NFT Litigation Scorecard

Where Key NFT Litigation Stands as of 9/19/22 (& Why You Should Care)

CONTEXT

First, let’s be clear. Despite today’s state of the market, NFTs with continuing and lasting utility, value, experiences and real community are here to stay. The NFT market opportunity is massive for innovative players in the overall ecosystem - and, in particular, for creators and their fans/audiences. Would Starbucks (yes, Starbucks) be introducing a new NFT loyalty rewards program if it were otherwise?

And it’s critical to follow major litigation in the world of NFTs, because the results of these first cases will have outsized effects on establishing NFT-related “rules of the game” that will impact your strategies, development and execution. With that in mind, here’s an update on critical “must watch” NFT-related litigation as of today, September 19th, 2022 (and here’s the link to my recent webinar that lays out the key legal and business issues in the web3-driven NFT world - including strategies to take).

I. KEY ONGOING/ACTIVE LITIGATION:

(1) Friel v. Dapper Labs:

Context.

This is one of the most closely followed cases in the world of NFTs. Buyers of NBA Top Shot “Moments” (NFTs linked to video clips of NBA highlights) sued the maker of those NFTs (Dapper Labs), claiming that Dapper was selling unregistered securities. Given the breadth of issues involved, the potential impact of this case is far-reaching and could impact a broad swath of NFTs - taking a broad interpretation of the SEC’s relevant “Howey Test.”

Current Status.

Dapper Labs filed a motion to dismiss the litigation on August 31th, 2022, claiming that basketball cards are not securities.

My Thoughts.

Buyers of these NFTs had no issues with “Moments” when NFT prices were going one direction only - i.e., upward. But now that reality has set in, speculators (most of whom are unsophisticated and young - and many indifferent to (or unaware of) the old adage “buyer beware”) feel cheated in what they had essentially viewed as a “sure thing.”

(2) Hermes v. Mason Rothschild:

Context.

This is a critical case for all brands to follow and understand. High end fashion brand Hermes sued artist Mason Rothschild for infringement based on the artist’s creation of “MetaBirkins” - i.e., digital versions of their famed Birkin handbags for the metaverse. Rothschild asserts a First Amendment-related “artistic relevance” exception to infringement that comes from the case Rogers v. Grimaldi. In that case, the U.S. Second Circuit Court of Appeals ruled that when allegedly infringing trademarks are used in an artistic context, courts need to balance the “public interest in avoiding consumer confusion” against the “public interest in free expression”

Current Status.

Litigation continues with procedural issues most recently.

My Thoughts.

This case brings back memories of Andy Warhol’s famous Campbell’s soup can artwork, where there was no litigation (in fact, apparently Campbell Soup was thrilled at the time for the free publicity! Read this fascinating article here about it). While the courts have previously found that artists have a right to essentially “comment” on major brand icongraphy, there are limits. The court here no doubt will define some here - and, in fact, has allowed the case to continue to explore whether consumers were likely to believe that Hermes had expressly endorsed or supported Rothschild’s artwork (even though it had dismissed some of Hermes’ other infringement-related claims). With regard to the dismissal of some claims, the court ruled that its decision may be different if Rothschild’s MetaBirkens had some kind of utilitarian value - for example, if avatars in the metaverse could actually carry or otherwise use those virtual bags.

And here’s one more fascinating thing. The U.S. Supreme, in its next term, will review another Second Circuit court case that addresses related “fair use” issues in the world of art (and with potentially far-reaching impact into the world of NFTs). Coincidentally, this case also involves Andy Warhol - and whether his well-known “Prince Series” based on a photograph of iconic musician Prince infringed the copyrighted photograph (or instead was a “transformative” fair use that shielded it from claims of infringement). My “tea leaves” tell me that the Supreme Court will vote to reverse the Second Circuit’s ruling - in other words, broaden the scope of “fair use” in the world of art.

(3) Yuga Labs v. Ryder Ripp:

Context.

This is a fascinating infringement case filed by the creator of Bored Apes against a self-proclaimed “satirist” who created and sold virtual exact digital replicas of the same Bored Apes (but under a stylized designation that purportedly made it clear to buyers that they were not the real deal). Ripp’s defense is “fair use” (satire and protest) - in his words ”to call out a multi-billion dollar company built on racist and neo-Nazi dog whistles” via alt-right imagery. He also counter-sued, claiming that Yuga Labs was trying to shut down his free speech.

Current Status.

Litigation continues with procedural issues most recently.

My Thoughts.

Ripp’s Bored Apes are virtual exact replicas. Given this reality, it is difficult to believe that the court will not find some form of infringement (and not allow a satire defense swallow up the entire doctrine of infringement).

(4) Nike v. StockX:

Context.

This cases focuses on trademark-related claims of likelihood of confusion butting up against the so-called “first sale doctrine.” In this case, StockX operates an online resale platform that, among other things, sells NFT pictures of actual Nike shoes. Nike claims infringement, but StockX raised a first sale doctrine defense claiming that each NFT image is linked to that actual pair of Nike shoes. In essence, StockX claims that its NFTs are being used merely to authenticate those actual physical Nike shoes.

Current Status.

Litigation continues with procedural issues most recently.

My Thoughts.

Resolution of the novel questions here are difficult to predict. But if the court finds that StockX intentionally sought to “sell” its customers on the belief that Nike was involved in creating these NFTs, then it is likely to find infringement of some kind.

II. RECENTLY SETTLED KEY LITIGATION

(1) Miramax v. Tarantino:

Context.

The studio sued famed auteur Quentin Tarantino for selling NFTs based on his actual script pages for the iconic film “Pulp Fiction,” contending that Tarantino had granted the studio all NFT rights. Tarantino had announced plans to sell NFTs of digital scans of original handwritten pages of his screenplay. He had granted most rights to the studio, but reserved the right of “screenplay publication” Miramax claimed copyright and trademark infringement – i.e., that his NFTs did not fall within Tarantino’s reserved right because they had acquired all rights not expressly specified but “in all media now or hereafter known.”

Settlement Date.

September 2022.

My Thoughts.

Terms of the settlement are confidential. The studio wanted to make sure that no precedent was set that could be used to hurt it in future related cases where artists claim to have reserved NFT-related rights. Accordingly, the case gives no formal guidance - but, underscores the need for both sides of any IP deal to contemplate all future possibilities (and draft their contracts as broadly as possible in their favor as a result).

(2) Jay-Z’s Roc-A-Fella Records v. Damon Dash:

Context.

This is another important NFT IP-related litigation. Damon Dash co-founded Jay-Z’s record label Roc-A-Fella Records and sold an NFT that promised to give the buyer Dash’s purported share of ownership in Jay-Z’s first album (together with all future earnings related to that share). Roc-A-Fella Records sued, claiming that Dash, as co-label owner, owned no rights in the album itself.

Settlement Date.

June 2022.

My Thoughts.

This was an unusual case where much of the settlement’s rationale was made public. Dash agreed that his joint ownership in the music label itself did not mean that he had any claims to ownership of any intellectual property in Jay-Z’s specific album itself.

Check out my media-tech focused legal services and business advisory firm Creative Media. And reach out to me at peter@creativemedia.biz to discuss your own NFT legal and business issues - and to schedule a private consultation. We offer flat fee legal arrangements to give you the most cost effective high quality legal services and solutions.

Feel free to also reach out to give updates on other notable NFT-related litigations - and to offer your own feedback and perspectives.