Intellectual Property

NFT IP Risks Get Real In MetaBirkins Case

In short, Rothschild has no problem painting Hermes as a hypocritical trademark bully, so obsessive about protecting its bottom line that the company was willing to make an example of someone making an artistic statement using an iconic luxury item as a reference point.

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NFT ( Non-Fungible Token ) text in a torn dollar billA few weeks ago, this column discussed the fallout from the SDNY jury verdict in the Adidas/Thom Browne dispute over the latter’s use of stripes on garments. In the latest big trademark news out of the 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 of making a profit) and awarded Hermès $133,000 in total damages (an estimation that at least includes the amount he is thought to have earned from the works) on 8 February, the third day of deliberations.

While the damages amount may seem modest, the impact of this case promises to resound loudly going forward. We have already crept into 2023, and we already have two big-time trademark jury verdicts out of the SDNY to ruminate on.

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 have to follow. It is true that a lot of the commercial hype around — and perhaps easy money that could be earned flipping — NFTs has died down a lot after a disastrous 2022 for the nascent industry. At the same time, there remains plenty of money invested in the NFT space, and the chances for the sector to get hot again can’t be written off. In that respect, for NFT owners and investors, the Hermes decision is one that is worthy of continued study and follow up, especially considering the likelihood that the jury’s verdict gets appealed. Likewise, it will remain important for brand owners to learn from the example Hermes set by filing the case against Rothschild in the first place, as companies of all sizes continue to refine their strategies for operating the metaverse going forward.

A little background is in order for those who may have been unfamiliar with the case. Hermes filed the case 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 handbags, which can cost up to $50,000 for those brave enough to carry them. Interestingly, Hermes apparently also offered up testimony that Rothschild’s release of the MetaBirkins hampered the company’s supposed “progress … prototyping various NFT projects.” That fact alone, even more so when coupled with the use of the Birkin name and look in the Rotschild project, seems to have resonated with the jury and contributed to the verdict in Hermes’ favor. That result was achieved, despite less than 5% of the luxury buyer’s surveyed expressing any confusion over the source of the MetaBirkins, on top of less than 20% of the total surveyed believing that Hermes was behind the MetaBirkins project.

For his part, Rothschild’s post-verdict comments suggest that not only will an appeal of the verdict follow in short order, but also that he will continue to attack Hermes’ credibility publicly. In his view, his loss in court was to “[a] multi-billion-dollar luxury fashion house who says 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 trademark bully, so obsessive about protecting its bottom line that the company was willing to make an example of someone making an artistic statement using an iconic luxury item as a reference point. Even if one doesn’t 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 one that generated 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 other than to pursue him in court. At the same time, it is also clear that the hype around NFTs was an important factor in forcing Hermes into taking a strong stand, considering the potential value of the company of being able to exploit its trademarks and goodwill in the metaverse.

It is also interesting to contrast this result with that in the other recent SDNY trademark case. Here, the fact that this verdict led to a different result than in the Adidas/Thom Browne case helps illustrate the jury appeal of a trademark’s owner claim that is grounded in the defendant’s open use of the plaintiff’s marks, especially when coupled with evidence that in so doing, the defendant also encroached on a market opportunity for the trademark owner. Here, there was little daylight between Rothchild’s release of NFTs using Hermes’ marks and images and the fact that Hermes itself alleged that it was itself trying to get into the NFT release game. In contrast, Thom Browne showed that it was not using Adidas’ three-stripes, nor that it was 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 spaced just weeks apart.

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Ultimately, the deft handling of Judge Rakoff to get this case to verdict helps set up an important potential appeal that will be closely watched by those interested in the intersection between NFTs and IP. Together with the upcoming SCOTUS consideration of the Jack Daniel’s parody trademark dispute involving a dog toy, which could provide further direction on the application of the Rogers test under which this case was decided, the coming year could help bring some clarity to the scope of a trademark owner’s rights in the face of artistic efforts and parody by others. At the same time, this verdict will also embolden other IP holders to police their rights in the face of efforts by NFT projects to piggyback off their IP, thereby introducing an element of risk going forward for NFT projects involved in exploitation of IP rights owned by others — even if the use of the IP is in the furtherance of some artistic purpose or message. At bottom, anyone who may have thought that NFTs had a free pass when it comes to IP would do well to change their opinion. At least until we learn for sure who has the right to sell NFTs of luxury handbags, or chewy doggie toys poking fun at whiskey sellers. Because for now, NFT IP risks are now as real as can be.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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