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Web3 Trademark Owners Score Big – Court Rules NFTs are Protected under the Lanham Act

Digital pictures of quirky apes smoking and wearing sunglasses, fur coats, and military helmets have joined the federal trademark ranks, according to a recent California decision.

Courts have been grappling with how current IP laws work with Web3 emerging technologies such as crypto collectibles, NFTs (non-fungible tokens), and digital artwork. Like whether these kind of digital assets even qualify as trademarks, along with their associated protections and remedies. A California federal court recently ruled that they do.

Crypto creator Yuga Labs and artists Ryder Ripps and Jeremy Chen battled a number of IP and First Amendment claims based on Yuga Labs’ famed Bored Ape Yacht Club (BAYC)-branded NFT collection. Yuga Labs’ allegations stemmed from the artists’ creation and sale of their knock-off “RR/BAYC” NFT collection that featured exact replicas of the original BAYC digital images. Among other causes of action, Yuga Labs sued for trademark infringement, claiming that the artists copied the BAYC marks and the associated NFT images and that customers were going to be confused as a result. Ripps and Chen argued, in part, that their NFT offerings were protected under the First Amendment and that Yuga Labs’ asserted marks were not protected by the Lanham Act (the federal trademark law) because NFTs are not tangible goods.

The Court disagreed that the artists’ dead-ringer NFTs were satirical free speech, dismissing the artist’s First Amendment defense. Rather than artistic expression, the Court compared the RR/BAYC NFTs to counterfeit handbags.  And in granting Yuga Labs’ Lanham Act claims and rejecting the artists’ position that NFTs should be treated as non-trademarkable and unregistered securities, the Court  concluded, “although NFTs are virtual goods, they are, in fact, goods for purposes of the Lanham Act.”

Though trademark damages have not been determined and appeals are nearly certain, there’s no question that the Yuga Labs decision puts a point on the board for trademark owners.  The nature of Web3 makes it prone to pirating and so far, copyright claims haven’t gotten much traction. Now IP owners looking to curb Web3 infringement may have better luck relying on the Lanham Act for infringement relief.

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