In case arising under Lanham Act for false designation of origin and cybersquatting, district court grants Yuga Labs Inc., creator of Bored Ape Yacht Club NFT collection, $1.375 million in disgorgement of profits and $200,000 in statutory damages—as well as permanent injunction, attorneys’ fees and costs—against creators of knockoff collection of NFTs.
In this case arising from a knockoff collection of NFTs using the “Bored Ape Yacht Club” trademarks, the district court conducted a bench trial on July 31, 2023 to assess the equitable remedies to be awarded to plaintiff Yuga Labs Inc., following the court’s April 21, 2023, order granting in part and denying in part Yuga’s motion for summary judgment. (Read our summary of the court’s order on Yuga’s motion for summary judgment here.)
Yuga is the creator of the Bored Ape Yacht Club (BAYC) NFT collection, one of the world’s most well-known NFT collections. Yuga maintains that much of the BAYC NFT collection’s value arises from their rarity; only 10,000 BAYC NFTs exist, and each is unique. Yuga owns several unregistered trademarks, including “BORED APE YACHT CLUB,” “BAYC,” “BORED APE,” the BAYC Logo, the BAYC BORED APE YACHT CLUB Logo and the Ape Skull Logo. Yuga has used the BAYC Marks since around April 2021. Defendant Ryder Ripps is a creative designer. Ripps has criticized Yuga’s practices, accusing Yuga of deliberately embedding racist dog whistles in the BAYC NFTs. Around May 2022, Ripps and co-defendant Jeremy Cahen created their own NFT collection, known as the Ryder Ripps Bored Ape Yacht Club (RR/BAYC). The RR/BAYC NFT collection “points to the same online digital images as the BAYC NFT collection but use unique entries on the Ethereum blockchain.” Defendants contended that their “use of pointers to the same images is a form of ‘appropriation art.’”
On July 24, 2022, Yuga sued defendants, alleging 11 causes of action, including false designation of origin and cybersquatting under the Lanham Act. Defendants filed an answer and alleged six counterclaims against Yuga; but the court dismissed all of defendants’ counterclaims except for its counterclaim of knowing misrepresentation of infringing activity under Section 512(f) of the Digital Millennium Copyright Act (DMCA). On April 21, 2023, the court granted summary judgment to Yuga as to its causes of action for false designation of origin and for cybersquatting. The court also granted summary judgment to Yuga on defendants’ affirmative defenses alleging First Amendment protection under Rogers v. Grimaldi, fair use and unclean hands, as well as on defendants’ first counterclaim alleging misrepresentation of infringing activity. However, the court denied summary judgment with respect to a determination of Yuga’s damages. On June 12, 2023, Yuga withdrew its demand for a jury trial and requested that the court decide all issues related to the remedies available to Yuga on its remaining causes of action for false designation of origin and for cybersquatting. Yuga then withdrew its prayer for all legal remedies and stated that it would proceed to trial solely on its prayer for equitable remedies as to its two remaining claims.
The only issues that remained for the bench trial were (1) whether Yuga was entitled to a disgorgement of defendants’ profits and in what amount; (2) the amount of statutory damages to be awarded for defendants’ cybersquatting; (3) the scope of a permanent injunction; and (4) whether this was an “exceptional case” warranting an award of attorneys’ fees to Yuga.
Disgorgement of Defendants’ Profits on Yuga’s False Designation of Origin Claim
The court concluded that the totality of the circumstances warranted the disgorgement of defendants’ profits in the amount of about $1.375 million. The Lanham Act provides that if trademark infringement has been established, plaintiff is entitled to recover defendant’s profits, subject to the principles of equity. The statute also provides that in assessing profits, plaintiff shall be required only to prove defendant’s sales and that courts have discretion to fashion relief based on the totality of the circumstances. The court disagreed with defendants’ position that Yuga waived or abandoned its claim of willful infringement by electing to proceed solely with the equitable remedies sought, and found no requirement that the infringement be “willful” for an order of disgorgement. The court found that there was no unreasonable delay by Yuga in asserting its rights, that defendants’ use of Yuga’s BAYC Marks was intentional even after Yuga filed its complaint asserting its trademark rights, and that the disgorgement of profits would serve as a deterrent to defendants. Therefore, the court ordered disgorgement of the profits that defendants received from the sales of its RR/BAYC NFT collection.
In determining the profits to be disgorged, the court stated that plaintiffs bear the burden only to prove defendants’ gross sales from the infringing activity with reasonable certainty, and once plaintiff demonstrates gross profits, they are presumed to be the result of the infringing activity. Yuga’s economics and damages expert testified that, as of Feb. 1, 2023, defendants had generated profits of $1,589,455. The court reduced this by the amounts of payments made to third parties as well as the value of the RR/BAYC NFTs held or not minted, since the court ordered defendants to transfer the RR/BAYC smart contract to Yuga. As a result, the court concluded that Yuga met its burden of demonstrating defendants’ profits of $1,375,362.92 from the sale of the RR/BAYC NFTs, and that defendants failed to prove that any of these profits were not attributable to its unlawful infringement of the BAYC Marks.
Statutory Damages on Yuga’s Cybersquatting Claim
The court held that Yuga is entitled to $200,000 in statutory damages for defendants’ violations of the Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C. § 1117(d). In a case arising under the ACPA, plaintiff may elect, before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages between $1,000 and $100,000 per domain name, as the court considers just. Here, Yuga requested an award representing the maximum statutory damages of $200,000, or $100,000 for each of two domain names, which the court considered fair, just and appropriate because the evidence demonstrated that defendants’ cybersquatting was willful and egregious and that defendants had exhibited “repeated and consistent contempt and disdain for the law, the legal process, this Court’s rulings, and Yuga’s intellectual property rights.”
The court held that Yuga is entitled to permanent injunction against defendants. To be awarded a permanent injunction, plaintiff must show that (1) plaintiff has suffered irreparable injury; (2) legal remedies are inadequate to compensate plaintiff for the injury; (3) the balance of hardships favors an injunction; and (4) the public interest would be served by the injunction. First, plaintiffs who prove a violation of the Lanham Act are entitled to a rebuttable presumption of irreparable harm. Second, the court noted that injunctive relief is the remedy of choice for trademark and unfair competition cases, since there is no adequate remedy at law for the injury caused by defendant’s continuing infringement. Third, the court found that the balance of hardships also weighed heavily in favor of Yuga, since defendants have no legitimate interest in readily infringing Yuga’s BAYC Marks, whereas Yuga has a strong interest in being protected from harm to its reputation and goodwill. Fourth, the court reasoned that injunctive relief would serve the public interest by preventing consumer confusion. As to the scope of the injunction, the court concluded that defendants; their agents, employees and attorneys; and anyone acting in concert or participating with them should be permanently enjoined from marketing, promoting, or selling products or services that use the BAYC Marks, including RR/BAYC NFTs and Ape Market. Furthermore, the injunction requires defendants to transfer to Yuga control of several domain names and Twitter accounts as well as the RR/BAYC smart contract. (Smart contracts are self-executing programs that automate the actions required in an agreement; they give consumers confidence in the authenticity and source of digital accounts.) Notably, the court found that “[s]imilar to domain names, smart contracts give consumers confidence in the authenticity and source of digital accounts. As a result, the trademark holder has a superior claim of title to smart contracts bearing its trademarks, particularly in light of the fact that smart contracts are immutable and exist in perpetuity.” Departing from the court’s decision in Hermès International v. Rothschild, which voiced concerns about the artistic and expressive nature of the MetaBirkins NFTs, the court concluded here that it is equitable to order the transfer of the RR/BAYC smart contract to Yuga because Yuga has changed or “burned” its own BAYC smart contract in order to restrict or prohibit the minting of additional BAYC NFTs in an effort to combat the perceived lack of exclusivity of BAYC NFTs.
Attorneys’ Fees and Costs
The court concluded that this is “an exceptional case” compared with most other trademark infringement cases, and Yuga is entitled to its reasonable attorneys’ fees because defendants intentionally infringed Yuga’s BAYC Marks with a bad faith intent to profit from their use of those Marks, using the cover of satire and parody to try to justify their infringement. The court also noted that defendants’ conduct during the litigation made this an exceptional case, as defendants were obstructive and evasive throughout their depositions and during their trial testimony.
Furthermore, because Yuga was the prevailing party with respect to its trademark claims and, the court concluded, with respect to defendants’ copyright claims, the court held that Yuga is entitled to recover its costs as well, pursuant to 15 U.S.C. § 1117(a) and 17 U.S.C. § 505. Nevertheless, the court did not make any determination on the amount of the attorneys’ fees and costs that would be reasonable. The court ordered the parties to meet and confer to agree on the amount of reasonable attorneys’ fees and costs that should be awarded to Yuga.
Summary prepared by Melanie Howard and Brandon Zamudio