NFT IP risks become real in the MetaBirkins case

A few weeks ago, this column discussed the fallout from the SDNY jury’s verdict in the Adidas/Thom Browne dispute over the latter’s use of stripes on garments. In the latest major trademark news from SDNY, a jury reached a verdict in the closely watched case between uber-luxury fashion house Hermes and artist Mason Rothschild over Rothschild’s “MetaBirkins” NFTs. As reported in Vogue Business:

The nine-person jury found Rothschild liable for trademark infringement, trademark dilution and “cybersquatting” (the practice of using a name in bad faith with the intent to make money) and awarded Hermès $133,000 in total damages (an estimate that at least includes the amount he is believed to have earned from the works) on February 8, the third day of deliberation.

Although the compensation amount may seem modest, the impact of this case promises to resound loudly in the future. We’ve already snuck into 2023, and we already have two SDNY trademark grand jury verdicts to mull over.

For those interested in the IP implications of the NFT phenomenon, the jury’s verdict in the Hermes case is a clear rejection of the idea that NFT projects are somehow immune from the same IP rules that other businesses and artists must follow. It’s true that much of the commercial hype surrounding – and perhaps easy money to be made by flipping – NFTs has died down a lot after a disastrous 2022 for the nascent industry. At the same time, there is still a lot of money invested in the NFT area, and the chances of the sector becoming hot again cannot be written off. In that regard, for NFT owners and investors, the Hermes decision is one worthy of continued study and follow-up, especially given the likelihood that the jury verdict will be appealed. Likewise, it will remain important for brand owners to learn from the example Hermes set by bringing the case against Rothschild in the first place, as companies of all sizes continue to refine their strategies to drive the metaverse forward.

A little background is in order for those who may not have been familiar with the case. Hermes filed the suit in January 2022, complaining that Rothschild’s release of 100 “MetaBirkin” NFTs infringed on its trademark rights related to the company’s iconic Birkin leather bags, which can cost up to $50,000 for those brave enough to carry them. Interestingly, Hermes also apparently testified that Rothschild’s release of the MetaBirkins hindered the company’s supposed “progress … prototyping various NFT projects.” This fact alone, even more so together with the use of the Birkin name and appearance in the Rothschild project, seems to have resonated with the jury and contributed to the verdict in Hermes’ favour. This result was achieved despite less than 5% of luxury buyers surveyed expressing confusion about the source of the MetaBirkins, as well as less than 20% of the total respondents believing Hermes was behind the MetaBirkins project.

For his part, Rothschild’s post-sentence comments suggest that not only will an appeal of the verdict follow shortly, but that he will continue to publicly attack Hermes’ credibility. In his view, his loss in court was to “[a] multi-billion dollar luxury fashion houses that say they ‘care’ about art and artists, but feel they have the right to choose what art is and who is an artist.” In short, Rothschild has no problem painting Hermes as a hypocritical brand bully, so obsessed with protecting the bottom line that the company was willing to provide an example of someone making an artistic statement with an iconic luxury item as a reference point. Even if one does not agree with Rothschild’s point of view, or believes that his own credibility is undermined by the fact that the MetaBirkins project was also a commercial project that made a profit for the artist, it is clear that he ran into a bit of a legal buzz-saw in taking on a company like Hermes that felt it had no choice but to pursue him in court. At the same time, it is also clear that the hype surrounding NFTs was a major factor in forcing Hermes to take a strong stand, considering the potential value of the company being able to leverage its trademarks and goodwill in the metaverse.

It is also interesting to contrast this result with that in the other new SDNY trademark case. Here, the fact that this ruling led to a different result than in the Adidas/Thom Browne case helps to illustrate the jury appeal of a trademark’s ownership claim based on the defendant’s open use of the plaintiff’s marks, especially when combined with evidence such as in by making this, the defendant also interfered with a market opportunity for the trademark owner. Here, there was little daylight between Rothchild’s issuing of NFTs using Hermes’ marks and images and the fact that Hermes itself claimed that it was trying to get into the NFT issuing game itself. In contrast, Thom Browne showed that it was not using Adidas’ three-stripes, nor was it really competing directly with the sportswear and sneaker giant with its eponymous fashion for the luxury buyer. Two different sets of facts, leading to two different jury verdicts just weeks apart.

Ultimately, the deft handling of Judge Rakoff in bringing this case to judgment helps set up an important potential appeal that will be closely watched by those interested in the intersection of NFTs and IP. Coupled with the upcoming SCOTUS hearing on the Jack Daniel’s parody trademark dispute involving a dog toy, which may provide further guidance on the application of the Rogers test under which this case was decided, the coming year may help bring some clarity to the scope of a the trademark owner’s rights in the face of artistic effort and parody from others. At the same time, this judgment will also encourage other IP holders to monitor their rights in the face of efforts by NFT projects to piggyback their IP, thereby introducing an element of risk going forward for NFT projects involved in exploiting IP rights owned by others – even if the use of the IP is to promote an artistic purpose or message. Basically, anyone who might have thought that NFTs had a free pass when it comes to IP would do well to change their minds. At least until we find out who has the right to sell NFTs of luxury handbags, or chewy dog ​​toys that do business with whiskey sellers. For now, the NFT IP risk is as real as it gets.

Feel free to send comments or questions to me at [email protected] or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is one of the founders of Kroub, Silbersher & Kolmykov PLLCa shop for intellectual property litigation, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related advice, with a strong focus on patent matters. You can reach him at [email protected] or follow him on Twitter: @gkroub.