AI: Key Developments, Legal Updates & Litigation Scorecard
Major AI Business & Legal Developments, Where Key AI Litigation Stands, and Why You Should Care (Including Detailed Analysis of the Current State of Play)
Welcome to Creative Media’s “The BrAIn” newsletter.
My media, entertainment and tech legal and business advisory firm Creative Media and I work with leading companies and players in these worlds (check out our clients). Think of us as your external General Counsel, business development experts and advisors. Reach out to me, Peter Csathy, at peter@creativemedia.biz to explore how we can help.
I. HEADLINE STORY
ELON MUSK CALLS FOR A 6 MONTH “PAUSE” ON GENERATIVE AI DEVELOPMENT
He and others warn of “profound risks to society and humanity.” And if Elon - who already batters society with Twitter - is asking for caution (which isn’t really his thing), then we should listen and be wary, especially since he was a co-founder of OpenAI, the company behind ChatGPT. (On that note, it’s rich to see Head Twit Musk sign on to a document that explicitly warns, “Should we let machines flood our information channels with propaganda and untruth?"). In any event, it’s clear that even AI developers can’t predict where this all takes us as the AI arms race accelerates without regulation. But do we really believe that corporations and governments can exercise mass restraint?
So what can each of us do about it? Great question. And certainly simply sticking our heads in the sand isn’t the answer. Here’s my latest article that lays out what the media and entertainment business - and entire creative community - must do.
II. AI & WEB3/NFT “QUICK HITS” (KEY DEVELOPMENTS)
Here are some of the key and most interesting AI, Web3, NFT-related recent news hits.
(A) AI QUICK HITS
(1) Here’s your homework for the week. Check out Ezra Klein’s recent “must listen” podcast episode titled “Freaked Out? We Really Can Prepare for A.I.”
(2) Does AI infringe IP laws when it uses copyrighted material for “inspiration”? Damn good question. Here’s a great overview of the legal arguments by Mike Kasdan.
(3) Want to finally talk to your dog? Well maybe AI can help. But do you really want Rex to keep asking for another bone and another walk? Check it out here.
(4) Microsoft Bing now wears a beret as it paints. The newly re-invigorated search engine now comes with its own AI image creator, thanks to OpenAI’s DALL-E. Read more here.
(5) Relax IP litigators! Adobe’s new generative AI tool Firefly “scrapes” only its own stock images and public domain materials. Does this usher in a new era of “ethical AI”? Read more here.
(6) Meanwhile Amazon’s Alexa needs a hug. It was fast out of the gates, but now ChatGPT’s surge threatens the giant. Read more about it here.
(7) OpenAI and Microsoft, partners or frienemies? You be the judge. Read more here.
(8) Journalists and writers, be afraid. Very afraid! Yes, BuzzFeed CEO Jonah Peretti “promises” that AI won’t replace human writers. But I wouldn’t be too sure, especially as OpenAI itself just published a study concluding that writers are 100% vulnerable to AI dislocation.
(9) ICYMI - check out The New York Times recent article titled, “As A.I. Booms, Lawmakers Struggle to Understand the Technology.”If we find it challenging to keep up - and all of you reading this are savvy and tech-forward - then imagine how hard it is for George Santos? Oh yes, I forgot. Of course he can! (He just assured me.)
(10) Track generative AI investment and M&A activity here - Check this out.
(B) WEB3/NFT QUICK HITS
(1) It’s good news/bad news from the IRS. It reportedly now plans to tax NFTs in the same way it taxes physical collectibles. But it also may preclude them from IRA accounts.
(2) Ticketmaster debuts NFT-gated ticket sales. But do we really want to hand over the Web3 ticketing opportunity to the wallet-vacuuming giant? Read about it here.
(3) And here’s why Taylor Swift needs her own NFT collection. Yes, in response to her Ticketmaster debacle. But her NFT tickets would be real - and really rewarding for her fans. Here’s how and why.
(4) Familiar with “Dynamic NFTs” and smart contracts that change over time? If not, you should be. Read about them here.
(5) Like I’ve said before, just don’t call them NFTs! Starbucks prefers the term “digital collectibles.” And Starbucks isn’t alone. Those “in the know” have essentially discarded the geekier “NFT” moniker (which has received an underserved “Scarlet Letter” treatment due to too many “pump and dump” schemes and unfair associations with FTX and crypto). But I, for one, am not changing the name of my newsletter (call me a purist!). Read Fast Company’s interview here with Starbucks’ Adam Brotman.
(6) ICYMI - and worth repeating - leading marketplace OpenSea drops “off chain” enforcement of ongoing resale royalties for Creators. Read my recent newsletter headline story to understand why this is a big deal - a very big deal. Bottom line: OpenSea, rocked by waves of competitive pressures (mostly 0% fee marketplace Blur) essentially abandoned Creator ships, just when those Creators needed them most.
(7) Track Web3 and NFT investment and M&A activity here - Check this out.
III. AI & NFT CASE TRACKER & STATUS REPORT
Here are the headline updates on the most important cases in the last two weeks.
(A) AI CASE TRACKER
Infringement Cases
Andersen, et al. v. Stability AI, Midjourney, and DeviantArt. On January 13th, 2023, several artists filed a class action copyright infringement lawsuit against generative AI art platforms Stable Diffusion, Midjourney and DeviantArt. The lawsuit’s primary is generative AI’s ability to create art “in the style of” specific artists based on their works being included in its training data set (in other words, unlicensed derivative works). Read a great and extremely thorough analysis of it all by IP attorney Michael Kasdan (you can download his full article here). No major updates to report during the past two weeks. The court has scheduled a case management conference for May 2nd.
Getty Images v. Stability AI. The iconic photo library filed its own major lawsuit on February 2nd, 2023, accusing Stability AI of “scraping” and infringing Getty’s content on a massive scale (training its AI on 12 million of its images). Read about it here from The Verge. No major updates to report during the past two weeks. Getty Images just filed its Amended Complaint on March 29th, which will undoubtedly push out the deadline for Stability AI’s Answer.
OpenAI Looks to Dismiss DMCA Lawsuit Over its AI Tool Copilot. For now, read this smart and thorough overview from The Fashion Law.
More cases to be tracked in the coming weeks, but these are the most closely watched.
(B) NFT CASE TRACKER
Breach of Contract Cases
Luna Aura LLC v. 3LAU Entertainment. Plaintiff sued DJ and producer 3LAU for breach of contract in connection with the song “Walk Away” - related to Blau’s NFT auction that generated $11.7 million. MAJOR UPDATE ALERT! The court formally dismissed this case on March 20th, indicating that a settlement had essentially been reached. Obviously, the terms of that settlement are confidential.
Timothy McKimmey v. OpenSea. Plaintiff sued the NFT platform for over $1 millio as a result of a phishing attack against OpenSea users in which McKimmey’s Bored Ape was stolen and then later resold by an unknown third party. He argued that OpenSea failed to address security vulnerabilities in its platform.” The court just ruled that the case must be resolved in arbitration, consistent with OpenSea’s terms of service (demonstrating the critical importance of ToS to everyone involved in Web3).
Securities Cases
Friel v. Dapper Labs. As indicated previously, there recently was a very significant ruling in this closely watched NBA Top Shots NFT case that may have broad ripple effects across the Web3 world. Buyers of NBA Top Shots had sued Dapper for allegedly selling unregistered securities. Dapper had sought to dismiss the case on the basis that its NFTs were not “securities,” but rather simply collectibles. The court rejected Dapper’s arguments and was sympathetic (very) to plaintiff’s arguments and claims. Read a great full analysis here. It is not surprising, then, that two of Dapper’s attorneys just formally withdrew from the case this past week (which is never a good look). At this point, Dapper is motivated to settle. And that’s my bet.
The SEC also continues to investigate Yuga Labs (discussed below) to determine whether Yuga’s Bored Ape NFTs are akin to stocks that should be subject to SEC disclosure rules. This too may impact a broad swath of NFTs.
Infringement Cases
Yuga Labs v. Ryder Ripp. Yuga is creator of Bored Apes and CryptoPunks. In this “infringement meets fair use” case, self-proclaimed “satirist” Ripp created and sold essentially identical digital replicas of those Apes and is said to have made millions trading off Yuga’s Bored Apes brand. On March 17th, the court granted Yuga’s motion to strike certain counterclaims of defendant Ripp. On March 27th, Ripp filed his opposition to Yuga’s motion for summary judgment, claiming that Yuga lacks valid trademarks. Its arguments are multi-faceted, and worth reading because they cover a lot of ground that pervade multiple NFT case (here’s a great summary). Major summary judgment motions are scheduled for oral argument before the court on April 17th. Separately, on March 30th, the court denied Ripp’s motion to stay proceedings (i.e., defendant’s attempt to put the case “on ice” for a while).
Nike v. StockX. Nike is the most successful apparel/fashion brand in the NFT world. In this case, trademark likelihood of confusion butts up against “fair use.” StockX’s online resale platform sells NFT pictures of actual Nike shoes, and Nike claims infringement and asserts that StockX is intentionally deceiving buyers into believing that its NFTs are authorized by Nike. Most recently, the court granted Nike’s motion to seal certain sensitive matters (most likely IP related), as significant discovery-related actions continue. And, the next case status conference is April 7th.
Hermes v. Mason Rothschild. If you recall (and in an outcome I predicted), in a massively watched trademark case, a nine-person jury found NFT Metabirkens creator Mason Rothschild - who created and sold virtual goods based on the famed fashion brands Birken bags - liable for infringement. The jury found that Rothschild was trading off the Hermes brand name to generate profits for himself. Since that time, defendant filed a motion for a new trial, and Hermes just recently filed its point by point rebuttal. Let’s be clear here. Defendant Rothschild will lose this fight.
Criminal Insider Trading Cases
U.S. v. Chastain. The DOJ indicted former OpenSea employee Chastain for wire fraud and money laundering in what the Feds call the first NFT insider trading case. Chastain was responsible for choosing which NFTs OpenSea would highlight on its homepage, and is alleged to have “exploited his advanced knowledge of what NFTs would be featured … for his personal financial gain.” No major updates for the past several months since the court rejected Chastain’s motion to dismiss in October.
Key NFT Cases Outside the U.S.
Important Resolved Cases & What They Represent (& Lessons to be Learned)
Check out recently resolved major NFT cases via this link to a recent newsletter (Section VI.) to see how they ended - and what they continue to represent.
IV. READ MY LATEST ARTICLES ABOUT AI
(1) “The Entertainment Industry Dropped the Ball When the Internet & Napster Hit. What Can It Do Differently in This AI Revolution?” (Read it here.)
(2) “An ‘Opt In’ Solution for Paying Artists in an Increasingly Generative AI World” (Read it here.)
V. CLOSING THOUGHTS: Check Out & Subscribe to My Separate “Fearless Media” Newsletter
If you like my work, check out my separate “Fearless Media” newsletter - all about the future of entertainment, media and tech. Check it out and subscribe via this link.
And if you like THIS newsletter, support it, subscribe to it and share it! Industry expert Jim Louderback calls this newsletter “a must read” and “fascinating look at how these new technologies are being hashed out in court.”