LANDMARK TEST
FOR NFTs

Julia Wheate looks closely at a trend-setting US infringement outcome

KEY POINTS

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Hermès has succeeded in a US lawsuit against a defendant who sold digital NFT versions of its Birkin bags 

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The jury decision confirms that, in the US, existing registered trade marks covering physical goods may prevent the unauthorised use of the mark in NFTs, especially where the brand has a strong reputation

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Brand owners should still consider obtaining trade mark protection for digital goods if launching their own NFT projects

MARKS

BIRKIN word mark (US reg. No. 2991927)

The famous luxury brand Hermès has succeeded in its US trade mark and cyber‑squatting lawsuit against Mason Rothschild, who created and sold non‑fungible tokens (NFTs) featuring versions of the brand’s iconic bags. A nine‑person jury in the Southern District of New York found that Rothschild infringed Hermès trade mark rights, awarding Hermès a total of US$133,000 in damages. Rothschild also failed in establishing a defence that the use of Hermès’ trade marks in his artistic works was permitted under freedom of speech protections in the US First Amendment. The dispute has interesting implications for trade mark protection and the future of NFT markets.

Background

In 2021 Rothschild designed and created a collection of digital images in the form of faux‑fur‑covered Birkin handbags that he called “MetaBirkins”, advertising them on the metabirkins.com domain. In December 2021 he released 100 NFTs featuring the MetaBirkin digital images. By early January 2022 the total volume of sales for the MetaBirkin NFTs exceeded US$1.1 million.

Hermès issued a cease‑and‑desist letter, informing Rothschild that the sale of the NFTs without its consent was “unlawful use [of its] HERMÈS trade mark, BIRKIN trade mark, and BIRKIN trade dress” which amounted to infringement, dilution, unfair competition and cyber‑squatting. Further, there was concern that consumers would assume a collaboration between the luxury brand and Rothschild. Indeed, Hermès was able to evidence examples of confusion and a belief that there was an affiliation. This included consumer posts on Instagram and articles in Elle magazine and the New York Post mistakenly reporting that the MetaBirkin NFTs were unveiled by Hermès in partnership with Rothschild.

In January 2022 Hermès issued proceedings in the US District Court for the Southern District of New York seeking injunctive relief and monetary damages. Rothschild claimed that the NFTs were a representation of the bags only and that MetaBirkins were a series of artworks. Rothschild argued he was intrigued with what value would be assigned to the NFTs particularly given the rising popularity of alternative textile products that are “fur free”. Rothschild also claimed that there was no intention to mislead consumers as to the origin of the NFTs.

Yet despite adding a disclaimer on the MetaBirkins website stating that there was no affiliation with or endorsement by Hermès, there was evidence that the Defendant’s project was not purely about artistic expression. Hermès’ legal team argued that this was an opportunistic move by Rothschild to make big money and quickly. Among the evidence presented to the jury were statements by Rothschild that he wanted to make “big money” by “capital[ising] on the hype”, that he was “in the rare position to bully a multi‑billion dollar corp[oration]” and that “he doesn’t think people realise how much you can get away with in art by saying ‘in the style of’”, which may have played a significant role in the jury’s verdict.

Rothschild unsuccessfully sought to have the claim summarily dismissed, arguing his MetaBirkins were artistic expressions within the freedom of speech protections in the First Amendment. In the US, the Rogers v Grimaldi¹ test incorporates First Amendment speech values by permitting the use of trade marks in artistic works, provided such use does not mislead consumers as to the origin of the product or lead to an assumption that there is authorised use or collaboration with the trade mark owner. While the Judge was willing to accept that Rothschild’s NFTs were works of artistic expression “in at least some respects”, the question of whether the use of Hermès’ mark actually intended to confuse potential customers was a question for the jury.

In an order on the parties’ respective motions for summary judgment, the Judge also agreed that “like the physical Birkin handbag itself, MetaBirkins are extremely valuable commodities” and “the NFTs have sold for over a million dollars collectively”, which supported Hermès’ arguments that “consumers and media outlets have expressed actual confusion as to whether Hermès is affiliated with Rothschild’s line of NFTs, with many believing it to be the product of a partnership between the two”.

The jury found that Rothschild was liable for trade mark infringement, trade mark dilution and cyber‑squatting. The jurors also concluded that the NFTs were not protected speech as Rothschild’s use of the Hermès mark was intentionally designed to mislead potential consumers into believing that Hermès was associated with Rothschild’s MetaBirkins project, and that therefore the First Amendment did not protect his activities. The jury awarded Hermès a total of US$133,000 in damages – US$110,000 referable to profits made by Rothschild for trade mark infringement and dilution, and US$23,000 referable to cyber‑squatting due to his use of the metabirkins.com domain.

Market impact

This is a landmark decision demonstrating that NFTs are capable of infringing trade mark rights. The decision is great news for big‑name brands, even those like Hermès that don’t have specific trade mark protection in relation to virtual goods. As the first decision interrogating the relationship between trade marks and artistic expression in the context of NFTs, the result may make artists and those of a creative nature think twice before launching NFT projects incorporating unauthorised branded elements.

The decision confirms that NFT creators remain subject to trade mark laws that prevent infringement, and that while artists may make use of trade mark elements, they must not intentionally mislead potential consumers into believing that there is an association with brand owners. This jury verdict will bring great comfort to trade mark owners that their rights can be enforced in the digital world. However, although Hermès was successful in this case, brand owners may want to look at obtaining registered trade mark protection in relation to digital versions of their products and NFTs for added security.

One word of caution, however: Rothschild has indicated that he may appeal, so the decision may not be the end for the Birkin bag bust‑up.

1. 875 F.2d 994 (2d Cir. 1989)

Julia Wheate is an Associate at Lewis Silkin LLP
julia.wheate@lewissilkin.com

ILLUSTRATIONS THROUGHOUT THE CASE COMMENT SECTION ARE COURTESY OF SHUTTERSTOCK.COM

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