The downfall of crypto companies like FTX has not only depressed the cryptocurrency market, but raised questions about the once-thriving market for non-fungible tokens (NFTs).
The Bored Ape Yacht Club (BAYC), a collection of 10,000 NFTs made up of varying digital monkeys, were perhaps the most emblematic symbol of last year’s NFT boom. “It attracted the most attention from the media,” said Andrea Baronchelli, a professor at City University of London who studies crypto and NFTs. “It exploded due to the movements of several celebrities, it was seen as a status symbol.”
However, in December, the celebrities behind BAYC promotions were sued for allegedly artificially inflating the value of the NFTs. Stars like Justin Bieber, Madonna and Paris Hilton were named in the suit, which claimed influential figures were secretly paid to advertise the collection through misleading promotions.
The investment value of the BAYC collection has also taken a hit in the past few months. In December, there were $76 million of Bored Ape NFT sales on the second-hand market, compared to a peak of $346 million in January 2022, according to Crypto Slam, an NFT aggregator that publishes sales data. During that time, the average sale of an NFT from the collection fell from $238,000 to $86,000.
The downfall of FTX and other crypto companies has not only weighed against NFT sales, but led to heightened regulation, according to Merav Ozair, a blockchain expert and fintech professor at Wake Forest University. The U.S. Securities and Exchange Commission (SEC) is reportedly in the midst of investigating Yuga Labs, which owns Bored Ape Yacht Club, over whether its offering of digital assets violates federal laws. It’s also examining ApeCoin, a cryptocurrency given to holders of BAYC NFTs. “Regulation is coming to the crypto market, and NFTs are no exception,” said Ozair.
Yuga Labs, a Miami-based company, is additionally in the midst of a dispute concerning trademark and copyright laws. In June, Yuga Labs filed a lawsuit in a Los Angeles court against artist Ryder Ripps, claiming he used Yuga Labs trademarks to promote his own NFT collection.
Questions arise over Bored Ape copyright protection
While the lawsuit concerns trademark rights, which would apply to Ripp’s use of the BAYC logo and name, Ripp subsequently filed a counterclaim regarding copyright rights, which would cover the BAYC NFT images themselves. In December court filings, Ripp demanded the court declare that BAYC NFTs are not subject to copyright protection.
This could have big implications for Yuga Labs, which claims to transfer copyright interests to holders of BAYC NFTs, thereby supposedly increasing their value to NFT owners.
But as Yuga Labs attempted to persuade the court to steer away from copyright issues instead of trademark infringement, it revealed it hasn’t actually obtained copyright registration for BAYC NFTs. “The Court should not wade into whether Yuga Labs has a copyright in its Bored Ape images, because such an opinion would be merely advisory; Yuga Labs does not have a registered copyright,” responded Yuga Labs in a Jan. 18 court filing.
While copyright automatically comes into existence when you create an original work, it must be registered in order to enforce it by filing an infringement lawsuit in the U.S., according to Christian Tenkhoff, a Munich-based attorney at law firm Taylor Wessing who specializes in IP rights and NFTs. However, he said it remains unclear whether there is any copyright in the artwork underlying many NFT projects, due to the use of AI in creating the images.
The U.S. Copyright Office has consistently taken the position that artwork must be made by humans in order to be registered, according to Zahr Said, a professor specializing in copyright and trademark law at the University of Washington’s School of Law.
“The larger question, which is still unanswered in the legal community, is whether the artwork associated with NFTs can be eligible for copyright protection if it has been created with the assistance of artificial intelligence and algorithms,” said Tenkhoff.
Yuga Labs maintains that it owns its copyrights, said Eric Ball, an attorney for Yuga Labs, in a statement. “It is well-established law that a copyright is formed the moment an author creates something original that they put down on paper. Copyright registration with the Federal government is also voluntary and not required.”
Clarification: This story has been updated to include further details on the lawsuit between Yuga Labs and Ryder Ripps.