NFTs

Courts Offer More Guidance On Enforcing Rights To Brands And Images Used With NFTs – Trademark

Non-fungible tokens (NFTs) serve as agile mechanisms to verify
an underlying asset’s authenticity and/or ownership linked with
it.

For now, minting NFTs to commercialize digital artwork on
blockchain domain names continues to be one of the most common
schemes for their use.

Background

The ongoing dispute between French luxury brand Hermès
International and artist Mason Rothschild continues, and trial is
set to begin on Jan. 30, 2023. Defendant Rothschild produced and
sold MetaBirkin NFTs, which are digital versions of
Hermès’ furry Birkin bags. Plaintiff Hermès
argued that the MetaBirkin NFTs infringed its
BIRKIN trademark. Rothschild countered that the
NFTs were artwork and therefore protected by the test set forth in
Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), which
held that use of a name or mark for artistic purposes does not
necessarily constitute infringement. Specifically, the
Rogers test provides that claims of infringement will not
apply to titles of creative works unless “the title has no
artistic relevance to the underlying work whatsoever, or, if it has
some artistic relevance, unless the title explicitly misleads as to
the source or the content of the work.” Id. at 999.
In 2022, prior to setting a trial date, the U.S. District Court for
the Southern District of New York denied Rothschild’s motion to
dismiss the case but held that the Rogers test applied,
setting the stage for the upcoming trial.

The U.S. District Court for the Central District of California
recently ruled in another case (Yuga Labs, Inc. v. Ripps,
No. CV 22-4355-JFW(JEMX), 2022 WL 18024480, at *1 (C.D. Cal. Dec.
16, 2022)) that the Rogers test does not apply to digital
artwork NFTs.

Plaintiff Yuga Labs Inc. (Yuga), the creator and marketer of the
well-known “Bored Ape Yacht Club” collection of NFTS
(Yuga Bored Ape images), filed a complaint against conceptual
artist Ryder Ripps (Ripps) due to his use of Yuga’s
BORED APE YACHT CLUB trademark and other marks,
including logos and acronyms (BAYC marks) in connection with
Ripps’ own Ryder Ripps Bored Ape Yacht Club (RR/BAYC) NFT
collection. Ripps claims that the Yuga Bored Ape images were
created as part of an alt-right conspiracy. Yuga denies this.

In contrast to Hermes v. Rothschild, the California
District Court held that the Rogers test exemption was not
applicable due to the fact that the RR/BAYC’s images do not
constitute an expressive artistic work as they are exact copies of
Yuga’s Bored Ape images. The court said the contents of
Ripps’ website “are all commercial activities designed to
sell infringing products, not expressive artistic speech protected
by the First Amendment.” 2022 WL 18024480, at *5. On Dec. 27,
2022, Ripps filed a series of counterclaims (the Ripps
Counterclaim), which includes two eye-opening legal questions
related to the plaintiff’s copyrights in and to its digital
artwork.

Artificial Intelligence and Digital Artwork

Ripps claims that a controversy exists as to whether Yuga Bored
Ape images are entitled to copyright protection due to the Yuga
Bored Ape images having been generated by an automated computer
algorithm. Ripps alleges that no humans were involved in
determining which of the 10,000 Yuga Bored Ape Images were selected
from more than 1.3 billion possible permutations, “except
perhaps with respect to a few custom BAYC Images that Yuga may have
produced with human involvement.” Case No.
2:22-cv-04355-JFW-JEM, Dkt. No. 65, ¶ 79 (C.D. Cal. Dec. 27,
2022).

As explained in Holland & Knight’s recent blog post,
Image-Generating AI:
Trends and Legal Challenges
,” the U.S. Copyright Office
deems as copyrightable material works that are partially and not
wholly created by artificial intelligence (AI). This criteria
harmonizes with the recent court decision refusing patent
applications listing AI as the inventor in Thaler v. Vidal, 43
F.4th 1207, 1209 (Fed. Cir. 2022)
. Hence, the scope of
protection for the Yuga Bored Ape images will be an important
precedent in the virtual landscape as to how the court interprets
the nature of images partially or completely created by AI.

Copyright Ownership and NFT Holders

The Ripps Counterclaim further addresses the question as to
whether plaintiff Yuga retains copyrights in the Yuga Bored Ape
images that it sold and no longer owns.

According to defendant Ripps, Yuga’s terms and conditions
and its public statements support the notion that purchasers of the
Yuga Bored Ape images retain all intellectual property (IP) rights
in their NFTs.

These aforementioned legal questions could set important
precedents as to the rights that copyright claimants hold in
regards to NFTs.

On the other hand, the complaint initially filed by plaintiff
Yuga Labs did not include copyright claims. However, 1) Yuga Labs
did file Digital Millennium Copyright Act (DMCA) takedown notices
on copyright infringement grounds against Ripps and 2) Yuga Labs
does own a few U.S. copyright registrations for the Yuga Bored Ape
images.

Issues for Brands and Images Used on NFTs Yet To Be
Resolved

The courts addressing the disputes in Hermes v.
Rothschild
, Yuga Labs v. Ripps and similar cases will
help set some parameters and guideposts, but other issues are yet
to be resolved. These include the applicability use of disclaimers
to differentiate one set of images from other NFT collections, the
first-sale doctrine and fair use principles.

Takeaways

Among other factors – such as the interoperability of
blockchain ledgers and platforms – once the IP legal
questions related to NFTs are more clear, enterprises and
industries will have more direction as to use of NFTs and commerce
on virtual landscapes.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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