Non-fungible tokens (“NFTs”) – while intangible in nature – are still “goods” subject to the Lanham Act, as trademarks perform the same source-identifying functions when used on products “in NFT markets as they do in other markets.” That is what the International Trademark Association (“INTA”) argues in a new amicus brief that it lodged with U.S. Court of Appeals for the Ninth Circuit on behalf of Yuga Labs in the Bored Ape Yacht Club (“BAYC”)-creator’s enduring legal battle against artist Ryder Ripps over his creation of a collection of rival NFTs using Yuga Labs’ trademarks.
Setting the stage in its brief, INTA asserts that while there are many issues at play in Ripps’ appeal to the Ninth Circuit, its submission is focused exclusively on “caution[ing] against overextension of the narrow holding in the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp.,” which would “improperly foreclose … NFTs from constituting ‘goods’ under the Lanham Act.” This is an important argument, according to INTA, as Ripps and the other defendants “mischaracterize” the holding in Dastar, as well as the Ninth Circuit’s decision in Slep-Tone Ent. Corp. v. Wired for Sound Karaoke & DJ Servs., LLC, by arguing that because NFTs are intangible, they are not “goods” under the Lanham Act.
The problem, per INTA, is that those cases do not limit the Lanham Act’s “broad” coverage of “any or all goods or services.” (Emphasis courtesy of INTA.) In fact, INTA asserts that “there is no indication” in the Lanham Act or otherwise that the type of NFTs at issue are exempt from its reach. Instead, “given how broadly courts have defined ‘goods’ and ‘services,’ when applying the Lanham Act,” INTA contends that Yuga Labs’ BAYC NFTs fall within the scope of the trademark statute.
> The USPTO’s take on NFTs: Delving into how the U.S. Patent and Trademark Office (“USPTO”) has treated NFTs, INTA cites the trademark office as stating that “trademarks perform the same functions in NFT markets as they do in other markets: They identify the source of goods and services and distinguish the goods and services of one party from those of others.” For example, the USPTO has stated that trademarks “can be used to indicate the source of underlying assets associated with NFTs, such as digital art, video clips of iconic sports moments, or physical shoes.” They also can indicate the “source of services, such as unique entertainment experiences or club memberships, access to which is represented by NFTs.”
In other words, INTA contends that the NFTs at issue in this case, “comprising both the cryptographic tokens and the associated [BAYC] digital images and entitlements, are ‘goods’ subject to the Lanham Act,” thereby, enabling Yuga Labs’ corresponding trademarks to be protected from infringement in accordance with the federal trademark statute.
> Recent court decisions: Looking beyond the USPTO, INTA contends that district courts have rejected the contention that “Dastar excludes all NFTs from the protections of the Lanham Act.” One of the cases that INTA it relies on: Hermès v. Rothschild, in which a U.S. District Court for the Southern District of New York judge declined to dismiss the Birkin bag-maker’s Lanham Act claim against Mason Rothschild on the basis that “Dastar says nothing about the general applicability of the [statute] to intangible goods,” noting that courts “routinely apply” the Lanham Act to intangible goods. (In siding with Hermès, the court rejected Rothschild’s argument that Dastar bars Lanham Act claims that center on the misuse of trademarks involving intangible goods.)
The district court’s decision in the case at hand is consistent with the court’s findings in the Hermès case, INTA argues, asserting that Judge John Walter correctly held in an earlier round of this case that “although NFTs are virtual goods, they are, in fact goods for purposes of the Lanham Act.” Echoing the Hermès court, Judge Walter further noted that “customers buy NFTs of the type at issue here ‘not to obtain the code contained in a token, but rather to exclusively own the content associated with the NFT.’” And just like tangible goods, digital goods (including those associated with NFTs) “can display labels indicating origin – a function previously performed solely by the affixation of a trademark to a physical object.”
In short, INTA claims that the district court in this case (and in Hermès, as well) “correctly held that NFTs, if understood as digital goods comprising a set of tokens that reference underlying digital assets via the token metadata, are goods for purposes of the Lanham Act.”
> The BAYC NFTs: The interesting argument that INTA is making here is that NFTs are subject to the Lanham Act when they “reference underlying digital assets and that connection is the basis for their commercial appeal.” Reflecting on the particular type of NFTs at issue in the Yuga Labs case – as distinct from other types of NFTs, such as those that may be akin to “database record[s]” that have no “inherent link” to any referenced property rights, INTA argues that these NFTs have specific characteristics that trigger the application of the Lanham Act.
The NFTs at issue qualify for protection under the Lanham Act, INTA argues, as “their consumer appeal depends on the facts that: (1) they reference underlying digital assets via the token metadata; (2) the token represents an entitlement of membership in the BAYC that Appellee operates as a service; and (3) the underlying assets and services are independently protectable under the Lanham Act.” Indeed, the assets and the membership services tied to the BAYC NFTs “are the reasons why consumers purchase these NFTs,” INTA states, claiming that each NFT sold by Yuga Labs “also conveyed commercial license rights for the purchaser to use the digital asset, which also adds to the commercial appeal.”
THE BIGGER PICTURE: Hardly just an issue that is relevant to the case at hand, INTA contends that “because NFTs, along with other components of the New Digital Ecosystems, are integral to the modern economy, it is crucial to establish a framework that upholds trademark protection across digital platforms in a manner consistent with consumers’ and brand owners’ expectations.”
Extending trademark protections to NFTs – “as the USPTO has done for tokens linked to underlying assets” – provides brand owners with “the confidence that their investments in such NFTs are legally protected,” per INTA, “thereby encouraging brand owners to leverage these digital assets to enhance their brand value, allowing brand owners to combat infringement and counterfeiting to protect their investments, and fostering consumer trust in NFTs and broader New Digital Ecosystems.”
The case is Yuga Labs, Inc. v. Ryder Ripps, et al., 2:22-cv-04355 (C.D. Cal.).
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