A California judge ruled in favor of Yuga Labs, granting a partial summary judgment against RR/BAYC for copyright infringement.
In a recent legal victory for Yuga Labs, the creators of the popular Bored Ape Yacht Club (BAYC) NFT collection, a California judge granted a partial summary judgment against Ryder Ripps and Jeremy Cahen, the masterminds behind the RR/BAYC NFT collection. The court determined that the use of BAYC trademarks in RR/BAYC infringed upon Yuga Labs’ copyright and was designed to create confusion among consumers, not qualifying as fair use or artistic expression.
Summary judgement in favor of yuga labs in RR/BAYC case just set legal precedent that nfts are goods (like baseball cards) and NOT securities 🤯 pic.twitter.com/PyxVdYGcIH
— NFT POWER RANKINGS (@nftpowerranking) April 22, 2023
Ripps and Cahen crafted their RR/BAYC collection as a satirical and critical response to Yuga Labs, asserting that the BAYC NFTs included racist undertones, 4chan memes, and concealed Nazi imagery. While these allegations found support among certain online groups, BAYC’s founders have consistently refuted such claims.
In June 2022, Yuga Labs initiated a lawsuit against Ripps and Cahen, accusing them of intentionally generating consumer confusion under the pretext of satire and making millions in undeserved profits. The plaintiffs also claimed that the defendants reveled in the damage their allegations inflicted on BAYC.
Court Finds RR/BAYC’s Use of BAYC Trademarks Not Fair Use
The U.S. District Court for the Northern District of California ruled that Yuga Labs held ownership of the BAYC trademarks, which are valid and legally enforceable. The court found that the defendants utilized these trademarks to market and sell RR/BAYC NFTs without Yuga Labs’ permission, in a manner that could mislead consumers interested in purchasing authentic BAYC NFTs or monitoring their value through token tracking tools.
The court also concluded that the defendants’ exploitation of the BAYC trademarks did not constitute fair use or artistic expression as per the Rogers Test. The judge explained that Yuga’s BAYC trademarks held significant market power, and the RR/BAYC project aimed to deceive consumers.
In addition, the court discovered that the domain names registered and operated by the defendants — rrbayc.com and apemarket.com — could potentially cause confusion. The judge surmised that the defendants’ actions were motivated by malicious intent for profit and classified their behavior as cybersquatting.
Although Yuga Labs requested $200,000 in statutory damages for cybersquatting, the court dismissed this claim and declared that the assessment of damages would occur during a forthcoming trial.
Judge Confirms NFTs are Protected Under the Lanham Act
Ripps and Cahen contended that NFTs, as intangible assets, were not safeguarded under the Lanham Act, which regulates trademarks, service marks, and unfair competition, offering protection against infringement and false advertising. The judge countered this argument, stating that NFTs, as virtual commodities, still qualified as goods under the Lanham Act due to their distinctive, traceable, and brand-related attributes.
In a separate legal matter, Yuga Labs reached a settlement with Thomas Lehman, the developer of the RR/BAYC websites and smart contracts, in February. Lehman expressed that he never intended to harm Yuga Labs’ brand and renounced all defamatory statements directed at Yuga Labs and its founders. He also recognized their many positive contributions to the NFT industry.
“Blue Chip” NFTs Lose Value as Trading Metrics Fall
Coinciding with these legal developments, the NFT market has faced a downturn, with “blue chip” NFT collections such as CryptoPunks and Bored Ape Yacht Club (BAYC) falling below the $100,000 value threshold for the first time in months. According to Dune Analytics, daily trades across all NFT marketplaces have experienced a staggering 71% decline since mid-April.
there's been an incredible drop off in unique NFT buyers/sellers in the last week
less than 10k wallets now on all platforms
— Giancarlo (@GiancarloChaux) April 20, 2023
The specific reasons for this drop in NFT market activity remain uncertain. Although Ethereum’s post-Shanghai price increase has slowed, the primary cryptocurrency for NFT transactions remains relatively robust, with its current value hovering around $1,845, as per CoinGecko.
One possible explanation for the recent NFT marketplace surge is the rapid rise of Blur, a new NFT trading platform that overtook OpenSea as the top NFT marketplace in late February. Blur’s success comes from itsa rewards system that enticed traders to abandon other marketplaces and engage in frequent NFT trading, even between themselves.
Despite a surge in February and March, reaching a total trading volume of approximately $2 billion each month, Blur’s growth received criticism by industry experts as manipulated “wash trading.” Over the past week, Blur has continued to dominate the market, accounting for more than 60% of all NFT trading volume. However, Blur’s strategy of attracting customers from other platforms and encouraging meaningless trades for financial rewards may be dampening genuine NFT marketplace activity.
— sealaunch.xyz (@SeaLaunch_) April 20, 2023
NFT Demand Factors
Some analysts attribute the recent slump in NFT trading to rising gas fees, potentially caused by the popularity of meme coins over the years. In a Twitter thread, analytics firm SeaLaunch pointed to various macro factors that may have contributed to the downturn, including high gas fees and liquidity issues surrounding the U.S. tax deadline.
Others view these dismal figures as an indication that the long-anticipated “bottom” of the crypto and NFT bear market has finally arrived. However, the past year has demonstrated that there may be even lower points to reach before a potential rebound.