Yuga Labs Wins Key Victory in NFT Trademark Lawsuit
By Jessica Neer McDonald
After ten months into the contentious lawsuit involving well-known NFT creator Yuga Labs, Inc. (“Yuga”) and visual artist/creative designer, Ryder Ripps, Yuga prevails on summary judgment for false designation of origin and cybersquatting claims concerning their Bored Ape Yacht Club (BAYC) NFT collection. More specifically, the Court finds Yuga is entitled to monetary damages and injunctive relief. The damages amount and exceptional case determination for the possibility of enhanced damages and attorneys’ fees is to be determined at trial.
In its summary judgment briefing, Yuga asked the court to rule that it is is entitled to judgment as a matter of law and there are no genuine issue of facts as to
false designation of origin
cybersquatting
Defendants’ First Amendment defense
Defendants’ fair use defense
Defendants’ unclean hands defense; &
Defendants sole counterclaim alleging a knowing misrepresentation of infringing activity related to the Digital Millennium Copyright Act (DMCA).
False Designation of Origin
To prevail on a false designation of origin claim, Yuga must show it has a protectable ownership in the BAYC marks and the Defendants’ use of the mark is likely to cause consumer confusion. First, the Court rejects Defendants’ defenses by making the following findings. The court finds NFTs are eligible for trademark protection, despite being intangible, which is consistent with the NFT trademark case Hermes International v. Rothschild, 590 F.Supp. 3d 647, 655 (S.D.N.Y. 2022). In citing Hermes, the Court also notes that NFTs are purchased to exclusively own the content associated with the NFT, and it is not purchased to own a "digital deed" divorced from any other asset.
Next, the Court finds the BAYC Marks are used in commerce, as required under trademark law, and shoots down that Yuga transferred or abandoned its trademark rights through naked licensing and failure to police.
The Court makes this very clear:
"Under its Terms and Conditions, Yuga grants 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 trademark license to use the BAYC Marks."
In evaluating the likelihood of confusion factors, without even considering actual confusion, the Court finds the factors "weigh heavily in favor of a likelihood of confusion."
Cybersquatting
For the cybersquatting claim, the domain names at issue are rrbayc(.)com and apemarket(.)com. Both are found to be confusingly similar to Yuga's marks.
Moreover, Defendants acted with bad faith intent to profit, namely, for commercial gain to divert customers from purchasing BAYC NFTs. For at least these reasons, Yuga prevails on the cybersquatting claim.
Defendants’ Affirmative Defenses - First Amendment, Fair Use, and Unclean Hands
The Court echoes earlier sentiments found in its Order denying Defendants’ Motion to Dismiss on the First Amendment and Fair Use defenses. In fact, the cited case law and analysis are nearly identical.
Defendants fail to make the threshold legal showing that their NFT collection is an expressive artistic work protected by the First Amendment. Without meeting this threshold, the Rogers test to determine whether an artistic work’s use of a trademark is actionable under trademark law is irrelevant. The Court supports this lack of expressive artistic work and position of purely commercial activity with infringement examples in the token tracker and marketplace web pages where there is no expression of critical commentary.
The court agrees with Yuga’s position that "Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag...."
With regard to Defendants’ unclean hands allegation, despite Defendants'' argument that Yuga's claims are barred because of alleged misconduct regarding celebrity endorsements and securities violations, the Court finds it irrelevant to the trademark dispute; therefore, the unclean hands defense fails.
Defendants’ Counterclaim
Defendants' sole counterclaim alleges a knowing misrepresentation of infringing activity via DMCA notices to remove RR/BAYC NFTs & sales pages from various websites.
Yuga had sent approximately 25 takedown notices, and only four (4) resulted in actual takedown. It was undisputed that 3 of 4 were based solely on trademark (not copyright) infringement.
As to the one remaining takedown, the Court finds the Defendants fail to meet its burden in showing the requisite material misrepresentation or bad faith in Yuga’s submission of the takedown notice. Although Yuga does not have a copyright registration for the Ape Skull logo at issue in the takedown notice, it is clear a registration is not required to own a copyright and not facially equivalent to material misrepresentation or bad faith.
Other Considerations
Notably, Yuga did not move for summary judgment at least specifically on its false advertising claim, and these two claims that Yuga prevails on are also the same two claims brought in Yuga Labs, Inc. v. Thomas Lehman, Northern District of New York (1:23-cv-00085) concerning the same underlying dispute against a web developer for the infringing collection. That dispute resulted in a favorable Consent Judgment and Permanent Injunction for Yuga.
TLDR: Big win for Yuga, damages tbd at trial.
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