Amidst findings of willful infringement, slanderous conduct and bad faith intent (supporting an award of over $1.5 million in damages plus reasonable attorneys’ fees and costs), Judge John F. Walter ordered that “Defendants, their agents, employees, attorneys, and anyone acting in concert or participating with them, should be permanently enjoined from marketing, promoting, or selling products or services, including Ryder Ripps Bored Ape Yacht Club (RR/BAYC) non-fungible token (NFTs) and Ape Market, that use the BAYC Marks.”  The scope of the injunction requires the defendants to transfer to the plaintiffs control of the RR/BAYC NFT smart contract, into which defendants had intentionally coded plaintiff's trademarks. 

This remedy was denied to Hermès by Judge Jed S. Rakoff of the Southern District of New York 4 months earlier in connection with the luxury brand's lawsuit alleging trademark infringement and other claims arising out of Mason Rothschild's sale of MetaBirkin NFTs incorporating Hermès' famous BIRKIN trademark and trade dress.  In that case, the court expressed reluctance to order transfer of the smart contract on the basis that it could implicate constitutional issues because the infringing NFTs are “at least in some respects works of art.”  The court opined that the injunction against further infringement was an adequate remedy, and that Hermès could pursue remedies at law or in equity (including civil or criminal contempt) in the event that defendants violated the terms of the injunction.

Both cases involved the use by defendants of the plaintiffs' exact trademarks to designate their own goods, the precise fact pattern addressed by the U.S. Supreme Court in Jack Daniel’s Properties, Inc. v. VIP Products LLC, No. 22-148 (U.S. June 8, 2023), which confirmed that a threshold First Amendment analysis is not required in such cases, even if the defendants' products or offerings are artistic works.  In essence, infringers cannot use “trademarks as trademarks” and then invoke the First Amendment as a shield to trademark infringement liability under the Lanham Act.

The opinion in Yuga Labs, Inc. v. Ripps, et al. acknowledges that smart contracts do communicate source or authenticity to consumers.  Thus, transfer of the infringing NFTs but not the associated smart contract is not a complete remedy for a successful plaintiff in a trademark infringement action, as continued possession of the smart contract by the infringing defendant could perpetuate consumer confusion.

The Yuga Labs holding is good news for trademark owners seeking to enforce their brands against infringement in virtual and digital worlds.