In short
On February 8, 2023, a jury handed down a verdict against Mason Rothschild, creator of the “MetaBirkin” non-fungible token (NFT), on claims of trademark infringement, dilution and cybersquatting brought by the 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, which depict digital faux fur versions of the coveted handbag. The judgment marks the first time a 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 on a number of NFT marketplaces. MetaBirkins was also advertised on a number of online platforms and social media accounts, including MetaBirkins.com.
Hermès claimed that the NFTs infringed on the brand’s BIRKIN trademark, resulting in consumer confusion as to source, sponsorship or affiliation. In response to Hermès’ claims, Rothschild argued that his works were artistic expression 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 MetaBirkins was intentionally designed to mislead consumers into believing that the source of the NFTs was Hermès.
The jury ruled in favor of Hermès and ordered Rothschild to pay USD 133,000 in damages: USD 110,000 resulting from the profits reaped from the sale and resale of MetaBirkins and USD 23,000 for domain house occupation 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 early dismissal by arguing that MetaBirkins was a form of noncommercial social commentary entitled to First Amendment protection, and therefore the complaint failed to state a claim as a matter of law. Rothschild claimed that his NFT commentary on the alleged “animal cruelty inherent in Hermès’ production of its ultra-expensive leather bags” and advocated the use of the decades-old Rogers v. Grimaldi test – a two-part test that purports to strike a balance between the property interests of trademark owners and 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) if the use is explicitly misleading as to the source or content of the work. Hermès argued that traditional likelihood of confusion factors should apply to assess the likelihood of confusion.
- The court held that the Rogers test applied, but dismissed Rothschild’s motion as premature and opened the possibility of re-litigation of these issues on summary judgment.
- On summary judgment, the court applied the Rogers test, but found that questions of fact remained as to whether Rothschild’s work was the product of genuine artistic expression or an unlawful intent to trade in the iconic Hermès brand, and allowed the claims to proceed to trial .
- At trial, Rothschild argued that First Amendment concerns should trump trademark concerns because his MetaBirkin NFTs are a form of social commentary. He compared his works to Andy Warhol’s iconic Campbell’s soup cans.
- Hermès introduced evidence that the BIRKIN brand is strong and widely recognized, that it intends to enter the digital space of NFTs and that Rothschild’s MetaBirkin NFTs disrupted those plans. Moreover, evidence showed that there was consumer confusion about the source of the MetaBirkins.
- In total, Rothschild produced over 100 MetaBirkin NFTs, which sold for over USD 1.1 million. In particular, the resale value of MetaBirkins, as with actual Birkin bags, was substantial, earning Rothschild additional creator royalties. 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 Rogers test into account by placing an increased burden on Hermès to convince the jury, by a preponderance of the evidence, that it was actual intent to confuse consumers. That standard required Hermès’ to demonstrate to the jury that Rothschild’s MetaBirkin NFTs were intentionally designed to mislead potential customers because the mere likelihood of confusion was not enough to trump First Amendment protections. The jury found that even under the more stringent Rogers standard, Hermès met its burden of establishing infringement.
Insight
The jury’s verdict confirms that brands can still benefit from robust protection over their intangible assets in digital spaces. The case highlights the delicate balance that courts must strike to prevent consumer confusion while protecting artistic expression. This balance applies with equal force in worlds both real and virtual.
While the ruling marks the first final ruling in a case considering the impact of NFTs on intellectual property rights, many questions remain. The MetaBirkins judgment reinforces the notion that incorporating 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 market confusion.
The MetaBirkins judgment also comes amid renewed legal focus on Rogers test and whether brand owners have the right to prevent use that refers to their brands. Recent cases have struggled with the application of the Rogers doctrine to commercial products, particularly those that 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 LLC22-148.
Moreover, the MetaBirkins case is just one example of the growing number of lawsuits addressing disputes involving NFTs. For example, Yuga Labs, creators of the popular Bored Ape Yacht Club NFT series, maintains a trademark infringement suit 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 the application for Rogers test used in the MetaBirkin case, finding that Ripps’ sale of the RR/BAYC NFTs was “no more artistic than the sale of a counterfeit purse.” Yuga Labs, Inc. v. Ripps et al2:P22-cv-04355 (CD Cal.).
As courts attempt to define the intellectual property landscape and its evolving relationship with digital assets, brands and advertisers should keep a close eye on how decisions may affect their businesses.
