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Intellectual Property Rights in the NFTs and Web3 Era Could Belong to Boomers

02/09/2022

Intellectual Property NFT Lawsuit

Given that it’s now a multi-billion-dollar industry, it should come as no surprise that issuing and distributing non-fungible tokens (NFTs) has led to a certain amount of intellectual property lawsuit flinging.

In late June 2022, Yuga Labs, Inc., (“Yuga Labs”), the creator of the renowned Bored Ape Yacht Club (“BAYC” or “Bored Ape”) NFT collections, filed a trademark infringement intellectual property lawsuit against digital artist Ryder Ripps (“Ripps”) and his associates in the U.S. District Court for the Central District of California^[i].

The case raises several interesting issues which suggest that, at least where intellectual property rights are concerned, the Web3 era may still belong to Boomers^[ii].

We look at who’s doing the throwing of intellectual property lawsuits and what it could all mean for anyone whose sunk a few thousand (or a few million) into an NFT.

Key Takeaways
Who’s Involved in This Intellectual Property Lawsuit?
The Intellectual Property Lawsuit Explained
Conclusion

Key Takeaways

Despite all the promises of novel technology, business in Web3 is still firmly entrenched in traditional intellectual property laws.
Blockchain technology does not confer any legal protection on its own. Business proprietors still have to rely on traditional intellectual property rights to protect their rights on Web3.
At the end of the day, disputes must still be resolved in traditional non-virtual courts.
The subsistence of copyright in procedurally – generated NFTs may be questionable

Who’s Involved in This Intellectual Property Lawsuit?

BAYC, created by Yuga Labs in early 2021, is one of the most successful and well-known NFT projects in the world.

It’s received a huge amount of media attention worldwide and is now widely accepted as the leading “blue chip” NFT project, with celebrities like Madonna, Eminem, Snoop Dogg, Paris Hilton, Jimmy Fallon, Justin Bieber, Steph Curry, Shaquille O’Neal, and Tom Brady all known holders.

Bored Ape NFTs are now regularly re-sold for thousands, if not millions, of dollars. Major brands like Adidas and Universal Music Group have collaborated with Yuga Labs to create real and virtual Bored Ape merchandise.

Given the success of BAYC, Yuga Labs applied with the United States Patents and Trademarks Office (USPTO) to register a series of BAYC related intellectual property trademarks, including the words “BORED APE”, “BORED APE YACHT CLUB”, “BAYC” and the logo of an ape skull. None of these were registered as of the date the intellectual property Complaint was filed[iii].

Ripps is a US-based digital artist, known for his satire and stunts and is something of a controversial figure.

Highly critical of Yuga Labs and BAYC, since early 2022 Ripps has been leading a viral campaign linking Yuga Labs and the BAYC collection to alt-right/racist imagery, iconography and messaging.

In May 2022, Ripps “re-minted” (“copying” the same ape images used in the Bored Ape NFTs and minting new NFTs[iv]) and released for sale 550 Bored Ape NFTs under the name of “Ryder Ripps Bored Ape Yacht Club” (“RR/BAYC”). The Bored Ape images used in the RR/BAYC NFTs are completely identical to those in BAYC NFTs and were sold by Ripps (allegedly created on demand if requested by buyers) at a significantly lower price point (roughly US$200) than the “authentic” BAYC collection.

Ripps uses the same “BAYC”, “BORED APE” and “BORED APE YACHT CLUBS” words and marks to promote and sell his collection, claiming that his RR/BAYC NFT collection “uses satire and appropriation to protest and educate people regarding BAYC” and to expose Yuga Labs’ alleged “neo-Nazi and alt-right references”.

The Intellectual Property Lawsuit Explained

As many observers noted with interest, Yuga Labs relied in its intellectual property proceedings against Ripps exclusively on trademark infringement, trademark dilution, unfair competition, false advertising and economic torts.

In essence, Yuga Labs accuses Ripps of:

Wrongly using Yuga Lab’s “BORED APE”, “BORED APE YACHT CLUB”, “BAYC” trademarks to promote and sell his RR/BAYC NFTs[v];
Misleading consumers into believing that RR/BAYC NFTs are genuine BAYC NFTs;
Freeriding on and illegally profiteering off the fame and reputation of BAYC;
Devaluating the brand value of BAYC; and
Harming/interfering with Yuga Labs’ economic interest.

So, although the artwork used in RR/BAYC NFTs are identical “copies” of Bored Ape NFTs, Yuga Labs has not raised any copyright infringement claim against Ripps.

In fact, the word “copyright” is not mentioned even once in Yuga Labs’ 44-page intellectual property Complaint, although it does include the words “copy” and “copycat” at least a dozen times.

So why wasn’t copyright infringement used?

Lack of copyright registrations

Under US copyright laws, a copyright owner must register their work before filing infringement suits with the US Copyright Office [vi]. One possible explanation for Yuga Labs not lodging a copyright infringement claim as part of its intellectual property lawsuit is that it has not registered the copyright of the 550 Bored Ape works that Ripps purportedly copied.

This is unlikely to be the main reason as copyright registration is relatively simple, quick and inexpensive. It’s also possible for the copyright owner to register their work after the infringing act(s) and then commence proceedings.

In fact, Yuga Labs had registered at least five Bored Ape works of art with the Copyright Office in May 2022 before commencing proceedings against Ripps, so it was entirely possible for them to bring proceedings based on those five alone.

The question surrounding copyright subsistence in procedurally generated works

The principal reason for Yuga Labs not lodging a copyright claim as part of their intellectual property lawsuit could be the uncertainty about whether computer-generated work is protected by copyright, particularly in the US context.

A critical element for a work to qualify for copyright protection is “human authorship”. Any work, a drawing, photograph, musical composition, essay, book, or database, must be created by a human mind and human creative effort. Courts and tribunals in many jurisdictions, including the US, China, Australia, and most European Union countries, tend to refuse extending copyright protection to work created by non-human entities[vii], for example: –

In Naruto v. Slater 888 F.3d 418 (9th Cir. 2018), also known as the “Monkey Selfies Case”, a photographer set up a camera and left it unattended in a wildlife reserve in A black macaque (subsequently named Naruto) allegedly manipulated the unattended camera and took a series of “selfies.” which were published by the photographer. Asked to adjudicate on whether Naruto could be the author and copyright owner of the selfies, the Ninth Circuit Court of Appeals of the United States ruled non-humans do not have standing to sue for copyright infringement[viii].
On 14 February 2022, the Copyright Review Board of the United States Copyright Office refused to register a painting entitled “A Recent Entrance to Paradise” generated by the artificial intelligence agent named “the Creative Machine”, on the grounds it was “produced by a machine or mere mechanical process … without any creative input or intervention from a human author.”
In the Australian case of Acohs Pty Ltd v Ucorp Pty Ltd [2012] FCAFC 16, the Federal Court of Australia ruled copyright does not subsist in safety information sheets generated by a computer programme.
In C-5/08 Infopaq International A/S v Danske Dagbaldes Forening, the European Court of Justice held that copyright only subsists where a work reflect an “author’s own intellectual creation”, meaning that a human author is necessary.

While it may come as a surprise to many, it turns out the million-dollar Bored Ape works were not “drawn” by a human, but, like many other NFT projects, were generated by an algorithm. The creators did first draw a number of components or “traits,” usually a series of different PNG image files like background colours, fur colours, clothes, hats, eyes and expressions.

These are then run through an algorithm which randomly combines them into a “full” artwork. Human creativity only comes into play when designing and creating the traits. The rest is done by a simple algorithm, which would allow Ripps, if he faced a copyright infringement claim in the US, to argue the Bored Ape art isn’t authored by humans, so not protected by copyright.

Of course, Yuga Labs could counter the traits were drawn by humans, but that was probably seen as a risky strategy.

Given also BAYC NFT token holders are granted a broad licence to exploit their Bored Ape artwork commercially, Yuga Labs is no doubt keen to avoid a court decision which would effectively put Bored Ape artwork in the public domain, meaning anyone, NFT holder or not, could exploit them any way they wanted, a catastrophe for the BAYC project.

Fair dealing/fair use defence for protest, satire and commentary

Another reason why Yuga Labs might have wanted to avoid a copyright infringement claim may have been to avoid being drawn into a fair use/freedom of speech debate with Ripps.

As copyright laws are closely linked with freedom of expression, in many jurisdictions (including in Hong Kong under the pending Copyright (Amendment) Bill 2022), it is a defence to use others’ copyright works for the purposes of parody, satire, commentary, critique or education. This is to balance protection with free speech.

By contrast, intellectual property trademark laws, which mostly deal with indicating commercial origins, are less tied in with issues of freed speech and expression. Satire or parody are generally not a defence, or only a very limited and narrow defence in the case of US,[ix] to intellectual property trademark infringement claims.

By Yuga Labs’ own admission in its intellectual property Complaint, Ripps is a known critic of Yuga Labs and the BAYC project. Ripps himself repeatedly claims his RR/BAYC project is a satire to call out the alleged racist/alt-right imagery of the BAYC collection and to “educate” the public about it. As the RR/BAYC project is also in line with Ripps’s own reputation as a satirist and a performance artist, it’s quite possible a jury could decide Ripps’s project is protected by the fair use defence.

Yuga Labs appears to be pre-empting such arguments by stating in its intellectual property Complaint that “Copying is not satire, it is theft. And lying to consumers is not conceptual art, it is deception.” and tie Ripps’ act to property and commercial interests.

Even so, there are several facts in this intellectual property lawsuit that could count against Ripps. The RR/BAYC project artwork is identical and not altered in some way as most satirist do. Ripps has profited from it and its artwork is being resold to unsuspecting consumers on the same platforms where genuine BAYC NFTs are resold.

Conclusion

Yuga Labs’ may have had no real choice, but their legal strategy is not without its risks: –

Relying on intellectual property trademark infringement claims does not in itself prevent Ripps from raising free speech arguments. In fact he has already raised such arguments in his motion for dismissal, claiming Yuga Labs is trying to bully him into silence;
In his motion of dismissal, Ripps argues there is no risk of consumer confusion as he repeatedly used disclaimers to distinguish the RR/BAYC project from the actual BAYC project, and consumers of his project all understand his satirical message and support it to protest against Yuga Labs. Yuga Labs will have to prove the likelihood of risk of confusion to a jury, who may still be swayed by Ripps’s satire/critique arguments;
As Yuga Labs’ entire claim is centered around Ripps’s use of the “BAYC”, “BORED APE”, “BORED APE YACHT CLUB” words and the ape skull logo, Yuga Labs cannot stop Ripps’s use of the copied Bored Ape artwork. Even if Yuga Labs succeeds in its intellectual property claims, Ripps can in theory continue copying the Bored Ape artwork and sell NFTs under a different name;
Ripps’s fight against Yuga Labs, including the re-minting of the RR/BAYC NFTs and the ensuing intellectual property legal dispute, is arguably all part of his performance art. Somewhat paradoxically, the more public attention Yuga Labs gives Ripps, the louder Ripps can tell his story and the bigger cultural impact his re-minting will have – and the higher price the RR/BAYC will fetch for re-sale;
The Web3 community as a whole tends to have certain distain of “old-school” intellectual property rights and court systems as they are often seen to be antithesis to the Web3 ethos of freedom and decentralization. Yuga Labs will certainly upset at least some of its customers by suing Ripps. If anything, this intellectual property lawsuit seems to highlight the inability of Web3 protocols in resolving disputes, which can be seen as its key weakness.

The intellectual property lawsuit shows that, despite all the promises of novel technology, business in Web3 is still, at least for the time being, firmly entrenched in traditional intellectual property laws. Business proprietors still have to rely on traditional intellectual property rights, like trade mark registrations and copyright, to protect their rights.

Blockchain technology does not confer any legal protection on its own; smart contracts are not legally binding contracts, so at the end of the day, disputes still have to be resolved in traditional old world courts.

This is especially true given the continued legal uncertainty surrounding copyright for computer-generated work. Having a sound intellectual property and trademark strategy is perhaps now more important than ever.

The difference in national laws regarding subsistence of copyright in computer-generated work also presents a special jurisdictional challenge in enforcement. Is the copyright of computer-generated art created in Hong Kong, which should be protected by virtue of the Copyright Ordinance, protected in the US?

This case will certainly provide plenty of food for thought among NFT holders.

If Yuga Labs, the creator of the most successful NFT project in the world, is unwilling to pursue copyright infringement for such a blatant case of copying, what are the chances any other NFT creator will do so?

Intellectual property rights, like copyright, are not positive rights to use a property per se, but negative rights to stop unauthorized third parties from using the intellectual property. NFT holders are often only granted a licence to use and/or exploit the copyright, so generally speaking only the copyright owner can enforce copyright against infringers. This makes the rights licensed to NFT holders meaningless in practice without at least a threat the copyright owner will act against infringers.

If the project creator is unable, or unwilling, to enforce the intellectual property rights, is the licence granted to token holders, who may have paid out thousands, even millions of dollars, really worth anything?

If you need help, please contact our intellectual property lawyers.

Disclaimer: This article is provided for information purposes only and does not constitute legal advice. Specialist advice should be sought about your specific circumstances.

[i] Yuga Labs, Inc. v. Ryder Ripps et al. C.D. Cal., No. 2:22-cv-04355. Ripps has filed a motion to strike off on 15 August 2022 under anti-SLAPP (strategic lawsuits against public participation) and free speech laws.

[ii] In Web3 slang a “Boomer” is anyone who is old and out of touch with the modern world but is now generally used to mean anyone over 40 or a young person who is out of touch.

[iii] As of the date of filing the Complaint, none of Yuga Labs’ marks have yet been allowed registration. Hence Yuga Labs bases its claims on common law (unregistered) trade mark rights. The concept of common law trade mark rights is not recognized under UK/Hong Kong trade mark laws. If Yuga Labs were to pursue similar claims in UK or Hong Kong, they would need to rely on the common law tort of passing off.

[iv] In fact, Ripps technically did not “copy” the BAYC images, he simply minted new NFTs with the same hyperlinks (URL) used by Yuga Labs to store its Bored Ape artworks.

[v] Some of the BAYC imageries are incorporated into the Bored Ape artworks themselves, for example apes wearing a cap with the “BAYC” logo or a T-shirt with the ape skull logo. Whether use of the marks inside artworks constitute trade mark infringement is debatable.

[vi] The copyright registration requirement is largely specific to US. Copyright exists naturally and copyright registration generally is not needed for starting infringement proceedings in most countries.

[vii] Some jurisdictions, such as United Kingdom (Section 9(3) of the Copyright, Designs and Patents Act), Hong Kong and New Zealand (both of which have legislations following similar to Section 9(3) of the UK Copyright, Designs and Patents Act), have got around this issue by providing in their copyright legislation that the a computer-generated work is deemed to be authored by the person who “makes the necessary arrangements for the creation of the work”. If this matter was litigated in UK, Hong Kong or New Zealand, Yuga Labs should have had an easier time asserting copyright subsistence.

[viii] By focusing on the issue of legal standing, the Court has admittedly sidestepped the issue of whether a non-human can be an author and copyright owner. However, since a non-human has no standing to sue, practically means a non-human is not entitled to copyright protection.

[ix] Under US trade marks laws, there is a limited exemption accorded to use of trade marks in “works of creative expression” (Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989)), provided that the use of mark has “some artistic relevance” and “is not explicitly misleading as to the content”.