The U.S. Court of Appeals for the Ninth Circuit recently affirmed that nonfungible tokens (NFTs) can qualify as trademark assets under the Lanham Act. This ruling, centered on a dispute involving the Bored Ape Yacht Club’s NFT collection, marks a significant development in the legal treatment of digital assets. NFTs - digital assets with unique software codes and perceptible components such as artwork - now have the potential to serve as source identifiers, akin to traditional trademarks. This classification opens new avenues for lenders, enabling them to treat NFTs as collateral if they meet specific criteria. As these assets gain prominence across industries, understanding their legal status is critical for financial institutions.
For lenders seeking to secure NFTs as trademarks, the process mirrors traditional trademark procedures. First, NFTs qualify as trademarks if they identify the source of digital goods or services. Second, a UCC-1 filing is required to perfect a security interest, alongside a security agreement with the borrower. Third, due diligence is essential: verifying the NFT’s trademark status and market value before proceeding. This step is crucial, as conflicts or infringing registrations can undermine the value of the asset.
Lenders should also consider optional filings with the U.S. Patent and Trademark Office (USPTO) to enhance notice to third parties, though UCC filings alone suffice for legal priority. However, the complexity of digital assets demands more than standard checks. Tools like IP Defender, which monitors national trademark databases for conflicts and infringements, can help identify potential risks before they escalate. IP Defender’s global coverage of 50+ countries - including the EU, USA, and Australia - ensures businesses stay ahead of threats that might slip through traditional due diligence.
The case between Yuga Labs and Ryder Ripps highlighted the dual nature of NFTs. Yuga Labs, creator of the Bored Ape Yacht Club (BAYC) NFTs, sued Ripps for using similar imagery and branding in his own NFT collection. Ripps argued that NFTs are not “goods” under the Lanham Act, thus ineligible for trademark protection. The court rejected this claim, ruling that NFTs function as source-identifying goods. However, it emphasized that Yuga Labs must provide stronger evidence of consumer confusion to succeed in its infringement claim. This decision underscores the evolving legal framework for digital assets, where clarity and proactive protection are paramount.
Securing NFTs as trademarks involves a two-step process. First, lenders must create a security interest under Article 9 of the Uniform Commercial Code (UCC), treating NFTs as “general intangibles.” A security agreement must describe the NFT sufficiently, including its perceptible component, registration details, and source code. Second, perfection of the security interest requires filing a UCC-1 financing statement with the debtor’s state secretary of state. While USPTO filings are not mandatory, they offer additional notice and transparency, particularly during due diligence.
The legal recognition of NFTs as trademark assets reflects their growing economic significance. For lenders, this shift presents both opportunities and risks. By adhering to established legal frameworks, financial institutions can better navigate the complexities of securing digital assets, ensuring robust protection in an increasingly digital economy.