The Yuga Labs v. Ryder Ripps case is shaking up NFTs and trademarks. In this episode of The Briefing, Weintraub attorneys Scott Hervey and Tara Sattler unpack the Ninth Circuit’s ruling on whether NFTs count as “goods,” why the First Amendment defense fell flat, and what it all means for the future of digital asset law.

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Show Notes:

Scott: Was the Ryder Ripps Bored Ape Yacht Club NFT series a social commentary on the popular Board Ape Yacht Club and an exposure of its racist tropes? Or was it just an attempt to capitalize off of Bayes’ popularity for profit? These questions were front and center in the lawsuit between Yuga Labs, the creators of the Board Ape Yacht Club NFT. Boys, say that 10 times fast. Project and Ryder Ripps, a popular visual artist. This case resulted in a bench trial award to Yuga Labs of $8 million in damages. But the appeal of that award to the Ninth Circuit raised some very interesting issues, named Mainly the question of whether NFTs are goods that fall under the Lanham Act.

I’m Scott Hervey, a partner with Weintraub Tobin, and today I’m joined by my partner and frequent briefing contributor, Tara Sattler. We are taking a deep dive into the fascinating intersection of digital art, blockchain, and Intellectual Property on today’s installment of The Briefing. Tara, welcome back to the briefing.

Tara: Hi, Scott. Great to be here, as always.

Scott: It’s good to have you here. Let me ask you a question. Did you ever buy any NFTs?

Tara: I did not.

Scott: I did not either. But I think we’re still qualified to talk about this case, even though we weren’t suckers, I’m sorry, consumers of NFTs.

Tara: Yes, I agree.

Scott: Let’s start with a summary of the Yuga Labs case. Why don’t you tell us what exactly happened here?

Tara: Sure. Yuga Labs Inc. Created the Bored Ape Yacht Club or B-A-Y-C NFT collection, which is one of the most recognized NFT collections globally. The B-A-Y-C collection was associated with, very early with celebrity owners, including Snoop Dogg, Justin Bieber, and Jimmy Fallon. Each NFT in this collection is associated with a unique cartoon soon, Bored Ape Image, and purchasing an NFT not only grants rights to the ape art, but also membership in what’s been described as a strange combination of gated online community, stock shareholding group, and art appreciation society. Yuga Labs launched BAYC in April of 2021, quickly selling out the collection and generating over $2 million. They also developed various trademarked brand signifiers like Bored Ape Yacht Club and Bayayc.

Scott: Now, this was right as NFTs took off, some promoting NFTs as an investment category and some just promoting it as hype. There was a huge rush to the adoption of NFT art, and NFTs gained cultural relevance as status symbols. That’s where Ryder Ripps and Jeremy Cahan, hope I pronounce his last name correctly.

Tara: Comment. Prefithely. In late 2021, Ryder Ripps, a visual artist, started criticizing Yuga Labs, alleging they used neo-nazi symbolism, alt-right dog whistles, and racist imagery in the B-A-Y-C NFTs.

Scott: That’s right. According to Ripps, the Bayy-C Ape Skull logo resembled the Totenkopf emblem of the Nazi SS Stormtroopers. Ripps compiled his findings on a website and used art to satirize the Bayy-C brand. In May 2022, Ripps and Kehen created their own collection called Ryder Ripps Board Ape Yacht Club, which was linked to the exact same ape images with some slight changes and a corresponding ape ID, as was Yuga’s NFTs.

Tara: So surprise, Yuga Labs sued Ripps and Cahin and asserted 11 federal and state causes of action, including claims under the Lanham Act for trademark infringement. Yuga claimed the defendants made counterfeits market, BAYC NFTs that they advertised and sold to the same customers in the same markets using Yuga’s BAYC trademarks.

Scott: The defendants argued that their use was protected by normative fair use and the First Amendment. It’s interesting that of the 11 causes of action, Yuga didn’t sue for copyright infringement despite that the BAYC NFTs are associated with original works of art.

Tara: That’s true. What’s your thought on why Yuga didn’t sue for copyright infringement?

Scott: This is just my hypothetical and my thought. When Bayayay-C NFTs were sold, you have a lab’s granted buyer as a license to use the underlying artwork for personal and commercial purposes. It could be as broad as creating derivative works or merchandise featuring the artwork that corresponds to the NFT that you purchased. This licensing model could potentially complicate a copyright claim because Ripps could argue that his NFTs were permissible under the broad license that was granted to the BAYC NFT holders, or he could have argued that his use was fair use, especially since Ripps claimed that his project was satirical commentary of the BAYC NFT art. Now, trademark law focuses on brand confusion and not on the creative content itself. Maybe Yuga’s lawyers thought it would be a stronger avenue for them to challenge Ripps’ use of the BAYC mark than alleging claims for copyright infringement.

Tara: I agree with you there, Scott. Going back to the case, setting the table for the Ninth Circuit, the district Court granted summary judgment for Yuga Labs on its trademark infringement claims, enjoying the defendants from using the BAYC marks, and awarded Yuga over $8 million in discouragement of profits, statutory damages, attorneys fees, and costs.

Scott: That’s a very significant award. As expected, the defendants appealed the decision. They appealed to the Ninth Circuit. On appeal, the Ninth Circuit had to address three main things. First, whether NFTs can be trademarked. Second, whether to reverse the district court’s summary judgment for Yuga Labs on its trademark infringement and cybersquatting claims. We’re not going to talk about the cybersquatting claims in this discussion. But particularly focusing on whether Yuga proved likelihood of consumer confusion. And third, whether to affirm the rejection of the dependents counter claims.

Tara: So let’s talk about the first issue. Can NFTs be trademarked?

Scott: Sure. So Obviously, this was a threshold question for the court. If NFTs couldn’t be trademarked, then Yuga’s entire case went away. So, the Ninth Circuit said, yes, NFTs can be trademarked. The court noted that the Lanham Act protects marks that are used with any goods or services, but it doesn’t define what constitutes a good. However, the court found guidance from a recent USPTO report which concluded that NFTs are goods covered by the Lanahm Act. The USPTO views trademarks in NFT markets as functioning similar to those in other markets, identifying the source of the underlying asset like digital arts or services, such as club memberships represented by NFTs.

Tara: The defendants had a very interesting counterargument to that. They relied on the line of cases that they said stood for the proposition that intangible goods like NFTs are ineligible for trademark protection because there are not goods as defined in the Lanham Act.

Scott: Right. Now, that was an interesting counterargument, but ultimately it proved to be unpersuasive.

Tara: Right. The court said that there is no bright line rule delineating tangible and intangible goods, and that NFTs are different than the good in the cases cited by the defendants. One was a video cassette because they’re not contained in or even associated with tangible goods. Nfts exist only in the digital world and are associated only with digital files. They are actively marketed and traded as commercial goods in online marketplaces, specifically curated for NFT.

Scott: Right, that’s right. The court emphasized that consumers perceive the BAYC NFTs as more than just a digital deed to the authentication of artwork. They also function as, in this case, membership passes, providing exclusive access to this social club, I guess, merchandise and events. Based on this, the Ninth Circuit concluded that Yagla Labs NFTs are indeed goods under the Lanamack.

Tara: Some of the analysis of this decision call this a groundbreaking finding for the future of digital assets. You don’t believe that this part of the decision is groundbreaking. Why?

Scott: Right. I don’t believe it’s ground heartbreaking because we saw this in the 2022 case of Hermes International versus Mason Rothschild, which involved the Metta Birkin NFTs. You remember those? In that case, the US district Court for the Southern district of New York found that Rothschild’s NFT series called Metta Birkin infringed the Birkin trademarks that were owned by Hermes. The court said that Rothschild used Metta Birkins as a mark in commerce, that he used it to identify the collection of NFTs that he offered for sale. In many ways, that case foreshadowed what was to come, not only here in this case where this court found that the BAY BRYC brands are trademarks, but I also think it foreshadowed what happened in the Supreme Court’s handling of the Rogers test in Jack Daniels versus VIP products.

Tara: So speaking Speaking of the Rogers test, let’s talk about how this case addressed the defendants claims that the Rogers test applied to their use of the Bayer-YCE marks. Ripps argued that their sale of the RR Bayy-C NFTs was a component of a broader expressive art project and public protest. And as such, the Rogers test applied.

Scott: Right. So just as a quick background. So the Rogers test provides a narrow First Amendment to trademark infringement for expressive works unless the use is irrelevant or explicitly misleading. However, those frequent listeners to this podcast know, the Supreme Court’s decision in Jack Daniels Properties versus VIP products, narrowed this doctrine quite a bit. The Supreme Court made it clear that this First Amendment exception does not apply where an alleged infringer uses a trademark in the way that the Lanham Act most cares about. In other words, as a designation of source for the infringer’s own good. So as a trademark.

Tara: In the appeal, Ripps and his fellow defendant devoted significant briefing to explaining the expressive nature of their RR, B-A-Y-C, NFT project, and relatively little to explaining how their use of Yunga’s marks was not a designation of source for their their own NFTs. And ultimately, the court found that the defendant’s cursory assertion that it did not use Yunga’s marks as identifiers of source, failed that Jack Daniels test.

Scott: Exactly. The Yunga Court found that Ripps and Kehan used the Bayes-C Mark as marks, meaning as a source identifier, not merely to describe or to reference the Yunga Labs NFT project. For example, they embedded Bored Ape Yacht Club and Bayy C into the name of their NFT project, so R-R-B-A-Y-C NFT, and its trading symbol. They also used those marks in advertising. The court explicitly stated that it doesn’t matter that the defendant’s ultimate goal may have been criticism or commentary because they were still using a similar-looking mark and a similar-sounding mark as a designation of source for their own goods. The court emphasized that the functionality of the mark itself, how it operates and whether it’s likely to cause confusion, is what the Lanham Act addresses, not the user’s subjective intent. So since the defendant’s use was, at least in part, for source identification, the First Amendment exception under Rogers was foreclosed.

Tara: Yeah, and you mentioned the Airmays case that foreshadowed this result and the Supreme Court’s decision in Jack Daniels. In Airmays, where Mason Rothschild created meta-berk in NFTs that depicted furry versions of Airmays’ iconic Berkene bags, Airmays sued him for trademark infringion and dilution. The court in Hermès found that the Rogers test was applicable, but also found that the defendant could not avail himself of that defense since his use of the Berk in Mark was explicitly misleading. Why do you think this foreshadowed Jack Daniel?

Scott: It is true that the Hermès Court found that Rogers was the analytical framework. However, it was the Court’s treatment of the second Rogers factor, the explicitly misleading factor, specifically the application of the Polaroid factors to assess this prong, which showed that Rogers was heading for a narrower application. The court noted that Rothschild’s Metta Birkins NFTs were not purely artistic, but functioned as a commercial product, sold for profit, and marketed in a way that suggested a connection to Hermès’s iconic Birkin brand. The court highlighted evidence of consumer confusion as being critical to assessing whether Rothschild’s use was explicitly misleading under Rogers.

Tara: By applying the Polarite factors, the court was focusing on whether the Meta Birkin NFTs operated as source identifiers, implying a brand affiliation with Hermès.

Scott: Hermès wasn’t just looking at whether the use was in connection with an expressive work. It was looking at the nature of that use as well. In Jack Daniels, the Supreme Court clarified that Rogers does not apply when a trademark is used as a source identifier, such as when a mark is used to designate the source of a defendant’s own good. In that case, it was a dog toy that was mimicking the Jack Daniels’ whiskey bottle. The court emphasized that trademark law’s core purpose, preventing consumer confusion, takes precedent in such case. The Hermes Court’s scrutiny of Rothschild’s commercial intent and the resulting consumer confusion, a test, aligned with this principle, suggesting that Roger’s protections are limited when a defendant’s use mimics a brand’s commercial identity. As opposed to being purely expressive.

Tara: Yeah, and the Jack Daniels decision did clarify that courts should not reflexively apply Rogers to any use of an expressive element. In Instead, they must first determine whether the use functions as a source identifier.

Scott: Right. And there are many courts fact-intensive approach in determining that second Rogers factor, focusing on whether the Metta Birken Mark was explicitly misleading via the Polaroid factors, anticipated this by requiring robust evidence of confusion in a commercial context before dismissing First Amendment protections. This aligns with Jack Daniels’ emphasis on distinguishing between expressive and commercial uses of trademarks.

Tara: Right. So while Hermes didn’t have the Jack Daniels case to cite, it effectively reached a very similar conclusion that using trademarks, famous marks, to sell your own product, even if it has an expressive element, falls outside the scope of Rogers.

Scott: Right. So props the Judge, Rackoff, the judge rack the judge in the Hermes case for understanding where Rogers was going before the Supreme Court’s decision in Jack Daniels. All right, so let’s get back to this case, the Yuga Labs case. So if an NFT can be trademarked and the First Amendment defense doesn’t apply, let’s talk about why summary judgment for Yuga Labs on trademark infringement was reversed and what is still left to be decided.

Tara: It’s fairly straightforward. The Ninth Circuit reversed the summary judgment because Yuga Labs has not proven as a matter of law that the defendant’s actions were likely to cause consumer confusion.

Scott: Right. That likelihood of consumer confusion, it’s a core element of trademark infringement. It’s generally a fact-intensive inquiry that should not be decided by a court on a dispositive motion, but should be reserved for a jury. To be clear, it’s not that Yuga Labs can’t win, but they haven’t proven it as a matter of law just yet.

Tara: Exactly. The court looked at the sleep craft factors, which are used to assess the likelihood of confusion in trademark cases, especially in internet commerce. There were some factors leaning toward Yuga, such as the strength of the mark and relatedness of the goods.

Scott: Right. So focusing briefly on those two factors, this is what the court found. So for strength of the mark, the court found that the VA AYC marks were conceptually strong and commercially strong due to their widespread recognition, celebrity attention, etc. As the proximity of the goods, the Ryder Ripps’ BAYC NFTs and the Yuga Labs, B-A-Y-C NFTs, were nearly identical in terms of images and ape IDs. The defendants even copied Yuga’s smart contract name and symbol, which could cause misidentification.

Tara: Although these two factors favored Yuga Labs, that wasn’t enough. The court noted that several factors remained unclear and that a jury would need to weigh the evidence. For example, on the similarities of the marks factor, the court noted that although the marks are similar, the addition of the R-R and the backslash in R-R/bayc, R-R referring to Ryder Ripps creates visual and auditory differences that a juror could find significant enough to avoid confusion.

Scott: And as for evidence of actual confusion, while Yuga presented some evidence, other evidence suggested that some interested consumers did know the difference, making this factor neutral. There were also questions about the similarity of the marketing channels for the goods. Most of the dependent sales occurred on their own One website, rrbayc. Com, which is different from Yaga, it’s bayc. Com, and the extent of sales on shared platforms like Twitter was unclear. So this factor favored the defendants.

Tara: Another sleep-craft factor, which looks at the type of goods and degree of care by the purchaser, tended to favor the defendants. The court noted that NFTs are generally considered sophisticated and often expensive goods. So, the significant price differential between Bayy-C NFTs, which sold for millions, and the Ryder-Ripps Bayy-C NFTs that sold for $100 to $200 could alert consumers to a difference.

Scott: It should alert consumers to a difference. All right. Lastly, the court noted that the last factor, the factor that analyzes the defendant’s intent in adopting the allegedly infringing mark, could favor the defendants. The court recognized that Ripps and Cahan had dual motives to criticize Yuga and satirize NFTs, but also potentially to confuse consumers.

Tara: Yeah. So, the future of this dispute now rest with the jury to decide whether consumers were truly confused by the Ryder Ripps, B-A-Y-C, NFT.

Scott: Exactly. Yuga Labs may still prevail, but they’ll need to convince a jury at trial. This space will continue to be a significant one for trademark law in the digital asset space, and one that we are going to watch and report back on. So that’s all for today’s episode of The Briefing. Thanks to Tara for joining me today. And thank you, the listener or viewer, for tuning in. We hope you found this episode informative and enjoyable. If you did, please remember to subscribe, leave us a review, and share this episode with your friends and colleagues. If you have any questions about the topics we cover today, please leave us a comment.