Owner of Bored Ape NFTs Fends Off Challenges from Conceptual Artists

Yuga Labs Inc. (Yuga) – the creator and marketer of the well-known "Bored Ape Yacht Club" collection of nonfungible tokens (NFTs), referred to as Yuga Bored Ape images – filed a complaint in July 2022 against conceptual artist Ryder Ripps (Ripps) to enjoin his use of Yuga's Bored Ape Yacht Club trademark and other marks, including logos and acronyms, in connection with Ripps' own Ryder Ripps Bored Ape Yacht Club NFT collection. Yuga included several claims in the complaint but did not allege copyright infringement.

The law governing use of a third party in online images, especially in NFTs, continues to develop. Yuga appears to have consciously brought its enforcement action under provisions of the U.S. trademark law. Copyright law allows parties to make "transformative use" of third-party images. Trademark law prohibits use of another's trademark so long as consumers are not confused.

Background

On Dec. 27, 2022, Ripps and a second artist, Jeremy Cahen, filed a series of counterclaims (the Ripps Counterclaim) that included a series of eye-opening legal questions. The six claims alleged against Yuga included 1) knowing misrepresentation of infringing activity, 2) declaratory judgement of no copyright under 17 U.S.C § 102(a), 3) declaratory judgement of no copyright under 17 U.S.C. § 204(a), 4) intentional infliction of emotional distress (IIED), 5) negligent infliction of emotional distress (NIED) and 6) declaratory judgement of no defamation, which was later withdrawn by defendants.

On Jan. 18, 2023, the plaintiff and counter-defendant Yuga filed a special motion to strike and a motion to dismiss the aforementioned counterclaims invoked by Ripps and Cahen.

The U.S. District Court for the Central District of California (the Court) issued an order on March 17, 2023, granting plaintiff Yuga's special motion to strike counterclaims and granted in part and denied in part plaintiff Yuga's motion to dismiss counterclaims.

Yuga's Motion to Strike Emotional Distress Counterclaims

IIED and NIED are torts that may qualify as actionable when statements go beyond the limits of free speech and, as a result, cause a severe infliction of emotional distress.

Yuga argued that the counterclaimant's claims on IIED and NIED are not likely to have a probability of success and that they should be stricken under California's anti-SLAPP statute. Although anti-SLAPP legislation varies by state, anti-SLAPP provisions are used as a protection mechanism when certain claims are brought in retaliation against someone who brings a legal action designed to quash criticism to court.

Counterclaimants Ripps and Cahen argued that their IIED and NIED claims were based on the financial and emotional distress caused by Yuga filing the present action and by making further repetitive public statements on different social media and news platforms, filing takedown notices, publishing tweets and contacting journalists and individuals with public-facing platforms.

The court rejected such arguments under the principle that Yuga's conduct was "incidental or collateral to a cause of action based essentially on protected activity," given that the present dispute is an issue of public interest and concern. The court concluded: 1) that California's anti-SLAPP statute applies, 2) that the counterclaimants have failed to allege extreme or outrageous conduct required for the prevalence of an IIED counterclaim, 3) the counterclaimants failed to allege that Yuga owed them a special duty as required to prevail on their NIED counterclaim and 4) the counterclaimants failed to allege that they suffered emotional distress required on their IID and NIED counterclaims.

Due to Yuga being the prevailing party on the special motion to strike filed, the court concluded that Yuga is entitled to attorney's fees.

Yuga's Motion to Dismiss Copyright-Related Counterclaims

The court granted Yuga's motion to dismiss the second and third copyright-related counterclaims.

Noting that Yuga did not actually hold any U.S. copyright registrations, the counterclaimants sought the court's declaration that Yuga does not own any type of copyright for the Bored Ape images.

Under U.S. law, an interested party cannot bring a copyright claim if the works are not registered at the U.S. Copyright Office. In the present case, and as the court order explained, Yuga and the counterclaimants "agree that Yuga does not possess any kind of copyright registrations."

As a result, the court concluded that there can be no case or controversy in regards to a copyright infringement issue. For this reason, there was no case or controversy under copyright law, so the counterclaims were dismissed.

Misrepresentation of Infringing Activity Claim Remains

The court's March 17 order was not a complete loss for Ripps and Cahen, as the court denied Yuga's motion to dismiss with respect to the first counterclaim, whereby Ripps and Cahen alleged misrepresentation of infringing activity. The court said that such matters "are appropriately resolved on a motion for summary judgement." The counterclaimants alleged that Yuga knowingly and materially misrepresented the existence of copyright infringement through the conducts of filing a series of Digital Millennium Copyright Act (DMCA) takedown notices. The parties disagree on, among other issues, how many takedown notices were submitted pursuant to the DMCA and how many were sent on grounds other than copyright, including trademark infringement.

Takeaways

Several courts have examined issues relating to use of third-party intellectual property (IP) by creators of NFTs. To date, the best path to enforce rights appears to be under the provisions of the Federal Trademark Statute. 

Finally, the court concluded that on the present case it would be futile and unnecessary "to provide Counterclaimants an opportunity to amend" most of their claims, with the exception of the misrepresentation of infringing activity claim.

For more information and additional IP guidance, contact the authors.

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