The demise of crypto companies like FTX has not only depressed the cryptocurrency market, but has 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 various digital monkeys, was perhaps the most emblematic symbol of last year’s NFT boom. “It got the most attention from the media,” said Andrea Baronchelli, a professor at City University of London who studies crypto and NFTs. “It exploded because of the movements of various 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 such as Justin Bieber, Madonna and Paris Hilton were named in the suit, which alleged that 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 recent months. In December, there were $76 million in Bored Ape NFT sales on the secondary 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 dropped from $238,000 to $86,000.
The demise of FTX and other crypto companies not only weighed against NFT sales, but led to increased regulation, according to Merav Ozair, a blockchain expert and fintech professor at Wake Forest University. The US Securities and Exchange Commission (SEC) is reportedly investigating Yuga Labs, which owns Bored Ape Yacht Club, over whether its offering of digital assets violates federal laws. It is also investigating ApeCoin, a cryptocurrency given to holders of BAYC NFTs. “Regulation is coming to the crypto market, and NFTs are no exception,” Ozair said.
Yuga Labs, a Miami-based company, is also at the center of a dispute over trademark and copyright laws. In June, Yuga Labs filed a lawsuit in a Los Angeles court against artist Ryder Ripps, claiming that his use of BAYC images in his own NFT collection infringes on Yuga Lab’s trademark.
Questions arise about Bored Ape copyright protection
While the lawsuit deals with 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 that the court declare that BAYC NFTs are not subject to copyright protection.
This could have major implications for Yuga Labs, which claims to transfer copyright interests to holders of BAYC NFTs, thereby increasing their value to NFT owners.
But as Yuga Labs tried to persuade the court to stay away from copyright issues instead of trademark infringement, it revealed that it had not actually obtained copyright registration for BAYC NFTs. “The court should not determine 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,” Yuga Labs responded in a January 18 court filing.
Although copyright is created automatically when you create an original work, it must be registered to enforce it by filing an infringement suit in the US, according to Christian Tenkhoff, a Munich-based attorney at the 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 US Copyright Office has consistently taken the position that works of art must be human-made to be registered, according to Zahr Said, a professor specializing in copyright and trademark law at the University of Washington School of Law.
“The larger question, still unanswered in the legal community, is whether the artwork associated with NFTs can be eligible for copyright protection if it was created with the help of artificial intelligence and algorithms,” Tenkhoff said.
Yuga Labs maintains it owns its copyright, Eric Ball, an attorney for Yuga Labs, said in a statement. “It is well established law that a copyright is created 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.”