Boodle Hatfield's NFT Litigation Roundup: Q1 - Boodle Hatfield

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31 Mar 2023

Boodle Hatfield’s NFT Litigation Roundup: Q1

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Simon Fitzpatrick View profile
Sophie Mellor View profile
8 min read

Welcome to our NFT litigation roundup. Non-Fungible Tokens (NFTs) are the topic of much debate and interest and the questions, legal issues and disputes around them continue to soar.

When faced with such a high growth phenomenon, the law can take time to catch up. Boodle Hatfield is closely monitoring the developments and will bring you a roundup of the key NFT disputes to be aware of.

Interested in hearing more? You can sign up to future roundups and other content from Boodle Hatfield by follow our subscription link here.

Hermès v Mason Rothschild

The background details of this case are covered in our February, April, May, August / September and October / November roundups. Rothschild has designed 100 NFTs resembling the Hermès Birkin handbag. Rothschild started selling NFTs of the MetaBirkins in December 2021. Hermès claims that Rothschild “rips off Hermès’ famous Birkin trademark by adding the generic prefix ‘meta’ " and saying "There can be no doubt that this success arises from his confusing and dilutive use of Hermès’ famous trademarks.” Rothschild claims his activities are protected by the First Amendment (guaranteeing freedom of speech), with the MetaBirkins being simply a “playful abstraction of an existing fashion-culture landmark.”

UPDATE:

  • On 30 December, the Court denied both parties' motions of summary judgment and the trial commenced on 30 January.
  • Judge Rakoff held that one of Rothschild's witnesses (Dr Blake Goknip, an Andy Warhol expert) should not be allowed to appear as a witness at trial. Goknip was due to testify that MetaBirkins are akin to Warhol's Campbell's soup cans. Hermès argued, however, that his opinion was not based on any reliable data, and so he should be precluded from testifying. The president and CEO of Hermès Americas also testified.
  • Group General Counsel for Hermès (Nicolas Martin), Hermès' expert witness (Kevin Mentzer) and Mason Rothschild all testified the following day. Nicolas Martin highlighted the Birkin bag as one of Hermès' most valuable trademarks. On cross examination, other authorised uses of Hermès' trademarks were looked at.
  • When testifying, Rothschild made clear his intention to take credit for the project himself, denying any wish to mislead consumers as to the source of the MetaBirkins.
  • On 8 February the jury found that Rothschild was liable for trademark infringement and dilution, cybersquatting and that he is not shielded by First Amendment protections. Hermès was awarded around $133k in damages. Judgment was entered against Rothschild on 14 February.
  • On 3 March Hermès filed a motion for an injunction to block Rothschild's promotion and sales of NFTs, and on 14 March Rothschild filed a motion for judgment as a matter of law or new trial, and an opposition to Hermès' motion for an injunction. Within his motion for judgment as a matter of law or new trials, Rothschild argues that the Court got the jury instructions wrong.

Freeholdings Inc v Kevin McCoy, Sotheby's Inc, Nameless Corporation and Alex Amsel

The background details of this case are covered in our February roundup.

Canadian-based company, Free Holdings, claimed rights to Kevin McCoy's Quantum (2014), which is regarded by some as the first NFT. In June 2021 Quantum was sold by Sotheby's for almost $1.5 million. A dispute over ownership rights soon followed. Quantum was originally 'minted' (i.e. turned into a digital asset to make it purchasable) on blockchain software called 'NameCoin'. NameCoins are required to be reclaimed by their owners every 250 days. After creating his NFT in 2014, McCoy did not renew Quantum, supposedly leaving it free to be claimed by others. In April 2021, Free Holdings created a new NFT, duplicating Quantum's original metadata. Free Holdings then stated it was the owner of the “first-ever NFT”.

In Sotheby's' auction in June 2021, an individual called Alex Amsel purchased the NFT for almost $1.5m. Free Holdings contacted Sothebys, stating that the catalogue description of Quantum was “inaccurate and misleading because the Namecoin record had not been ‘burned’, but was still active and controlled by Free Holdings”.

UPDATE

  • The US District Court for the Southern District of New York has found that Free Holdings failed to establish its claims
  • The Judge stated “Free Holdings has demonstrated nothing more than an attempt to exploit open questions of ownership in the still-developing NFT field to lay claim to the profits of a legitimate artist.”

Jeeun Friel v Dapper Labs

The background details of this case are covered in our October & November roundup. In 2019, Dapper Labs (a blockchain company) developed a blockchain called "Flow" and partnered with the National Basketball Association to launch an NFT collection of "NBA Top Show Moments" on the Flow blockchain. Buyers of the NFTs issued a claim against Dapper Labs, alleging that the NFTs were actually unregistered securities. Friel (who seeks to represent all those who purchased or acquired the NFTs) states that the purchasers / investors are denied protections required by the Securities Act. Dapper Labs filed a motion to dismiss the claim, arguing that the NFTs are not securities but "objects of play and not for investment or speculative purposes", i.e. that there is no "reasonable" expectation of profit.

UPDATE:

  • The Court rejected Dapper's arguments, and denied the motion to dismiss, finding that "[the] Plaintiffs’ allegations render each consideration under Howey facially plausible and survive [Dapper]'s Motion to Dismiss”. As such, the case continues.

Nike v StockX

The background details of this case are covered by our February, April and May roundups. In January last year StockX launched "Vault NFTs". These Vault NFTs can be traded digitally or redeemed for the corresponding physical trainer. However, the NFT can sell for more than the physical trainers. The NFTs include the name and image of Nike trainers, and Nike claims that this is trademark infringement (among other things). The question is whether the NFTs are a product in their own right, or if they are simply an extension of the normal sale process (like a digital receipt would be).

UPDATE:

  • The Court held a conference on 14 December to narrow the ongoing disputes raised by the parties.
  • The parties are now in the "discovery" phase of the case, a period in which both parties exchange details of evidence and witnesses in preparation for trial. The next case conference is listed for 7 April.

Adonis Real and Adam Titcher et al v Yuga Labs et al

  • Yuga Labs (creators of BAYC) are being sued (via a class action lawsuit) for allegedly using celebrities to misleadingly promote NFT collections.
  • The claimants believe that the celebrity endorsements artificially boosted prices, and that the celebrities never disclosed financial compensation. The claimants are seeking damages of over $5 million. The named defendants include A-list celebrities such as Justin Bieber, Paris Hilton and Madonna.
  • The claim alleges that a talent manager worked with Yuga Labs' team to have celebrities promote their products in exchange for compensation delivered through Moonpay, which has been described as a "PayPal for crypto". This compensation was not disclosed and so potentially violates the requirement that endorsers disclose their material connections with their sponsoring advertisers in clear and obvious language.
  • The claimants' lawyers wrote that Yuga Labs violated the Exchange Act “by making false and misleading statements concerning Yuga’s growth prospects, financial ownership, and financial benefits for Yuga securities investors".
  • Yuga Labs believes that the claims are "opportunistic", "without merit" and they "look forward to proving as much".

Yuga Labs, Inc v Ryder Ripps, et al

The background details of this case are covered by our June and October / November roundups. The Bored Ape creators (Yuga Labs) have sued the artist Ryder Ripps, who has been minting "replica" Bored Ape NFTs "as a protest against and parody of Bored Ape Yacht Club" ("RR/BAYC"). Ripps is said to have made more than $5m from the project, and Yuga allege he has infringed its BAYC trademarks and de-valued the Bored Ape brand.

UPDATE:

  • In August, Ripps filed a motion to strike out / dismiss Yuga Labs' claim. On 16 December, the Court rejected Ripps' application and ordered that the case continue.
  • Ripps' team had claimed that the project was protected speech made in connection with a public issue, and so protected by the "First Amendment".
  • The Court did not agree that RR/BAYC NFTs were part of an expressive work protected by the First Amendment; while they “argue that the larger RR/BAYC ‘project’ is an expressive artistic work … [their] sale of what is admittedly a ‘collection of NFTs that point to the same online digital images as the BAYC collection’ is the only conduct at issue in this action and does not constitute an expressive artistic work protected by the First Amendment.”
  • The court considered the main issue to be the NFT sale. This will now likely be up to a jury to determine.
  • On 21 December, Ripps filed a notice of appeal, and on 27 December, Ripps filed counterclaims against Yuga Labs. The counterclaim accuses Yuga Labs of “knowingly and materially misrepresent[ing]” its rights in the NFTs, and engaging in an “outrageous retaliatory campaign” against them.
  • In January, Yuga Labs filed a motion for strike out and dismissal. Last week, the Court agreed to grant, in part, Yuga Labs' order. The Court agreed that (among other things) the defendants' emotional distress claims should be dismissed.
  • Summary judgment motions are scheduled for argument on 17 April.
  • On 20 January, Yuga Labs filed further claims, one against the developer Ryan Hickman (in Nevada) and one against the developer Thomas Lehman (in New York), for their involvement in the RR/BAYC NFT Project.
  • Yuga claim that Hickman and Lehman assisted in developing the website and smart contract to sell the RR/BAYC NFTs, despite knowing that it was likely to confuse consumers and that no trademark rights in the BAYC NFTs had been acquired. Lehman has since settled with Yuga Labs.

Angela Anne Flores v 3LAU

The background details of this case are covered by our October / November roundup. 3LAU is a DJ / producer who held an NFT auction linked to his album 'Ultraviolet'. Luna Aura (real name Angela Anne Flores) co-wrote one of the tracks on the album, called 'Walk Away'. Under the agreement in place, 3LAU agreed to give Flores a writer and featured artist credit, 50% of the net royalties payable to 3LAU, and a pro-rated share of any income received in relation to reproductions of the song. The NFT auction in 2021 offered products and benefits related to 'Ultraviolet'. Some were specifically linked to 'Walk Away', but Flores claims that her permission was not sought. The auction generated more than $11m. Flores has issued a claim stating that she has a stake in the song copyright, and is due an artist royalty under the agreement.

UPDATE

  • The parties made their first appearances before the Court on 14 December and the trial is likely to take place towards the end of this year.

Interested in learning more? 'Guide to non-fungible tokens (NFTs)' where we provide an introduction to the digital asset and the technology behind it and examine the legal and commercial implications of NFTs. Download the guide here. 

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