[Guest post] BAYC sues Ryder Ripps over unauthorized minting of NFTs

The IPKat is pleased to host the guest contribution below by Katfriend Paolo Maria Gangi (Studio Gangi) on a very recent development concerning NFTs and IP. Here's what Paolo Maria writes:

BAYC sues Ryder Ripps over unauthorized minting of NFTs

by Paolo Maria Gangi

Ryder Ripps

The Bored Apes Yacht Club (BAYC) is one of the world’s most prominent and well-known NFT projects by Yuga Labs. On 24 June 2022, BAYC sued Ryder Ripps, a conceptual artist and NFT creator for trade mark infringement, unfair competition, false advertising, cybersquatting and other cause of actions before the Central District of California. This is a U.S federal court which has jurisdiction in the case pursuant to Title 28 of the United States Code. Trade mark infringement cause of action is brought under common law while unfair competition cause of action is brought under both common law and California Business and Professions Code §§ 17200 et seq.

NFTs – still subject to “old” IP law

An NFT is a non-fungible (i.e. unique) and not divisible “token” (unlike cryptocurrencies like Bitcoin or Ether, which are instead fungible and divisible tokens) “minted” (i.e. created) on a permissionless blockchain (like Ethereum, Cardano o Solana) through a software called “smart contract” which is recorded on the blockchain itself.

While major projects (like BAYC) deploy their own tailor-made smart contract directly in the blockchain, most NFTs are created through the proprietary smart contract of platforms like OpenSea or Foundation. A digital file (an artwork, a song, etc.), which is not stored on the blockchain but usually on a P2P system like IPFS (“Interplanetary File System”) is linked to the NFT. These digital files are freely downloadable by everyone (there is no DRM protection in NFTs).

One the most important technical features of the blockchain is that every information which is recorded there becomes immutable so that the “link to the digital file” becomes immutable once recorded in the blockchain. This said, immutable does not necessarily mean “true” so that if the data recorded on a blockchain is wrong or intentionally misrepresented it will become part of that blockchain’s permanent record but will remain wrong or misrepresented (in computer science, this concept is known as GIGO, meaning “garbage-in, garbage-out”).

Consequently, the definition of NFTs as “certificate of authenticity” or “certificate of ownership” is not accurate. The only thing that an NFT can certify is that a specific non-fungible token, containing a specific digital file linked to it, has been created with a unique transaction (having its own timestamp) by an identified blockchain address (i.e. a wallet). There is no certification that the creator is really who they claim to be or that they legally own the copyright or any other IP right on the digital file linked to the NFT.

Recently, various courts have issued injunctions freezing NFTs on the basis of the recognition of their legal nature as “property”. The most relevant instance has been the injunction recently issued by HHJ Pelling QC in the case brought Lavinia Deborah Osbourne against OpenSea (DBA of “Ozone Networks”). However, the recognition of NFTs as having the legal nature of property does not change the fact that an NFT does not certify that the creator really owns the IP rights on the digital file linked to the NFT itself. In other words, the “old” IP rights (copyright, trade marks, etc.) remain fully applicable to NFTs.

BAYC’s IP protection strategy

The terms and conditions contained on the BAYC website state that Yuga Labs grants NFTs owners “a worldwide, royalty-free license to use, copy, and display the purchased Art, along with any extensions that you choose to create or use” for non-commercial purposes as well as a “worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art” for commercial purposes. Yuga Labs, therefore, still owns the copyright in each NFT.

Moreover, between May and July 2021, Yuga Labs filed trade mark applications before the United States Patent and Trademark Office (still pending at the time of writing) for several marks, including BORED APED YACHT CLUB and BAYC.

The background to the complaint

Ryden Ripps re-created an entire collection of 9,999 BAYC NFTs having the same exact digital file and the same name of the original one (he added “RR” to the collection name).

Ripps has clearly downloaded the digital files of the original BAYC collection, copied and re-used them to create his own RR BAYC collection. The original BAYC NFT and the corresponding NFT of Ripps's are stored at two different IPFS addresses (which necessarily implies that BAYC original files have been copied and re-displayed). The original BAYC #1422, for example, can be seen here and the corresponding RR BAYC #1422 here.

The Katchain

RR BAYC NFTs have been delisted on the various NFT platforms since Ripps has created his NFTs collection through the Foundation proprietary smart contract and not through his own smart contract.

Ripps’s collection has sold out in 15 days, producing a revenue of 1,023.03 Ether (USD 1+ million).

On his website, Ripps declares that “you can't copy an NFT” and that “through months of intensive research, myself and other community members have discovered extensive connections between BAYC and subversive internet nazi troll culture” and finally that “RR/BAYC uses satire and appropriation to protest and educate people regarding The Bored Ape Yacht Club and the framework of NFTs. The work is an extension of and in the spirit of other artists who have worked within the field of appropriation art”. In other words, what Ripps is substantially claiming is that, insofar as NFTs are concerned, what matters is only who has minted them regardless of who the digital file’s copyright holder is. As a consequence, in the case of BAYC, given their alleged connections with extremist movements, Ripps would be fully entitled to re-mint a new collection of BAYC NFTs.

Comment

The first point that stands out is that the plaintiff has decided not to act for copyright infringement, notwithstanding that BAYC still retains the copyright in the NFTs’ digital file and Ripps re-minting of BAYC’s NFTs has arguably infringed BAYC’s copyright.

Secondly, and coherently with trade mark and unfair competition cause of actions, the entire complaint is built around the idea of Ripps misleading consumers, damaging BAYC value and profiting from BAYC’s goodwill.

Thirdly, although Ripps's declaration that “you can’t copy an NFT” might be instrumental to his own purposes, it is true that the value of an NFT resides in the ownership of the token while the digital file is freely accessible to (and downloadable by) everyone. All this implies the idea that, in the world of NFTs, the IP rights in the digital file are of secondary importance if not outright meaningless. The connections with the Open-Source movement principles are self-evident (both are a Silicon Valley product too!).

Although it is always difficult to predict the outcome of a trial, Yuga Labs will likely succeed in court and, should this be the case, the defendants will be restrained from using BAYC’s marks, offering products similar to the BAYC ones. The entire RR BAYC collection will also likely need to be destroyed, with consequent damage to all those NFT collectors who bought one of the RR BAYC NFTs.