Background:
In January 2022, Hermès filed a trademark lawsuit alleging that Rothschild infringed their famous luxury brand’s trademarks, ‘BIRKIN’, by creating and selling NFTs depicting digital Birkin handbags. Rothschild created 100 digital fury Birkin handbag NFTs in 2021, titled ‘MetaBirkins’, which he asserted was “a commentary on fashion’s history of animal cruelty, and its current embrace of fur-free initiatives and alternative textiles.” At the time of the filing, it was alleged that there was transaction volume of over $1 million ‘MetaBirkin’ NFTs on OpeanSea before they were promptly delisted from the platform. Hermès argued in the filing that the existence of these NFTs was “stealing the goodwill in Hermès’ famous intellectual property to create and sell [Rothschild’s] own line of products”. However, Rothschild maintained that these NFTs were creations of art and hence protected by the First Amendment.
In response to these filings and claims from Hermès, Rothschild attempted to file a motion to dismiss, which was denied by a federal judge in May 2022. Hermès similarly filed for summary judgement in October 2022, which was denied presumably due to the nature of the lawsuit. The trial held in January 2023 was the first to examine how NFTs and digital assets should be treated by trademark law, in the digital sphere.
Summary of claims:
Hermès brought claims against Rothschild for:
Federal and common law trademark infringement;
Trademark dilution;
False designation of origin;
Cybersquatting; and
Injury to business reputation.
Issues:
The trial in January 2023, is the first and most prominent trial to set a legal precedent regarding NFTs and digital assets and what place intellectual property rights, specifically trademarks, have in the digital sphere. Rogers v. Grimaldi 1988 standard test details that an artist can use a trademark if it is in connection with an expressive work and does not explicitly mislead consumers. The ‘MetaBirkin’ case analysed trademark infringements in the context of functional NFTs, commercial ventures, digital art and brand awareness.
The ‘BIRKIN’ trademark and registered design have contributed to the “the desirability of an Hermès Birkin handbag: a symbol of rarefied wealth”. Hermès’ portfolio of intellectual property is intrinsically linked to the exclusivity and prestige associated with the brand and due to the registered design and distinct shape. The ‘BIRKIN’ trademark was created in 1984 and has had incontestable protection with ownership for 35 years.
Rothschild defence put forward the arguments that the NFTs were not virtual wearables and instead should be considered “non-speech, commercial and arguably functional products that just now happen to be in virtual form”. However, the jury did not agree with this argument.
The judgement found that the First Amendment does not protect or apply to digital products that blur the line between art and business. The key legal issue was, to what extent could NFTs infringe an existing trademark for non-NFT uses. The case involved the question whether the ‘MetaBirkin’ NFTs were infringing on Hermès’ trademark rights that were delegated to the use of the ‘BIRKIN’ trademark and trade dress incorporated by the actual Birkin handbags.
Another issue was consumerism. Rothschild argued that there was no intention to confuse consumers about any association with Hermès and their trademarked handbag and additionally stated that he took credit for the art, corrected inaccurate media reports and used a disclaimer on his website. Rothschild indicated that the amount being charged could have been much higher and rather it was an “artistic experiment” on the value assigned by individuals to two dimensional NFT pictures. Rothschild argued that this meant that there would be no confusion over the non-existent connection to Hermès. However, it was noted that Hermès was planning on developing their own NFTs with their registered trademarks and this was a factor in the judgement of whether there was trademark dilution and infringement. As mentioned above, the Rogers v Grimaldi case allows for unauthorised use of trademarks if it meets a minimal level of “artistic relevance and doesn’t explicitly mislead consumers”. Therefore, the First Amendment defence does not block Rothschild’s liability for trademark infringement.
The judgement clarified the application of intellectual property rights in the NFT context and also outlined that these ‘MetaBirkin’ NFTs were not artistic pieces but rather closer to a consumer product which meant that they would be subject to strict trademark regulations. The jury found that Rothschild was committing intentional intellectual property infringement, awarding Hermès $110,000, and awarded Hermès $23,000 for cybersquatting due to Rothschild’s use of ‘Birkin’ in his domain’s name. The jury found that there was similarity in the ‘MetaBirkin’ NFTs and Hermès Birkin handbags which was confusing consumers and Rothschild was acting in bad faith, and the fact that Hermès would be selling their own NFTs, potentially using the ‘BIRKIN’ trademark and assessed that there was trademark infringement.
Whilst this decision will become an important precedent and will affect how NFTs and digital assets will be treated in the future, in cases involving an established trademark, it also leaves space for future litigation for cases not involving a famous trademark and a party acting in bad faith while infringing.
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