Just over a year since luxury design house Hermès filed a trade mark infringement lawsuit against NFT digital artist Mason Rothschild (Rothschild), a nine-person jury of the US District Court for the Southern District of New York has found Rothschild liable for trade mark infringement and dilution for his use of the mark, “METABIRKIN”, as well as cybersquatting through his use of the MetaBirkin.com domain name. The case is one of the first to examine the application of US intellectual property law to NFTs.

In May 2021, Rothschild created and sold digital art, in the form of NFTs, which featured an illustration of a developing foetus inside a see-though Birkin bag (the “Baby Birkin NFT”).  Following the success of the Baby Birkin NFT, Rothschild then created and sold a further collection of NFTs depicting digital Hermès Birkin bags, this time covered in various faux fur colours and patterns,  called the “MetaBirkin” collection. Consequently, Hermès initiated a trade mark infringement claim against Rothschild in relation to the offering and sale of MetaBirkins.

In support of its trade mark infringement and dilution claims, Hermès argued that Rothchild’s MetaBirkin collection featured the unique design attributable to the Hermès Birkin, which contributed to both a likelihood of confusion in the minds of consumers (in the sense that some may think that the MetaBirkins were authorised, sponsored or approved by Hermès, when they were not) and the dilution of the Birkin brand.[1] In particular, Hermès alleged that Rothschild intended to exploit the goodwill and reputation associated with the Birkin mark by giving the impression that he received authorisation from Hermès to exploit the Birkin brand and, in doing, gain an unfair economic advantage. By engaging in this activity, Hermès further argued that Rothschild disrupted “… efforts to enter the NFT market and hindered its ability to profit in that space from the Birkin bag’s well-known reputation.”[2]

With respect to their cybersquatting claim, Hermès argued Rothschild’s use of the MetaBirkin.com domain name, which consisted of the Birkin mark, contributed further likelihood of confusion in the mind of consumers (in the sense that some may think the MetaBirkin website was connected to, authorised or endorsed by Hermès), and Rothschild sought to use this domain name to capitalise on the repute and goodwill of the Birkin mark. In support of its claims, Hermès submitted evidence which included a commissioned consumer study that suggested a rate of 18.7% net ‘confusion’ amongst potential customers of NFTs surveyed[3]. It also subsequently submitted various Instagram posts and media report references which it said supported its case.

Rothschild argued the digital artworks represented by the MetaBirkin NFTs were pieces of art in the strictest sense, designed to highlight the treatment of animals during the production of luxury leather goods. In the circumstances, he argued that the appearance of Hermès’ ‘Birkin’ trade mark in the name of those works – MetaBirkin – was of artistic relevance and would not mislead the public.[4] Accordingly, Rothschild claimed that the First Amendment defence of Freedom of Artistic Expression and Free Speech applied [5] .

The Court had to consider whether the MetaBirkin NFTs were actually forms of artistic expression and therefore afforded protection under the First Amendment, or whether the NFTs were commercial in quality, and therefore likely to confuse consumers.

Interestingly, in rejecting an early motion brough by Rothschild seeking to dismiss Hermès’ claim in May 2022, the District Court noted that “…facts in dispute on this issue are both material and genuine”.[6] Accordingly,  a jury was instructed to determine whether, on the particular set of facts, the use of the MetaBirkin mark was artistically relevant, and whether the use of the MetaBirkin mark misled the public.  Specifically, Judge Rakoff instructed the jury to consider the following points[7]:

1. The strength of Hermès’ mark;
2. The similarity between the Birkin mark and the MetaBirkin mark;
3. Whether the public exhibited confusion between the two marks;
4. The competitive proximity of the products in the marketplace; and
5. Whether Rothschild exhibited bad faith in using Hermès’ mark.

Having listened to arguments and evidence from both parties on these issues, the jury held that Rothschild was liable for trade mark infringement, trade mark dilution, as well as cybersquatting. The jury also awarded Hermès damages of $110,000 for net profits earned by Rothschild and a further $23,000 for statutory damages for cybersquatting[8].

The case is one of the first US decisions outlining the extent of trade mark protection in the virtual world, especially with respect to digital art in the form of NFTs. The case also serves as a useful guide to brands enforcing their intellectual property rights in the virtual world, and a clear warning to digital artists who wish to refer brands in their NFT art without approval. While case law in the UK is limited in this area of law, this decision may prove influential in how courts in the UK may approach such issues.

Interestingly, despite freedom of expression generally being afforded strong protection in US Courts, the jury of this case still found infringement. While the decision of the jury does not explicitly comment on artistic relevance, or analyse any evidence of consumers’ confusion for example, their decision appears to stem from the factual background of the case. For instance, Rothschild was described as a “a digital speculator who is seeking to get rich quick by appropriating the brand Meta Birkin…”[9] for commercial purposes linked to the exchanged of NFTs. Rothschild also claimed proprietary rights in the MetaBirkin mark and commented that “more and more fake MetaBirkins”[10] were being sold every hour after the launch of his MetaBirkin NFT collection. In this respect, it is probable the jury perceived Rothschild as a commercial actor, as opposed to an artist as he originally argued in his defence.

Nevertheless, digital (NFT) artists should be aware of the following considerations:

• Ensure you have approval to refer to brands using contractual arrangements – digital artists should ensure they have written approval to refer to the brand, as well as an agreement  in place that outlines the terms of their collaboration with the brand, the obligations of each party and what exactly each party would be contributing to the collaborative final product/work.
• Intellectual Property contractual considerations – digital artists should ensure, when referring to a brand’s intellectual property, they can identify ownership rights in both the digital (NFT) art, and the underlying work. This could be addressed in the form a licensing agreement for example.
• Consider the use of protocol technology for certification purposes – digital artists should consider the use of technology like Wakweli to help: (a) authenticate their ownership in the digital NFT art; (b) certify any licenses created by brands which the digital NFT artist can then use; and (c) link certified licences to certified digital NFT artwork in order to facilitate the use of licensed work.

We frequently advise clients on potential legal, regulatory and commercial issues at the forefront of converging technologies in the technology sector, including blockchain software developers, software licensing arrangements and technology transactions. Get in touch if you’d like to have a further discussion about your project and we’d be delighted to assist.

References

[1] Hermès International and Hermès of Paris Inc v Mason Rothschild [2022], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Filed 01/14/22

[2] Hermès International and Hermès of Paris Inc v Mason Rothschild [2023], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Filed 02/02/23

[3] This finding was disputed by Rothchild’s expert, which argued that recoding the data suggested a rate of ‘confusion’ of 9.3%

[4] Hermès International and Hermès of Paris Inc v Mason Rothschild [2022], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Filed 10/05/22.

[5] As per Roger v Grimaldi, [1989], 2d Cir., 875 F.2d 994

[6] I Hermès International and Hermès of Paris Inc v Mason Rothschild [2022], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Filed 10/05/22

[7] Ibid

[8] Hermès International and Hermès of Paris Inc v Mason Rothschild [2023], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Jury Verdict. Filed 02/08/23

[9] Hermès International and Hermès of Paris Inc v Mason Rothschild [2022], S.D.N.Y., Case No. 1 22-cv-00384 (JSR). Filed 01/14/22.

[10] Ibid