The Bored Ape Yacht Club Case – Monkey Business and a Commercial Finance Lesson
Written by: Steven N. Kurtz, Partner, Levinson Arshonsky Kurtz & Komsky, LLP
The inspiration for content in this column comes from all kinds of places, and sometimes just happens randomly. That’s what happened here. I was sitting around on a Saturday afternoon intending to catch up on commercial finance legal reading, when I stumbled across an interesting trademark case. Being guilty of passing around silly memes, my curiosity got the better of me. The case is Yuga Labs v. Ryder Ripps, etc (2025 WL 2056060) (the “Bored Apes Case”). The 9Th Circuit Court of Appeals issued a landmark decision which held that a series of digital codes that exist solely on the internet which are freely traded as Non-Fungable Tokens (“NFTs”) are deserving of protection under the Lanham Act, which protects trademark owners who sell goods or services. The 9th Circuit Court held that NFTs are intangible goods and are thus protected from infringement under the Lanham Act. As part of its decision, the 9th Circuit Court stated that: “We are mindful that when we apply established legal rules to the totally new problem of emerging technologies, our task is not to embarrass the future”. This case is important for protecting rights of anyone who creates products for sale that exist in an electronic form and for those will finance electronic products.
The facts are straightforward. The plaintiff created a series of digital memes, sold the products as NFTs, and the trend became quite popular. The defendant copied the exact concept and name and created its own set of NFTs. Naturally, the plaintiff was not so happy and sued. Defendant filed its counterclaims and contended that the NFTs are not subject to Lanham Act protection because they are not goods. Defendant’s logic boiled down to the fact that goods are things that you must physically touch, or in Yiddish terms, you have to be able to schlep the thing from point A to point B. The plaintiff said, wait a minute. We created an original product. Each item is different. We have taken a lot of steps to protect our original product and build up a brand. So what if the goods exist solely in electronic form and authenticated through the blockchain. It is our inventory of products that we sell commercially and these digital goods are entitled to Lanham Act protection.
The 9th Circuit agreed with the Plaintiff and in a case of first impression recognized that an NFT is essentially an intangible, fully virtual authenticating software code that comes together to form a separate digital or physical content. Each NFT is unique and digitally transforms into a unique asset. Ownership can be authenticated and transferred through the blockchain. The 9th Circuit Court recognized that although an NFT exist virtually and is transferred virtually, it is still a good that is sold in a commercial context and thus subject to protection from trademark infringement under the Lanham Act.
Things may look a little different from a UCC context. Let’s analyze the “IP side” first. The series of digital codes that come together to create the NFT are general intangibles as defined in UCC Sec. 9-102(a)(42). Computer software on its own and not imbedded in a good is a form of general intangibles and becomes your collateral by granting a lien against general intangibles in the security agreement. General intangibles are perfected with a properly crafted UCC-1 filed in the debtor’s name as registered in its state of its organization. Computer software can be copyrighted but does not have to be. Software is often treated as a trade secret and not copyrighted in order to avoid reverse engineering by someone who can read what’s on file at the U.S. Copyright Office. If the software is copyrighted, then perfection for the software is through a filing in the U.S. Copyright Office. If the copyright is not registered at the Copyright Office, then the creditor is fine with a UCC-1, but loses out if the copyright is later filed unless there is a subsequent filing with the U.S. Copyright Office. The actual NFT “image” is a copyright perfected by a copyright filing. Another issue is whether the resulting set of digital codes are separate from the actual image depicted in the NFT. The trademark, Bored Apes Yacht Club is a general intangible, and is perfected against someone like a competing creditor or bankruptcy trustee through a UCC-1 filing, although many creditors also do a filing at the U.S. Patent and Trademark Office to register liens on trademarks and patents in order to stop the collateral from being sold out from under them. Got that?
Let’s analyze the non-IP side of the NFT. Again, it’s a general intangible perfected by spelling out general intangibles in your security agreement and a properly filed UCC-1. Let’s start with the easy part first and focus on accounts or the proceeds of selling an NFT. An account is defined in 9-102(a)(2) as a monetary obligation for property that has been sold, leased or otherwise disposed of, or services rendered. This means that sales of an NFT will be an account if any person owes a money obligation for the purchase thereof. An account debtor under UCC 9-102(a)(3) includes anyone who owes money on an account. Anyone obligated to pay for the purchase of the NFT is subject to the redirection rules under UCC 9-406. There is also a further layer of complexity if there is a copyright filing on the NFT image, it may impact other forms of collateral. That issue needs a review by skilled counsel.
The tricky issue is whether the NFT is a good under the UCC. According to the 9th Circuit Court, the product in the Bored Apes Case are goods in an intangible form. Goods are defined in UCC 9-102(a)(44) as something that is movable when the security interest attaches and includes examples that do not cover goods that exist electronically. The issue is what is movable. Certainly “schlepping from point A to point B” is moving. If electronic goods are transferred by a point to point electronic delivery is that moving? If the NFTs at issue in the Bored Apes Case are transferred through entries in the Block Chain, is that movable at the time the security interest attaches? If the electronic goods or NFTs are considered goods, then the product is considered inventory under UCC 9-102(a)(44) as they are held for sale to the world. Inventory is of course perfected by a properly filed UCC-1 financing statement.
Another layer of perfection issues also exists. We now have UCC Article 12 known as Controllable Electronic Records. (See, Digital Assets Part 1 and 2 IFA, March and June 2025). Controllable Electronic Records, or CERs, are perfected in the original types of collateral set forth therein by naming the item in the security agreement and properly filing the UCC-1. However, CERs are also perfected through control. As with other items of collateral that can be perfected by control and a filing, perfection by control always beats perfection by filing, even if the filing came before the control and even if the person getting control knew about the earlier filing. The UCC is what’s known as a pure race statute. Whoever perfects the right way first always wins, and whoever perfects first in a one manner that beats another manner, i.e., control, always wins.
As technology improves and new electronic products are brought to market, the innovators will need capital and often there will be many layers of capital with creditors having to properly carve out their rights. As in any capitalistic society, not every innovator of electronic products will succeed. Generally, that’s where all the drama happens when there are competing creditors. Presently, there is no definition of electronic goods and electronic inventory. That means, the first issue is whether or not the electronic goods that exist virtually are inventory or general intangibles. Without case law, and before the law fully develops, a typical inventory lender and accounts receivable factor/lender intercreditor can be a mess. Bankruptcy trustees, being the opportunistic vultures that they are, and I mean that in a nice way, are always looking for ways to separate creditors from their collateral and will certainly bring about litigation to decide this issue. Also, if anything copyrightable goes from unregistered to registered, that can open up perfection issues unless there is a corresponding copyright lien filing. If there is a copyright in play, lenders must be mindful about what the copyright covers. Again, it’s worth repeating, that even without a solid definition of whether or not electronic goods held for sale are inventory or general intangibles, they will likely exist in a universe that is considered a CER, so one must always be on the lookout for that as well and likely always perfect with control.
In ten years, the world of commercial electronic products will be much move developed and defined. Getting from here to there will be interesting. The UCC is good about keeping up with technology, so it’s likely that we will be seeing some amendments soon to address these issues and make financing in the digital electronic space easier.
About Steve N. Kurtz
Steve Kurtz is a seasoned attorney with expertise in commercial and bankruptcy litigation, as well as complex commercial finance transactions. He has led numerous high-stakes commercial cases and now divides his time equally between litigation and transactional work, serving a diverse clientele, including financial institutions and fintech lenders.
Beyond his legal practice, Mr. Kurtz has served as a Judge Pro-Tem in Los Angeles County and actively engages in pro bono work. He is also deeply involved in his community, serving as the President of the Calabasas Shul and leading an active lifestyle with his family.
He holds a B.S. in Psychology from San Diego State University and a J.D. from McGeorge School of Law. He is affiliated with several prestigious legal organizations and has been recognized as a "Super Lawyer" by Los Angeles Magazine for multiple years. Additionally, he is a published author and frequent speaker at finance and legal conferences.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.