparations and injunctive relief, and (4) the exceptional nature of the case warranting enhanced damages. Conversely, the defendants contended that Yuga lacked ownership of the BAYC marks for deployment in conjunction with NFTs, contending that NFTs, being intangible, were ineligible for trademark protection.^[8]

NFTs as Goods under Trademark Law:

The Court rejected the argument that NFTs’ intangible nature precludes trademark protection. Instead, it aligned with the perspective that NFTs, while virtual, qualify as goods for the purpose of trademark law. The Court emphasized that NFT purchasers acquire ownership of associated content, thereby distinguishing them from mere digital deeds. The defendants asserted that the Supreme Court’s ruling in Dastar Corp. v. Twentieth Century Fox Film Corp.,^[9] which held that the “origin” of the “goods” subject to potential consumer confusion pertained solely to the physical videotapes being sold rather than the creative content contained therein, supported their contention that NFTs, being intangible, did not meet the criteria of “goods” as prescribed by the Lanham Act. However, the court diverged from this perspective, drawing upon a decision rendered by the Southern District of New York, which indicated that Dastar did not universally establish the ineligibility of intangible goods for protection under the Lanham Act. In addition, the court referenced a scholarly article highlighting that the intangible nature of NFTs did not preclude them from possessing qualities characteristic of “goods,” including individual transferability, indefinite storability, exclusive ownership, and source distinctiveness. Considering these factors, along with the precedent set in Hermès International v. Rothschild,^[10] the court concluded that NFTs, despite being virtual and intangible, qualified as “goods” within the scope of the Lanham Act.^[11]

Commerce Use of BAYC Marks by Yuga:

Yuga’s utilization of the BAYC Marks in commerce was verified by the Court. The sale of BAYC NFTs, exclusive access for holders to various perks, and collaborations with brands like adidas underscored Yuga’s commercial engagement. In response to the defendants’ argument, even if intangible NFTs were deemed eligible for trademark protection under the Lanham Act, Yuga had allegedly failed to utilize the BAYC marks in commerce, as mandated by the Act. The court, upon examining the entirety of the circumstances and the comprehensive employment of the BAYC marks in non-sales-related activities associated with NFTs, determined that Yuga had indeed engaged in commerce-related usage of the BAYC marks.^[12] Furthermore, the court noted that the entirety of the defendants’ defense was centered around highlighting Yuga’s incorporation of far-right ideology into its products and services, which was inherently predicated on Yuga’s utilization of the BAYC marks in commerce. The court posited that without such utilization, there would be no grounds for the defendants to comment upon or draw attention to the BAYC NFTs.^[13]

Preservation of BAYC Mark Rights by Yuga:

The defendants’ contention that Yuga either transferred its trademark rights to NFT purchasers or engaged in “naked licensing” was dismissed by the court.^[14] The court reasoned that naked licensing does not apply in instances where no trademark license is in question, and since Yuga had not granted trademark licenses to the holders of BAYC NFTs, the argument was rendered ineffective.

Ownership and Validity of BAYC Marks:

The Court affirmed Yuga’s ownership and protectable rights over the BAYC Marks, despite their unregistered status. Yuga’s use of these marks since April 2021 in connection with the BAYC NFT collection established their trademark rights. Employing the Sleekcraft factors^[15] employed by the Ninth Circuit, the court evaluated multiple aspects when determining the probability of confusion. A significant majority of these factors were found to be in favor of Yuga, either supporting a likelihood of confusion or maintaining neutrality. Among these factors, the court acknowledged the conceptual arbitrariness and commercial strength of Yuga’s BAYC marks due to substantial accrued goodwill. Given the defendants’ admission of knowingly employing the BAYC marks in connection with their RR/BAYC NFTs, the court deemed their usage as intentional, confirming the likelihood of confusion. Consequently, the court arrived at an unequivocal conclusion that the defendants’ use of the BAYC marks for their RR/BAYC NFTs was likely to result in consumer confusion.^[16]

In light of Yuga’s substantiated ownership of the valid BAYC marks and the probable consumer confusion stemming from the defendants’ usage, the court issued a summary judgment in Yuga’s favor regarding the first cause of action for false designation of origin. Furthermore, the court affirmed Yuga’s entitlement to both reparations and injunctive relief, reserving the determination of damages for subsequent trial proceedings.

Cybersquatting:

The court subsequently turned its attention to Yuga’s cause of action for cybersquatting, which hinged upon the criteria of whether the defendants had registered, trafficked, or employed domain names with the intention to profit from protected marks owned by Yuga. After considering the evidence that the defendants had registered and utilized domain names containing variations of the BAYC marks, the court established their confusing similarity to the protected marks. Additionally, the court concluded that the defendants had acted in bad faith, referencing various factors, including the absence of legitimate prior usage of the BAYC marks, the absence of fair use, and the concealment of their identities when registering the domain names.

Accordingly, Yuga’s motion for summary judgment was granted in relation to the cybersquatting claim, with the court determining that Yuga was also entitled to damages and injunctive relief, while deferring the quantification of damages to the trial stage.

Unsuccessful Defenses

First Amendment:

The subsequent aspect addressed by Yuga’s motion pertained to the defendants’ affirmative defenses. The defendants’ claim of protection under the First Amendment and the application of the Rogers v. Grimaldi test,^[17] a standard used to assess the balance between artistic expression and trade mark use, to the RR/BAYC NFTs was scrutinized by the court. The court determined that the Rogers test did not apply and that the defendants’ conduct was not shielded by the First Amendment. The court reasoned that although the defendants purported their RR/BAYC NFT project to be an expressive artistic endeavor, the sale of RR/BAYC NFTs did not inherently convey artistic ideas, viewpoints, or critical commentary, thus negating the applicability of the Rogers test. The NFTs merely pointed to the same online images associated with the Bored Ape Yacht Club (BAYC) collection, and the defendants’ actions resembled commercial activities rather than protected artistic speech. The court noted that the defendants’ use of BAYC Marks served as the central theme of their project without significant artistic contribution, thus failing to meet the threshold for artistic relevance.^[18]

Nominative fair use defense:

Similarly, the court granted summary judgment in Yuga’s favor with respect to the defendants’ fair use defense. The court elucidated that nominative fair use is applicable when a trademark is employed to describe a plaintiff’s product, without serving as a source identifier or exploiting the goodwill of said product. The court stipulated that to establish this defense, the defendants were required to prove three elements, namely: (1) that Yuga’s BAYC products and services are not readily identifiable without using the BAYC marks, (2) that defendants used only so much of the BAYC marks as was reasonably necessary to identify Yuga’s products and services, and (3) that defendants did not use the BAYC marks in any way to suggest sponsorship or endorsement by Yuga.^[19] The court rejected the defendants’ claims of utilizing the BAYC marks for the purpose of criticizing Yuga and its BAYC NFT collection, contending that the nominative fair use defense was untenable due to the defendants’ utilization of the marks to market their own competing NFTs. The court further established that the defendants had employed the entire BAYC marks without modification, which could potentially lead to an impression of Yuga’s sponsorship.^[20]

Defense of unclean hands:

Yuga’s motion for summary judgment was also pursued against the defendants’ affirmative defense of unclean hands. The defendants alleged that Yuga had unclean hands due to undisclosed compensation of celebrity endorsers and the sale of unregistered securities. The court granted summary judgment in favor of Yuga on this issue, affirming that the unclean hands defense had limited applicability within the realm of trademark disputes as well as clarifying that the actions cited by the defendants were unrelated to the trademark controversy.^[21]

Knowing misrepresentation of infringing activity:

The court also addressed Yuga’s motion for summary judgment in response to the defendants’ counterclaim for “knowing misrepresentation of infringing activity.” According to this claim, Yuga had purportedly violated Section 512(f) of the Digital Millennium Copyright Act (DMCA) by issuing inappropriate takedown notices on the basis of trademark rights rather than copyright. While the parties agreed on Yuga’s issuance of around twenty five takedown notices, leading to the removal of specific content in four instances, the court elucidated the requirements for establishing a Section 512(f) violation. The court noted that for a violation, it was essential to demonstrate both a material misrepresentation in a takedown notice leading to content removal and that the takedown notice was issued in bad faith.^[22] The court determined that, with respect to the four takedown notices resulting in content removal, three were not actionable as copyright takedown notices due to their failure to identify copyrighted works claimed to be infringed. As for the one remaining notice, the court concluded that the defendants had not proven the presence of a material misrepresentation, considering the potential copyright ownership of Yuga’s BAYC logo.^[23]

In summation, the court granted Yuga’s motion for summary judgment in relation to the false designation of origin and cybersquatting claims and denied it with respect to the calculation of damages, which remained reserved for trial proceedings. The court also ruled in favor of Yuga against the defendants’ First Amendment, nominative fair use, and unclean hands affirmative defenses as well as their counterclaim for knowing misrepresentation of infringing activity.

Implications for the Future

The Yuga case holds noteworthy implications for the intersection of trademark law and blockchain-enabled goods:

• NFTs as Goods: The court confirmed that NFTs are considered “goods” under trademark law, extending protection to NFTs akin to other tangible goods. This interpretation could be relevant not only to NFTs but also to other blockchain-related products.
• Trademark Law and Artistic Expression: The case offers guidance on navigating the blurred line between trademark infringement and artistic freedom in the context of blockchain-enabled goods. However, the ruling does not provide a definitive rule but rather emphasizes that the specific facts of each case will determine the application of the Rogers v. Grimaldi test.
• Traditional Legal Principles and NFTs: The Yuga and MetaBirkins decisions echo the notion that established legal principles related to property ownership and intellectual property rights extend to NFTs. This underscores that NFTs are subject to existing legal protections, despite the innovative technology they are built upon.
• The Copyright Angle: Interestingly, the Yuga case does not directly address copyright concerns related to NFTs and digital assets. On March 17, 2023, the court dismissed that counterclaim questioning copyrightability due to lack of registration. There was “no case or controversy as to the issue of copyright infringement between Yuga and counterclaimants,”^[24] since Yuga could not assert such a claim in relation to unregistered works. The broader issue of copyrightability of such images and the impact of artificial intelligence tools on copyright law remain subjects requiring further legal clarification.
• Caution for Creators: The decisions in these cases caution creators to be vigilant about potential intellectual property conflicts when working with blockchain-enabled goods. Obtaining proper licenses and respecting existing rights is crucial in an evolving legal landscape.

Conclusion

While Ripps has been quoted as saying that “BAYC, from its logo to the Apes’ accessories — like “sushi chef headbands” inscribed with “kamikaze” in Japanese kanji and spiked Prussian Pickelhaube helmets —  is threaded with racist imagery and ties to the online alt-right,” the Court neither addressed the funds raised by Ripps nor ruled on the effect of satire that Ripps’s NFTs could have been.

The case between Yuga Labs and Ryder Ripps highlights the complexities that emerge when traditional legal principles intersect with innovative technologies like NFTs. The court’s rejection of the First Amendment and trademark fair use defenses signifies the courts commitment to upholding the balance between artistic expression and intellectual property rights. The decision to classify NFTs as “goods” under trademark law demonstrates a practical approach to adapting existing legal frameworks to the digital landscape. This interpretation acknowledges the distinct qualities of NFTs while ensuring that they receive the same level of protection as traditional physical goods. It’s an important precedent for future cases involving digital assets and blockchain-enabled products. The court’s emphasis on the fact-specific application of the Rogers v. Grimaldi test shows an understanding of the nuanced considerations involved in weighing artistic expression against trade mark rights. This approach acknowledges that not all NFT projects will fall into the same legal category and that each case should be evaluated based on its unique circumstances. Moreover, the absence of direct discussion on copyright issues tied to NFTs, digital assets and artificial intelligence (AI) underscores the need for further legal clarification in this area. As AI-generated content becomes more prevalent, the determination of copyright ownership and protection for such works remains a significant legal challenge.

Overall, the case underscores the necessity for both creators and users of NFTs to navigate the evolving legal landscape carefully. While the unique attributes of blockchain technology and digital assets present new opportunities, they also require a thorough understanding of intellectual property laws to avoid potential conflicts and infringements. The decision resonates with the EU’s perspective on NFTs as virtual goods, diverging from views that classify them as certificates of authenticity. The Court’s viewpoint aligns with the idea that NFTs are distinctive digital assets that maintain qualities of traditional goods, making them amenable to trademark protection.

In addition, blockchain provenance plays a pivotal role in the context of NFTs and their legal implications. Blockchain technology offers an immutable and transparent ledger that records every transaction and change in ownership for NFTs. In the Yuga vs. Ripps case, this could be crucial in establishing the chain of custody and demonstrating the legitimate origin of the BAYC NFTs. The blockchain’s transparent nature can help address the core issue of consumer confusion in the case. With blockchain provenance, Yuga can trace the journey of their NFTs, showing their exclusivity and originality. This can refute the notion that the RR/BAYC NFTs were somehow equivalent or connected to Yuga’s collection, as the blockchain records would highlight the divergence of ownership. Blockchain records could also play a role in proving the defendants’ intent in using BAYC Marks. The actions and transactions recorded on the blockchain may offer insights into whether the defendants intentionally designed their RR/BAYC NFTs to closely resemble Yuga’s collection, strengthening Yuga’s claims of misleading intent. Looking beyond this specific case, blockchain’s role in establishing provenance will likely become increasingly important in NFT disputes. As the NFT market expands, cases of infringement, counterfeiting, and confusion may become more prevalent. Blockchain’s ability to provide an authoritative and tamper-proof record of an NFT’s history can be a critical tool in settling such disputes. Blockchain’s impact in the Yuga vs. Ripps case and similar legal battles underscores its potential to authenticate NFT ownership, clarify intent, and establish a clear chain of custody. As NFTs become a more integral part of the digital economy, the integration of blockchain technology will likely become even more crucial in resolving legal matters involving these unique digital assets.

About the Author:

Atreya Mathur is the Director of Legal Research at the Center for Art Law. She was the inaugural Judith Bresler Fellow at the Center (2021-22) and earned her Master of Laws from New York University’s School of Law where she specialized in Competition, Innovation, and Information Laws, with a focus on copyright, intellectual property, and art law.

Select Sources and Suggested Readings:

1. Max Vern, Yuga Labs prevail on a summary judgment, protecting Bored Ape Yacht Club NFTs, The Trademark Lawyer Magazine (May 18,2 023) Available at https://trademarklawyermagazine.com/yuga-labs-prevail-on-a-summary-judgment-protecting-bored-ape-yacht-club-nfts/#:~:text=Yuga%20Labs%20are%20the%20creators,inevitably%20leading%20to%20a%20conflict. ↑
2. Id. ↑
3. Yuga Labs, Inc. v. Ripps, et al., 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
4. Id. ↑
5. Id. ↑
6. Id. ↑
7. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
8. Id. ↑
9. Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). ↑
10. Hermes International v. Rothschild, 590 F.Supp. 3d 647, 655 (S.D.N.Y. 2022) ↑
11. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
12. Id. ↑
13. Id. ↑
14. Id. ↑
15. Bachman, B. Michael Jr., Trademark Law: Conventional Controls in a Virtual Marketplace, Journalof Technology Law & Policy: Vol. 9: Iss. 2, Article 4 (2004) Available at https://scholarship.law.ufl.edu/jtlp/vol9/iss2/4 ↑
16. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
17. Rogers v. Grimaldi 875 F.2d 994 (2d Cir. 1989), also see Daniel J. Wright, Explicitly Explicit: The Rogers Test and the Ninth Circuit, 21 J. INTELL. PROP. L. 193 (2013) Available at: https://digitalcommons.law.uga.edu/jipl/vol21/iss1/8 ↑
18. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
19. Id. ↑
20. Id. ↑
21. Id. ↑
22. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
23. Id. ↑
24. Yuga Labs, Inc. v. Ripps 2:22-cv-04355 (C.D. Cal. April 21, 2023) ↑
25. Shanti Escalante-deMattei, “The Art World’s Digital Troll Is Determined To Take Down Bored Ape Yacht Club’s $4 Billion Empire” ArtNews (Sept. 15, 2022), available at https://www.artnews.com/list/art-news/news/bored-ape-yacht-club-lawsuit-ryder-ripps-1234638475/the-consequences-of-being-early/