By Jodi DeSchane and Brian Auerbach
Non-Fungible Tokens (NFTs) remain a hot topic in the fast-paced world of crypto assets. But, as is common with many cutting-edge technologies, the rise of NFTs also coincides with new litigation as companies attempt to push the boundaries of a novel system, sometimes to their legal peril.
NFTs are unique digital assets recorded on the blockchain. Cryptocurrencies such as Bitcoin are the most well-known application of blockchain technology. However, unlike cryptocurrencies, NFTs are “non-fungible.” This means that each NFT is unique, and its value is independent of other NFTs. NFTs can be created to represent any asset, whether physical, digital, or metaphysical. Currently, the most common NFT assets are digital art, digital collectible items, pieces of content like video or audio, and event tickets. People buy and sell these assets through NFT marketplaces such as OpenSea, Rarible, TokenTrove, MarkersPlace, KnownOrigin, Cargo, and others.
Over the last several years, a significant market has developed for investors and collectors interested in buying, selling, and trading both physical and digital art. Because NFT artwork and assets are bought and sold through a digital certificate secured and authenticated by blockchain technology, it has become easy to prove ownership and transfer ownership to others. Anyone can make a token and sell their creations as an NFT, but interest has garnered through several high-profile, multi-million-dollar sales. For example, in December 2021, nearly 30,000 collectors pitched in to buy the pseudonymous digital artist’s Pak’s NFT, The Merge, for the whopping price of $91.8 million dollars. Nine months prior to that, the NFT Everydays: The First 5000 Days by Mike Winkelmann, also known as Beeple, sold for $69.3 million. Companies have also found new ways to take advantage of this technology. The NBA uses NFTs to create officially licensed digital cards and video collectibles, which users can purchase and trade online through its NBA Top Shot platform. Reportedly, the platform has generated over $1 billion in sales since its October 2020 rollout.
Ultimately, NFTs have value as a sophisticated and modern way of authenticating and transferring ownership. As technology progresses into the future, there is no doubt that the possibilities for NFT use will increase. But new technologies bring new litigation, and NFTs are no exception. There are a wealth of lawsuits involving NFTs, including several interesting cases for intellectual property owners and those creating NFTs to watch:
• In January of 2021, Hermès International and Hermès of Paris, Inc. (“Hermès”)—the maker of the well-known Birkin bag—filed a lawsuit in the U.S. District Court for the Southern District of New York asserting trademark infringement and dilution, misappropriation of its BIRKIN trademark, and false designation of origin, among other claims against the artist Mason Rothchild, who created and sold 100 NFTs dubbed “MetaBirkins,” each of which pointed to a digitally rendered picture of a Birkin bag covered with furry material.
Hermès contends that Rothchild’s use of “MetaBirkin” infringes the famous BIRKIN trademark by adding the generic prefix “meta” to denote that they are products in the metaverse and that several consumers have mistakenly believed that Hermès was affiliated with the MetaBirkin NFTs. Rothschild, on the other hand, argues the MetaBirkin title and artwork is protected by the First Amendment because it is commentary on the relationship between consumerism and the value of art. Rothschild has sold over $1 million in “MetaBirkin” NFTs. The case is set to be tried this year.
• In February of 2021, Nike filed a lawsuit in the U.S. District Court for the Southern District of New York against online reselling platform StockX, a company that resells sneakers, among other goods, asserting that StockX is using Nike’s trademarks without authorization to market and sell NFTs, and alleging trademark infringement and false advertising, among other claims. Nike recently amended its complaint to allege that StockX is also selling counterfeit Nike shoes.
Unlike the Hermès case, StockX’s NFTs, which contain an image of Nike sneakers, are allegedly receipts for physical shoes in the possession of StockX, rather than newly created digital art. The case is currently in its discovery phase.
• Yuga Labs Inc. created the Bored Ape Yacht Club (“BAYC”), which is a collection of 10,000 Bored Ape NFTs that also double as a membership card and grant owners access to members-only benefits. The average price of a BAYC NFT ranges from $76,000 - $429,000, with many reaching over $1 million.
In June of 2021, Yuga Labs Inc. sued two artists, Ryder Ripps and Jeremy Cahen, in the U.S. District Court for the Central District of California, alleging that the artists created a competing set of NFTs depicting identical images of apes that where the subject of the BAYC NFTs. The artists claimed to have created their opposing NFTs in protest and to raise awareness of alt-right and racist imagery alleged to pervade the original BAYC NFTs. The artist moved to dismiss the case on the grounds that their conduct was protected artistic expression under the First Amendment. Last month, the court denied the artists’ motion to dismiss the case explaining that creating an NFT that merely directed the buyer to the exact same artwork covered by the original NFT, without any subsequent embellishment by the artist, was not sufficiently expressive to be protected from liability under the First Amendment. The parties are continuing to litigate.
These cases, along with a panoply of other NFT-related lawsuits, will better define the legal landscape as to this new and exciting technology. Companies and artists are continuing to experiment with NFTs as a method for promoting both commerce and art. But as the foregoing cases illustrate, a company should always be wary of using the intellectual property of others, even in a new medium.
Jodi DeSchane has a primary focus at Ballard Spahr on trademark, copyright, advertising, social media, and internet-related matters, especially for clients in the banking, retail, restaurant, human resources, consumer products, professional sports, and franchising industries.
Brian Auerbach is an associate in Ballard Spahr's Intellectual Property Department who represents clients in a variety of litigation matters, including patent infringement, breaches of contract, trademark disputes, trade secret protection, and copyright infringement.