The Yuga case raises interesting questions regarding IP rights in the new web3 space, where NFTs are now widespread.
Yuga Labs Inc., the blockchain technology company that specializes in developing digital collectibles, has recently filed a lawsuit against artist Ryder Ripps for selling allegedly copied NFTs. Yuga is the company behind the Bored Ape Yacht Club NFT collection, one of the most popular and valuable collections in the NFT space (for example, last year 101 Bored Ape NFTs resold for $24.4 million at an auction).
Ripps, on the other hand, is a self-proclaimed “conceptual artist” infamous for his controversial satirical projects, reportedly earning $1.8 million from his alleged copycat collection of Bored Apes. While the lawsuit has been filed in the Central District of California and will be decided under US law, it raises important questions about how Australian trademark law might handle a similar NFT trademark dispute.
Ape NFTs enter legal battle
The case originates from a collection of NFTs called Ryder Ripps Bored Ape Yacht Club. Yuga claims that Ripps markets and sells the Ripps NFTs using the same trademarks that Yuga uses to market and sell its authentic Yuga NFTs. According to Yuga, this behavior causes confusion among consumers and a decrease in value of the authentic Yuga NFTs.
To get a sense of the similarity between the digital works, the example below shows an official Yuga NFT on the left, and the “corresponding” Ripps NFT on the right:
In another of Ripp’s NFTs, the digital art features the “BAYC” logo on the avatar’s hood:
The resemblance, at least at first glance, is strong. This is especially so given that they are sold on the same NFT marketplaces.
However, Yuga does not own any registered US trademarks. It instead relies on a number of pending US trademark applications for trademarks it claims to have used since at least April 2021 (the BAYC brands). Although not yet accepted by the USPTO, the applications include:
- BAYC;
- LEADER MONKEY; and
- MANAGER APE YACHT CLUB.
Yuga is therefore dependent on its common law (unregistered) trademark rights. However, it can be very difficult to enforce trademark rights in common law.
Yuga also relies on its significant use of the BAYC marks in connection with the advertising, marketing and promotion of the Yuga NFT collection, both domestically and internationally. Yuga claims its presence on multiple platforms, including NFT markets and social media, has resulted in significant goodwill for BAYC Marks.
Unregistered trademark rights in Australia
As noted above, Yuga relies on its unregistered trademark rights in the United States. In Australia, unregistered trademarks can be protected through a claim for passing off, or for misleading conduct under the Australian Consumer Law. Passing away can protect the goodwill developed in unregistered trademarks (or even other “trademarks”, such as the appearance of the Yuga NFT images) by virtue of their extensive use. If Yuga were to bring such a claim in Australia, there are three elements that need to be established:
- Goodwill: has Yuga established goodwill / a reputation in the appearance of Yuga NFTs / BAYC Marks?
- Misrepresentation: are consumers likely to be misled into believing that the Ripps NFTs are from, or endorsed by or associated with, Yuga?
- Damage: has the above misrepresentation harmed or is likely to harm Yuga’s business or reputation?
If Ripps engaged in this conduct in Australia, it would certainly be open to Yuga to bring a claim for passing off. Such a claim is always made in connection with a claim under the Australian Consumer Law. This legislation prohibits (among other things) misleading or deceptive conduct, or making false representations regarding sponsorship, endorsement or affiliation. It is important to note that a person may violate these prohibitions even where they do not have an intention to mislead or deceive. Therefore, it is irrelevant whether Ripps intended to “criticize” Yuga through his NFTs (as described below) – the key question is whether the overall impression created by Ripps’ conduct would mislead consumers.
What if Yuga had registered trademarks?
If Yuga owned trademark registrations for the BAYC marks, the claim could be brought for infringement of those trademark registrations.
A claim for registered trademark infringement is, in most cases, far easier to establish than a claim to bypass or under the Australian Consumer Law. That is because it is not necessary to prove that you have developed any reputation or goodwill with respect to this trademark in order to succeed in a trademark infringement lawsuit. The registration certificate does it for you.
Additionally, a trademark registration can be very valuable. A trademark registration is a separate asset that has its own value and can be transferred, sold or bought. An unregistered trademark is not a separate asset of a business – it is specifically linked to the goodwill of the business and cannot be separated from it.
If Yuga owned such registrations in Australia, it would still have to demonstrate that Ripps had used these (or similar) trademarks “as a trademark”. This requires the trade mark to be used as a ‘mark of origin’ – ie to identify the commercial source of the goods or services.
Rip’s answer
In his response, Ripps has relied on artistic freedom of expression, claiming that his NFT project was a “critique” of Yuga’s work.
In Australia, the Federal Court has held that where a party modifies a trademark for satirical purposes, or uses it as the subject of criticism, the trademark can has not been used “as a trademark” for infringing purposes. But given that the BAYC marks have not been altered in the Ripps NFTs, and the Ripps NFTs (on their face) have not obviously been created for criticism purposes, it would be difficult for Ripps to rely on that argument here.
As Yuga said in his complaint:
“Promoted, he promotes and sells these RR/BAYC NFTs using the same brands which Yuga Labs uses to promote and sell authentic Bored Ape Yacht Club NFTs. He also markets these counterfeit NFTs as falsely equivalent to the authentic Bored Ape Yacht Club NFT.” [emphasis added]
What about copyright?
Where someone reproduces an image or drawing in which you own the copyright, the best angle of attack will normally be a claim of copyright infringement. However, we understand that Yuga decided not to pursue a copyright infringement claim in this case because the Yuga NFT images are generated by a computer algorithm, rather than a human author. If that wasn’t the case, we expect a copyright infringement claim to be at the tip of Yuga’s spear.
Final thoughts (and questions) on NFTs
The Yuga case raises interesting questions regarding IP rights in the new web3 space, where NFTs are now widespread. For example, will ‘use’ of a trademark on a virtual platform in connection with a tokenized ‘asset’, such as Decentraland, be treated in the same way as use of that trademark in the physical world? And will use in the borderless virtual world constitute use in all (or any) jurisdictions? Hopefully some clarity will be provided when cases come before the Australian courts addressing these issues. As for the Yuga case, we will monitor the progress and provide an update once the verdict is delivered.
