For much of human history, we have defined ourselves by the things we wear. From trying to win the latest pair of Air Jordan shoes on the “drop” to high-end designer brands, what we choose to wear is often a form of self-expression. As blockchain technology and NFTs have become more widespread, fashion brands have sought to take advantage of this emerging technology by “beginning to create and offer digital replicas of their real-life products to put in digital fashion shows or otherwise use in the metaverse.”[1] As with many advancements with the internet, the emergence of NFTs has led to instances of cybersquatting and potential infringement of trademarks, but until February 8, 2023, no U.S. court had made any ruling to answer this question.
Overview of the Dispute
In December 2021, Mason Rothschild created a series of non-fungible tokens (NFTs) titled “MetaBirkins.”[2] These NFTs depicted an image of a faux-fur-covered bag that resembles the world famous Hermès Birkin bag. Rothschild described his NFTs as “a tribute to Hermès’ most famous handbag, the Birkin, one of the of most exclusive, well-made luxury accessories.”[3] Rothschild told Yahoo Finance “for me, there’s nothing more iconic than the Hermès Birkin bag… I wanted to see as an experiment if I could create the same kind of illusion that it has in real life as a digital commodity.”[4] Rothschild created and sold 100 NFTs, some selling for tens of thousands of dollars.[5]
On January 14, 2022, Hermès International filed a complaint in the U.S. District Court for the Southern District of New York against Rothschild for trademark infringement, trademark dilution, and cybersquatting.[6] In March 2022, Rothschild moved to dismiss Hermès’ amended complaint for failure to state a claim upon which relief can be granted under the Federal Rules of Civil Procedure.[7]
In determining whether the NFTs infringed on the Hermès trademarks, the court agreed with Rothschild that the test outlined in Rogers v. Grimaldi[8], under which the First Amendment protects artistically expressive use of a trademark (and is thus not infringement) should be applied as opposed to the Gruner + Jahr[9] test for which Hermès advocated.[10] Rothschild argued that his NFTs satisfied both prongs of the two part Rogers test because: the use of the trademark (1) had some artistic relevance and (2) was not explicitly misleading in serving as a source identifier of the NFTs.[11]
On this initial motion to dismiss based on the artistic relevance prong of the Rogers test, the court found that Hermès’ complaint contained “sufficient allegations that Rothschild entirely intended to associate the ‘MetaBirkins’ mark with the popularity and goodwill of Hermès’ Birkin mark, rather than intending an artistic association.”[12] Regarding the explicit misleadingness prong, the court found that, similar to the artistic association prong, Hermès’ complaint contained sufficient allegations of explicit misleadingness for the court to deny the motion to dismiss the trademark infringement claims against Rothschild.[13] As for the other claims of trademark dilution and cybersquatting, the court held that they rose and fell with Rothschild’s First Amendment defense of the infringement claims and so denied the motion to dismiss on similar grounds.[14]
Both Hermès and Rothschild filed cross-motions for summary judgment, which were denied on December 30, 2022.[15] In ruling on these cross-motions, the court again used the Rogers test to evaluate the claims of trademark infringement.[16] In explaining the Rogers test, the court said that, consistent with holdings from other district courts, “as long as the plaintiff’s trademark is used to further plausibly expressive purposes, and not to mislead consumers about the origin of a product or suggest that the plaintiff endorsed or is affiliated with it, the First Amendment protects that use.” Id. The court reasoned that Rothschild’s MetaBirkins could be seen as constituting a form of artistic expression, and for that reason, the Rogers test was proper.[17]
The court first analyzed the case using the “artistic relevance” factor from the Rogers test. This is a bar easily met, as “it is met ‘unless the [use of the mark] has no artistic relevance to the underlying work whatsoever.”[18] However, when a trademark is used purely to exploit its public value, the relevance prong will not be met.[19] Because it was not clear as a matter of law that the mark was used for exploitative purposes, the court denied both parties’ summary judgment motions on this issue.[20]
Next, the court analyzed the case under the “explicitly misleading” prong.[21] A work will be explicitly misleading when it leads the public to believe that the work was the creation or authorized work of the trademark holder.[22] Courts use the factors for likelihood of confusion under Polaroid[23] to make the determination as to whether the work was explicitly misleading.[24] The court again denied the cross-motions for summary judgment on this issue, concluding that the Polaroid factors are fact intensive, and there were genuine issues of material fact.[25]
After both parties’ motions for summary judgment were denied, the case went to trial before a jury. On February 8, 2023, a nine-person jury returned the first-ever verdict in a trial involving the intersection of NFTs and trademark rights.[26] The jury found in favor of Hermès, finding Rothschild liable for trademark infringement, trademark dilution, and cybersquatting.[27] The jury also determined that the First Amendment did not protect the MetaBirkin NFTs.[28]
On March 13, 2023, Rothschild filed a motion for judgment as a matter of law or new trial.[29] In this motion, Rothschild claims that the district court judge gave the jury improper instructions, which resulted in the findings against him.[30] It is expected that, should this motion be denied, Rothschild will appeal his case.
Implications
As with many landmark cases, the question for most people is how this decision affects them. While a victory for Hermès, many questions remain unanswered when it comes to intellectual property rights in the virtual space. One takeaway is that the same intellectual property rules that govern goods in the physical world exist in the metaverse.[31] And many companies, particularly the more well-known brands, have applied for or obtained trademark registrations of their names in classes of goods that include those in the virtual world, like NFTs.[32]
[1] Hermès Int’l v. Rotchschild, 603 F.Supp.3d 98, 101 (S.D.N.Y. 2022).
[2] Id.
[3] Id.
[4] Id.
[5] Tori Lathan, Yahoo Finance, Hermès Won Its Case Against an Artist Who Sold NFTs of Its Iconic Birkin Bags, https: //www.yahoo.com/now/herm-won-case-against-artist-233000462.html (Last visited Mar. 23, 2023).
[6] Hermès Int’l v. Rotchschild, 603 F.Supp.3d 98, 101 (2023).
[7] Id. at 100.
[8] 875 F.2d 994 (2d Cir. 1989).
[9] 991 F.2d 1072 (2d Cir. 1993).
[10] 603 F.Supp.3d at 103.
[11] Id.
[12] Id. at 105.
[13] Id. at 106.
[14] Id.
[15] Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), 2023 WL 1458126, at *1 (S.D.N.Y. Feb 2, 2023).
[16] Id. at *4.
[17] Id.
[18] Id. at *7.
[19] Id. at *8.
[20] Id.
[21] Id.
[22] Id. at *9.
[23] Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492 (2d Cir. 1961).
[24] Id.
[25] Id.
[26] Isaiah Poritz, Bloomberg Law, Hermès Defeats MetaBirkins in the First NFT Trademark Trial, https://news.bloomberglaw.com/ip-law/hermes-gets-win-over-metabirkins-in-first-nft-trademark-trial (last visited Mar. 30, 2023).
[27] Id.
[28] Id.
[29] Isaiah Portiz, Bloomberg Law, MetaBirkin NFT Artist Seeks New Judgment After Loss to Hermès, https://news.bloomberglaw.com/ip-law/metabirkin-nft-artist-seeks-new-judgment-after-loss-to-hermes?context=search&index=1 (Last visited Mar. 23, 2023).
[30] Id.
[31] Andrew Comer, Bloomberg Law, How the Hermès NFT Case Will Impact Expression and Enterprise, https://news.bloomberglaw.com/us-law-week/how-the-hermes-nft-case-will-impact-expression-and-enterprise?context=search&index=8 (Last visited Mar. 23, 2023).
[32] Id.