In a summary judgment issued on April 21st, a federal judge ruled that Bored Ape Yacht Club creator Yuga Labs is entitled to damages from Ryder Ripps and Jeremy Cahen, as their RR/BAYC collection infringed on Yuga Labs’ trademarks, provoking market confusion for the “prudent buyer.”
A Yuga Labs spokesperson told Rarity Sniper that this is a landmark legal victory for Web3. “This isn’t just a win for us — it’s a win for the entire Web3 industry to hold scammers and counterfeiters accountable.”
In the text of the summary judgment, Judge John Walter rejected Ripps’ and Cahen’s arguments that the RR/BAYC collection was protected under the “Rogers test,” a ruling that establishes when artists can use trademarks in works of creative expression. The two defendants have long declared that they created their mock-BAYC collection to draw attention to neo-Nazi and alt-right symbols placed in Bored Ape art.
The court did not agree. In Judge John Walter’s summary judgment (a legal proceeding where neither side is disputing the facts of the court case and the court can simply make a judgment based on the law), he rejected the first amendment protection for RR/BAYC, saying the websites portraying the collection did not have content indicating any artistic purpose to the collection.
In addition, the court dismissed the defendants’ claims that Yuga Labs “dirtied its hands” by paying celebrities to endorse its BAYC collection but not disclosing the payments. Judge Walter wrote that the any allegations of “unclean hands” did not relate to the trademark dispute between the two parties.
Other Key Takeaways from the Summary Judgment
There are many other key takeaways from the 22-page summary judgment, some of which we present here. The main piece of legislation that the summary judgment cited was the Lanham Act of 1946, a trademark law statute that prohibits many activities, including trademark infringement and false advertising.
To win the summary judgment, Yuga Labs had to prove that its trademarks, although unregistered, were valid and protectable; that it used its trademarks during the act of commerce; and that the company had not transferred its trademarks to another entity, in this case the holders of Bored Ape NFTs. The court ruled that all these points were true.
The court also ruled that the defendants:
- Used the trademarks to create market confusion
- Employed the trademarks to amass profit
- Created a web of links that confused buyers further
Although the Yuga Labs won the summary judgment, the court denied part of the company’s motion: A restitution of $200,000 in enhanced damages and the designation that Yuga Labs v. Ripps et al as an “exceptional case.” Instead, the amount the defendants owe will be determined at a later date.
Court Rules that NFTs Are Goods: Expert Weighs In
One of the defendants’ arguments was that NFTs are securities and lack the “tangibility” necessary to be considered “goods,” which is necessary when showing they have been used in commerce, a key part of proving trademark infringement. But the court went a step further than many government entities, saying that non-fungible tokens are de facto “goods” that people buy, in part, due to their association with certain brands.
Jessica Neer McDonald, an attorney specializing in copyright and trademark law with the firm Neer McD PLLC, told Rarity Sniper that it is often difficult to recognize intangible assets as goods, likely due to the difficulty of communicating an intangible asset’s source. This can be even more challenging with intellectual property, which is already an intangible asset.
In the case of Yuga Labs v. Ripps et al, the court decided that individuals buy a non-fungible token not due to the “digital deed” that separates it from other NFTs, but because of the exclusive content associated with the NFT. In the case of the BAYC NFTs, that meant membership perks, a digital art canvas to draw on, and access to parties.
Going forward, courts will be able to look at this case as persuasive authority to determine whether an NFT is a “good,” McDonald said. “The law is traditionally slow in keeping up with technology, and this decision recognizing NFTs as a virtual goods can help provide clarification on trademark rights associated with other forms of branded virtual goods.”