Ryder Ripps and Pauly Hit Hard in Yuga Labs Lawsuit

In a breaking development, individuals Ryder Ripps and Pauly have been ordered to pay substantial damages to Yuga Labs. The court has ruled that they must fork over more than $1.5 million to Yuga Labs. Adding salt to the wound, the duo is compelled to transfer control of the RR/BAYC smart contract over to Yuga Labs. This smart contract likely has significant implications in the NFT space, and its control could be pivotal for Yuga’s future endeavors.

This court directive adds another layer to Yuga Labs’ already significant victory, pulling them further ahead in the legal and ethical landscape of intellectual property rights within the NFT world. The ruling not only underscores the importance of respecting intellectual property but also showcases the legal system’s willingness to enforce these rights in the realm of smart contracts and blockchain technology. Yuga Labs’ legal triumph serves as a glaring reminder that the emerging world of NFTs and blockchain isn’t a ‘wild west’ where anything goes; it’s a space that is increasingly coming under the rule of law.

The Legal Victory

Yuga Labs, the company behind some significant initiatives in the NFT space, has recently clinched a resounding legal victory. A court has awarded the company approximately $1.5 million in damages for trademark infringement. That’s not all; Yuga Labs will also be able to recover its attorneys’ fees and costs, potentially adding another $1 million or more to their war chest. As court rulings go, this is a momentous win for the company and sets a benchmark for how intellectual property cases might be dealt with in the increasingly complex NFT landscape.

The Details

According to the court’s findings, Yuga is entitled to recover its costs under 15 U.S.C § 505. However, the court is yet to determine the precise amount that Yuga Labs is to receive for attorneys’ fees and costs. The court has ordered both parties to “meet and confer” to agree on what would constitute “reasonable” legal fees and other expenses. The stipulation has been made that this discussion between the two parties should not lead to a “second major litigation,” referring to a landmark case Hensley v. Eckerhart from 1983.

The court’s ruling outlines a tight schedule: Yuga Labs needs to provide all billing records and supporting documents by November 1, 2023. Subsequently, lead counsels for both sides will meet in person on November 13, 2023, to iron out the specifics concerning billing rates, hours, and other costs. Should there be any unresolved issues after this meeting, both parties are required to submit a joint statement by November 20, 2023.

Welp, looks like it was a good day for @yugalabs who just won ~$1.5 million in damages in their trademark infringement case PLUS attorneys fees and costs (so another $1 million conservatively and probably much more?). Hopefully their attorneys have some fun at ape fest. pic.twitter.com/BvP8jrBi0T

— Birdnals (@BirdnalsLAW) October 26, 2023

The Implications

This ruling not only brings justice to Yuga Labs but also sends a strong signal to the broader NFT and tech community. Intellectual property infringement will not be tolerated, and the courts are prepared to award substantial damages and fees to the aggrieved parties. With Yuga Labs’ win, we may be looking at an emboldened era for innovators in the NFT space who can now have more confidence that their intellectual properties will be safeguarded.

What Comes Next?

Although Yuga Labs has won the battle, the “war” over the exact amounts of attorneys’ fees and costs is still to be finalized. Both parties are now mandated to meet and settle these details amicably. As of now, Yuga Labs is well-poised to recover a substantial amount, reinforcing its financial and ethical stand in the sector.

TL;DR

Yuga Labs scores a big win in a trademark infringement case, netting around $1.5 million in damages, with an additional sum likely for attorneys’ fees and costs. Both parties are now in talks to finalize these “reasonable” costs. The win is a significant milestone for intellectual property rights within the NFT community.

Tags: Yuga Labs, Trademark Infringement, Legal Victory, Intellectual Property, NFTs, Court Ruling, Attorneys’ Fees, Hensley v. Eckerhart, Tech Community, Damages.

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The U.S. Securities and Exchange Commission (SEC) has recently charged Stoner Cats 2 LLC (SC2) for unregistered NFT (non-fungible token) offerings, setting a crucial precedent for future NFT initiatives. Here’s a breakdown of the event and its potential implications:

What Happened?

The SEC alleges that SC2 had carried out an unregistered crypto asset securities offering by selling non-fungible tokens (NFTs) to the public. These sales were intended to fund an animated web series titled Stoner Cats. Within just 35 minutes, the project sold over 10,000 NFTs at $800 each, accumulating about $8 million.

“Registration of securities, including crypto asset securities, protects investors by providing them with disclosures so they can make informed investing decisions,” said Carolyn Welshhans, Associate Director of the SEC’s Home Office. “Stoner Cats wanted all the benefits of offering and selling a security to the public but ignored the legal responsibilities that come with doing so.”

Key elements of the SEC’s findings include:

• The marketing campaign around the NFTs, which emphasized potential profits.
• The ability for owners to resell these NFTs on secondary markets.
• The 2.5% royalty SC2 would gain from each secondary transaction.
• The fact that these NFTs were sold as potential profit sources instead of mere collectibles.

What Does This Mean for NFTs?

The SEC’s action against SC2 illustrates the grey area where NFTs currently reside in the realm of securities law. This case emphasizes several takeaways:

1. Economic Reality over Labels: The SEC has highlighted that the nature of an offering is determined by its economic reality rather than its label. Even if something is promoted as an NFT, if it operates like a security, it will be treated as one.
2. Registration is Crucial: The case underscores the importance of registering securities, even those in the crypto domain, to safeguard investors. The registration process ensures investors are well-informed and provided with necessary disclosures.
3. Promises of Profit: The way an NFT is marketed can affect its classification. If it’s promoted as a potential source of profit, rather than a collectible or a piece of art, it might be seen as a security. NFT projects should be wary of making claims about future profits or returns.

Dissent from the SEC

However, not everyone within the SEC agrees with this action. A recent statement dissenting from the SEC’s decision points out that:

1. Lack of Limiting Principle: The application of the Howey investment contract analysis to NFTs lacks a solid limiting principle, meaning it’s unclear where the line will be drawn.
2. Stifling Creativity: Treating NFTs the same way as physical collectibles could deter artists. There’s a concern that creativity might be hampered due to the ambiguity of legal regulations.
3. Need for Clear Guidelines: Instead of sporadic enforcement actions against NFT initiatives, the statement suggests that there should be well-defined guidelines. Artists and creators need clarity to understand if, and how, securities laws might apply to their work.
4. Monetization and Artists: Many artists struggle to financially support their craft. NFTs present a novel avenue for monetization. Just because monetary transactions are involved doesn’t necessarily equate NFTs to securities.

Wow! SEC commissioners Peirce and Uyeda just released a statement saying they DISAGREE with the SEC's actions against Stoner Cats nfts

Comparing nfts to 1970s Star Wars collectables, and stating the need to protect artists' ability to create without excessive legal constraints pic.twitter.com/w7xOCI0grv

— OKHotshot (@NFTherder) September 13, 2023

Broader Implications and The Way Forward

The SEC’s action against SC2 and the subsequent dissent highlight the tension between regulating a burgeoning digital market and fostering creativity. The challenge for the SEC and other regulators will be to strike a balance. As the NFT market evolves, it’s pivotal that artists and creators are provided with lucid guidelines, ensuring that innovation isn’t stymied due to regulatory apprehensions.

In sum, while the SEC’s move sets a tone for NFT regulations, there’s a palpable need for clarity. As the industry expands and more creators dive into the world of NFTs, they deserve definitive guidance on navigating the intricacies of securities laws. This will not only protect the rights of creators and investors but also preserve the innovative spirit that defines the world of NFTs.

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The SEC’s Stance on NFTs: A Deep Dive into the Impact Theory Case

In a landmark decision, the U.S. Securities and Exchange Commission (SEC) has moved to crack down on what it perceives as irregularities in the crypto space. The target? Impact Theory, LLC, an LA-based media and entertainment entity, now facing charges for conducting an unregistered offering of what the SEC has termed as “crypto asset securities” in the form of NFTs.

The Backstory

Headquartered in the entertainment capital, Los Angeles, Impact Theory had raised an impressive sum of around $30 million. Their modus operandi? Offering NFTs to hundreds of investors, not just locally, but spanning across the United States. This isn’t a small-scale operation by any means.

Delving deeper into the nature of these NFTs, the company had rolled out three distinct tiers of NFTs, colloquially termed as Founder’s Keys. They went by the intriguing names of “Legendary,” “Heroic,” and “Relentless.” The bone of contention? Impact Theory’s assertion that purchasing a Founder’s Key was akin to investing in the company itself. They posited that if the company tasted success, these “investors” would see handsome returns on their initial purchases. Their ambitious vision was crystal clear – they had set their sights on emulating the colossal success of industry giants like Disney. If their lofty aspirations were to materialize, it would translate to “tremendous value” for the Founder’s Key holders.

However, the SEC’s perspective paints a different picture. They argue that the NFTs proffered by Impact Theory fell within the purview of investment contracts, thereby classifying them as securities. The implication? Impact Theory stood in violation of federal securities laws by promoting and trading these crypto securities without the necessary registration.

The SEC Speaks

In a statement that reinforces the regulatory body’s commitment to uphold securities laws, Antonia Apps, who helms the SEC’s New York Regional Office, declared, “Absent a valid exemption, offerings of securities, in whatever form, must be registered.” Apps further emphasized the indispensable role of registration in ensuring that investors are not deprived of the protections guaranteed by the nation’s securities laws.

In a move signaling cooperation, Impact Theory has not contested the SEC’s findings. Instead, they’ve acquiesced to a cease-and-desist order, which holds them accountable for violating the registration stipulations of the Securities Act of 1933. The company’s reparations? A hefty payout exceeding $6.1 million, factoring in disgorgement, prejudgment interest, and a civil penalty. To redress the affected investors, a Fair Fund will be established using these monies. As a further remedial measure, Impact Theory has committed to nullify all Founder’s Keys under their control and to abstain from any potential royalties arising from secondary market transactions of these NFTs.

In Conclusion

This case underscores the SEC’s unwavering commitment to monitoring and regulating the burgeoning NFT space. As the world of crypto assets continues to evolve, regulatory clarity is of paramount importance, not just for investors, but for entities operating in this sphere.

TL;DR: The SEC has charged Impact Theory for unregistered offerings of NFTs, seeing them as securities. The LA-based company raised about $30 million from these NFTs and has now agreed to a cease-and-desist order, requiring them to pay over $6.1 million in various charges. The case highlights the SEC’s intent to regulate the NFT market.

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 Insider Scheme Revealed as Ex-Product Manager Exploits Inside Information on Featured NFTs

TLDR: Nathanial Chastain, a former product manager at OpenSea, has been sentenced to three months in prison for conducting insider trading with non-fungible tokens (NFTs). Chastain used his position to gain advanced knowledge of NFTs scheduled for OpenSea’s homepage, secretly purchasing and then selling them for substantial profits. This groundbreaking case highlights the consequences of corporate insider trading and the importance of maintaining trust within the NFT marketplace.

Introduction: In a landmark case, Nathanial Chastain, a former product manager at OpenSea, has been sentenced to three months in prison for his involvement in a scheme to commit insider trading with non-fungible tokens (NFTs). This incident sheds light on the challenges faced by the emerging NFT market and the consequences of abusing confidential information.

The Insider Trading Scheme

Chastain, responsible for selecting NFTs to feature on OpenSea’s homepage, took advantage of his position to gain advanced knowledge of upcoming featured NFTs. OpenSea maintained the secrecy of these featured NFTs until they were revealed on the homepage. Recognizing the potential for increased buyer interest and higher prices, Chastain engaged in a series of transactions to exploit this information for personal financial gain.

The Impact on the NFT Market

Between June and September 2021, Chastain used OpenSea’s confidential business information to make covert purchases of NFTs shortly before they were featured on the platform’s homepage. This allowed him to sell the acquired NFTs at significant profits after their appearance. The case underscores how insider information can disrupt the organic dynamics of the NFT market and distort prices.

Concealing the Fraud

To obscure his actions, Chastain conducted these transactions using anonymous digital currency wallets and accounts on OpenSea. This tactic allowed him to evade detection while profiting from his illicit activities. The case raises concerns about the need for enhanced security measures within the NFT ecosystem to prevent such fraudulent practices.

Legal Consequences: As a result of his actions, Chastain, aged 31 and residing in New York, has been sentenced to three months in prison, along with three months of home confinement, three years of supervised release, and a $50,000 fine. Additionally, he is required to forfeit the Ethereum he gained from trading the featured NFTs.

Lessons for the NFT Community

This case serves as a warning to individuals within the NFT ecosystem about the severe consequences of insider trading. The sentence emphasizes the commitment to maintaining trust and integrity within the marketplace. As the NFT space continues to evolve, maintaining ethical practices and ensuring transparency will be crucial to its sustainable growth.

The sentencing of Nathanial Chastain highlights the first-ever instance of insider trading within the NFT market, revealing the challenges and potential pitfalls associated with the intersection of technology, art, and financial gain. The case underscores the necessity of vigilance and ethical conduct within the NFT community to ensure the long-term success and credibility of this innovative space.

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Today, DC Comics affirmed their previous announcement protecting their intellectual properties that include Batman and Wonder Woman by suppressing the Nifty Gateway release of NFT art by Boss Logic and Zack Snyder. The timing of this announcement comes as more and more artists embrace the growing hype and sentiment around NFT Culture.

The situation with this apparent cease and desist will have massive implications for future NFT artists and marketplaces, as many NFTs just point to an address that ultimately houses the works created by artists. If DC comics wins, there could be massive fallout from the art that has been previously created and released on platforms and marketplaces.

Additionally, If marketplaces like Nifty Gateway and Makersplace have profited from any infringement, they may be liable for damages against organizations like DC comics. Fortunately, NFT Culture staff believes this outcome isn’t very likely, due to the prevailing Derivative Works copyright doctrine. Our non-legal analysis shows that Derivative Works is a grey area, but the grey is likely to swing in favor of artists and platforms.

What is yet to be seen is how the artists may respond. This appears to be a massive slap in the face to DC’s freelance artists and creators who have historically had limited access to audiences and used art sales to help them make an independent living. As an example, artists like Jason Campbell have been allowed to sell prints of their work for profit, and many artists sell derivative works at trade shows like Comic-Con. It will be curious to see how this all plays out as the non-digital and digital realm continue their intersection.

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 DC Comics lays down the NFT ban-hammer on their artists

The corporatization of NFTs grows by the day as conglomerates like Time Warner (Owner of Warner bros (owner of DC Comics))) begin exploring ways to enter the NFT Market. In a letter that was published last Thursday, Jay Kogan SVP legal affairs sent teh following to freelancers:

Non-Fungible Tokens (NFTs) are becoming the newest fan collectibles and have generated significant press and buzz in the digital space. DC is exploring opportunities to enter the market for the distribution and sale of original DC digital art with NFTs including both new art created specifically for the NFT market, as well as original digital art rendered for DC’s comic book publications.

As DC examines the complexities of the NFT marketplace, and we work on a reasonable and fair solution for all parties involved, including fans and collectors, please note that the offering for sale of any digital images featuring DC’s intellectual property with or without NFTs, whether rendered for DC’s publications or rendered outside the scope of one’s contractual engagement with DC, is not permitted. If you are approached by anyone interested in including any of your DC art in an NFT program, please let Lawrence Ganem, DC’s VP, Talent Services know.

We expect the participation of DC’s freelance talent will be an integral component of the NFT program that DC puts into place. We’ll share further information as it becomes available, and we appreciate your cooperation and partnership.

This Letter was sent by DC Comics, Jay Kogan, senior vice president, legal affairs to company freelancers.

This complicates matters for famous artists like Jose Delgo  that have already done a myriad of comic related drops across famous NFT marketplaces like MakersPlace, SuperRare, and Nifty Gateway. It will be interesting to see how the artists and market respond.  One thing is certain, the likely price of these rare NFTs is likely to increase.

DC Comics wants to Launch NFTs

We’ve discussed the imminent arrival of additional corporate NFTs when discussing licensing challenges via deals with Topps as well as the likely arrival of Pokemon NFTs in the near future.  As massive wealth enters the NFT market through the volume of collectors, the legal efforts will follow suit.  Collectors are likely safe, but artists that leverage IP from these brands (we expect Nintendo to be one of the largest defenders of their IP) Artists that have profited from creating NFTs featuring artists they don’t control will create havok in 2021.  We will dive into this topic in more detail in a future post, but if you’re an artist profiting from corporate IP, watch out.  They’re coming for you.

Copyright and NFTs are a tricky business but Legal teams have energy and expertise

If this plays out as expected, these large media firms will put tremendous pressure on the marketplaces and the artists almost immediately, (if they havent already). This will be easier for top-tier nft marketplaces to overcome as they’ve designed their marketplaces to focus on the artist first and the drops are usually curated and monitored in advance. As we move down the marketplace tier and artists can easily enter the marketplace (or sign up on their own) the challenges will mount.  In the near future, we suspect more marketplaces adopting language that better protects them in their T&C’s and puts even more pressure on the artist.

Copyright Overview

• Copyright is a form of protection provided by the laws of the United States to the authors of “original works of authorship,” including literary, dramatic, musical, artistic, and certain other intellectual works. This protection is available to both published and unpublished works.
• Section 106 of the 1976 Copyright Act generally gives the owner of copyright the exclusive right to do and to authorize others to do the following:
  • To reproduce the work in copies or phonorecords;
  • To prepare derivative works based upon the work;
  • To distribute copies or phono records of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
  • To perform the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works;
  • To display the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work.
  • In the case of sound recordings,* to perform the work publicly by means of a digital audio transmission.
  • In addition, certain authors of works of visual art have the rights of attribution and integrity as described in section 106A of the 1976 Copyright Act.
• It is illegal for anyone to violate any of the rights provided by the copyright law to the owner of copyright. These rights, however, are not unlimited in scope. One major limitation is the doctrine of “fair use,” which is given a statutory basis in section 107 of the 1976 Copyright Act. In other instances, the limitation takes the form of a “compulsory license” under which certain limited uses of copyrighted works are permitted upon payment of specified royalties and compliance with statutory conditions.
• Do I have to register with your office to be protected? – No. In general, registration is voluntary. Copyright exists from the moment the work is created. You will have to register, however, if you wish to bring a lawsuit for infringement of a U.S. work.

For more information, goto the U.S. Copyright office directly.

*This is not legal advice. If you have any questions about legality of NFTs or anything else, please consult a lawyer.

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