United States: Power of the purse - Hermès prevails in NFT trademark trial

In brief

On February 8, 2023, a jury returned a verdict against Mason Rothschild, creator of the "MetaBirkins" non-fungible token (NFT), on claims of trademark infringement, dilution and cybersquatting brought by luxury fashion house Hermès, known for its iconic Birkin bag. Hermès sued Rothschild in the Southern District of New York after Rothschild released 100 MetaBirkin NFTs, depicting digital faux-fur versions of the coveted handbag. The verdict marks the first time that a trial court has considered the application of trademark rights to NFTs in the virtual world.

The collection of unique digital tokens each linked to an image of a fur-laden version of the classic Birkin bag was available for sale in a variety of NFT marketplaces. The MetaBirkins were also advertised on a number of online platforms and social media accounts, including MetaBirkins.com.


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Hermès claimed that the NFTs infringed upon the brand's BIRKIN trademark, resulting in consumer confusion as to source, sponsorship or affiliation. In response to Hermès' allegations, Rothschild argued that his works were artistic expressions protected by the First Amendment. The jury disagreed. After a three-day deliberation, it found that the digital assets were not protected by free speech because the MetaBirkins were intentionally designed to mislead consumers into believing the source of the NFTs was Hermès. 

The jury delivered a verdict in favor of Hermès and ordered Rothschild to pay USD 133,000 in damages: USD 110,000 as a result of the profits reaped from the sale and resale of MetaBirkins and USD 23,000 for domain squatting MetaBirkins.com.

Background

  • Hermès filed suit on January 14, 2022, after discovering that Rothschild, a self-described "marketing strategist," had created and released a collection of MetaBirkin NFTs.
  • Rothschild sought an early dismissal by arguing that MetaBirkins were a form of non-commercial social commentary entitled to First Amendment protection, and therefore the complaint failed to state a claim as a matter of law. Rothschild claimed his NFTs comment on the alleged "animal cruelty inherent in Hermès' manufacture of its ultra-expensive leather handbags" and advocated for the application of the decades-old Rogers v. Grimaldi test — a two-part test which purports to strike a balance between the proprietary interests of trademark owners with the First Amendment's protection of free speech by considering: (1) whether the use of a trademark in an expressive work is artistically relevant to the underlying work and (2) whether use is explicitly misleading of the source or content of the work. Hermès argued that traditional likelihood of confusion factors should apply to assess likelihood of confusion.
  • The Court held that the Rogers test applied, but denied Rothschild’s motion as premature and left open the possibility of revisiting these issues on summary judgment.
  • On summary judgment, the Court applied the Rogers test, but found questions of fact remained as to whether Rothschild’s work was the product of genuine artistic expression or an unlawful intent to trade on the iconic Hermès brand and allowed the claims to proceed to trial.
  • At trial, Rothschild argued that First Amendment issues should trump trademark considerations because his MetaBirkin NFTs are a form of social commentary. He likened his works to that of Andy Warhol's iconic Campbell's soup cans.
  • Hermès introduced evidence that the BIRKIN mark is strong and widely recognized, that it intends to enter the digital space of NFTs and that Rothschild's MetaBirkin NFTs interfered with those plans. Moreover, evidence showed there was consumer confusion as to the source of the MetaBirkins.
  • In all, Rothschild produced over 100 MetaBirkin NFTs, which sold for over USD 1.1 million. Notably, the resale value of the MetaBirkins, as with actual Birkin bags, was substantial, netting Rothschild additional creator's fees. Although Rothschild emphasized artistic freedom arguments, evidence of text messages from Rothschild revealed that the opportunity to profit from MetaBirkins was a significant motivating factor. 
  • The jury instructions took the Rogers test into account by imposing an elevated burden on Hermès to convince the jury, by a preponderance of evidence, that there was actual intent to confuse consumers. This standard required Hermès' to demonstrate to the jury that Rothschild's MetaBirkin NFTs were intentionally designed to mislead potential customers because mere likelihood of confusion was not enough to trump First Amendment protections. The jury found that even under the stricter Rogers standard, Hermès met its burden to establish infringement.

Insights

The jury's verdict confirms that brands can still enjoy robust protection over their intellectual property assets in digital spaces. The case highlights the delicate balance that courts must strike in preventing consumer confusion while protecting artistic expressions. This balance applies with equal force in worlds both real and virtual.

While the verdict marks the first final judgement in a case considering the impact of NFTs on intellectual property rights, many questions still remain. The MetaBirkins verdict reinforces the notion that the incorporation of a trademark into an NFT could constitute infringement, but because NFTs openly straddle the line between commerce and artistic expression, the outcome of similar cases will continue to turn on fact-intensive questions of artistic expression and the likelihood of marketplace confusion. 

The MetaBirkins verdict also arrives amid renewed judicial focus on the Rogers test and whether brand owners have a right to prevent uses that reference their brands. Recent cases have grappled with the application of the Rogers doctrine to commercial products, especially those which parody well-known brands. The Supreme Court of the United States is set to tackle this very issue involving commercial parodies, and the balance between trademark rights and speech, this term in Jack Daniel's Properties Inc. v. VIP Products LLC, 22-148.  

Moreover, the MetaBirkins case is just one example of the growing number of lawsuits addressing disputes involving NFTs. For example, Yuga Labs, the creators of the popular Bored Ape Yacht Club NFT series, is maintaining an action for trademark infringement against Ryder Ripps and Jeremy Cahen for developing and marketing visually identical RR/BAYC NFTs. In denying the defendants' motion to dismiss, the Central District of California court denied application of the Rogers test that was applied in the MetaBirkin case, finding that Ripps' sale of the RR/BAYC NFTs was "no more artistic than the sale of a counterfeit handbag." Yuga Labs, Inc. v. Ripps et al, 2:P22-cv-04355 (C.D. Cal.).

As courts attempt to define the landscape of intellectual property law and its developing relationship with digital assets, brands and creatives should keep a close eye on how rulings may impact their businesses.


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