How Hermès Trademark Decision Will Impact NFTs

How Hermès Trademark Decision Will Impact NFTs

In a crowded sector, the Hermès iconic Birkin bag remains one of the world’s most coveted and recognizable luxury handbags. The handbag is now also known for being the subject of a novel lawsuit involving the intersect of intellectual property law and NFTs, or non-fungible tokens.

In one the first trademark infringement lawsuits involving NFTs, a New York jury sided with Hermès International SA (Hermès), concluding that artist Mason Rothschild’s sale of “MetaBirkin” NFTs violated Hermès’ intellectual property and trademark rights. The jury also determined that the NFTs were not, as Rothschild argued, protected artistic expression under the First Amendment.

IP Rights Associated With NFTs

As discussed in greater detail here, NFTs are unique, non-fungible digital assets that are recorded on a blockchain (i.e., a type of distributed ledger). NFTs allow owners to access specific digital content associated with the NFT, such as PDFs, gifs, videos, or other forms of media and digital assets. When NFTs are created or “minted,” they are listed on an NFT marketplace where they can be sold or traded in accordance with a variety of “smart contracts” that govern the transfer of the NFTs.  Notably, the NFT market has exploded in the last few years and NFTs have become particularly popular among collectors of art and memorabilia. In response, celebrities and notable brands have launched NFT projects that seek to capitalize on the new market and demand for NFTs.

With regard to intellectual property (IP) rights, the underlying content of NFTs, such as art, music, and videos, is protected by existing IP rights and concepts. For instance, absent a license, the copyright holder of a musical composition or artwork is the only party that has the right to transform the original work into an NFT or other derivative work. Among the many contentious issues revolving around NFTs and IP rights centers around who has the right to create NFTs from protected works, as in the Hermès and Rothschild dispute. 

Trademark Infringement Suit Over MetaBirkin NFT

In 2021, digital artist Mason Rothschild created a series of digital images featuring faux fur-covered Hermès Birkin bags, which he called “MetaBirkins.” The two-dimensional images are linked to corresponding NFTs, which Rothschild promoted online through websites and social media. According to Rothschild, his fanciful interpretations of a Birkin bag reflected his commentary and views regarding animal cruelty in the fashion industry and his push to promote alternatives to leather goods.

Hermès sued Rothschild in 2022 for trademark infringement and dilution. The suit alleged that Rothschild’s use of the Birkin name and the handbag’s distinct visual appearance was likely to confuse potential consumers into thinking that the MetaBirkins NFTs were sold by or otherwise associated with, sponsored by, or approved by Hermès. Hermès also argued that Rothschild was exploiting the clout and popularity of its famous brand.

In response, Rothschild argued that his NFT collection was protected under the First Amendment.  Rothschild relied on Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), which held that the use of a trademark in a work of art does not constitute infringement provided that (i) the name is artistically relevant to the work and (ii) the use of the trademark does not explicitly mislead as to the source or content of the work. 

Rothschild argued that well-known brands have long been the subject of artistic reflection and commentary, citing Andy Warhol’s famous depictions of iconic brands such as Campbell’s Soup and Coca-Cola. Rothschild noted that “Using an NFT to authenticate an artwork no more makes the artwork a ‘commodity’ unprotected by the First Amendment than does selling numbered copies of physical paintings make those paintings commodities for purposes of Rogers.” 

Hermès countered that any artistic expression was incidental at best and that Rothschild’s true intention was to confuse consumers into believing that his MetaBirkins NFTs were sponsored by or associated with Hermès. “Rothschild saw a financial opportunity when major fashion brands entered the metaverse and sold branded digital products for significant prices,” Hermès argued in its motion for summary judgment. “Rather than creating something original, Rothschild wanted to make money by replicating those fashion brands and created ‘the same kind of illusion that [the Birkin handbag] has in real life as a digital commodity.”

Judge Jed S. Rakoff declined to hold for either side and the case was decided by a jury. In instructing the jury, Judge Rakoff stated that “the MetaBirkins NFTs, including the associated images, are in at least some respects works of artistic expression, such as, for example, in their addition of a total fur covering to the Birkin bag images.” Accordingly, he instructed the jury that Rothschild would be “protected from liability on any of Hermès’ claims unless Hermès proves by a preponderance of the evidence that Mr. Rothschild’s use of the Birkin mark was not just likely to confuse potential consumers but was intentionally designed to mislead potential consumers into believing that Hermes was associated with Mr. Rothschild’s MetaBirkins project.”

Ultimately, the jury found Rothschild liable for trademark infringement, determining that the NFTs were not protected under the First Amendment. The jury awarded Hermès $133,000 in damages.

Significance of the Case

While the MetaBirkins case is significant as the first trademark infringement case involving NFTs, it is important to emphasize that the jury reached its decision based on the specific facts and circumstances of that particular case. Notably, the jury verdict does not establish judicial precedent and subsequent decisions are expected to further clarify how courts will balance trademark rights and First Amendment concerns in the growing NFT marketplace.

One important takeaway is that juries tend to focus on the motivation behind NFT projects, particularly those created by digital artists. For instance, is the NFT creator striving to create an original work of artistic expression? Or is the creator simply looking to profit from the popularity of an existing brand? These questions, and more, will likely be outcome determinative in some of these cases. 

We Can Help Navigate Novel IP Issues

Scarinci Hollenbeck takes pride in helping clients navigate cutting-edge legal issues, including IP-related challenges and opportunities associated with NFTs. For information about how to revise your IP strategies to reflect the emergence of this new technology or how to reduce your risk of liability when pursuing NFT projects, we encourage you to contact our experienced IP team at 201-896-4100.