What happened: A California federal court found NFTs by Ryder Ripps and Jeremy Cahen infringed Yuga Labs’ successful Bored Ape Yacht Club (BAYC) NFT collection. Ripps and Cahen argued, in part, that Yuga Labs did not own any trademark rights in its BAYC NFTs, because NFTs are intangible and, therefore, unprotectable. However, the court agreed with other courts that tangibility is not a requirement for trademark infringement liability and NFTs are goods that may be protected. The court also rejected Ripps and Cahen’s contention that their NFT collection was “appropriation art” to hold Yuga Labs accountable for alleged racist, neo-Nazi, and alt-right elements in the BAYC NFTs. Although Ripps and Cahen’s NFTs were entered on a separate blockchain, the court determined they appropriated and misused images from the BAYC NFTs, likely causing confusion in the marketplace.

The decision for Yuga Labs validates intellectual property rights in the emerging NFT and blockchain space by enforcing trademark protection against counterfeits with strict consequences for infringers. The court ordered Ripps and Cahen to pay damages totaling over $1.5 million and transfer their NFT smart contract to Yuga Labs. In addition, the court found Ripps and Cahen to be exceptional defendants who obstructed progress during the proceedings. Accordingly, the court determined that Yuga Labs is entitled to recover attorneys’ fees and costs from Ripps and Cahen and requires the parties to agree on the recovery amount within a short timeframe, confirming the court’s willingness to set jurisdictional scope and standards of conduct in the emerging space.

Why we care: The court’s ruling for Yuga Labs provides additional guidance and clarification as to how existing IP laws protect creator rights in the NFT, blockchain, and Web3 landscapes, and confirms that willful infringers and ill-intentioned parties can expect severe consequences.

Case: 2:22-cv-04355, U.S. District Court for the Central District of California