As previously reported on this blog, non-fungible tokens (or “NFTs”) recently emerged as one of the hottest new items on the art market—artists, auction houses, museums, sports organizations and others have jumped at the chance to create and sell their own versions of these unique tokens. But even as the term “NFT” has become more familiar, questions remain about the legal consequences of creating, marketing and selling NFTs.
The five recent lawsuits discussed below provide a window into these potential legal consequences. Although none has reached a resolution, these private civil actions highlight various legal theories of liability that could arise when participating in the NFT market, including claims for copyright infringement, trademark infringement, breach of contract and violations of securities laws.
Copyright Claims: Roc-A-Fella Records Inc. v. Damon Dash
Roc-A-Fella Records Inc. v. Damon Dash, one of the first federal lawsuits involving NFTs, involves a dispute over the copyright to a rap album. According to the Complaint, in early 2021, Damon Dash, who co-owns the record label Roc-A-Fella Records, Inc. (“Roc-A-Fella”) with Shawn Carter a/k/a/ Jay-Z and Kareem Burke, announced his plan to mint and sell an NFT of the copyright to Reasonable Doubt, Jay-Z’s debut album. However, Damon lacked any individual interest in the copyright. Dash originally planned to use SuperFarm, an NFT website, to mint and sell the NFT of the album. An announcement on SuperFarm’s website noted that the sale would occur on the Ethereum blockchain, and that the auction was significant because it would “set a precedent for how artistically created value and its ownership can be proven, transferred, and monetized seamlessly through a public blockchain.”
Following the announcement, Roc-A-Fella’s attorneys sent cease-and-desist letters to SuperFarm and Dash. As a result, SuperFarm cancelled the auction. Dash then attempted to look for another platform to host the auction of the NFT, but before he could sell the NFT, Roc-A-Fella sued Dash on June 18, 2021, in the District Court for the Southern District of New York, commencing one of the first legal actions involving NFTs.
In the Complaint, Roc-A-Fella sought a judgment declaring Roc-A-Fella as the owner of all rights to Reasonable Doubt, including the copyright. Roc-A-Fella asserted claims for unjust enrichment, conversion, replevin and breach of fiduciary duty. Roc-A-Fella also sought to enjoin Dash from selling any interest in Reasonable Doubt, along with damages. On July 2, U.S. District Judge John P. Cronan issued a temporary restraining order against Dash until the final resolution of the action. On July 16, Dash filed an answer, claiming that Roc-A-Fella “continues its attempts to prevent Dash from transferring, assigning, selling, or otherwise disposing of his [one-third] equity interest without any authority whatsoever.” In the answer, Dash sought: (1) a judgment declaring Dash as the sole director of Roc-A-Fella; and (2) an injunction to prevent Roc-A-Fella “from taking any unauthorized actions concerning [Roc-A-Fella].” Dash also filed an accompanying request for a temporary restraining order, seeking to enjoin Roc-A-Fella from holding a shareholder meeting on July 16, which the court denied.
On August 6, Roc-A-Fella filed an amended complaint, naming GoDigital, a company to which Dash allegedly granted the right to license Reasonable Doubt to certain websites, as a co-defendant. The defendants filed an answer to the amended complaint on September 29, and the parties are now in discovery.
Although this case has yet to reach a resolution, it draws attention to the potential for litigation surrounding the copyright rights required to mint NFTs. Buyers of NFTs should be cautious to ensure that the sellers of the NFTs actually have all rights required to create and market the NFT.
Copyright, Trademark, and Breach of Contract Claims: Miramax LLC v. Tarantino
Miramax LLC v. Tarantino also involves a dispute over copyright ownership, along with claims for trademark infringement and breach of contract. On November 2, 2021, Quentin Tarantino issued a press release announcing that he would auction off seven “uncut” scenes from his acclaimed film Pulp Fiction as “Secret NFTs” The sale of the secret Pulp Fiction NFTs would take place on OpenSea, one of the largest NFT platforms, and would contain never-before-seen content, including “the uncut first handwritten scripts of ‘Pulp Fiction’ and exclusive custom commentary from Tarantino, revealing secrets about the film and its creator.” In collaboration with a company called “SCRT Labs,” Tarantino established a website describing and promoting the NFTs, which displayed images of characters from the film. On November 11, 2021, a Twitter account named “@TarantinoNFTs” announced that the sale of the NFTs would occur in December 2021.
On November 16, 2021, film and television studio Miramax, LLC (“Miramax”) sued Tarantino and his company Visiona Romantica, Inc. in the Central District of California, asserting claims of copyright infringement, trademark infringement and breach of contract, and seeking an injunction to prevent any sale of the Pulp Fiction NFTs. Miramax claimed that in 1993, except for a number of “narrowly-drafted” Reserved Rights retained by Tarantino, it had acquired from Tarantino and producer Lawrence Bender “all rights (including all copyrights and trademarks) in and to the [Pulp Fiction] film (and all elements thereof in all stages of development and production).” Miramax claimed that its “broad” rights to Pulp Fiction included both “valid and subsisting United States copyrights registered with the U.S. Copyright Office” as well as “various registered and unregistered trademarks of the name ‘PULP FICTION.’” Miramax claimed that “Tarantino’s limited ‘Reserved Rights’ . . . [were] far too narrow for him to unilaterally produce, market, and sell the Pulp Fiction NFTs.”
According to Miramax, the creation of the NFTs constituted copyright infringement because they were unauthorized derivative works of Pulp Fiction. Miramax also claimed that the use of the Pulp Fiction Mark was trademark infringement and created unfair competition because it was likely to deceive consumers as to the origin of the NFTs, and was likely to cause consumers to believe that Miramax “sold, authorized, endorsed, or sponsored” the NFTs. Finally, Miramax alleged that the sale of the NFTs exceeded Tarantino’s “narrow” Reserved Rights and thus, was a breach of contract.
The defendants filed an answer on December 9, 2021, calling Miramax a “shell of its former self” that had “decided to bite the hand that fed it for so many years” by bringing this lawsuit. The defendants denied many of the allegations in the complaint, and asserted several affirmative defenses, including that the NFTs fell under the fair use exception to the Copyright Act. The defendants also claimed that the creation of the NFTs fell within Tarantino’s Reserved Rights, namely the right to publish his Pulp Fiction screenplay.
The parties submitted a joint discovery plan on February 10, 2022. A trial is set to begin February 28, 2023.
Trademark Claims: Hermès International, et al. v. Mason Rothschild
On January 14, 2022, Hermès International and Hermès of Paris sued Mason Rothschild, a digital artist, for trademark infringement related to his proposed sale of “MetaBirkins,” a collection of NFTs linked to digital images portraying fur-covered versions of the famed Hermès Birkin bags. In its 47-page complaint, which included claims of trademark infringement, false designation of origin, trademark dilution, cybersquatting, and injury to business reputation and dilution under New York General Business Law, Hermès claimed that Rothschild “rip[ped] off Hermès’ famous BIRKIN trademark” to “get rich quick.”
On February 9, 2022, Rothschild file a motion to dismiss the Complaint, arguing that he had “every right to make and sell art that depict branded products.” In support of that argument, Rothschild relied on Rogers v. Grimaldi, which establishes that the use of another’s trademark is not infringing if it is artistically relevant and does not explicitly mislead about its source or content. Rothschild claimed that MetaBirkins met both prongs of the Rogers test: (1) the MetaBirkins NFTs and mark are artistically relevant because they “invite viewers to consider the difference between the material objects—made of animal skins in reality—and the fantasized, immaterial images with their faux fur,” thus “calling into question what it is that luxury lovers actually pay for;” and (2) the use of the term “MetaBirkins” on Rothschild’s website and social media accounts is not explicitly misleading, as it “clearly identifies,” among other things, that Rothschild was in partnership with Basic.Space, not Hermès. Rothschild argued that the “bottom line” is that “Hermès wants to stop Rothschild from creating fanciful pictures that comment on its handbags,” but that the “First Amendment guarantees [Rothschild’s] right to respond in the marketplace of ideas to the inescapable corporate brand messages by which we are bombarded every day, virtually everywhere we look.”
On March 2, 2022, Hermès filed an Amended Complaint. In the Amended Complaint, Hermès claimed that Rothschild first began advertising the NFTs under the “METABIRKINS” trademark on December 2, 2021, at Art Basel in Miami, Florida. Rothschild offered the NFTs for sale on the OpenSea NFT marketplace featuring the tagline “NOT YOUR MOTHER’S BIRKIN,” and he allegedly featured the METABIRKINS trademark, as well as Hermès’ BIRKIN and HERMÈS trademarks, prominently on his social media and website, metabirkins.com. Hermès argued that Rothschild’s advertising was likely to confuse consumers, as consumers “see a wide variety of brands, including luxury fashion brands, exploiting the NFT space and would expect that NFTs featuring famous brands are affiliated with those brands, or wonder why the famous brands are permitting such dilutive use of their valuable assets and think less highly of them.”
On March 21, 2022, Rothschild filed a new motion to dismiss, restating many of the arguments made in the February 9 motion. Rothschild expanded on several of his previous arguments, noting that while Hermès attempted to avoid Rogers by claiming that Rothschild’s use of the MetaBirkins was “trademark use,” Rogers applies to claims against the name or content of expressive works, and “every single one of the uses Hermès identifies refers to the MetaBirkins digital artworks.”
On April 4, 2022, Hermès filed an opposition to Rothchild’s motion to dismiss, in which Hermès argued that Rothschild was an “opportunistic infringer, trading off Hermès’ substantial goodwill to sell digital handbags he describes as ‘commodities.’” Hermès also doubled down on its claims that Rothschild’s use of METABIRKINS infringed on and diluted Hermès’ trademark, and that the Rogers test was inapplicable. The motion to dismiss remains pending.
Trademark Claims: Nike, Inc. v. StockX LLC
On February 3, 2022, Nike sued StockX, an online sneaker resale platform, in the District Court for the Southern District of New York, alleging trademark infringement, dilution and unfair competition in relation to StockX’s sale of NFTs linked to digital images and physical versions of Nike sneakers. Nike argued that the platform was likely to cause confusion, especially in light of Nike’s recent acquisition of RTFKT, a digital art and collectible creative studio.
After first announcing the launch of the Nike NFTs on January 18, 2022, StockX has sold over 550 Nike-branded NFTs “at prices many multiples above the price of the physical Nike shoe.” Purchasers of the NFTs can trade their tokens in for the physical versions of the shoes in StockX’s possession. In its Complaint, Nike alleges that StockX has “recogniz[ed]” the tremendous value of the Nike brand to consumers,” and is “using Nike’s trademarks and images of Nike’s products to promote its Vault NFTs on the StockX Website, StockX App, and on StockX’s social media accounts.”
On March 31, 2022, StockX filed its answer, stating that it is “no different than major e-commerce retailers and marketplaces who use images and descriptions of products to sell physical sneakers and other goods, which consumers see (and are not confused by) every single day.” StockX alleges that the NFTs on their platform are “absolutely not ‘virtual products’” and have no intrinsic value; rather, each is “effectively a claim ticket, or a ‘key’ to the underlying Stored Item.” StockX asserted several affirmative defenses, including fair use and the first sale doctrine, claiming that Nike’s suit “threatens the legitimate use of NFTs . . . by other innovators that also use NFTs to track title to physical goods held in a vault, such as fine art, whiskey, and wine.”
Claims for Violations of Securities Laws: Dapper Labs
A recent lawsuit outside of the art market context implicates a different legal concern surrounding NFT sales—whether NFTs qualify as securities. On May 12, 2021, a group of plaintiffs initiated a securities class action lawsuit in the Supreme Court of New York against Dapper Labs, Inc. (“Dapper Labs”) and its CEO, Roham Gharegozlou, alleging that NFTs that Dapper Labs sold on its platform constituted unregistered securities in violation of federal securities laws.
In 2019, Dapper Labs developed a blockchain called “Flow,” which supports transactions involving both fungible and non-fungible tokens. That same year, Dapper Labs partnered with the NBA to launch an NFT platform called NBA Top Shot, which sells NFTs called NBA Top Shot Moments (or “Moments”) on the Flow blockchain. Moments are NFTs that are cryptographically linked to video clips of highlights from NBA basketball games.
The plaintiffs originally filed a complaint in the Supreme Court of New York, but in July 2021, the defendants successfully removed the case to the District Court for the Southern District of New York. In the Amended Complaint, filed in the Southern District on December 27, 2021, the plaintiffs claimed that Moments are “investment contracts” under the Howey test, and therefore must comply with federal securities requirements.
Under the Howey test, “an ‘investment contract’ exists where there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” Focusing primarily on the “efforts of others” aspect of the test, the plaintiffs alleged that Dapper Labs “used their control over NBA Top Shot” to prevent investors from “cashing out,” which “ensured that money stayed on the platform” and “prop[ed] up the market for Moments as well as the overall valuation of NBA Top Shot.” The plaintiffs also alleged that Dapper Labs created scarcity by selling Moments in limited edition packs and requiring all subsequent sales to take place on the NBA Top Shot platform.
In a letter to the court on February 22, 2022, defendants requested a hearing to brief a motion to dismiss.
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We will continue to monitor each of these cases as they progress and report on further developments that could impact NFT and art market participants.
. Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. Jun. 18, 2021).
. Complaint, Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. Jun. 18, 2021). Jay-Z had also recently commissioned Brooklyn-based artist Derrick Adams to create an NFT commemorating Reasonable Doubt, entitled “Heir to the Throne.” Adams created an original digital artwork that “reinterpret[ed] and recontextualize[d] the album cover to create a new contemporary take on a portrait that defined an era.” Heir to the Throne: An NFT in Celebration of JAY-Z’s Reasonable Doubt 25th Anniversary by Derrick Adams, Sotheby’s (Jun. 25 – July 2, 2021). On July 2, Jay-Z sold the NFT at a Sotheby’s auction for $138,600. Id.
. Id. ¶ 23. In an announcement on the website, Superfarm touted the uniqueness of the planned sale:
“Selling the copyright to Jay-Z’s Reasonable Doubt as an NFT is a groundbreaking landmark—both for the crypto space and the broader music industry. The newly minted NFT will prove ownership of the album’s copyright, transferring the rights to all future revenue generated by the album from Damon Dash to the auction winner.”
. Id. ¶ 27.
. Id. ¶¶ 33–45, 53–56.
. Id. at 11.
. Order, Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. July 2, 2021).
. Answer, Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. July 16, 2021).
. Memorandum of Law in Support of Plaintiff’s Order to Show Cause to Enjoin Meeting of Shareholders Scheduled for July 16, 2021 at 5:00PM EST, Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. July 16, 2021).
. First Amended Complaint, Roc-A-Fella Records Inc. v. Damon Dash, No. 1:21-cv-05411 (S.D.N.Y. Aug. 6, 2021).
. Miramax LLC v. Tarantino, 2:21-cv-08979 (C.D. Cal. Nov. 16, 2021).
. Quentin Tarantino Revealed as Iconic Artist Behind First-Ever Secret NFTs, Showcasing Never-Before-Seen Work Revealed Only to NFT Owner, GlobeNewswire (Nov. 2, 2021), https://www.globenewswire.com/news-release/2021/11/02/2325448/0/en/Quentin-Tarantino-Revealed-as-Iconic-Artist-Behind-First-Ever-Secret-NFTs-Showcasing-Never-Before-Seen-Work-Revealed-Only-to-NFT-Owner.html.
. Complaint ¶ 47, Miramax LLC v. Tarantino, 2:21-cv-08979 (C.D. Cal. Nov. 16, 2021).
. Id. at 15-19.
. Id. at 4-5. Tarantino’s Reserved Rights were limited to the “soundtrack album, music publishing, live performance, print publication (including without limitation screenplay publication, ‘making of’ books, comic books and novelization, in audio and electronic formats as well, as applicable), interactive media, theatrical and television sequel and remake rights, and television series and spinoff rights.” Id. at 4 ¶ 22.
. Id. at 8 ¶ 33.
. Id. at 1.
. Id. at 17 ¶ 56.
. Id. at 18 ¶ 62.
. Id. at 15-16.
. Answer, Miramax LLC v. Tarantino, 2:21-cv-08979 (C.D. Cal. Nov. 16, 2021).
. Id. at 15.
. Id. at 12.
. Amended Complaint, Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384 (S.D.N.Y. Mar. 2, 2022).
. Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).
. Memorandum in Support of Motion to Dismiss at 1, Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384 (S.D.N.Y. Feb. 9, 2022).
. Id. at 8, 14.
. Id. at 2.
. Amended Complaint at 3.
. Id. at 6.
. Memorandum in Support of Motion to Dismiss, Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384 (S.D.N.Y. Mar. 21, 2022).
. Id. at 11.
. Memorandum in Opposition to the Motion to Dismiss, Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384 (S.D.N.Y. Apr. 4, 2022).
. Complaint, Nike, Inc. v. StockX LLC, 1:22-cv-00983 (S.D.N.Y. Feb. 3, 2022).
. Id. at 16.
. Id. at 29.
 Answer at 8, Nike, Inc. v. StockX LLC, 1:22-cv-00983 (S.D.N.Y. Mar. 31, 2022).
. Id. at 8.
. Complaint, Friel v. Dapper Labs, Inc., et al., No. 653134/2021 (Sup. Ct. N.Y. Cnty. May 21, 2021).
. Complaint, supra note 27 at 7 ¶ 34.
. Id. at 2 ¶ 2.
. Notice of Removal, Friel v. Dapper Labs, Inc., et al., No. 1:21-cv-05837-VM (S.D.N.Y. July 7, 2021).
. Complaint, supra note 27 at 14-15.
. Id. at 14.
. Id. at 2 ¶ 6.
. Id. at 11, 23-25.
. Letter to Court, Friel v. Dapper Labs, Inc., et al., No. 1:21-cv-05837-VM (S.D.N.Y. Jan. 27, 2022).