In May 2023 we reported on the IP infringement decision of the Californian District Court, in relation to the dispute between the creators of the Bored Aped Yacht Club (BAYC) non-fungible token (NFT) collection, Yuga Labs, and the ‘artists’ Ryder Ripps and Jeremy Cahen. In that decision, the Court found against the defendants and, on 25 October 2023, the order for damages was handed down. This blog post looks at the recent damages decisions and its implications. (For a refresher on NFTs, you can consult our series here.)
As background, the defendants created an NFT collection called the Ryder Ripps BAYC (RR BAYC) collection, which essentially copied the iconic ape images from the Yuga Labs’ BAYC collection. The defendants’ alleged that this was for the purposes of commentary on Yuga Labs and the BAYC NFTs. The Court found against the defendants on the claims of false designation of origin and cyber-squatting (in relation to certain domain names used by the defendants). It also dismissed the defendants’ First Amendment / Rogers defence because no artistic expression was at issue, finding that “As Yuga has pointed out, and the Court agrees, Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag“.
The lengthy 28-page damages judgment contains a summary of the key findings of the Court in determining liability against the defendants, before proceeding to assess the equitable remedies available to Yuga Labs. In particular, there were four questions to be determined on damages:
- Whether Yuga Labs is entitled to a disgorgement of the defendants’ profits based on the false designation of origin claim, and, if so, what amount;
- The amount of statutory damages to be awarded to Yuga Labs for the cybersquatting claim;
- The scope of any permanent injunction; and
- Whether this is an ‘exceptional case’ warranting an award of attorneys’ fees to Yuga Labs.
On question (1), the Court emphasised that an accounting of profits is never automatic and never a matter of right, but it considered that the equitable factors warranted disgorgement here (there was no delay by Yuga Labs in bringing the action, it would act as a deterrent from future infringement, and the defendants intended to deceive consumers by creating the RR BAYC collection). Accordingly, the Court awarded Yuga Labs the profits attributable to the infringing conduct.
Yuga Labs contended that this amount was US$1,589,455, which included $1.4 million in profits from the initial sales of the NFTs, $100k from resale profits, and $100k for unsold NFTs. However, the Court excluded the unsold NFTs, because these would be captured by a permanent injunction requiring transfer of the RR BAYC smart contract to Yuga Labs (more on this below), and deducted money spent by the defendants on creating the collection (including paying a programmer to create it). Applying these deductions, the total awarded to Yuga Labs under question (1) was almost US$1.4 million.
In relation to question (2), the damages for cybersquatting, they are limited by statute to between US$1,000-100,000 per domain name, ‘as the court considers just’. The Court considered that the maximum penalty of $100k each (for the two impugned domain names) was fair, just and appropriate here because of the wilful and egregious nature of the cybersquatting – the defendants registered these domain names solely for commercial gain and in bad faith to divert consumers away from the legitimate BAYC collection.
On the third question of injunctive relief, the Court ordered that the defendants should be permanently enjoined from marketing, promoting, or selling products or services, including the RR BAYC NFTs, that use the BAYC marks. The defendants were also ordered to transfer control of the domain names, social media accounts, and the RR BAYC smart contract to Yuga Labs. Interestingly, in the damages decision of the New York District Court in the MetaBirkins NFT litigation (reported by us here), that Court refused to order transfer of the NFT smart contract because of the modicum of artistic expression in the infringing works in question there. Given the RR BAYC collection here simply copied the existing BAYC artwork, the Court had no hesitancy in ordering transfer of the smart contract.
Finally, in relation to question (4), the Court considered the totality of the circumstances and concluded that this is an ‘exceptional case’ entitling Yuga Labs to its reasonable attorney’ fees. The Court found it salient that the entirety of the defendants’ conduct was in bad faith, continued even after the action was filed by Yuga Labs and the liability decision was handed down, and the defendants managed the litigation in a vexation and frivolous manner, and were found to be obstructive and evasive throughout.
In total, therefore, the Court awarded Yuga Labs around US$1.6 million in damages, plus their reasonably attorneys’ fees – essentially the maximum amount that it could. This decision is a strong deterrent to others who might consider a ‘cash grab’ in the NFT space by impermissibly stepping on the IP rights of others. In particular, this litigation has validated the unregistered trade marks of Yuga Labs and will be important to protect their IP rights going forward. Although the defendants were given a public forum to promote their conspiracy theories about Yuga Labs and the BAYC collection (which can be read in the decision), ultimately they have left the company (and NFTs generally) in a stronger position.
For further discussion of intellectual property issues surrounding NFTs and the various cases there have already been around the world on these issues, see our series The IP in NFTs.
For further information, please contact:
George McCubbin, Herbert Smith Freehills
george.mccubbin@hsf.com
