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IP/Entertainment Case Law Updates

Yuga Labs, Inc. v. Ripps

District court grants Yuga Labs Inc., creator of Bored Ape Yacht Club NFT collection, summary judgment against creators of knockoff collection of NFTs known as Ryder Ripps Bored Ape Yacht Club, finding that defendants’ use of Bored Ape Yacht Club trademarks in relation to its NFTs and domain names constituted false designation of origin under Lanham Act and cybersquatting.

Yuga Labs Inc. is the creator of the prominent and celebrity-linked NFT collection known as Bored Ape Yacht Club (BAYC). Each of the 10,000 BAYC non-fungible tokens (NFTs) is a unique digital item, often fetching hundreds of thousands of dollars or more on the resale market. Yuga claims to own several unregistered trademarks under which it advertises, markets and promotes the products and services it offers relating to the BAYC ecosystem, including BORED APE YACHT CLUB, BAYC, BORED APE and various BAYC logos. In July 2022, Yuga filed a trademark action against Ryder Ripps, a self-proclaimed visual artist and creative designer who creates artwork commenting on the boundaries between art, the internet and commerce, and his collaborator Jeremy Cahen for their creation of an NFT collection known as Ryder Ripps Bored Ape Yacht Club (RR/BAYC), which uses the same digital images as the BAYC NFTs. According to defendants, Yuga has embedded “racist, neo-Nazi, and alt-right dog whistles” in the BAYC NFTs, including in the BAYC skull logo, which resembles a Nazi emblem, and defendants’ use of the BAYC marks is a form of appropriation art meant to bring attention to Yuga’s purported use of the offensive material. Yuga’s lawsuit alleged various causes of action under the Lanham Act, including false designation of origin and cybersquatting, as well as trademark infringement, unfair competition, and other torts under common law and California statutory law, claiming that defendants have deliberately used the BAYC marks to cause consumer confusion as to whether there is an affiliation or connection between the RR/BAYC NFTs and the official BAYC NFTs, harassing Yuga and unjustly enriching themselves in the process. Following their largely unsuccessful anti-SLAPP motion and motion to dismiss, defendants filed an answer and counterclaim against Yuga, alleging a cause of action for “knowing misrepresentation of infringing activity,” as well as other claims that were later dismissed. Defendants also asserted a number of affirmative defenses, including that its use of the BAYC marks was protected by the First Amendment and as a nominative fair use, and that Yuga had unclean hands. Yuga filed a motion for summary judgment on its false designation of origin and cybersquatting claims under the Lanham Act, on defendants’ affirmative defenses, and on defendants’ “knowing misrepresentation of infringing activity” cause of action. Ultimately, the district court granted summary judgment in Yuga’s favor on all issues except damages.

The court began its analysis with Yuga’s first Lanham Act cause of action for false designation of origin, where “a plaintiff must demonstrate that: (1) it has a protectable ownership interest in the mark; and (2) the defendant’s use of the mark is likely to cause consumer confusion.” Yuga argued that it should prevail on its claim because (1) it owns the valid and enforceable BAYC marks, (2) defendants used the marks without authorization and in a manner likely to confuse consumers, (3) Yuga is entitled to damages and injunctive relief, and (4) this is an exceptional case, allowing for enhanced damages. Defendants, on the other hand, argued that Yuga does not own the BAYC marks for use in conjunction with NFTs and that because NFTs are intangible, they are not eligible for trademark protection. 

First noting that unregistered trademarks, like the BAYC marks, are capable of being enforced against infringers, the court turned to the question of whether intangible NFTs are “goods” for purposes of the Lanham Act. Defendants argued that the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., holding that the “origin” of the “goods” to which consumers may be confused must relate to the tangible videotapes being sold and not the creative content on the videotapes, supports its position that NFTs, being intangible, are not “goods” under the Lanham Act. The district court disagreed, finding support in a decision by the Southern District of New York stating that Dastar did not generally rule that intangible goods are not protectable under the Lanham Act. Additionally, the court cited a law review article stating that “intangibility does not exclude NFTs from having other characteristics of ‘goods,’ including being individually transferrable between owners, storable for indefinite periods of time, exclusively owned by a single owner, and distinguishable based on their source.” Based on this and the holding in Hermès International v. Rothschild (read our summary of the decision here), the court concluded that NFTs, while virtual and intangible, are indeed goods under the Lanham Act.

Defendants also argued that, even if the intangible NFTs are goods under trademark law, Yuga has failed to use the BAYC marks in commerce as required under the Lanham Act. Not only did the court find, when looking at the totality of the circumstances and the extensive use of the BAYC marks in non-sales-related ancillary activities relating to the NFTs, that Yuga had used the BAYC marks in commerce, it also noted that defendants’ entire defense of purportedly bringing attention to Yuga’s incorporation of far-right ideology into its products and services relies on the fact that Yuga has used the BAYC marks in commerce. Had it not, the court reasoned, there would be no need for defendants to comment on or draw attention to the BAYC NFTs.

In another unsuccessful argument, defendants claimed that Yuga had either transferred its trademark rights in the BAYC marks to the individuals who purchased the NFTs or had engaged in “naked licensing” by granting trademark licenses but failing to monitor the quality of the goods produced. Noting that “[n]aked licensing does not occur where there is no trademark license at issue,” and that Yuga did not grant trademark licenses to the purchasers/holders of the BAYC NFTs, the court concluded that defendants’ naked licensing theory fails.

Having determined that Yuga has a valid and protectable ownership interest in the BAYC marks, the court looked to whether defendants’ use of the BAYC marks was likely to cause consumer confusion as to the origin of the goods. The court applied the Sleekcraft factors employed by the Ninth Circuit, which asks a court to consider a non-exhaustive list of eight factors when determining whether there is a likelihood of confusion: “(1) the strength of plaintiff’s mark; (2) the proximity or relatedness of the parties’ goods; (3) the marks’ similarity in appearance, sound, and meaning; (4) evidence of actual confusion; (5) evidence of the defendants’ intention in selecting and using the allegedly infringing name; (6) the degree to which the parties’ marketing channels converge; (7) the type of goods and the degree of care customers are likely to exercise in purchasing them; and (8) the likelihood that the parties will expand their product lines.” The court held that a majority of these factors favored Yuga in indicating a likelihood of confusion, and those factors that did not weigh in favor of Yuga were neutral. Among other reasons, the court found Yuga’s BAYC marks to be both conceptually arbitrary and commercially strong, the latter due to the significant goodwill the marks had acquired. As defendants had admitted to knowingly using the BAYC marks in connection with their RR/BAYC NFTs, the court found the parties’ goods to be related, the marks to be identical and defendants’ use to be intentional. Ultimately, the court “easily” concluded that defendants’ use of the BAYC marks for its RR/BAYC NFTs was likely to cause confusion.

Having determined that Yuga established its ownership of the valid and protectable BAYC marks and that defendants’ use of the marks is likely to cause confusion, the court granted summary judgment in Yuga’s favor on its first cause of action for false designation of origin. The court also held that Yuga is entitled to damages and injunctive relief but reserved the issue of the amount of damages for trial.

The court next analyzed Yuga’s cause of action for cybersquatting. Citing a leading treatise, the court explained that a “cybersquatter” is a person who “knowingly obtains from a registrar a domain name consisting of the mark or name of a company for the purpose of ransoming the right to that domain name back to the legitimate owner for a price.” Establishing a cybersquatting claim requires the plaintiff to show that “(1) the defendant registered, trafficked in, or used a domain name; (2) the domain name is identical or confusingly similar to a protected mark owned by the plaintiff; and (3) the defendant acted with bad faith intent to profit from that mark.” Here, the parties did not dispute that defendants had registered and used the domain names and Because those domain names contained BAYC marks, specifically the BAYC mark and variations of the BORED APE- and APE-based marks, respectively, the court concluded that the domain names are identical or confusingly similar to the BAYC marks. Finally, with regard to whether defendants had acted with bad faith, the court held that they had, applying nine different factors and noting that defendants had no bona fide prior use of the BAYC marks, were not using the marks for a fair use purpose and had concealed their identities when registering the domain names. With all elements of Yuga’s cybersquatting claim established, the court granted Yuga’s motion for summary judgment on its third cause of action, holding that Yuga is also entitled to damages and injunctive relief but reserving the question of the amount of damages for trial.

The next issues addressed in Yuga’s motion related to defendants’ affirmative defenses. First, defendants claimed that their use of the BAYC marks was protected by the First Amendment and the Ninth Circuit’s application of the Rogers test. The Rogers test, which balances the “competing interests at stake when a trademark owner claims that an expressive work infringes on its trademark rights,” provides that an artistic work’s use of a mark is not actionable unless the use of the mark has no artistic relevance to the underlying work or, if it does, that the use of the mark explicitly misleads consumers as to the source or content of the work. The court held that the Rogers test does not apply and defendants’ conduct is not protected by the First Amendment, determining that while defendants claim the RR/BAYC NFT project is an expressive artistic work, defendants’ sale of those NFTs does not express a point of view, artistic idea or critical commentary. “Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag, making the Rogers test inapplicable.”

The court also granted summary judgment in Yuga’s favor in relation to defendants’ nominative fair use defense. As the court explained, nominative fair use is applicable where the defendant uses a trademark to describe the plaintiff’s product and the mark is not used as a source identifier or to appropriate the goodwill of the plaintiff’s product. To establish their nominative fair use defense, defendants were required to prove three elements: (1) that Yuga’s BAYC products and services are not readily identifiable without using the BAYC marks, (2) that defendants used only so much of the BAYC marks as was reasonably necessary to identify Yuga’s products and services, and (3) that defendants did not use the BAYC marks in any way to suggest sponsorship or endorsement by Yuga. While defendants claimed that they used the BAYC marks for purposes of criticizing Yuga and its BAYC NFT collection, the court was not convinced, holding that the nominative fair use defense was not available to defendants because they used the BAYC marks to sell their own competing NFTs. The court also found that defendants had used the entirety of the BAYC marks without modification and did so in a way that suggested sponsorship by Yuga.

Yuga also moved for summary judgment on defendants’ unclean hands affirmative defense, in which defendants argued that Yuga has unclean hands for “compensating celebrity endorsers without disclosing that compensation and by selling unregistered securities.” The court swiftly granted summary judgment in Yuga’s favor on this issue, noting that the unclean hands defense is limited in the trademark context and, in any case, none of the actions defendants claim as the basis for its unclean hands defense relate to this trademark dispute.

Finally, the court turned to the final issue in Yuga’s motion for summary judgment, relating to defendants’ counterclaim for a “knowing misrepresentation of infringing activity.” In its claim, defendants argue that Yuga violated Section 512(f) of the Digital Millennium Copyright Act (DMCA) by knowingly issuing improper takedown notices based on Yuga’s trademark rights rather than copyright. The parties did not dispute that Yuga had issued approximately 25 takedown notices regarding defendants’ RR/BAYC content, but that only four of those notices resulted in any of defendants’ content being removed from its location on the internet. The court first noted the elements required to establish a violation of Section 512(f): (1) There must have been a material misrepresentation in a takedown notice that led to the takedown of content and (2) the takedown notice must have been issued in subjective bad faith. As to the four takedown notices that resulted in the removal of defendants’ content, the court concluded that three of them were not copyright takedown notices under the DMCA, and were therefore not actionable, because they did not identify copyrighted works claimed to have been infringed. As to the one remaining takedown notice, the court held that defendants had not established that there was a material misrepresentation in the notice due to the possibility that Yuga has a copyright in its BAYC logo.

The court granted summary judgment in Yuga’s favor on its false designation of origin and cybersquatting claims, and against defendants’ First Amendment, nominative fair use and unclean hands affirmative defenses, as well as defendants’ counterclaim for knowing misrepresentation of infringing activity. Yuga’s motion was denied with respect to a calculation of its damages, which was reserved for trial.

Summary prepared by Melanie Howard and Kyle Petersen

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