Whitley, et al. v. Maguire, et al.

Feb 27

Overview

Filed March 18, 2022 in the Federal District Court for the Central District of California.

Summary: According to the complaint, Taylor Whitley co-created an NFT collection called Caked Apes, which incorporated some of Whitley’s IP. Whitley and the defendants agreed to split the revenue from sales of the collection, which was around $1.9 million in primary sales and $225,000 in secondary sales. The partnership quickly devolved. The defendants allegedly locked Whitley out of the community (Discord server and social media accounts) and failed to pay him some proceeds from the NFT sales. Whitley sued for copyright infringement, negligent misrepresentation, breach of implied contract, defamation, and other claims.

The parties settled the case during litigation and the case was dismissed on February 27, 2024.

Status: On May 20, 2022, the defendants filed a motion to dismiss the complaint, arguing that none of the 12 claims in the complaint were adequately pled. On December 5, the court partially granted the motion. It dismissed the copyright infringement claim because Whitley did not allege any facts indicating that the defendants actually violated his copyright; instead, he only claimed that they failed to pay him—which is a breach of contract issue. The court dismissed some other claims (e.g., breach of contract), refused to dismissed others (e.g., defamation), and gave Whitley a chance to amend his complaint by December 26 to fix the deficiencies.

Whitley never amended his complaint, so the dismissed claims are now dismissed with prejudice (meaning he can’t bring them again). The defendants filed their answer on January 11, 2023. The case is now in the discovery phase where the parties exchange documents, answer questions from the other side, and give depositions.

Bottom Line: First, a dispute over payments regarding a copyright license is a separate issue from copyright infringement, according to the court. Second, the court may have misunderstood of how NFT sales work. Whitley claimed that defendants infringed his copyright because they “continued to sell” Caked Ape NFTs incorporating Whitley’s IP after Whitley revoked authorization. According to the court, however, this allegation was inconsistent with another allegation in the complaint that the Caked Ape NFTs “sold out [in] their original run” before the revocation. There’s no indication that the court considered that the NFT project continues to receive royalties from secondary sales, which should, in my opinion, be sufficient to support a claim of (at least) vicarious/contributory infringement.

Interestingly, the defendants filed their own lawsuit two days after Whitley’s in which they claim that the breakdown between Whitley and the defendants arose from “the unhinged, destructive, and egotistical acts of . . . Whitley . . . to sabotage a successful digital art project and brand they started together, known as ‘Caked Apes,’ after Whitley failed to usurp ownership and control of the project entirely for himself.” Lessons: always have written partnership agreements, copyright license agreements, and revenue sharing agreements.