On December 16, 2022, the United District Court for the Central District of California handed NFT powerhouse Yuga Labs a decisive victory in its closely watched case against Ryder Ripps, the creator of a Bored Ape Yacht Club (“BAYC”) rip-off, denying Ripps' motion to dismiss and anti-SLAPP motion. The court signaled a tough road ahead for Ripps, rejecting his argument that his project was a work of artistic expression, finding instead that Ripps' sale of NFTs was “no more artistic than the sale of a counterfeit handbag.” Here's a breakdown.
Yuga Labs is the creator of the BAYC, “one of the world's most well known and successful NFT collections,” and the owner of various BAYC-related trademarks. Ripps is a self-proclaimed “conceptual artist” and outspoken critic of Yuga Labs. In May 2022, Ripps dropped his own NFT collection known as the Ryder Ripps Bored Ape Yacht Club (“RR/BAYC”). The NFTs of RR/BAYC point to the same digital artwork files as the BAYC NFTs, with the ownership of both collections recorded on the Ethereum blockchain.
On July 24, 2022, Yuga Labs sued Ripps and his partner asserting, among other causes of actions, various trademark-related claims under the Lanham Act. The defendants filed a motion to dismiss for failure to state a claim and a motion to strike under California's anti-SLAPP statute, which “provides for the pre-trial dismissal of certain actions, known as Strategic Lawsuits Against Public Participation, or SLAPPs, that 'masquerade as ordinary lawsuits' but are intended to deter ordinary people 'from exercising their political or legal rights or to punish them for doing so.” The gist of the motions was that the RR/BAYC NFTs were protected as works of artistic expression and criticisms of Yuga Labs.
The court denied both motions.
First, the court rejected Ripps' argument that RR/BAYC NFTs were works of artistic expression warranting application of the free speech test for trademark use established by Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). The court concluded that the “sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag, making the Rogers test inapplicable.” The court further held that, even if the Rogers test applied, Ripps failed the test because RR/BAYC's use of the BAYC marks was (a) not “artistically relevant,” and (b) “explicitly misleading.”
Second, the court held that Ripps' use of the BAYC marks did not constitute “nominative” fair use because Ripps was not using the BAYC marks to sell Yuga Labs' BAYC NFTs, but to sell his own competing RR/BAYC NFTs.
Third, the court denied Ripps' anti-SLAPP motion, holding that he failed to demonstrate that Yuga Labs' claims “arise from” Ripps' protected speech. Even if, as Ripps contended, he created the RR/BAYC project “with the specific aim of publicizing and criticizing” Yuga Labs, the court noted that “it is not enough for Defendants to simply state that they engaged in allegedly protected speech that is relevant to Plaintiff's claim to prevail on their anti-SLAPP motion.” Rather, the “allegedly protected speech must form at least part of the basis of Plaintiff's claims.” The court concluded that the claims did not arise from Ripps' speech because “the only conduct at issue” was his sale of NFTs pointing to Yuga Labs' digital artwork, not any of Ripps' colorful commentary. Notably, Yuga Labs did not sue for “defamation, slander, or libel,” but only for Ripps' “unauthorized use of the BAYC Marks for commercial purposes.” Thus, the anti-SLAPP statute did not apply.
The Yuga Labs case highlights the importance of understanding the technology underlying IP claims in cases involving NFTs. By looking under the hood, the court saw that Ripps' RR/BAYC NFTs were pointing to the same digital assets as Yuga Labs' BAYC NFTs. Based on this nuance, the court justifiably viewed Ripps' NFTs as nothing more than a collection of counterfeits that did not warrant much consideration as a form of artistic expression under the Rogers test.
This decision stands in contrast to another recent trademark/NFT ruling. In that case, Hermès, the company behind the iconic “Birkin” handbags, brought trademark infringement claims against the creator of digital images of faux-fur-covered versions of the handbags titled “Metabirkins” sold as NFTs. Unlike Yuga Labs, the court in that case held that the Metabirkins “could constitute a form of artistic expression” and therefore the Rogers test applied. While the court allowed the trademark claims to proceed, finding that the complaint contained “sufficient factual allegations that the use of the trademark is not artistically relevant and that the use of the trademark is explicitly misleading as to the source or content of the work,” the court recognized that the digital Metabirkins were new expressive works potentially subject to protection.
But NFTs that merely point to another person's work? Not so much.
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