Damages of at least US$1.6 million awarded by the US District Court in the ‘Bored Ape Yacht Club’ litigation

In May 2023 we reported on the IP infringement decision of the Californian District Court, in relation to the dispute between the creators of the Bored Ape Yacht Club (BAYC) non-fungible token (NFT) collection, Yuga Labs, and the ‘artists’ Ryder Ripps and Jeremy Cahen.  In that decision, the Court found against the defendants and, on 25 October 2023, the order for damages was handed down.  This blog post looks at the recent damages decisions and its implications.  (For a refresher on NFTs, you can consult our series here.)

As background, the defendants created an NFT collection called the Ryder Ripps BAYC (RR BAYC) collection, which essentially copied the iconic ape images from the Yuga Labs’ BAYC collection.  The defendants’ alleged that this was for the purposes of commentary on Yuga Labs and the BAYC NFTs.  The Court found against the defendants on the claims of false designation of origin and cyber-squatting (in relation to certain domain names used by the defendants).  It also dismissed the defendants’ First Amendment / Rogers defence because no artistic expression was at issue, finding that “As Yuga has pointed out, and the Court agrees, Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag“.

The lengthy 28-page damages judgment contains a summary of the key findings of the Court in determining liability against the defendants, before proceeding to assess the equitable remedies available to Yuga Labs.  In particular, there were four questions to be determined on damages:

  1. Whether Yuga Labs is entitled to a disgorgement of the defendants’ profits based on the false designation of origin claim, and, if so, what amount;
  2. The amount of statutory damages to be awarded to Yuga Labs for the cybersquatting claim;
  3. The scope of any permanent injunction; and
  4. Whether this is an ‘exceptional case’ warranting an award of attorneys’ fees to Yuga Labs.

On question (1), the Court emphasised that an accounting of profits is never automatic and never a matter of right, but it considered that the equitable factors warranted disgorgement here (there was no delay by Yuga Labs in bringing the action, it would act as a deterrent from future infringement, and the defendants intended to deceive consumers by creating the RR BAYC collection).  Accordingly, the Court awarded Yuga Labs the profits attributable to the infringing conduct.

Yuga Labs contended that this amount was US$1,589,455, which included $1.4 million in profits from the initial sales of the NFTs, $100k from resale profits, and $100k for unsold NFTs.  However, the Court excluded the unsold NFTs, because these would be captured by a permanent injunction requiring transfer of the RR BAYC smart contract to Yuga Labs (more on this below), and deducted money spent by the defendants on creating the collection (including paying a programmer to create it).  Applying these deductions, the total awarded to Yuga Labs under question (1) was almost US$1.4 million.

In relation to question (2), the damages for cybersquatting, they are limited by statute to between US$1,000-100,000 per domain name, ‘as the court considers just’.  The Court considered that the maximum penalty of $100k each (for the two impugned domain names) was fair, just and appropriate here because of the wilful and egregious nature of the cybersquatting – the defendants registered these domain names solely for commercial gain and in bad faith to divert consumers away from the legitimate BAYC collection.

On the third question of injunctive relief, the Court ordered that the defendants should be permanently enjoined from marketing, promoting, or selling products or services, including the RR BAYC NFTs, that use the BAYC marks.  The defendants were also ordered to transfer control of the domain names, social media accounts, and the RR BAYC smart contract to Yuga Labs.  Interestingly, in the damages decision of the New York District Court in the MetaBirkins NFT litigation (reported by us here), that Court refused to order transfer of the NFT smart contract because of the modicum of artistic expression in the infringing works in question there.  Given the RR BAYC collection here simply copied the existing BAYC artwork, the Court had no hesitancy in ordering transfer of the smart contract.

Finally, in relation to question (4), the Court considered the totality of the circumstances and concluded that this is an ‘exceptional case’ entitling Yuga Labs to its reasonable attorney’ fees.  The Court found it salient that the entirety of the defendants’ conduct was in bad faith, continued even after the action was filed by Yuga Labs and the liability decision was handed down, and the defendants managed the litigation in a vexation and frivolous manner, and were found to be obstructive and evasive throughout.

In total, therefore, the Court awarded Yuga Labs around US$1.6 million in damages, plus their reasonably attorneys’ fees – essentially the maximum amount that it could.  This decision is a strong deterrent to others who might consider a ‘cash grab’ in the NFT space by impermissibly stepping on the IP rights of others.  In particular, this litigation has validated the unregistered trade marks of Yuga Labs and will be important to protect their IP rights going forward.  Although the defendants were given a public forum to promote their conspiracy theories about Yuga Labs and the BAYC collection (which can be read in the decision), ultimately they have left the company (and NFTs generally) in a stronger position.

For further discussion of intellectual property issues surrounding NFTs and the various cases there have already been around the world on these issues, see our series The IP in NFTs.

Author

George McCubbin
George McCubbin
Senior Associate - London
+44 20 7466 2764

The requirement for fixation in copyright – Self-proclaimed Bitcoin inventor succeeds in establishing serious issues to be tried on appeal

As we reported in February, Dr Craig Wright, who claims to be the inventor of Bitcoin, is asserting three Bitcoin-related copyright claims against a number of entities.  The earlier decision considered the question of whether or not Dr Wright could serve the proceedings on defendants out of the jurisdiction – which requires that there is a serious issue to be tried on the merits of the claim.  For the reasons set out there, Mr Justice Meade disagreed in relation to Dr Wright’s claims of copyright in the Bitcoin File Format (BFF).  Dr Wright appealed this decision to the Court of Appeal, and it unanimously allowed the appeal on 20 July 2023.  The decision on appeal contains some interesting commentary on the requirement for fixation in copyright claims, which we discuss further below.

The proceedings

As set out in our earlier report, Dr Wright claims to have authored the Bitcoin White Paper in 2008, created the Bitcoin File Format, and mined the inaugural block in the Bitcoin Blockchain – the so-called ‘Genesis Block’.  He has commenced proceedings alleging infringement of:

  • database rights in the Bitcoin blockchain;
  • copyright in the Bitcoin White Paper; and
  • copyright in the Bitcoin File Format (BFF).

Issues 1 and 2 will proceed to trial in January 2024.  The Court of Appeal’s decision in this case concerns whether or not copyright subsists in the BFF.

Mr Justice Meade had earlier found that there was no serious issue to be tried as to the subsistence of copyright in the BFF, in particular as there was no evidence to suggest that the BFF was ‘recorded’ in the Genesis Block, or any other block in the blockchain. In other words, it did not meet the requirement of “fixation” embodied in section 3(2) of the Copyright Designs and Patents Act 1988 (CDPA), and thus leave to serve out of the jurisdiction was denied.

Decision at first instance

At first instance, and as discussed in our earlier report, Meade J had that the claimants had no real prospect of establishing that copyright subsisted in the BFF because it had not been “recorded, in writing or otherwise” in accordance with section 3(2) of the CDPA.

The judge had not disputed that a literary work could be recorded in software, including a file format, but expressed his view that “Not all file formats are equal”.  Some file formats contain “sufficient content (and not just structure) to sustain a claim to literary copyright”, but others may not.  Meade J had found that the claimants had not filed any evidence to the effect that the Genesis Block (or any other block) contained content which defines the structure of the Bitcoin File Format, as opposed to “simply reflecting” it.  While each block conforms to the structure of the Bitcoin File Format, the structure of the Bitcoin File Format is not “fixed in a copyright sense in a material form in any of those blocks”.

Court of Appeal decision

In an elegant review of the law of copyright in relation to software, Lord Justice Arnold concluded that there were a number of flaws in Meade J’s reasoning, which led to the Court of Appeal allowing Dr Wright’s appeal.

  • Arnold LJ held that the judge’s statement that “no relevant ‘work’ has been identified containing content which defines the structure of the Bitcoin File Format” confuses the work and the fixation – the work Dr Wright relied on (the BFF) had been clearly identified.  The question of how and when that work was fixed is a different one.  Dr Wright’s case is that the work was fixed when the first block in the Bitcoin blockchain was written on 3 January 2009.
  • It is not necessarily correct that, for fixation, there must be content which defines the structure of the BFF, finding that “As the judge clearly appreciated, the work in which Dr Wright claims copyright is a structure.  It is quite correct that the work, that is to say, the structure, must be fixed in order for copyright to subsist in it; but it does not necessarily follow that content defining (or describing or indicating) the structure is required in order to fix it.  All that is required is that the structure be completely and unambiguously recorded.”
  • Arnold LJ found that the judge had not applied the test laid down in the CJEU decision C-310/17 Levola Hengelo BV v Smilde Foods BV (2018), which asks whether the fixation relied upon by Dr Wright made the BFF identifiable with sufficient precision and objectivity.  Dr Wright had contended that the fixation upon which he relied satisfied this test and had provided evidence in support that third parties have been able to deduce the structure comprising the BFF from the blocks in the Bitcoin blockchain.
  • Arnold LJ said that the judge did not consider the rationale for the requirement of fixation:  “As I have explained, it serves two purposes: to evidence the existence of the work and to delimit the scope of protection.  Dr Wright contends that the fixation upon which he relies serves both these purposes.  The first block in the Bitcoin blockchain evidences the existence of the Bitcoin File Format and enables the scope of protection to be determined.  Dr Wright again relies upon the evidence that third parties have been able to deduce the structure comprising the Bitcoin File Format as supporting this.  I again consider that this evidence supports Dr Wright’s case“.

In light of these findings, the Court of Appeal concluded that Dr Wright had a real prospect of successfully establishing that the fixation requirement for copyright to subsist was satisfied and so allowed the appeal.

For the purposes of the proceeding, Dr Wright had prepared Schedule 2 of the Particulars of Claim, which describes the components of the Bitcoin File Format.  This was prepared in 2022, well after the alleged creation of the copyrighted work, and thus Meade J did not consider that it could be used to fulfil the requirements of fixation.  However, the Court of Appeal presumed that Dr Wright was not relying upon Schedule 2 as satisfying the fixation requirement.

The court did, however, note that the fixation of copyright can be ephemeral (giving the example of an author who extemporises an original literary work orally before an audience, which is recorded digitally but the recording is deleted).  The same, seemingly, could apply to the BFF.  So in finding in favour of Dr Wright, the court mused that “It is an interesting question whether Dr Wright could, in the absence of any earlier fixation, rely upon Schedule 2 as satisfying the fixation requirement for the purposes of subsequent infringement claims, but it is not necessary for present purposes to explore that question”.  It will be interesting to see how this plays out in the future.

Wright & Ors v BTC Core & Ors (Rev1) [2023] EWCA Civ 868 (20 July 2023) (bailii.org)

Authors

George McCubbin
George McCubbin
Senior Associate - London
+44 20 7466 2764
Rachel Montagnon
Rachel Montagnon
Professional Support Consultant - London
+44 20 7466 2217
Andrew Moir
Andrew Moir
Partner - London
+44 20 7466 2773
Charlie Morgan
Charlie Morgan
Partner - London
+44 20 7466 2733
Chris Bushell
Chris Bushell
Partner - London
+44 20 7466 2187
Ajay Malhotra
Ajay Malhotra
Partner - London
+44 20 7466 7605
Philip Lis
Philip Lis
Senior Associate - London
+44 20 7466 2286
Rafael Lawrence
Rafael Lawrence
Associate - London
+44 20 7466 3036
Dan Huang
Dan Huang
Trainee - London
+44 20 7466 2925

 

Self-proclaimed creator of Bitcoin can proceed with claim that Bitcoin branch networks breach his intellectual property rights

Dr Craig Wright claims to be the inventor of Bitcoin and to have authored the Bitcoin White Paper in 2008, created the Bitcoin File Format and mined the inaugural block in the Bitcoin Blockchain – the ‘Genesis Block’.  Despite the Bitcoin White Paper having promoted de-centralisation, Dr Wright is now seeking to prevent others from using his alleged intellectual property.

A recent decision of the English High Court, Wright v BTC Core [2023] EWHC 222 (Ch), means that Dr Wright can continue his claims in relation to his alleged database rights over the Bitcoin blockchain and copyright in the Bitcoin White Paper and can serve proceedings on the defendants out of the jurisdiction. The court concluded that – assuming the facts are as alleged by Dr Wright – those two claims are arguable. However, it dismissed a claim for copyright in the Bitcoin File Format as unarguable.

It remains to be seen what the outcome of this case will be (including whether this decision will be appealed to the Court of Appeal) and what implications (if any) it will have for the continued operation of the Bitcoin branch networks, BTC and BCH.

In another claim brought by a company of Dr Wright’s, Tulip Trading Ltd v van der Laan [2023] EWCA Civ 83, the Court of Appeal recently overturned a decision of the High Court that there was no arguable claim that developers of a blockchain network owe users a fiduciary duty. Our analysis of Tulip can be accessed here. Continue reading