January 24, 2023
In November, we wrote about the Hermès International vs. Rothschild “MetaBirkin” NFT lawsuit which, among other things, involves questions about whether an artist’s use of trademarks is protected under the Rogers vs. Grimaldi test for trademark infringement. Another case involving NFTs now raises some of the same issues, but with numerous interesting elements all its own.
Yuga Labs launched the Bored Ape Yacht Club (BAYC) NFTs in 2021. This project consists of 10,000 images of — you guessed it — bored apes generated by an algorithm. Sales of the NFTs in this project total more than $1 billion, making it one of the most financially successful NFT projects to date.
But, while BAYC NFTs became hot commodities among celebrities and wealthy collectors, Ryder Ripps, a conceptual artist, interpreted the BAYC’s logo and elements of the ape images as promoting racist stereotypes and incorporating Nazi and neo-Nazi imagery and ideas. In Ripp’s view, Yuga is trying to infiltrate mainstream society with toxic imagery through superficially harmless cartoon art. For example, Ripps noted: similarities between the BAYC and the Waffen SS logos; the ape skull on the Yuga Labs logo has 18 teeth and 18 is code for Adolf Hitler; and the expression “surf the Kali Yuga” is used by white supremacists.
He published these opinions online and, last May, launched an NFT collection called RR/BAYC.
The RR/BAYC NFTs link their own crypto tokens to the BAYC images and sell for about $200 each. According to Ripps’ website, the project “uses satire and appropriation to protest and educate people regarding The Bored Ape Yacht Club and the framework of NFTs.”
Unsurprisingly, especially because of the value of the original BAYC NFTs, in late-June 2022, Yuga Labs sued Ryder Ripps and others involved with RR/BAYC. Yuga Lab’s Complaint alleges false advertising, trademark infringement, and cybersquatting, among other things. According to Yuga Labs, the RR/BAYC “is a deliberate effort to harm Yuga Labs at the expense of consumers by sowing confusion about whether these RR/BAYC NFTs are in some way sponsored, affiliated, or connected to Yuga Labs’ official Bored Ape Yacht Club.”
Notably, despite elsewhere claiming that RR/BAYC NFTs infringed Yuga Lab’s copyrights, the Complaint does not include a claim for copyright infringement. Nor does it include a claim for defamation against Ripps and others involved with RR/BAYC.
Ripps and the other defendants in the lawsuit moved to dismiss the Complaint. They argue RR/BAYC is an expressive artistic work protected by the First Amendment and, therefore, not actionable under Rogers. They also claim that Yuga Lab’s Complaint must be dismissed because RR/BAYC buyers “understood that their NFT was being minted as a test against and parody of BAYC, and no one was under the impression that the BAYC NFTs were substitutes for BAYC NFTs or would grant them access to Yuga’s club. They explicitly acknowledged a disclaimer when they purchased [the NFTs].” Ripps also filed an anti-SLAPP motion, claiming Yuga Labs is trying to silence him through its lawsuit.
In December, the Court denied defendants’ motions. It held Rogers did not apply as the RR/BAYC NFTs did not “express an idea or point of view, but, instead, merely ‘point to the same online digital images associated with the BAYC collection.’” It also concluded defendants’ use of Yuga’s marks isn’t nominative fair use because defendants are using the marks to sell their own NFTs, not plaintiff’s NFTs.
As for the anti-SLAPP motion, Judge Walter wrote, Yuga Labs had “not brought claims against Defendants for defamation, slander, or libel. Instead, Plaintiff’s claims are limited to and arise out of Defendant’s unauthorized use of the BAYC Marks for commercial purposes.”
And that’s what’s so interesting here: Yuga sued solely for trademark infringement and not for defamation or copyright infringement. Why? On defamation, maybe to prevent anyone from looking too deeply at whether Yuga Labs’ imagery is, in fact, racist or relies on white supremacist imagery and ideas. However, this strategy seems to have backfired as the Court recently required the founders of Yuga Lab to sit for a deposition. Presumably, defendants’ lawyers used this opportunity to specifically address this issue.
On copyright, it seems likely that Yuga Labs didn’t bring a claim because any copyrights belong to the NFT purchasers, not Yuga. Yuga may have also avoided bringing a copyright claim to skirt the issue of whether algorithm-generated NFT collections like BAYC are sufficiently original to qualify for copyright protection.
In any event, stay tuned. If the parties don’t settle, this case will likely go to trial later this year.
January 10, 2023
Among the most frequent — and sensitive — disputes in business are those between co-founders or co-owners of a company. These conflicts come in all shapes and sizes, but some types are most prevalent. Because they can be so contentious and emotionally charged, it’s best to handle them carefully and quickly before they fester and cause irreversible damage. Here are the ones we’ve seen the most, along with a few paths parties can take to resolve disputes and prevent worst-case scenarios.
Different Perceptions, Divergent Goals
Credit and recognition can be key drivers of conflict: When junior owners of an organization feel like their recent contributions aren’t being recognized or, conversely, when senior owners feel they’re not being given their due for past efforts that grew the business into what it is today. In other conflict scenarios, a senior owner wants to keep the business on its traditional course while a junior owner is anxious to expand into new areas. Also common are situations when a senior owner is moving toward retirement, but can’t let go of his or her baby and hand over responsibility to junior owners.
Attorneys are a great resource for co-founders and co-owners for help in these situations, but there are other options business owners can turn to in addition. Mediators work with conflicting parties to lay out different means of resolving disputes while evaluating the advantages and disadvantages of each. Business coaches can suggest new methods for the owners to execute their roles, or facilitate difficult discussions around the issues at hand and identify ones that haven’t yet been addressed. Similarly, an external business consultant might be able to help balance divergent goals, discover unseen opportunities or chart a new course for a business that everyone can align on.
Expenses: Business or Personal?
Small business owners often blur the line between business and personal expenses — dining out, gym memberships, travel, etc. — and this can cause conflict when two or more partners are involved. It quickly becomes a problem when co-owners or co-founders have different ideas about what is or isn’t an appropriate use of the company credit card, or if one partner feels another is abusing it or simply deriving more benefit than him or herself.
In these cases, an accountant may be able to help explain what is considered appropriate use of corporate funds, determine how co-owners use them when the expense is questionable and install mechanisms to be sure no one is taking advantage.
Unequal Effort
One of the most common causes of dispute: when one founder or owner, rightly or wrongly, feels like another founder or owner isn’t doing his or her fair share of the work.
When one partner believes they are doing more work than the other, recognize that things shift over time and while you may be carrying more of the load today, the situation may be reversed in a few months. Time is a great leveler.
Substance Use
A leading cause of someone not pulling their weight, this becomes a serious concern when a co-founder or co-owner is unable to productively participate in the operation of the business due to their substance use.
When this is the problem, it may be most effective to first consult a doctor or other medical professional, while also considering mediation or a business coach.
Overall, if you are a co-owner or co-founder involved in a dispute with your partner(s), the key is to talk to them, listen and try not to judge. In many cases like those described above, the issues are not new: they’ve been present in the business for a while, the co-owners or co-founders have discussed them repeatedly and feel like they’ve had the same conversation over and over again without getting anywhere.
That’s frustrating, and frustration leads to resentment and, many times, anger and rash decision making. Early intervention is key to try and resolve the issues before too much resentment builds. And wherever you are in the process, sometimes taking a step back and thinking about what is really motivating the other party, or why they believe what they believe, can provide fresh insight and help break a deadlock.
December 13, 2022
Every time we post personal data on a social media platform, we’re making information about ourselves public. But really, what seems like public property that anyone can access, in fact, sometimes becomes someone else’s private property — as an interesting, ongoing case about who controls such data illustrates.
hiQ is a self-styled “people analytics” company. Its business model involves scraping LinkedIn users’ public profiles, analyzing the data with a proprietary algorithm, and selling the results to employers looking to retain and train employees.
Unfortunately for hiQ, such data scraping is prohibited by LinkedIn’s User Agreement.
In May 2017, LinkedIn sent hiQ a cease and desist letter. It cited the violation of its User Agreement and demanded that hiQ stop its use of LinkedIn users’ public profile data. In response, hiQ filed suit in the Northern District of California and sought an injunction barring LinkedIn from claiming that hiQ was violating the Computer Fraud and Abuse Act (CFAA), the Digital Millennium Copyright Act, and California law.
The District Court granted hiQ’s injunction in August 2017.
In reaching this conclusion, the District Court held that hiQ’s interest in the survival of its business, which was threatened by LinkedIn’s demand that it cease and desist from scraping public LinkedIn data, was greater than LinkedIn’s interest in protecting the public profiles of its users. The Court also held that the public interest favored hiQ because LinkedIn was, in effect, seeking to eliminate hiQ as a competitor and establish a monopoly. (At the time it sent the cease and desist, LinkedIn was exploring providing services similar to hiQ’s.)
LinkedIn appealed the injunction to the 9th Circuit, which affirmed the lower court’s ruling in favor of hiQ. LinkedIn next appealed to the U.S. Supreme Court, which vacated the 9th Circuit’s ruling and remanded the case. In April 2022, the 9th Circuit again affirmed the District Court’s preliminary injunction in favor of hiQ.
While the issue of the injunction went to the 9th Circuit (twice) and SCOTUS (once), the parties were busy conducting discovery. At the end of discovery, each party filed a motion for summary judgment and the District Court ruled on these motions in November.
On the whole, despite winning the initial battle over the injunction and the fact that it did score a few wins at the summary judgment stage, it’s safe to say that hiQ definitely came out on the losing end of things. In large part this is because LinkedIn’s cease and desist seems to have quite a chilling effect; it caused hiQ to lose funding and employees.
hiQ’s losses didn’t end there. The District Court found that hiQ agreed to the terms of LinkedIn’s User Agreement, when it ran ads and created accounts on LinkedIn and, contrary to hiQ’s position, the User Agreement unambiguously bars scraping.
However, the Court did allow hiQ to proceed to trial on the issue of whether LinkedIn’s claims under the CFAA are barred by a two-year statute of limitation because there was evidence that LinkedIn employees were aware of hiQ’s activities for more than two years before it filed suit in 2017. At trial, a jury will have to determine if these employees’ knowledge can be imputed to LinkedIn.
Despite hiQ being allowed to proceed to trial, overall LinkedIn came out ahead because, regardless of the outcome of this case, it effectively seems to have not only disposed of any competition from hiQ, but also effectively limited the ability of other entities that might try to monetize information that we, the public, freely provide to LinkedIn.
November 29, 2022
Some people relish a fight. Most, however, don’t — especially when the conflict results in litigation. This is especially true for business owners because litigation costs money, takes time and attention away from running the business, and can be emotionally exhausting. If you do find yourself in litigation, what should you do? Here are 10 techniques for resolving disputes.
- Recognize that most disputes are resolved by the parties before a trial. While reliable statistics are almost impossible to come by, it’s a fact that most disputes do get resolved without a trial. Remember that and take heart: no matter how bad things seem at first or how unpleasant the process may become, the odds are overwhelmingly in favor of a pre-trial resolution.
- Acknowledge your feelings. Anger, despair, and frustration are just a few of the emotions likely to arise during a dispute. Rather than try to hide from this discomfort, recognize the feelings as they occur, talk about them with people you trust, and work to use them, or get to a place where these feelings aren’t ruling the day.
- Know yourself and the other side. When a dispute arises, spend some time thinking about what’s motivating everyone involved. Often it just comes down to money, but in many cases, there’s more lurking beneath the surface. What is really driving you? What do you think they want? Justice? Revenge? Admission of responsibility? Determine what those motives may be for both sides. It will be a huge help defining a path to resolution.
- Problem solve. Now that you’ve identified the motives underlying the dispute, spend some time thinking about possible resolutions to both the spoken and unspoken issues. Don’t just do this for yourself: imagine resolutions that would satisfy you and the other side too.
- Think about what’s really important. When imagining a resolution, identifying and ranking priorities can clarify what’s most important to you (and what’s not). This can also help you find solutions you may have overlooked.
- Envision different solutions. Make a list of potential outcomes and think about the impact each will have on your business in three months, six months and a year.
- Talk. Communication with the other party in a dispute is critical, and in today’s world of email and text nuance is often lost. What’s more, a lot of people find it easier to be a jerk by email or text than in person. Avoid this by insisting on in-person or virtual meetings where you can communicate face-to-face.
- Sometimes skilled third-parties can help you get to a resolution. Lawyers who handle a lot of disputes have seen it all before (really!) and may have fresh ideas and different perspectives that can help bring about the best possible outcome. Similarly, skilled mediators are experts at resolving disputes, often by working with the parties to identify the risks and costs of continued conflict and eventual litigation.
- A good resolution usually means everyone is unhappy. It’s a maxim you’ll hear from lawyers and you know why? Because it’s true. Compromise is generally unwelcome but it’s at the core of any dispute resolution, and compromise inevitably means that everyone has to give up something they’d rather not. But people usually find that once all is said and done, the compromise was worth it.
- Focus on the future, not the past. Try to forget what happened to cause the dispute and focus on what’s in front of you. Put aside thoughts of who is to blame. What’s past is past, and you’re not going to be able to change it. That doesn’t mean you shouldn’t fight for what’s right or the best possible outcome. Just don’t let feelings about what happened in the past prevent you from attaining a resolution in the present that you’ll realize, in the future, was a satisfactory outcome.
November 15, 2022
Over the past few years, NFTs have emerged from nowhere to become a big deal — even if a lot of people are fuzzy on the details of what an NFT is. And, as with any new creation, especially one that reaches across art, entertainment, finance and culture, conflicts over NFTs raise new legal issues. On this, I’m especially fascinated by Hermès International vs. Rothschild, 22 Civ. 384 (S.D.N.Y.). It raises so many questions: What is art? Who is an artist? What is an NFT? How do art and commerce interact and where does the First Amendment fit into all this?
This is a very “meta” case (in more ways than one).
It’s a simple story. In 2021, Mason Rothschild, a Los Angeles-based digital artist, launched his “MetaBirkin” project. The project involved the sale of 100 NFTs, each linked to a digital image created by Rothschild. The images are of imaginary, Birkin-style bags covered in distinctively colored fur. (Birkin bags are very expensive handbags made by Hermès, the French luxury fashion brand. They are often made from leather or exotic animal skins and can cost more than $100,000.)
Rothschild promoted MetaBirkins on social media with hashtags like #NotYourMothersBirkin and #MetaBirkin and created a Discord group for followers. His stated intention was to use the NFTs to raise awareness of the fashion world’s “fur-free” initiatives and promote the use of ethical textiles. Sales of these NFTs quickly took off.
Hermès was not amused and sent Rothschild a cease and desist letter. A few weeks later, it filed suit, claiming, among other things, trademark infringement, unfair competition and cybersquatting stemming from the use of “MetaBirkin” and hashtags containing the word “Birkin.” OpenSea, the world’s largest NFT marketplace, removed the MetaBirkins from its site and resale prices, which had reached as high as $46,000 for a single NFT, plummeted.
Hermès makes several arguments, but its central claim is that Rothschild is misleading consumers into thinking Hermès authorized the NFTs and otherwise trading on Hermès’ goodwill. Here, the company points to posts on Rothschild’s social media accounts and in the news indicating confusion over Hermès’ relationship to MetaBirkins.
It also vehemently argues that the Court should ignore Rothschild’s images of fanciful, fake fur covered Birkin-style bags because “[t]he MetaBirkin NFTs are data recorded on the Ethereum blockchain,” which Rothschild could swap out for something completely different and unrelated. In other words, Hermès argues Rothschild’s work is just bits of code that can be disassociated from the images. Thus, according to Hermès, his work is not art and, therefore, outside the scope of the First Amendment. In support of this claim, Hermès notes that when the MetaBirkins were first minted, the image was covered in a shroud and didn’t show the actual picture being sold. It also repeatedly claims that Rothschild is a marketer and not an artist.
In response, Rothschild asserts the First Amendment allows him to make and sell art that depicts Birkin bags. In his words: “I am not creating or selling fake Birkin bags. I’ve made works of art that depict imaginary, fur-covered Birkin bags. I have the right also to use the term ‘MetaBirkins’ to describe truthfully what that art depicts, and to comment artistically on those bags and the Birkin brand.” What’s more, he goes on, “[t]he fact that I sell the art using NFTs doesn’t change the fact that it’s art.”
Mason Rothschild also claims his use of “Meta” is an indication that the images are part of a commentary and argues that Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) requires the Court to dismiss Hermès’ case.
As a refresher, the dancer Ginger Rogers sued the makers of a movie called “Ginger and Fred,” claiming that the movie’s use of her name impermissibly implied that she sponsored the movie, which was about fictional cabaret performers named Ginger and Fred. The Second Circuit rejected her claims. It held that the First Amendment requires courts to dismiss trademark claims involving artistic works unless the public’s interest in avoiding consumer confusion outweighs the public interest’s in free expression. With celebrity names in titles, the court held that a trademark claim must be dismissed unless “the title has no artistic relevance to the work whatsoever, or if it has some artistic relevance, unless the title explicitly misleads as to the source or content of the work.”
Based on this, Rothschild argues that the images associated with his NFTs have sufficient artistic content to bring this case within the ambit of Rogers and he has not explicitly misled anyone about the source of the NFTs. Specifically, he notes that it is not in his interest to have consumers think the NFTs were created by Hermès because he wants to be credited as the artist.
It’s hard to say where the court is going to come out on this, but it doesn’t seem terribly likely that Hermès will prevail here. Courts don’t want to be in the business of deciding what is and isn’t art and are likely to err on finding something is art. Moreover, the lengths to which Hermès goes to try to disassociate the images from the NFTs would seem to support a conclusion that the images are, in fact, art.
And, while it’s true that Rothschild could substitute the images linked to the NFTs, that’s pure speculation and doesn’t bear any relationship to the actual facts here. If anything, the fact that in the minting process the NFTs were associated with images on a pedestal covered with a shroud make it seem even more like these digital images are, in fact, art because that specifically calls to mind the unveiling of a statue or other artwork.
Thus, for Hermès to prevail, it’s going to have to show the NFTs explicitly misled people about their source. It’s hard to see that happening.
This will be fascinating to see where the court comes out and watch for this case’s impact on the new, evolving world of NFTs, the market for them, and how they further develop.
