It’s time for another NFT lawsuit breakdown, and this one is juicy. Similar to the attorneys in the Coolman Universe lawsuit I broke down, the attorneys on opposing sides of the Caked Ape lawsuits came out swinging. But what are the claims being made, and how should Caked Ape holders handle this fight between the project’s artists and developers? I’ll break that down below.
The Complaints in these dueling lawsuits can be found here and here. As always, everything from these lawsuits are simply allegations, so I am not taking any sides. I just break down the mud being slung in the pleadings.
Interesting Procedural Posture
Before I get into the actual claims asserted, I need to explain the interesting procedural decision to file two independent lawsuits. Usually, when there is a business dispute, one party will be the first to move and file a lawsuit in the jurisdiction of their choice. This is often called “forum shopping”, because the Plaintiff gets to choose the forum a lawsuit is brought in, which is a powerful litigation tactic. Generally, if Defendant(s) also have claims against the Plaintiff, those Defendants will respond to Plaintiff’s Complaint and include counter-claims in that response.
Here, artist Taylor Whitley (“Whitley”) filed his lawsuit first on March 18th, 2022 and instead of responding to that lawsuit, the Caked Ape developers (“Caked Ape Team”) filed a separate and independent lawsuit two days later on the 20th. Both were filed in federal court in Central District of California. This means the Caked Ape Team was likely planning on suing Whitley before Whitley brought his lawsuit. Whitley simply beat them to the punch. It is unclear why they both chose Central District of California (“C.D. Cal.”), or if the Caked Apes team was planning to sue elsewhere and pivoted after Whitley filed his lawsuit and consented to C.D. Cal. jurisdiction. These lawsuits will almost certainly be consolidated, but the dueling lawsuit approach is certainly an interesting bit of gamesmanship which adds to the flavor of this dispute.
Whitley’s main claims revolve around his “fame” in the NFT community, and use of his “Art Discord” to form what would eventually be the Caked Ape Team and promote the artists on the team such as Foodmasku. While Whitley took a step back from the Art Discord in August of 2021, handing the discord reigns to Fudmasku, he still was involved and stayed active in the Art Discord. In late 2021, Whitley alone formed the company WTF Industries, and the Art Discord was rebranded as WTF.Industries. In addition to promoting projects from other members of the Caked Ape Team (which Whitley says he was promised compensation for but never received), Whitley alleges the Caked Ape project was an independent creation by Whitley and defendant Jake (Cake) Nygard (“Nygard”).
Whitley claims that the split of proceeds for the Caked Ape projects were to be as follows: 10% of primary sales and secondary sales to Whitley; 30% of primary sales to Whitley’s company (WTF Industries); and another 45% of secondary sales revenue to Whitley’s company. There is no contract attached to the Complaint, so this appears to have all been a handshake/discord agreement. Reminder: don’t do this! For anything important like this, hire an attorney and have a formal contract drawn up.
After mint and while the project was rocketing to its current success, the Caked Ape Team contacted some of Whitley’s representatives and asked to be added as directors to Whitley’s company (WTF Industries).Whitley refused and called for a sit down meeting. The Caked Ape Team didn’t want a sit down meeting and instead removed Whitley from the WTF.Industries discord and associated Caked Ape project’s social media account(s).
Whitley now claims the Caked Ape Team have slandered his name, continue to use his artwork for the project without his consent or permission, and failed to pay his company the share of primary and secondary sales fees which it is owed. He brings a whole batch of claims against those team members both individually and collectively.
Caked Ape Team Claims
The Caked Ape Team claims can be summed up in their introductory paragraph: “This action arises from the unhinged, destructive, and egotistical acts of Plaintiffs’ former collaborator and joint venture partner, Defendant Taylor Whitley p/k/a “taylor.wtf” (“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.”
Bold claims. They go on to claim that Whitley attempted to bully the Caked Ape Team into paying him more than he agreed to, using an unlicensed attorney to threaten the team members (some attorney ethics board is going to have a field day with that), engaging in an online smear campaign, issuing false Digital Millennium Copyright Act (“DMCA”) takedown notices to online marketplaces, and just overall being a bad guy. The Caked Ape Team also claims the Caked Ape artwork work is solely created by Nygard.
According to the Caked Ape Team, any intellectual property of Whitley’s used in the Caked Ape project was located on a “Floppy Disk” which the team members purchased from Whitley and which granted a perpetual, nonexclusive license to use Whitley’s digital assets, including his Bored Apes, in their own derivative NFT projects. While Whitley said he would provide original artwork for the Cake Ape project, Nygard ended up drawing all the artwork used in the collection. The only contributions from Whitley were taken from the Floppy Disk and only included as a “nod” to his contributions to the NFT space as a whole. Despite Whitley’s artwork appearing in less than 5% of the Caked Apes, Whitley began promoting himself as “founder” of the project.
The split was supposed to be as follows: 50% to Nygard, 10% to Whitley, 10% to unnamed solidity developer, 15% to rest of Caked Ape Team, and 15% set aside for project promotion. (I know I said I wasn’t taking sides, but this seems far more reasonable/likely than Whitley/Whitley’s Company getting 40% of primary sales and 55% of secondary sales). Again, though, these all seem to be largely discord message agreements rather setting up formal contracts (MISTAKE!).
Interestingly, the Caked Ape Team claims WTF.Industries was the term used for the joint venture to create the Caked Ape project, and Whitley went behind their backs to form the legal entity with that name with himself as sole owner. They also claim Whitley never had access to the Caked Ape social media accounts, and only requested access after the success of the project and the dispute arose over secondary sales percentages each individual involved was entitled to.
The Caked Ape Team used a lot of quotes from Twitter and Discord of third parties, which is not uncommon in intellectual property (“IP”) lawsuits because it shows loss of “good will” for that IP.
What Does This Mean for Caked Ape Owners?
For a vast majority of owners, this is similar to the Coolman Universe lawsuit, where it really is just over who gets what slice of the secondary sales pie. Holders shouldn’t be overly concerned. The main concern would be the loss of Nygard or Whitley (whichever side you believe) continuing to develop and/or market the project if that individual loses in the lawsuit.
However, unlike the Coolman lawsuit, this DOES have some sticky IP issues. I expect there will be some sort of preliminary litigation over the DMCAs and whether those items can be listed on OpenSea again, so holders should watch that. If it is determined some of the Caked Apes DO contain Whitley’s IP, then not only would the Caked Ape Team be on the hook for IP infringement, but potentially anybody else who bought or sold those infringing items could be on the hook. (See my prior articles on dangers of buying copyright infringing goods).
My non-legal advice to current holders would be continue to hold, and wait until the litigation dust settles a bit or there is a preliminary ruling on the OpenSea DMCA before selling. I also would advise against buying any for the risk adverse, but for the risk tolerant who are OK with an investment potentially going to zero, there is probably opportunity for gains if there is a preliminary ruling in the Caked Ape Team’s favor.
The big takeaway from this lawsuit is CREATE FORMAL WRITTEN CONTRACTS AND HAVE THEM SIGNED BEFORE PUTTING SWEAT OR CAPITAL EQUITY INTO A PROJECT! If there was a formal written contract before regarding split of proceeds and licensing of intellectual property, this lawsuit never happens. Now, both sides are stuck spending tens (or hundreds) of thousands of dollars litigating something that a simple contract beforehand would have solved.
Get a lawyer who knows NFTs. Listen to that lawyer. Code is not law. Law is law. Use written contracts. Form legal entities. Work within the law or be prepared to be beaten by the long arm of the law.
If you have any questions, or would like me to cover anything in particular, reach out to me on either of my twitter pages. As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.