The summer of 2021 was known by many as the “Summer of .jpgs,” as popular blockchain-based projects like NBA Topshot, Bored Ape Yacht Club and other cryptographically verified digital goods reached mainstream recognition. In 2020, the total estimated sales of non-fungible tokens was $94.9 million. That number grew to $41 billion in 2021.¹

Even with the cryptocurrency market crash in May 2022, through July 2022 NFT sales had already exceeded the $41 billion in sales from the year before.² Many large corporations have also entered the space, with Nike purchasing NFT startup company RTFKT,³ AB InBev releasing a range of NFT products,⁴ Starbucks announcing a plan to put customer rewards on the blockchain⁵ and Animoca Brands announcing a new $2 billion fund to invest in metaverse projects. With this increased level of funding and business sophistication, there has also been an increased emphasis on the legal protections of intellectual property. While in 2021 “code is law” was the prevailing form of protection over digital assets, in 2022 there was an increased emphasis on jurisdictional laws, especially in the area of IP. This is a trend that we believe will continue into 2023 and beyond.

Trademark applications

In 2022, nearly 6,500 trademark applications were filed with the United States Patent and Trademark Office involving NFTs or digital assets, which is more than three times as many as were filed in 2021 (2,142).⁶ While some of these filings were 15 U.S. Code § 1051(a)(1) actual use applications by NFTfocused businesses cleaning up their IP portfolios in 2022, the largest groups of applicants were for established businesses applying for NFT trademarks on a 15 U.S. Code § 1051(b)(1) actual intent to use basis.

In November 2022 alone, BMW, Rolex, Enterprise Rent-A-Car, Indianapolis Motor Speedway, Post Foods, Nike, Home Depot, Reebok, Lionsgate and other household names all applied for trademarks over NFTs and digital asset-related goods and services on a (b)(1) intent to use basis.

It is not altogether clear how the trademark office is going to treat NFT and digital assetrelated goods and services. The USPTO and U.S. Copyright Office are currently studying the impact of NFTs on IP rights.⁷ Many of the trademark filings include physical goods classes along with software-related goods and services. As the law evolves, it will be interesting to see where digital assets will fall along the Nice Classification system. For now, strategies usually involve filing broadly to cover both physical goods and software-related goods and services.

IP litigation

Similarly, in 2022 we saw a rise in IP litigation, especially in the area of trademarks and copyrights.

In May 2022, the U.S. District Court for the Southern District of New York refused to dismiss a trademark infringement case brought by Hermes International and Hermes of Paris Inc. against artist Mason Rothschild over his sale of NFTs sold as “MetaBirkins” and displaying digital images of faux fur-covered versions of the luxury Birkin handbags.⁸ In June, a federal district court in the Central District of California found that a plaintiff’s state law right of publicity claim regarding the use of copyrighted photos in NFTs was preempted by federal copyright law.⁹

In September, Quentin Tarantino and Miramax reached a settlement over their litigation regarding the auction of “Pulp Fiction” NFTs by Tarantino. Tarantino argued that he reserved the rights to “print publication (including without limitation screenplay publication, ‘making of’ books, comic books and novelization, in audio and electronic formats as well, as applicable)” as well as “interactive media,” which included the right to sell portions of his script as NFTs. Miramax, on the other hand, argued that NFTs did not exist in 1996 when their licensing agreement was consummated and thus NFTs fell under the catch-all language in the contract granting Miramax “all rights … now or hereafter known … in all media now or hereafter known” in the work.¹⁰

One of the bigger 2022 NFT-based IP rights cases is an ongoing matter brought by Yuga Labs Inc. (the creators of BAYC) against artist Ryder Ripps and his business partner, Jeremy Cahen, for trademark infringement over their RR/BAYC project.¹¹ The RR/BAYC project took the images represented in the popular Bored Ape Yacht Club NFTs and sold visually identical NFTs under the RR/BAYC brand. Defendant Ripps has argued, in a motion to dismiss, that his use of the Bored Ape images and associated Yuga Labs trademarks (such as the ape skull logo and the BAYC/ BORED APE/BORED APE YACHT CLUB trademarks) is protected free speech under the Roger’s test.¹² Yuga Labs, on the other hand, argues that this is a classic case of trademark infringement in which the alleged infringers gained millions by using the Yuga Labs trademarks, harming Yuga Labs in the process. Yuga Labs recently won on those dueling motions, with the court refusing to dismiss Yuga’s trademark infringement claims against the defendants.¹³ The results of the case may turn on the upcoming decision in Jack Daniel’s Properties, Inc. v. VIP Products, LLC. ¹⁴ The Supreme Court recently granted certiorari to hear this case and it is expected to have implications for the tension between parody and IP.

With the money involved in the NFT industry and the rising level of IP sophistication for companies currently in the space and those entering the space, litigation is expected to increase. This increase is especially anticipated with so many unknowns, such as the protectability of artificial intelligence generated NFT images,¹⁵ registration of copyrights over large collections (known commonly as “PFP projects”),¹⁶ enforceability of early and unsophisticated license grants,¹⁷ and the effectiveness of terms that include the right to amend subsequent to purchase.

Licensing gets sophisticated

Early in the proliferation of NFTs, particularly in the art space, an interesting and potentially groundbreaking practice developed where certain IP pertaining to the NFTs was licensed to the NFT buyers and passed to their subsequent transferees. The Web3 industry mentality surrounding the decentralization of ownership, including ownership of copyrights and other IP, is a new development that is likely to have legal ramifications across all industries.

The BAYC “commercial use” license in the BAYC terms and conditions was intended by Yuga Labs to allow Bored Ape NFT holders to fully commercialize the images represented in their NFTs.¹⁸ However, this was an exceedingly simple license grant and others have questioned its enforceability.¹⁹

In March, Yuga Labs purchased the CryptoPunks IP from Larva Labs and promised “[w]ith this acquisition Yuga Labs will own the CryptoPunks and Meebit brands and logos, and as they’ve done with their own BAYC collection, Yuga Labs will transfer IP, commercial[] and exclusive licensing rights to individual NFT holders.”²⁰ However, when Yuga Labs issued that IP license, it wasn’t the two-paragraph license it had used for BAYC; instead, the company went with a more comprehensive and detailed 17-page set of licensing terms.²¹

In August, Andreessen Horowitz, one the biggest venture investors in the Web3 space, released a set of free public licenses designed to be used by NFT project developers as a uniform licensing standard in the space. The self-titled “Can’t Be Evil” licenses are a set of six licenses ranging from the most restrictive “Personal Use License” agreement (CBE-PR) to the least restrictive “CC0 1.0 Universal” agreement (CBE-CC0). A16z’s stated goal in creating these licenses was to “transparently [codify] the rights of NFT creators, buyers[] and sellers so that every party has a common understanding of the rights associated with NFT ownership.”²²

Conclusion

As with any new form of IP grant, this mass licensing of IP to consumers is likely to evolve over time, especially as more disputes over those terms work their way through the courts. Companies currently in the space or established brands looking to expand into NFTs will need to have attorneys who understand the unique and constantly evolving IP registration and licensing issues facing this new asset class.

¹ Chainalysis, The 2021 NFT Market Report (Jan. 2022), available at https://go.chainalysis.com/nft-market-report.html.
² Chainalysis, The Chainalysis State of Web3 Report (June 2022), available at https://go.chainalysis.com/2022-web3-report.html.
³ https://about.nike.com/en/newsroom/releases/nike-acquires-rtfkt.
⁴ https://nft.budweiser.com/.
⁵ https://stories.starbucks.com/press/2022/starbucks-brewing-revolutionary-web3-experience-for-its-starbucks-rewards-members/.
⁶ Bannermanquist, Judith, “Trademarks filed for NFTs, metaverse and cryptocurrencies soar to new levels in 2022” (Nov. 7, 2022), available at https:// cointelegraph.com/news/trademarks-filed-for-nfts-metaverse-and-cryptocurrencies-soar-to-new-levels-in-2022.
⁷ https://copyright.gov/policy/nft-study/.
⁸ Hermes v. Rothschild, Case No. 22-cv-384 (JSR), 2022 WL 1564597 (S.D.N.Y. May 18, 2022).
⁹ Notorious B.I.G. LLC v. Yes.Snowboards, 2022 U.S.P.Q.2d 526 (C.D. Cal. 2022).
¹⁰ Miramax, LLC v. Quentin Tarantino, Case No. 2:21-cv-08979 FMO (JCx) (C.D. Cal. 2021).
¹¹ Yuga Labs, Inc. v. Ripps et al., Case No. 2:22-cv-04355-JFW (JEM) (C.D. Cal. 2022).
¹² Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).
¹³ Yuga Labs, Inc. v. Ripps et al., Case No. 2:22-cv-04355-JFW (JEM), Doc. #62 (C.D. Cal. Dec. 16, 2022).
¹⁴ Jack Daniel’s Properties, Inc. v. VIP Products, LLC; Case No. 18-16012 (9th Cir. 2020).
¹⁵ https://www.copyright.gov/laws/hearings/Letter-to-USPTO-USCO-on-National-Commission-on-AI-1.pdf; Graves, Franklin, “Sorry, Your NFT Is Worthless: The Copyright and Generative Art Problem for NFT Collections” (Feb. 20, 2022), available at https://ipwatchdog.com/2022/02/20/sorry-nft-worthless-copyrightgenerative-art-problem-nft-collections/id=146163/.
¹⁶ https://www.govinfo.gov/content/pkg/FR-2022-11-23/pdf/2022-25211.pdf.
¹⁷ Murray, Michael D., “Transfers and Licensing of Copyrights to NFT Purchasers” (July 2, 2022), available at https://ssrn.com/abstract=4152475.
¹⁸ https://boredapeyachtclub.com/#/terms.
¹⁹ Steiner, Alfred/Dave, “Bored Apes & Monkey Selfies: Copyright & PFP NFTs” (May 21, 2022), available at https://ssrn.com/abstract=4116638.
²⁰ “Yuga Labs Acquires CryptoPunks and Meebits from Larva Labs; Grants IP and Commercial Rights to Individual Owners” (March 11, 2022), available at https://www.businesswire.com/news/home/20220311005470/en/Yuga-Labs-Acquires-CryptoPunks-and-Meebits-from-Larva-Labs-Grants-IP-and-CommercialRights-to-Individual-Owners.
²¹ https://licenseterms.cryptopunks.app/.
²² Jennings, Miles and Dixon, Chris, “The Can’t Be Evil NFT Licenses” (Aug. 31, 2022), available at https://a16zcrypto.com/introducing-nft-licenses/.