[Guest post] BAYC sues Ryder Ripps over unauthorized minting of NFTs – Part 2

The IPKat is pleased to host the following guest post by Katfriend Paolo Maria Gangi (Studio Gangi) as a “sequel” to his earlier IPKat post discussing the lawsuit brought by BAYC against Ryder Ripps.

Here’s what Paolo writes:

BAYC sues Ryder Ripps over unauthorized minting of NFTs – Part 2

by Paolo Maria Gangi

A few months ago, I discussed the lawsuit that BAYC (Bored Apes Yacht Club), one of the world’s most prominent and well-known NFT projects realized by Yuga Lab, brought against Ryder Ripps, a conceptual artist and NFT creator. The claim is for trade mark infringement, unfair competition, false advertising, cybersquatting, and other cause of actions before the Central District of California. In this post, the most interesting parts of Ryder Ripps’ answer, defence and counterclaim, filed on December 27, 2022 will be analyzed. As readers will appreciate, they contain valuable insights into NFTs.

A thorough technical analysis highlights the NFTs “double link” element

First of all, Ripps’ counterclaim contains a very thorough technical analysis of what a NFT is (pag. 32-35). In particular, it stands out a concept which is frequently neglected when NFTs are explained: the link to the image, i.e., the artwork, is not contained in the smart contract (the piece of software written in Solidity programming language which generates an NFT) but in a JSON file (“JavaScript Object Notation”) which contains the NFT’s metadata. More precisely, in the smart contact there is a function called tokenURI which contains a link to a JSON file that is usually stored in a decentralized P2P cloud, like IPFS or Arweave, and contains a link to the image that is also usually stored on IPFS or Arweave.

In the counterclaim, BAYC 364 is used as an example. Its metadata is contained at the following URL:

https://ipfs.io/ipfs/QmeSjSinHpPnmXmspMjwiXyN6zS4E9zccariGR3jxcaWtq/364 (a JSON file on IPFS).

This JSON file contains the link to the image:

"image":"ipfs://QmZrnxnqYwB6nW4PH3DZrQo4tXbaPRc6ZJkyoxTP4VHi32", and it is a PNG file on IPFS (accessible here).

What is really interesting is that the smart contract does not contain a link to the image but rather a link to a JSON file. Stored on a centralized cloud like IPFS, this contains another link to the image appearing in OpenSea as the image of the NFT. Therefore, there are two links: the first from the smart contract to the JSON file and the second from the JSON file to the image URI.

From this point of view, the idea that an NFT is a certificate of authenticity is less obvious as the “certificate” (i.e., the NFT) should authenticate a JSON file which – in turn – should authenticate an image stored on IPFS.

No copyright for BAYC images (as created through AI)

Secondly, Ripps argues that there cannot be copyright protection in the BAYC images since “they were not created by a human” but rather were “generated by an automated computer algorithm where no humans were involved in determining which of the 10,000 BAYC Images were selected from the more than 1.3 billion possible permutations”.

Over the past several months, there has been an lively debate regarding the possibility of granting copyright protection to images created with AI systems (see this IPKat post here), particularly after that various products (like for example Midjourney) have been released on the market letting people easily create images through AI software.

As Eleonora Rosati wrote in a post from last February, the US Copyright Office has so far denied copyright protection to a work entirely created by a machine on the basis that “copyright law only protects “the fruits of intellectual labor” that “are founded in the creative powers of the [human] mind” and consequently refusing to register the two-dimensional artwork 'A Recent Entrance to Paradise' below (the ‘Work’)”.

Eleonora also pointed to a very interesting paragraph from the Compendium of Practices of the US Copyright Office: “[T]he Office will not register works produced by a machine or mere mechanical process that operates randomly or automatically without any creative input or intervention from a human author. The crucial question is “whether the ‘work’ is basically one of human authorship, with the computer [or other device] merely being an assisting instrument, or whether the traditional elements of authorship in the work (literary, artistic, or musical expression or elements of selection, arrangement, etc.) were actually conceived and executed not by man but by a machine”.

There are differences between the Ryder Ripps case and the one considered by Eleonora in her post.

In the case decided by the US Copyright Office the issue was protectability of a new (art)work created through the use of an AI software. The BAYC collection has been instead created through a limited number of secondary traits (contained in the above-mentioned metadata JSON file) which are randomly mixed by the smart contract when the NFT is minted. All this means that, if the Court accepts Ripps argument that BAYC images cannot be protected by copyright since they have been “conceived and executed not by man but by a machine”, it might be reasonable to assume that every NFT project on the market will be impacted (negatively, for the NFTs project owners) by this point of law contained in the counterclaim.

BAYC NFT holders retain all intellectual property rights in their NFTs

Finally, the Ripps’ counterclaim argues that (“to the extent copyright may exist in any BAYC image”) “Yuga owns no such copyright except in BAYC Images associated with BAYC NFTs that Yuga owns” because on the basis of BAYC Terms & Conditions and public statement “BAYC NFT holders retain all intellectual property rights in their NFTs”.

This statement seems questionable to the author of this article since Yuga Labs (see the T&C) grants to NFT owners, “subject to your continued compliance with these Terms”, a personal non-commercial “worldwide, royalty-free license to use, copy, and display the purchased Art, along with any extensions that you choose to create or use, solely for the following purposes”. Yuga Labs, again “subject to your continued compliance with these Terms”, grants the NFT owners a “an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art”. The wording of the BAYC T&C seems to imply that Yuga Labs retains the copyright (if any… see above) on the BAYC images while it grants to the NFT owners only a licence for personal as well as for commercial use, subject to specific terms in any case.

In sum, we will be now waiting to see how the court will decide. Given the semi-iconic status of the BAYC collections, the eventual decision will most likely set an important pattern for future cases (at least in the US).