By Shane Wax
Just over one year ago, I authored an article published in Lawyer Monthly discussing the latest technology craze, Non-Fungible Tokens or “NFTs,” which explained, in simplified terms, what NFTs are and how they work, before ending on a cautionary note: “Despite the security offered by blockchain, this new industry is ripe for fraud and misuse, particularly in attempts to mint and sell NFTs linked to assets not owned by the minter-seller, be it a copyrighted work, trademarked brand or celebrity likeness.”[1]
So it should come as no surprise that several high-profile brands and celebrities have taken to the courts to seek redress over concerns that their intellectual property is being misappropriated. The growing list of lawsuits is now yielding judicial decisions on issues of first impression, and we can begin to identify legal issues for anyone currently or prospectively trying to create or sell NFTs, particularly questions about creative freedom. Here we’ll look at some early infringement lawsuits filed by famous celebrities and international brands with an eye toward learning a few lessons from early NFT litigation.
Among the earliest lawsuits was a copyright infringement lawsuit filed in June 2021 by Roc-A-Fella Records against one of the record label’s three co-owners, Damon Dash (Shawn Carter aka Jay-Z is also a co-owner) concerning NFT auctions related to Jay-Z’s debut album, Reasonable Doubt. Within days of the lawsuit’s filing, the Southern District of New York granted Roc-A-Fella’s request for a temporary restraining order to enjoining Dash from auctioning, selling or transferring any Reasonable Doubt NFT,[2] while, separately Jay-Z announced that he had commissioned a Brooklyn artist “to create a one-of-one animated digital artwork that recontextualizes the album’s cover,” which was ultimately auctioned and sold for $138,600 through Sotheby’s.[3]
According to court filings, which include a copy of Jay-Z’s 1995 distribution agreement with Roc-A-Fella, the record label owns the Reasonable Doubt masters and all copyrights in the sound recordings while Jay-Z retained ownership of the copyright of the underlying compositions. On the other hand, the lawsuit claims that “Dash holds no individual ownership interest in Reasonable Doubt, including in its copyright” despite his ownership of one-third of the shares of Roc-A-Fella. In other words, the record label claimed “Dash “is attempting to steal a company asset, mint it as an NFT, and auction it.” In an affidavit filed by Dash with the Court, he admits he does “not own the copyright,” claiming his intent “was to mint a hologram, which in turn, would be a digital representation of my 1/3 interest” in the record label, as opposed to any copyrighted work. Dash claims that “for reasons unknown,” SuperFarm, an NFT marketplace, published a press release that “had incorrect information insofar as it implicated that 100% of the copyright to [Reasonable Doubt] was being auctioned as an NFT since that was never going to happen.”[4]
The lawsuit was settled in June 2022 but presents at least one lesson learned. Would-be NFT creators, minters or sellers should exercise care and diligence when working with vendors and marketplaces to ensure that listings accurately reflect what is and what is not being transferred upon the sale of an NFT – much like an entrepreneur on eBay must be careful.
In November 2021, cinematic production company Miramax sued director Quentin Tarantino in federal court in the Central District of California, alleging breach of contract, copyright infringement, trademark infringement and unfair competition over Tarantino’s plans to auction off seven Pulp Fiction NFTs. According to Miramax’s Complaint, which includes a copy of a June 23, 1993 agreement relating to the production of Pulp Fiction, Tarantino and his co-producer Lawrence Bender assigned to Miramax “all rights (including all copyrights and trademarks) in and to the film (and all elements thereof in all stages of development and production),” including all rights that are necessary to create and sell NFTs.[5]
The lawsuit alleges that, in breach of their agreement and in violation of Miramax’s copyrights and trademark rights, Tarantino announced plans to “auction off 7 uncut Pulp Fiction Scenes as Secret NFTs” on Opensea, which would grant the NFT owner access to “uncut first handwritten scripts . . . commentary from Tarantino, revealing secrets about the film” and “a unique, never-before-seen, public-facing work of art.” Miramax also alleges that “Tarantino established a website promoting the Pulp Fiction NFTs” that features not only the film’s trademarked name, but also “unauthorized images of characters from the film.”[6]
For his part, Tarantino claims that the sale of these NFTs does not violate Miramax’s copyrights because Tarantino retained the original handwritten scripts and the copyright in the underlying screenplay, including the right to publish portions of the original script. After filing an Answer in December 2021, Tarantino filed a motion for judgment on the pleadings, asking the court to interpret the 1993 agreement as a matter of law and to declare that Tarantino’s NFTs fall within the scope of his reserved rights.[7] According to Tarantino, Miramax is the owner of the Pulp Fiction Film, which is a derivative work of the Pulp Fiction Screenplay, which Tarantino claims to still own, and the NFTs do not contain any content taken or derived from the Film. The motion was taking “on submission” by the court in July, but no decision has been filed yet.
Nevertheless, this case preaches caution to artists and authors when assigning broad rights involving derivative works because the owner of a derivative work may try to claim ownership of the underlying work. Moreover, it underlines the importance of well-written agreements that clearly delineate each side’s rights. For potential NFT creators, it is paramount to ensure that you have the rights to any creative work being sold as part of an NFT.
Next, we turn to the case of rapper Lil Yachty, who, in January 2022, filed a lawsuit against Opulous in federal court in California alleging trademark infringement, unfair competition, and California state law violations of publicity and likeness rights.[8] The complaint alleges that the defendants “published numerous commercial advertisements and promotions and made multiple statements to the media falsely representing” that Lil Yachty was involved “with the launching and offering of Defendants’ new products services,” and “maliciously utilized the alleged affiliation and involvement of Plaintiff as their flagship artist partnership to successfully raise substantial venture capital funds (represented as over $6.5 million).” Opulous, which is based in Singapore, has not yet appeared in the lawsuit, but has claimed in a public statement that its “uses of Lil Yachty’s name and likeness were all authorized.”[9]
But the most interesting aspect of this case is not the lawsuit itself, but a tangential statement contained in the complaint, which comments on Opulous’ unique business operation. Opulous markets itself as the “only platform to mint Music NFTs,” or what they call “MFTs,” which grant the buyer a share in the revenue of the song, EP or LP they are purchasing as an NFT.[10] Lil Yachty’s complaint notes that “in order to offer the ownership interest to any musician’s copyrighted work . . . OPULOUS must first have the agreement and consent of the musician at issue to sell the copyright to his or her work, with the musician in turn entitled to a share of the proceeds from the sale thereof.”[11]
This “axiomatic” point ties into the Pulp Fiction and Roc-a-Fella cases above, as well as in the next two cases, involving internationally famous brands Hermès and Nike. Not only do NFT minters need to ensure they have the rights to use pre-existing creative material, they also should not tell prospective purchasers that they are buying any interest in the underlying work, including its copyright, unless the artist has explicitly agreed to sell their rights.
In February 2022, Nike filed a trademark infringement suit against StockX alleging that its NFT collection known as “The Vault” unlawfully include images of Nike’s sneakers. Specifically, Nike alleges that “StockX is minting NFTs that prominently use Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those ‘investible digital assets’ (as StockX calls them) are, in fact, authorized by Nike when they are not,” particularly in view of Nike’s own entry into the NFT marketplace (e.g. MNLTH and CryptoKicks NFTs).[12] StockX claims that its “Vault NFTs” are all tied to identifiable and authenticated physical Nike products (a la a “claim ticket”), but Nike disputes this claim, alleging that Vault NFTs may be used to claim counterfeit Nike sneakers. The parties are currently engaged in the discovery, but this is a case to watch through the end of 2022 and possibly into 2023.
Finally, we turn to Hermès v. Rothschild, the first NFT case to yield a decision on substantive legal issues (i.e., not jurisdictional or procedural issues), courtesy of U.S. District Judge Rakoff of the Southern District of New York.
In a complaint filed on January 14, 2022, and amended on March 2, 2022, Hermès levies trademark infringement, false designation of origin, trademark dilution and myriad related claims against “digital artist” Mason Rothschild, after he launched a “MetaBirkins” line of NFTs in December “to spread the awareness of animal-free luxury” in the fashion industry.[13] Hermès sees the sale of NFTs that include images of its famous “Birkin” bags, covered in colorful faux fur, for thousands of dollars each, as the case of a “digital speculator who is seeking to get rich quick by appropriating the brand METABIRKINS . . . [which] simply rips off Hermès’ famous BIRKIN trademark by adding the generic prefix “meta” to the famous trademark BIRKIN.”[14]
On March 21st, Rothschild moved to dismiss the lawsuit, arguing primarily that, under Rogers v. Grimaldi – the precedential Second Circuit case that created a balancing test in cases where creative expression meets commercial confusion – the First Amendment protects his creative expression, comparing his NFT artworks to Andy Warhol’s depictions of Campbell’s soup cans and Coca-Cola bottles. Plaintiff counters that Rogers does not apply, because even if the First Amendment shields an artist from liability for reproducing trademarked products as part of the artworks, Rogers does not apply to Rothschild’s use of the similar name MetaBirkins as a source identifier for his NFTs, and because Rothschild uses were allegedly explicitly misleading.[15]
Federal Judge Jed S. Rakoff denied Rothschild’s motion to dismiss in its entirety. First, Judge Rakoff held that the Rogers balancing test did apply to Lanham Act claims against NFT artworks, noting that “while titles [of artworks] can be source indicators, this function is ‘inextricably intertwined’ with their communicative artistic functions.” Nevertheless, when the Rogers test was applied by Judge Rakoff, he found the balance favored the Plaintiff, noting that Hermès sufficiently alleges “that the use of the trademark is not artistically relevant and that the use of the trademark is explicitly misleading,” pointing to Rothschild’s own public statements about the project.[16]
The Hermès decision may shed light on how the Nike case might proceed and may influence digital artists who want to enter the NFT market. By applying the Rogers test, the Southern District of New York may be setting up a line of precedent that protects digital artists whose artworks include famous products, provided that there is some artistic relevance between the product and artwork and the NFT sales are not promoted with explicitly misleading marketing. However, the Hermès case is not over – it merely survived an early dispositive motion, and so now it will go through the rigors of litigation and discovery.
[1] Shane Wax, A Primer on Non-Fungible Tokens and Smart Contracts, Lawyer Monthly (May 27, 2021), available at https://www.lawyer-monthly.com/2021/05/a-primer-on-non-fungible-tokens-and-smart-contracts/.
[2] See Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. Jun. 18, 2021).
[3] Jem Aswad, Jay-Z and Artist Derrick Adams Unveil NFT to Commemorate 25th Anniversary of ‘Reasonable Doubt’ Debut, Variety (June 25, 2021), available at https://variety.com/2021/music/news/jay-z-derrick-adams-nft-reasonable-doubt-1235005280/ (last accessed Aug. 16, 2022); See also Matthew Ismael Ruiz, Jay-Z and Damon Dash Settle Reasonable Doubt Lawsuits, Pitchfork (June 13, 2022), available at https://pitchfork.com/news/jay-z-and-damon-dash-settle-reasonable-doubt-lawsuits/.
[4] See Roc-A-Fella Records, infra n.2, Dkt. No. 1 (June 18, 2021) (Complaint and Exhibits), Dkt. No. 12 (June 21, 2021) (Order to Show Cause and Temporary Restraining Order), Dkt. No. 16-1 (June 25, 201) (Declaration of Damon Dash in Opposition to OSC), Dkt. No. 27 (July 2, 2021) (Stipulation and Order amending OSC and TRO), Dkt. No. 32 (July 16, 2021) (Answer with Counterclaim), Dkt. No. 52 (Aug. 12, 201) (Amended Complaint and Exhibits), Dkt. No. 54 (Sept. 8, 2021) (Answer to Amended Complaint), Dkt. No. 86 (June 27, 2022) (Stipulation and Final Judgment).
[5] See Miramax, LLC v. Tarantino et al, Case No. 2:21-cv-08979-FMO-JC, Dkt. No. 1 (C.D. Cal. Nov. 16, 2021) (Complaint). As in the Roc-a-Fella case, a copy of the original June 1993 agreement between Miramax and Tarantino is included as an exhibit to the Complaint. See Id. Dkt No. 1-1 (Exhibit A to Complaint). According to the Grant of Rights section of the agreement, “Producer hereby grants to Miramax . . . all rights (including all copyrights and trademarks) in and to the film (and all elements thereof in all stages of development and production) now or hereafter known including without limitation the right to distribute the Film in all media now or hereafter known,” but reserves to Tarantino the right to make limited types of derivative works, including music soundtracks, live performances and novels or other books. Id.
[6] Id.
[7] See Id., Dkt. No. 17 (Dec. 9, 2021) (Answer), Dkt. No. 29 (June 21, 2021) (notice of motion and motion for judgment on the pleadings), Dkt. Nos. 33-35 (June 30, 2021) (Miramax submissions in opposition to motion); Blake Brittain, Tarantino tells court Miramax has no right to block ‘Pulp Fiction’ NFTs, Reuters (June 22, 2022), https://www.reuters.com/legal/litigation/tarantino-tells-court-miramax-has-no-right-block-pulp-fiction-nfts-2022-06-22/ (last accessed Aug. 16, 2022).
[8] See McCollum v. Opulous, Case No. 2:22-cv-00587-MWF-MAR at Dkt. No. 1 (C.D. Cal. Jan. 27, 2022) (Complaint).
[9] See Murray Stassen, Music NFT Platform Opulous Says It Will ‘Vigorously Defend’ Itself Against Lil Yachty Lawsuit, Music Business Worldwide (Feb. 2, 2022), https://www.musicbusinessworldwide.com/music-nft-platform-opulous-says-it-will-vigorously-defend-ourselves-against-lil-yachty-lawsuit/.
[10] See http://Opulous.org.
[11] See McCollum Complaint, infra n.7.
[12] See Nike, Inc. v. StockX LLC, Case No. 22-cv-00983 at Dkt. No. 1 (S.D.N.Y. Feb. 3, 2022) (Complaint); Id. at Dkt. No. 39 (May 25, 2022) (First Amended Complaint). Nike also claims that “StockX is even marketing and selling [authentic] Nike goods on its secondary market platform before Nike releases those goods to the marketplace in the first instance.” Id. ¶4.
[13] Cassell Ferere, Digital Artist Mason Rothschild Drops 100 ‘MetaBirkins’ NFTs Through Basic.Space, Forbes (Dec. 13, 2021), available at https://www.forbes.com/sites/cassellferere/2021/12/13/digital-artist-mason-rothschild-drops-100-metabirkins-nfts-through-basicspace/?sh=e28da2b20008 (last accessed Aug. 24. 2022)
[14] Hermès Int’l v. Rothschild, Case No. 22-cv-00384-JSR at Dkt. No. 1 (S.D.N.Y. Jan. 14, 2022) (Complaint); Id. at Dkt. No. 24 (Mar. 2, 2022) (First Amended Complaint); See Ferere infra n.13.
[15] Hermès, at Dkt. No. 27 (Mar. 21, 2022) (Defs.’ Memo of Law in Supp. of Motion to Dismiss Am. Compl.) (quoting Rogers v. Grimaldi, 875 F.2d 994, 998 (2d Cir. 1989); Id. at Dkt. No. 31 (Apr. 4, 2022) (Pls.’ Memo of Law in Opp. to Motion to Dismiss).
[16] Id., at Dkt. No. 50 (May 18, 2022) (Memorandum Order), Slip Op. at p.11 (quoting Rogers, 875 F.2d at 998).