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Copyright & TM Cases To Watch In The Second Half Of 2022

In this article for Law360, partner Lauren Schweitzer is quoted about a pending significant Supreme Court case.

The U.S. Supreme Court will hear a fair use case over Andy Warhol's portraits of the music icon Prince, and federal courts are grappling with the first wave of lawsuits involving non-fungible tokens. Here are the top copyright and trademark cases to keep an eye on in the second half of 2022.

The Andy Warhol Foundation v. Goldsmith

The U.S. Supreme Court is reviewing whether pop artist Andy Warhol's artwork made fair use of a photo of music legend Prince in a case that may provide clarity on when a work is transformative enough to qualify for protection under copyright law.

In March, the high court granted The Andy Warhol Foundation's certiorari petition challenging the Second Circuit's ruling that Warhol's work was not a "transformative" fair use of a copyrighted photograph of Prince by Lynn Goldsmith. Warhol's work retained the "essential elements of its source material" and was not "fundamentally different and new," the appeals court had found.

It's been "quite a while" since the Supreme Court has addressed what it means for a work to be transformative for purposes of fair use, outside the context of computer programs, Lauren Schweitzer of Kirkland & Ellis LLP said, referring to the high court's Google v. Oracle ruling in April 2021.

"In the district and circuit courts, there has been a pendulum swing from increasingly expansive views of both what constitutes a transformative work and how much transformativeness dominates the fair use inquiry to more narrow approaches to fair use," Schweitzer said.

The case will provide an opportunity for justices to "revisit this issue, clarify the appropriate test, and also to provide important guidance about how to distinguish transformative fair uses from infringing derivative works," she added.

The case is The Andy Warhol Foundation v. Goldsmith, case number 21-869, in the Supreme Court of the United States.

Hunley v. Instagram

Two photographers are asking the Ninth Circuit to revive a proposed class action challenging how easily Instagram lets websites embed photos, the latest case to question whether the so-called server test is outdated in light of evolving technology.

Photographers Alexis Hunley and Matthew S. Brauer in June said a California federal judge incorrectly tossed out their lawsuit alleging that Instagram is liable for secondary infringement when third-party sites use Instagram's embedding tool to display their photos and videos.

The judge said he was bound by the Ninth Circuit's 2007 ruling in Perfect 10 v. Amazon, which established the server test that finds websites do not legally "display" a copyrighted image if it is stored on its original website and merely embedded in search results.

But the Perfect 10 test established by the Ninth Circuit has now been rejected by "virtually every court" considering the same issue, the photographers said, citing a New York federal judge's March decision that "unequivocally rejected" the argument.

"The Ninth Circuit may conclude that these cases are persuasive and harmonize the test for determining whether embedding arises to copyright infringement," Margaret Esquenet of Finnegan Henderson Farabow Garrett & Dunner LLP said, while noting that "the case is also important even if the Ninth Circuit does not modify Perfect 10, because that could create a circuit split of interest to the Supreme Court."

If the appeals court opts to overturn the server test, companies and individuals may "need to reevaluate risks of making available and using embedding functionality," Esquenet added.

The case is Hunley et al. v. Instagram LLC, case number 22-15293, in the U.S. Court of Appeals for the Ninth Circuit.

Hermes v. Rothschild

Early this year, Hermes sued designer Mason Rothschild over a "MetaBirkins" line of nonfungible tokens, alleging the NFTs infringe its trademarks for the fashion house's Birkin bags. NFTs are unique digital assets that are stored on a blockchain and represent ownership of an item.

In May, a New York federal judge rejected Rothschild's request to dismiss Hermes' accusations, saying the Second Circuit's Rogers v. Grimaldi ruling, which establishes a test for balancing the public interest in avoiding consumer confusion and the First Amendment interest in free expression, applied in part for analyzing the trademark claims.

Hermes had contended that the Rogers test didn't apply because MetaBirkins was used to "brand a product line" and signify its source, but the district judge disagreed, saying the test was "not inapplicable simply because Rothschild sells the image."

The case is one of first impression, as it's one of the first trademark cases involving NFTs, according to Danielle Garno of Holland & Knight. Interestingly, the court had theorized in a footnote to its order that the MetaBirkins NFTs might not be considered artwork if they represent virtually wearable handbags — and could instead be considered "non-speech commercial product" not subject to First Amendment protections, she said.

"In other words, according to [U.S. District Judge Jed Rakoff], NFTs and virtual goods may, in fact, infringe on trademarks in the physical realm," Garno said. "This footnote may be instructive as brands attempt to enforce their trademark rights against third parties using their marks on articles worn and used by avatars in the metaverse."

The case is Hermes International et al. v. Mason Rothschild, case number 1:22-cv-00384, in the U.S. District Court for the Southern District of New York.

Yuga Labs v. Ripps

Yuga Labs Inc., the company behind the Bored Ape Yacht Club nonfungible token collection, in late June accused self-styled conceptual artist Ryder Ripps and several associates of infringing its trademarks and selling the same products on the same platforms as Yuga Labs.

Yuga Labs is behind the digital art collection called Bored Ape Yacht Club, a series of NFT portraits of anthropomorphic monkeys that have been bought by celebrities such as TV host Jimmy Fallon and pop artist Justin Bieber.

Ripps is "trolling Yuga Labs and scamming consumers" into purchasing his own copycat versions of the work, which he calls the "'RR/BAYC' NFTs," the complaint says. The artist has allegedly made more than $5 million by "pumping and dumping fake NFTs," Yuga alleged.

Yuga Labs' case against Ripps has the potential to define what digital ownership rights come with an NFT, and how those rights are effectively — or ineffectively — transferred, according to Robert LeBlanc of Haynes and Boone LLP. This is important because "at the moment, there is no legal precedent that stops third parties from profiting off an NFT that they don't own," he said.

While the "vast majority of IP-focused NFT litigation is focused on copyright claims," the case differs because it involves trademark concerns, according to LeBlanc. Yuga Labs did not include copyright claims in its lawsuit, indicating it believes it has effectively assigned the copyright to the owners of the individual Bored Apes, he noted.

"This brings about an interesting situation as to whether Yuga can or should encourage individual Bored Ape owners to file suit based on copyright infringement, which would be the most logical IP claim here," LeBlanc said.

Ripps may also challenge whether Yuga Labs owns the Bored Ape marks at all, or if those trademark rights were also assigned to the individual ape owners, he added.

The case is Yuga Labs Inc. v. Ripps et al., case number 2:22-cv-04355, in the U.S. District Court for the Central District of California.

Nike v. StockX

In February, Nike accused sneaker resale marketplace StockX of selling nonfungible tokens that display Nike's sneaker designs without the retail giant's permission. According to the retailer, StockX's NFT collection, known as The Vault, is composed solely of unauthorized images of Nike's shoes, allegedly banking on the shoe giant's popularity to boost sales.

StockX said it was not infringing because its Vault collection is like a "claim ticket" to actual sneakers that are authenticated and stored in its facilities — prompting Nike to take aim at StockX's authentication process, alleging it has been able to purchase counterfeit Nike shoes "despite StockX's numerous guarantees of authenticity."

StockX has since disputed Nike's characterization of its authentication program, saying it has invested millions into fighting counterfeits and has hired over 300 authenticators. StockX also said key executives for the retailer had also praised the platform's efforts in the past.

The case is significant in part because of StockX's claim that it is not selling its NFTs as digital art, but instead using them as a means of selling the actual product pictured in the NFT, according to Justin E. Pierce of Venable LLP.

"We envision this nuance will lead to a case that will, if it proceeds, potentially provide a more in-depth analysis of the unique legal challenges of this new metaverse medium," Pierce said, adding that the case may also "ultimately help to define the lines of allowable use cases for NFTs going forward."

The case is Nike Inc. v. StockX LLC, case number 1:22-cv-00983, in the U.S. District Court for the Southern District of New York.

Vans v. MSCHF

Brooklyn art collective MSCHF Product Studio Inc. is asking the Second Circuit to overturn a New York federal judge's decision to grant shoemaker Vans Inc.'s bid to temporarily block the studio's collaboration with rapper Tyga, known as "Wavy Baby" sneakers.

Vans alleged in April that MSCHF — which has collaborated with celebrities to release various products — infringed at least six of Vans' registered trademarks. MSCHF, for its part, has argued that the First Amendment protects the collaboration — which makes social comments on the shoe industry — since it is "artistically expressive."

The case has drawn the attention of intellectual property law professors, the International Trade Association and more, which have filed amicus briefs that largely argue the suit is a chance for the appellate court to clarify what qualifies as a protected "expressive" work.

"Shoe designers mock, comment on, and pay homage to each other," the professors wrote in their brief. "Those modifications are expressive speech the law should protect."

The suit is Vans Inc. v. MSCHF Product Studio Inc., case number 22-1006, in the U.S. Court of Appeals for the Second Circuit.