Background:
In July 2022, Yuga Labs filed a lawsuit in California claiming that Ryder Ripps misused their trademarks which Yuga Labs has owned and used since April 2021. In the filing Yuga claims that Ripps used and sold NFTs which included Yuga’s trademarked ‘Yuga Labs Skull Logo’ mark and the ‘BAYC’ marks to mislead customers to purchase his own version of “RR BAYC'' NFTs and sold them on the same marketplace as Yuga Labs ‘BAYC NFTs’. Yuga maintains that these trademarks are identifiable to their brand and hence Ripps has infringed on their trademark rights.
In response, Ripps stated that the ‘minting’ of ‘BAYC NFTs’ replicas for profit is satire and contends that his NFT project was created to publicly criticise Yuga’s use of “neo-nazi”, “racist ”and “alt-right dog whistles”.
Ripps attempted a protected speech defence a number of times: i) He brought a motion forward under California’s anti-SLAPP statute which allows defendants to seek the dismissal of a complaint at the start of a lawsuit to prevent claimants from using the courts as a means to intimidate individuals who exercise their First Amendment rights. This motion to strike was denied by the court as the claims arise out of the unauthorised use of Yuga’s trademarks for a commercial purpose and not defamation or slander; ii) The court also denied Ripp’s motion to dismiss under the Lanham Act and the ‘Rogers test’ which may protect “an artistically expressive use of a trademark” under the First Amendment. The court found that this did not apply to the allegedly copied “NFTs”.
Ripps also argues that the ‘BAYC’ marks are too generic and descriptive and do not "constitute distinctive, enforceable marks”. This is in addition to his claim that Yuga Labs allegedly engaged in “unlawful activities associated with the sale and promotion of ‘BAYC NFTs’ including Yuga’s misuse of ‘BAYC NFTs’ as securities, undisclosed compensation for endorsements from celebrities, and/or unlawful acts directed towards the defendants”.
Ripps has filed a counterclaim against Yuga for "knowingly and materially misrepresenting” its rights in the ‘BAYC NFTs’ and in particular is seeking a declaratory judgement of no copyright, which challenges Yuga’s intellectual property ownership.
The case has now moved to the discovery phase (as of 18 January 2023).
Summary of claims:
Yuga has brought claims against Ripps for:
False designation of origin;
False advertising;
Cybersquatting;
Common law Trademark Infringement;
Common law Unfair Competition;
Unjust Enrichment;
Conversion; and
Intentional and Negligent interference with prospective economic advantage.
Ripps has submitted counterclaims for the following:
Knowing Misrepresentation of Infringing Activity;
Declaratory Judgement of No Copyright;
Intentional Infliction of Emotional Distress;
Negligent Infliction of Emotional Distress; and
Declaratory Judgment of No Defamation.
Issues:
This lawsuit raises questions related to trademark infringement, copyright infringement, copyright ownership and rights associated with AI digital artwork and in particular NFTs.
Yuga has filed trademark applications for their ‘Yuga Labs Skull Logo’ and ‘BAYC’, however all applications are still pending hence why Yuga has filed this case under common law unregistered trademark infringement. The court will be called to decide on whether the use of the marks within the NFT images is considered trademark infringement, either by way of the marks being found to be identical or by showing that there exists a likelihood of confusion on the part of the public. In both of these cases, Yuga will have to showcase Ripps’ use of the signs as trademarks. Even more interestingly, there is a separate question on whether the use of the marks within the images underlying the NFTs is also considered a trademark use. This is likely to be reviewed in line with the public's perception of the depiction of an ape skull as either an embellishment or an indicator of commercial origin. The court’s decision on this issue will set the boundaries for trademark infringement law in relation to NFTs and digital art.
With regards to Yuga’s copyright associated with their digital artwork, the issue relates to the 10,000 unique images used in the NFTs that were generated by an AI algorithm. Potential intellectual property issues are brought to light as this case could change the precedent regarding copyright infringement related to AI generated art.
The US Copyright Office in a recent case (September 2022) considered the copyright treatment of visual works created by AI in the consideration of the novel “Zarya of the Dawn”. The court held that they will accept works that are partially and not wholly created/assisted by AI. This is a stark difference to the decision made by the US Court of Appeals for the Federal Circuit in considering the patent application of “Thaler v Vidal”, which ruled that AI cannot be listed as an inventor on a patent application.
Another issue for Yuga is their terms and conditions listed on their website and smart contracts, which explicitly outline that all intellectual property rights are retained by the purchaser of the BAYC images and NFTs- not Yuga. However, Yuga did not file any copyright claims but did issue a DMCA (Digital Millennium Copyright Act) copyright takedown notice and they own multiple BAYC images. Ripps alleges that there is an "actual controversy” regarding whether Yuga retains copyright rights associated with the ‘BAYC’ marks as their terms and conditions outline that the ‘BAYC NFT’ holders retain all intellectual property rights in their NFTs.
This case will set precedent as it will determine the parameters for images used in NFTs, including images assisted by AI.
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