N(ot) F(or) T(third parties): Jury rules in favor of Hermès in MetaBirkin NFT case | Reed Smith

On Wednesday, February 8, 2023, a federal jury in Manhattan handed down a verdict finding Mason Rothschild, the creator of a collection of non-fungible tokens (NFTs) called “MetaBirkins”, liable for infringing and diluting Hermès International’s BIRKIN trademarks for its iconic Birkin -bag. and for illegal cybersquatting on the MetaBirkins.com domain name. After three days of deliberation, the jury’s verdict sets a first-of-its-kind precedent that will play a key role for creatives developing NFT designs and brands seeking to protect their intellectual property in the increasingly popular NFT and wider Web3 space.

In 2022, Hermès filed a lawsuit alleging that the defendants’ “MetaBirkins” NFTs, which depict blurred versions of the iconic Hermès Birkin bag, infringe on Hermès’ BIRKIN marks. Specifically, Hermès argued that Rothschild’s unauthorized use of the BIRKIN mark for his NFTs was what gave rise to the lawsuit, and that Rothschild’s misuse of the Birkin bag’s famous merchandise and imagery were aggravating factors. The brand’s lawsuit came on the heels of a growing trend of creators releasing NFTs using designs or other intellectual property from third parties.

In particular, the court applied the speech-protective Rogers test to alleged trademark infringement in works of “artistic expression,” as opposed to applying the more general balancing test to works intended primarily to serve a commercial purpose. The Rogers test balances the competing considerations of protecting artistic expression under the First Amendment and preventing consumer deception in the commercial marketplace by examining the facts and circumstances of each case. The distinction is important because it means that NFTs can be considered forms of artistic expression that may be entitled to First Amendment protection, rather than general commercial products, for purposes of bringing claims of trademark infringement.

In the MetaBirkin case, the court gave jury instructions based on a likelihood of confusion between the MetaBirkin NFTs and the BIRKIN brand based on the following considerations: (1) the strength of Hermès’ “Birkin” trademark, which can be measured through the bag’s association with the Hermès name , as well as sales, media coverage and exclusivity of the BIRKIN brand; (2) the similarity between the BIRKIN mark and the NFTs; and (3) the likelihood of consumer confusion, actual confusion, competition for consumers, and the level of consumer sophistication.

Rothschild insisted that his NFTs are works of art protected by the First Amendment and compared his NFTs to Andy Warhol’s famous screen prints of Campbell’s soup cans. The parties also disputed the net confusion rate among potential NFT purchasers as examined by Hermès’ expert witnesses. Moreover, Hermès provided evidence that it had concrete and realistic plans to produce and sell its own NFTs using the BIRKIN brand.

After weighing all the facts and evidence, the jury sided with Hermès, finding the defendant liable for trademark infringement, trademark dilution and illegal cybersquatting on the MetaBirkins.com domain name. As part of the verdict, the jury awarded Hermès $133,000 in total damages — $110,000 to account for profits and resale commissions and $23,000 in cybersquatting damages.

The jury rejected Rothschild’s First Amendment defense, appearing to conclude that the NFTs were essentially consumer products rather than “artistic expression” deserving of First Amendment protection, which is important for trademark liability and First Amendment protection for NFT projects going forward. While it is important to evaluate each NFT project individually to determine its purpose and intent, the decision should be viewed as a victory for brands and will likely influence future cases in determining the application of the speech protection balance test to NFT projects.

Application of the Rogers test demonstrates the role that the First Amendment continues to play in the context of trademark rights and enforcement in the virtual world. This tension between brand owners and artists in the metaverse is far from over, but the basic principles of federal trademark law continue to provide brand owners with trademark protection in new digital spaces, and the role of the First Amendment continues to protect artistic creation.

For brands, artists and consumers who navigate and operate in the virtual world, this case paves the way for brands to protect against the unauthorized issuance and sale of NFTs using their brands or designs. It also alerts potential issues to be dealt with in the future. Consequently, brands may want to proactively assess their trademark portfolios, the relevant protections they have in place, and whether they need to consider expanding those protections to account for the rise of the virtual world due to their business interests or brand relationships.

Client notice 2023-048