No Monkey Business Allowed: Court in Yuga Labs v. Ripps Case Finds Purported “Appropriation Art” NFTs Infringing, and That NFTs are Digital “Goods”
By Lance Koonce and Louise Carron.
We now have two important decisions regarding trademarks in the non-fungible token (“NFT”) space, and so far, the courts have rejected alleged artistic uses of another party’s trademark to express a point of view. More is going on here than meets the eye, and these decisions hardly represent a shift in judicial sentiment around the intersection of IP and the First Amendment, as might be assumed.
As we reported on last month, in the first case, Hermès v. Rothschild, a federal jury in New York held that Rothschild’s “Metabirkin” NFTs, which involved images based upon Hermès’ famous Birkin handbags — despite any First Amendment rights asserted by the artist — were infringing, apparently because the jury found that the artist deliberately deceived consumers into believing there was an association with Hermès.
Now, a federal judge in another California court has held that the sale of NFTs involved in an alleged “appropriation art” project commenting on the “Bored Apes” collection of NFTs constituted trademark infringement, similarly rejecting the defendant’s First Amendment defense. In doing so, the court found that the key Rogers legal test for balancing IP rights against First Amendment protections did not even apply.
Importantly, though, both courts have agreed that NFTs are “goods” for the purposes of trademark law. This is arguably a very significant legal development, especially as the Yuga Labs court found that the introduction of blockchain technology has meant that non-fungible digital assets like NFTs incorporate the “external labeling function” indicating the source of the digital good into the code itself, rendering the item more akin to a tangible “good.”
Commerce or Commentary?
It seems fitting that one of the first major cases in the NFT world arose essentially from an apparent effort to troll one of the most prominent NFT collections.
The “Bored Ape Yacht Club” (“BAYC”) collection of NFTs started with a single cartoon image of an ape, with various elements added to the underlying image (e.g., a yellow hat, a red scarf) to create 10,000 unique versions, each of which was sold as an NFT.
The BAYC collection was one of the top-selling NFT collections during the height of the NFT boom, perhaps in part because as compared with most other NFT sales which only provide limited rights in the underlying artwork, Yuga Labs purported to virtually assign the entire copyright interest in the specific image to the buyer. As a result, some buyers created their own derivative content ecosystems around their individual ape, such as clothing, food and even a separate NFT community.
For his part, Ripps is a visual artist who, according to the court, starting in November 2021 “began criticizing Yuga’s use of [] purported racist, neo-Nazi, and alt-right dog whistles” allegedly embedded in the BAYC images, by commentary on social media accounts, on podcasts, through the work of investigative journalists, and by creating a website. Then, about six months later, Ripps created the Ryder Ripps Bored Ape Yacht Club collection of NFTs, which digitally pointed to the same images used by Yuga Labs for its BAYC NFTs.
In his briefing before the court, Ripps analogized this usage to “appropriation art,” where an artist takes images or items, often created by other artists, and reproduces them in some form as commentary — a process reminiscent of Andy Warhol, Barbara Kruger or Jeff Koons. Here, Ripps argued that his NFT collection served the purposes of “(1) bringing attention to Yuga’s use of racist, neo-Nazi, and alt-right messages and imagery; (2) exposing Yuga’s use of unwitting celebrities and popular brands to disseminate offensive material; (3) creating social pressure demanding that Yuga take responsibility for its actions; and (4) educating the public about the technical nature and utility of NFTs.”
The court, however, did not believe that Ripps’ NFT collection constituted expressive content that needed to be factored into its decision. First, the court found that the NFT collection could cause consumer confusion because Yuga’s BORED APE YACHT CLUB trademark was strong, that Ripps used the same or similar mark on “goods” that were identical or nearly identical to that of Yuga Labs and sold through the same channels, that Ripps “intentionally designed” his NFTs and sales websites “to resemble Yuga’s branding,” and that in light of the sophistication needed to understand blockchain provenance, consumers could be misled.
Next, the court addressed Ripps’ First Amendment defense, finding that the Rogers v. Grimaldi balancing test which weights competing interests between trademark ownership and expression did not apply in this context. The court reasoned that although Ripps argued that his larger project was expressive, “the sale of what is admittedly a collection of NFTs that point to the same online digital images as the BAYC collection is the only conduct at issue in this action and does not constitute an expressive artistic work protected by the First Amendment.” The court concluded that this was not just true of the collection of NFTs, but also Ripps’ website and marketplace — none contained expressive content.
As a whole, the court agreed with Yuga Labs that “Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag, making the Rogers test inapplicable.” But it also found that even if the Rogers test was applied, Ripps’ use of the BAYC trademark was “explicitly misleading,” and thus still infringing.
NFTs as a Commercial Enterprise
While the Yuga Labs court was talking about another case when it mentioned counterfeit handbags, its conclusion that Ripps’ NFT sales were “explicitly misleading” echoes the result in the MetaBirkins digital handbags case, where the Rogers test was applied but then disregarded.
What both cases address is the complex interrelationship between art and commerce, which has troubled courts for a very long time, as to some extent it requires judges and juries to become arbiters of what is art, and what is not. In both the Hermès and Yuga Labs cases, the courts seemed to view the activities of the defendants as more heavily commercial, and trading too intentionally and extensively on the brand name of the trademark owner, in confusing ways.
Neither case, however, has definitively concluded. In the Hermès case, the defendant has filed a post-judgment motion to overturn the verdict or for a new trial. Ripps has told news outlets he intends to appeal. It remains to be seen whether either artist will be able to make out a more convincing case for deference to their expression under the First Amendment and whether royalties derived from NFTs, a major incentive for artists who do not benefit from resales of their work in the “traditional” art market, will become a standard factor in determining that an NFT enterprise is commercial in nature.
NFTs as Digital Goods
One interesting side-note in the Yuga Labs case is that the court was called on as a threshold matter to determine whether NFTs are in fact digital “goods” subject to the trademark laws. In this instance it did directly cite the earlier decision in the Hermès case, agreeing that NFTs are in fact digital goods for the purposes of the Lanham Act.
Although Ripps argued that under prior case precedent, NFTs are “intangible” items and not subject to trademark protection. However, the court pointed out that the meaning of “tangible” goods has changed with the introduction of blockchain technology, citing a commentator who noted that “[n]ew digital goods like NFTs that are built with ledgers have essentially imported the external labeling function for source indication into the file of the digital asset itself, although in an intangible form.”
With now two key courts having held that NFTs are digital goods, this issue that has troubled some commentators seems to be well on the way to becoming a settled legal point.
Lance Koonce is a partner at Klaris Law in New York where he focuses on litigation, intellectual property, and blockchain.
Louise Carron is an associate at Klaris Law in New York who advises content creators, start-ups, and nonprofits across creative industries.
