In February 2023, there was a landmark decision for brand owners and digital assets, when a court of first instance decided the first US case to consider the use of trademark rights in digital artwork related to Non-Fungible Tokens (NFT). The decision (detailed in our notice here ) centered around “MetaBirkins”: a collection of unique virtual tokens tied to digital faux fur versions of the coveted Hermès Birkin bag. Hermès sued Rothschild for trademark infringement, dilution and cybersquatting, with the creator arguing that his works were non-commercial social commentary protected by freedom of expression. The argument failed to convince the US jury, which found that the MetaBirkins infringed the BIRKIN trademark and were intentionally designed to mislead consumers into believing that the source of the NFTs was Hermès.
This is the second worldwide trademark infringement decision involving NFTs. The first decision was issued in November 2022 by the Rome Court of First Instance i Juventus FC v. Blockeras srl., no. 32072/2022. In that case, Juventus Football Club sued Blockeras SRL for embossing and selling NFT player cards bearing the club’s trademarks. Blockeras claimed, among other things, that Juventus’ trademark registrations (such as Hermès) did not cover downloadable virtual products. The court was not persuaded and found Blockeras to have infringed Juventus’ registrations. Brand owners will now wonder what these decisions mean for the protection of their brands in the wider virtual world. In this notice, we address a number of issues that apply not only to NFTs, but the digital space and metaverses more broadly: the scope of trademark protection for tangible versus virtual goods and services, freedom of speech or artistic expression as a defense to trademark infringement, the impact of disclaimers and other factors that may affect the outcome of a trademark action against digital assets.
Scope of trademark registration protection for tangible goods and services versus virtual equivalents
As consumer and commercial interest in virtual environments increases, a key question is whether a trademark registration for tangible goods or services can be asserted against digital goods or services, including (but not limited to) NFTs.
In Hermès v Rothschild, Hermès successfully asserted registrations for physical goods against Rothschild’s virtual handbags. While certainly helpful to brand owners, this decision does not establish a general rule that rights associated with physical goods can be successfully asserted against new digital products in the United States. The jury verdict simply found Rothschild liable for trademark infringement, without providing any underlying reasoning that could be relied upon in future cases. However, the decision appears to have been influenced by the fact that NFTs were considered to fall within the “natural expansion zone” for Hermès, supported by evidence that Hermès had plans to enter the NFT market, which did not will be the case for every brand owner. Ultimately, the decision will likely be appealed, and with the interplay between trademark rights and free speech before the US Supreme Court shortly, the outcome is difficult to predict.
In Juventus v Blockeras, while Juventus’ trademark registrations did not cover downloadable virtual products, the court found that claims for downloadable publications in Class 9 of Juventus’ registration would include downloadable digital files authenticated by NFTs. There is also a suggestion in the decision that even if Juventus’ registrations did not cover these goods, Blockeras may still have been found to infringe Juventus’ registrations due to the well-known nature of Juventus’ marks and there was evidence that it had recently sought to become active in crypto games and crypto assets. This is in line with the “natural expansion zone” view of the Hermès v Rothschild decision.
Most other jurisdictions currently lack any case law on whether the protection afforded by a registered trademark to tangible goods or services extends to the virtual sphere. Of course, the result will be fact-specific and may depend on the trends within a particular industry. For example, subject to evidence, Australian and New Zealand courts, like American and Italian courts, are likely to consider trademark protection in the virtual context to fall within the “natural expansion zone” of the fashion and luxury goods sector where brand owners offer increasingly digital assets as a product or part of their marketing strategies. However, it is less clear how far this will apply to other industries. Also, in certain jurisdictions, such as the EU, this may not be a factor in assessing the likelihood of confusion, unlike in the US.
Enforcement is also likely to be easier for well-known brands. In many jurisdictions, such as Colombia and the Andean Pact, well-known trademarks have additional protection, and it is likely that virtual goods will be held to infringe a registered trademark for a well-known mark held for physical goods.
This also applies in the UK and the EU where well-known trademarks can be enforced against infringing use, even when that use is for goods and services other than those for which the mark is registered, provided that the trademark enjoys a “reputation” in the relevant jurisdiction and the infringing sign applies to “ride the coattails” of that reputation, or would otherwise damage or dilute the brand. These types of claims feel like the route through which trademarks for real-world goods and services can enjoy protection in the virtual world, but the privilege only extends to those already well-known brands that can be said to have a “reputation.”
However, to be infringing under a reputational claim, the use of the sign in question must be “without reason” to strike a balance between the interests of the trademark owner and the third party’s use of the sign. Given the risk posed by the “artistic expression” defense deployed by Rothschild (failed in this case) and arguments about whether artistic use can be considered to be with of reason, the Council remains firm that, where possible, licensees should seek to register their trademarks for virtual goods and services as well as real goods to avoid getting bogged down in complicated arguments about similarity of goods, reputation or use without superficial.
It is also worth considering whether the tort of “passing off” in the UK, or “unfair competition” in the EU, can protect brand owners against imitation in the metaverse, as these causes of action are potentially broader than trademark infringement and can protect all the ways a brand are recognized on, not just those items registered as trademarks for specific goods and services. In the UK, departure requires the three pillars of goodwill, misrepresentation and injury, for a claim to be successful. The goodwill need not be attributable to a specific trademark, but rather to the general “get-up” or brand cues, as long as they are attributable to the claimant in the public’s mind. In EU countries, such as Spain, unfair competition may arise where the way a party represents itself or its products may mislead consumers as to the source of the same, where it takes advantage of the reputation of a third party or when it disparages the same. Although trademark infringement and passing off or unfair competition are often pleaded together, misrepresentation is considered a higher threshold than mere confusion – but the jury’s finding that Rothschild intentionally designed the MetaBirkins to mislead consumers into believing that the source of the NFTs was Hermès , has put Hermès over the line for departure in the UK and may have also resulted in unfair practices in Spain.
Freedom of speech and artistic expression as a defense against infringement
A key defense by Rothschild was that his NFTs were protected under his First Amendment right to free speech, as non-commercial social commentary. US case law imposes a stricter standard on trademark owners seeking to enforce their rights against artistic works, which in this case required Hermès to prove actual intent to confuse consumers.
Even in the US, however, the outcome of future cases is not certain: there has been renewed judicial focus on the balance between free speech and brand protection, and the US Supreme Court is set to address this very issue shortly.
A general right to freedom of expression is present in many jurisdictions, such as Colombia (and other Andean Pact countries) and Spain (and other EU member states), but there are no specific requirements or detailed guidelines on how this right should be balanced with the exclusive the rights created by a registered trademark.
In the EU, arguments related to artistic expression will be relevant to whether the alleged infringer uses the mark for trademark purposes: the court must assess whether the depiction of the trademark has an artistic, social or general interest, if so. that use can be considered to be legal, or if, on the contrary, it has a profit purpose at the expense of the trademark in question, in which case it can be considered a prohibited use. As discussed above, arguments related to artistic expression could also be relevant to whether the use is “without factual reason” when a brand with a reputation is asserted against use in relation to goods or services that are not the same. That said, not all jurisdictions have a statutory “freedom of speech” that must be balanced against a trademark owner’s rights. In such cases (for example in Australia) this will make it a little easier for brand owners to assert their rights even where the use is an “artistic expression”.
Disclaimers as a Defense to Infringement
Rothschild tried, but failed, to argue that disclaimers on his website denying any relationship with Hermès were sufficient to avoid infringement. Disclaimers are generally not favored because of their limited effect in removing confusion between marks, and this argument is unlikely to succeed elsewhere, although the use of a disclaimer may be a relevant factor (along with other evidence) in a surrender action in the UK, or in other contexts where the alleged infringer’s intention to deceive consumers is considered.
What other factors are likely to prove important in similar disputes?
Territoriality will play a key role in many jurisdictions. For example, notoriety, fame or recognition must have been proven in Andean society to build a trademark case. In the EU, as discussed above, to enforce a trademark against goods or services that are dissimilar to those for which the mark is registered, it is necessary to show that the enforced mark has a reputation within the EU. In the EU, the reputation of a particular territory can also play a key role in assessing the likelihood of confusion within that territory.
Lack of trademark registration also plays a key role in first-time-registering countries, especially for brands that are not well-known or well-known. Although trademark owners may still have arguments to defend their position, failure to register will be an important obstacle and require the submission of complex additional evidence. The current balance between political imperatives is also an important consideration. For example, and unlike in the United States, the balance of policy imperatives has shifted over time in some countries, such as in Australia and New Zealand, towards identifying and protecting commercial products and services and preventing unfair competition rather than protecting consumers, even whether the latter is still a goal.
