Birkin bags make the case for tokenizing IP
Hermès’ trademark Birkin bag was at the center of a landmark case that tested the limits of IP i … [+]
In a piece that ran last week, I explored how companies can benefit from the tokenization of one of their most valuable real assets (RWA). The study of how musicians monetized their art (their IP) shed light on how companies could do the same. Shortly after publication, a landmark case highlighted the importance of IP and how digital assets can fit into companies’ Web3 and metaverse strategies.
Hermes International SA v. Rothschild, settled a dispute between Mason Rothschild, the creator of MetaBirkins NFTs, and Hermès. The case focused on whether Rothschild’s work was an infringement of the Hermès “Birkin” trademark rights or an expression of free speech protected by the First Amendment.
Decided by a nine-person jury in a Manhattan federal court, the financial damages were a rounding error for a company that posted €8.98 billion in revenue in 2021, but for companies that derive their market value from their IP, the decision was significant. In a broad conversation about the tokenization of IP, Leann Pinto, president of IPwe (an IP valuation FinTech currently focused on the tokenization of patent information), said, “While Hermes’ victory is largely pyrrhic, it is a great victory for those of us championing the tokenization of RWA, especially intangibles.”
The history of NFTs
An NFT titled ‘Quantum’ by Kevin McCoy is generally accepted as the first NFT.
The origins of NFTs can be traced back to 2014, when Kevin McCoy minted an NFT of Quantum, a generative artwork created by him and his wife, Jennifer. However, it wasn’t until 2017 that NFTs started to gain popularity. With the launch of the first NFT collections on Ethereum
As the rising tide lifted cryptocurrency valuations, NFTs rose with them. Beeple’s $69 million sale of NFT, “Everydays: the First 5000 Days,” fired the imaginations of creators and companies alike. While consumers marveled at Yuga Labs’ Bored Apes Yacht Club, traditional companies like Topps explored NFTs in response to changing consumer demands.
When Real meets Meta
The demand for Hermès’ high fashion luxury products often increases with the price.
Founded by French harness maker Thierry Hermès in 1837, Hermès has become a brand synonymous with haute couture. The Birkin bag was introduced by the iconic fashion house in 1984. Named after the Anglo-French actress and singer Jane Birkin, the handmade bag has become an aspirational goal for fashionistas and a status symbol among the wealthy.
While new bags can range from $7,000-$20,000, the waiting list – estimated by some to be as long as 6 years – can drive buyers to the secondary market where prices can reach $550,000 for the rarest editions. According to Mason Howell, handbag and accessories consultant at Sotheby’s and former senior handbag and fashion appraisal manager at The RealReal, “The high retail and resale value is because these are works of art.”
Hermès products are often categorized as Veblen goods, products for which demand inversely increases with price. This phenomenon underlines the company’s desire to protect their IP.
Classified aa Veblen bra, Birkin bags can be offered for as much as $550,000 in secondary … [+]
As NFTs grew in popularity, Mason Rothschild tested the market with a “Baby Birkin” NFT that sold and resold for 13 Ethereum (about $50,000 at local May 2021 highs) on Basic.Space, a social and shopping platform. Later in the year, Rothschild launched 100 MetaBirkins on OpenSea, prompting Hermès to issue a cease and desist letter. At the time, Hermès had no digital assets or metaverse presence in place. While a social media debate raged over whether the NFT content was free speech or trademark infringement, Hermès filed suit in early 2022.
Takeaways for creators and businesses
Last week’s ruling upheld Hermès’ claim that MetaBirkins infringed on its Birkin bag trademark. It is estimated that Rothschild earned approximately $125,000 in sales for the MetaBirkins line. Hermès was awarded $133,000 in monetary damages – of which $100,000 was for IP infringement and $23,000 for cybersquatting. What is lost in these figures, however, are the resources used from the time the lawsuit was filed in January 2022 until the case was settled over a year later. As both sides crafted their arguments, countless billable hours were surely spent in the months leading up to the day the case was resolved.
Perhaps the most concrete takeaway was the establishment of precedent regarding the application of IP legislation to properties in the metaverse. While critics may point to the decision as a hindrance to creators’ artistic expression, it also clearly sets the limits on what they can access and create on other people’s IP.
Hermès filed trademark applications for digital assets in August 2022, perhaps in preparation for a … [+]
While their landmark case was unfolding, Hermès filed a trademark application with the US Patent Office for “virtual goods store services,” in August 2022. The application also included provisions covering online and virtual fashion shows and markets for virtual goods. However, the company’s entry into the metaverse is not unique as it follows the lead of more mainstream brands like Nike
For many companies, it has been difficult to make money from the IP. Tokenization provides increased visibility … [+]
With the understanding that IP ownership extends to the metaverse, tokenization enables companies to license their assets to a new generation of creators without the friction of the existing process of transferring and licensing IP. While it’s clear that the biggest brands in the space will devote resources to building their digital assets and presence in the metaverse, tokenization can also offer smaller companies without comparable resources the opportunity to work with creators like Mason Rothschild in a mutually beneficial way. Pinto continued, “Getting enterprise at all levels and across all sectors – from consumer goods to high-tech and luxury brands – comfortable with these technologies and managing their tokenized RWA on-chain is critical to creating more commercial opportunities and stronger IP rights for owners.”
