Yuga Labs’ intensifying IP takedowns spur CryptoPunk backlash

Months after a US court handed Yuga Labs a hefty trademark-based legal victory that set NFT holders abuzz, questions have once again swirled around the precedent it set — and what it means for current holders and creators of top crypto collectibles. 

Another instance of Yuga Labs, the Miami-headquartered Web3 company that owns blue-chip NFT collections CryptoPunks and Bored Ape Yacht Club (BAYC), looking to enforce its intellectual property rights, has attracted industry attention.

Tom Lehman, the creator of the Ethscriptions Protocol, which provides a mechanism to attach image files on-chain, tweeted last week that he had taken down Ethereum Punk images from the protocol’s website and was “taking down” the Ethereum Punks’ website outright.

Lehman, who goes by MiddleMarch on Twitter and did not return a request for comment, said he was doing so “at the request of Yuga Labs.” 

Amidst the flurry of NFT legal actions, Brian Frye, a professor at the University of Kentucky College of Law who has followed the issue closely, said it’s “really important to distinguish between specifically copyright and trademark when it comes to the copyright issues in the space.”

The latter issues, especially, seem to be showing few signs of stopping. 

A series of tweets on July 15 from the Ethereum Punks collection said Yuga Labs had undertaken “recent DMCA actions,” which the collection said were “arguably indicative of a corporate mindset and directly challenge the foundational ideals of the PUNK community.”

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The tweets did not specify the DMCA enforcement actions in question, but framed Yuga Labs’ actions as “corporate greed.” A spokesperson for the company did not return a request for comment. 

On the copyright front, “nothing about owning an NFT makes you any kind of copyright owner at all,” Frye said. “Trademark is a value associated with NFT projects…the real value is owning the token.” 

Ethscriptions, which was hacked last week, has billed itself as a decentralized protocol (not its own blockchain or layer-2) based in the Ethereum ecosystem. Approximately 123 wallet addresses were said to have lost 202 ethscriptions in the hack.

Jessica Neer McDonald, an attorney specializing in intellectual property issues, told Blockworks that, generally speaking, discretion when it comes to usage terms can vary widely, hinging upon the issuer of the NFT collection.

“It’s so specific to the collection,” McDonald told Blockworks. “Each collection has the ability to provide — at least traditionally — licenses and permissions to use certain artwork that’s connected to a certain NFT, and that permission can really range to you’re only being given the right to personal usage versus expanding it to using it for commercial reasons.”

Yuga Labs NFT case against Ripps still rolling

Much of the current uncertainty has stemmed from a lawsuit Yuga Labs brought against Ryder Ripps and Jeremy Cahen, the creators “Ryder Ripps Bored Ape Yacht Club,” a satirical NFT collection impugning Bored Ape Yacht Club.

A judge overseeing the US court case, which centers around the near mirror-image NFTs, put an injunction in place against the collection, ruling in Yuga Labs’ favor and imposing monetary damages on the defendants. 

At issue then was not so much copyrights, which would have been tied to individual artworks of each NFT, but trademarks. 

“I think it was smart for Yuga’s strategy to focus on the trademarks and not get caught up on the copyright side,” McDonald said. “There’s still a lot of unanswered questions in relation to copyright: What does it mean to get an NFT? What do you get when you buy an NFT?” 

While copyrights, in a Bored Ape Yacht Club example, would refer to rights to the image depicted in a given NFT, trademarks protect the likeness and defining characteristics of the collection more broadly — which experts say are what Yuga Labs has really been looking to lock down.

BAYC holders have extensive commercialization rights, including merchandise and side media projects. It’s unclear what would happen to those endeavors if an NFT is sold. 

“If you think about it — to the extent you think copyright can protect the individual images in the first place  — it’s not really obvious to me how owning the copyright to one of 1,000 images, well, I don’t know how valuable that is.” Frye said.  

‘Copyright doesn’t protect URLs’

Bored Ape Yacht Club holders do have extensive rights to launch commercialized endeavors around their NFTs — as long as they still own them. Past interpretations have pointed to owners having the right to make money off of their apes, including via rolling out their own merchandising. 

And no caps on that monetization were initially implied, meaning owners ought to have unlimited runway with their side-hustle projects. Yuga Labs has taken a stand against what the company has deemed as ripoff or competitive projects — not so much how its NFT owners are using their own digital property. 

From a copyright perspective, according to University of Kentucky’s Frye, exchanging an inscribed NFT onchain, or even simply storing one in a wallet, “doesn’t really” present issues, which is one reason copyright violations haven’t been a big legal focus in these kinds of disputes. 

That’s because “copyright doesn’t protect URL,” and while it “might be infringing to a point to host the image on a file server,” what’s “inscribed on the blockchain is not infringing and can’t be infringing.” 

The sentiment, in Frye’s estimation, applies to most such digital collectibles like Ordinals that are using three to four megabytes of data to add inscriptions. NFTs going significantly above those limits or making substantial changes to the original file could shift that calculation. 

CryptoPunks’ terms of service point out that NFT buyers own the NFT itself as long as it’s in their wallet, but Yuga Labs maintains ownership of the intellectual property at play, which the company says is provided to buyers under a “license.”

The terms of service reference the possibility of “derivative” works, which users could create (and own the fresh intellectual property), but there are restrictions around ownership and other thorny legalities at work.

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