By: Lily Keene

Non-fungible tokens (“NFTs”) are assets that have been tokenized through a blockchain and cannot be replicated.  The tokens are distinguished from each other by unique identification codes and metadata.  They represent digital or real-world items like artwork and real estate.  NFTs can be traded and exchanged for money, cryptocurrencies, or other NFTs.  Generally, NFTs do not confer intellectual property rights unless a contract specifically grants them.  NFTs have been subject to litigation over recent years and have raised novel questions in intellectual property law.

In December 2021, defendant Mason Rothschild created and sold NFTs of faux-fur-covered versions of Hermès’s well-known luxury Birkin handbags.  Rothschild titled these images “MetaBirkins.”  In Hermès International, et al. v. Mason Rothschild, Hermès filed trademark infringement, trademark dilution, and cybersquatting claims against Rothschild, accusing him of attempting to capitalize on the goodwill of a popular luxury brand and its Birkin bag by way of selling a collection of 100 “MetaBirkins” NFTs.

The highly anticipated case of first impression over NFTs tied to images that resemble the Hermès Birkin is sought to resolve whether Hermès can successfully prevent unauthorized use of its Birkin mark in connection with the sale of NFTs.  Hermès does not hold trademark registrations for its name and Birkin mark for use on digital goods and is not using those marks in the metaverse and selling NFTs of the bags.  To succeed on a claim for trademark infringement, Hermès must show that it has a (1) valid mark (that its “real world” rights in the Birkin mark extend to the virtual world) and that Rothschild (2) used the same or a similar mark in a way that is likely to confuse consumers.  Hermès argues that offering virtual goods is within its “natural zone of expansion,” given that fashion brands are beginning to create and offer digital replicas of their real-life products to put in digital fashion shows or otherwise use in the metaverse.

In 2022, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York denied Rothschild’s motion to dismiss on the basis that Hermès’s allegations that Rothschild was using its trademarks in a way that is not artistically relevant and that the “MetaBirkins” title “explicitly misled” the public into thinking the NFTs were associated with Hermès.  Rothschild argued that the “MetaBirkin” NFTs should be shielded from Hermès’s trademark infringement claims under the Rogers test.  The two-pronged test establishes that trademark users are protected from infringement claims if they use both (1) an artistic expression and (2) do not explicitly mislead consumers.  The judge found that Hermès had sufficiently alleged that even if Rothschild’s use of “MetaBirkins” is “artistically relevant,” his use of “MetaBirkins” may be explicitly misleading as to the source of Rothschild’s artwork and, thus, may give rise to Lanham Act liability.

The Lanham Act is the primary federal trademark statute in the United States and prohibits the use of trademarks that confuse the affiliation, connection, or association with the mark holder or to the sponsorship or approval of goods or services.  On a Lanham Act claim, the question is whether the likelihood of confusion by the allegedly infringing use is sufficiently compelling to outweigh the public interest in free expression.  Since Rothschild sells digital images of handbags that could constitute a form of artistic expression, balancing the First Amendment concerns with Lanham Act protection requires applying the Rogers test.

To determine whether the likelihood of confusion is sufficiently compelling to outweigh the public interest in free expression, the court would likely consider the Polaroid factors.  The factors include: (1) the strength of the plaintiff’s mark, (2) the similarity of the marks, (3) the competitive proximity of the products in the marketplace, (4) the likelihood that the senior user will “bridge the gap” by moving into the junior user’s product market, (5) evidence of actual confusion, (6) the junior user’s bad faith in adopting the mark, (7) the respective quality of the products, and (8) the sophistication of the consumers in the relevant market.  The court, however, left these issues up for the jury to consider.

On February 8, 2023, the jury returned a verdict in favor of Hermès, finding that the “MetaBirkins” are similar to consumer products, which are bound by trademark laws, and not art protected by the First Amendment.  The jury agreed that Rothschild capitalized on Hermès’s goodwill for profit.  This verdict shows that brands can successfully defend their trademarks against use in NFTs, even when the use may be considered artistic expression.  The win for Hermès provides that existing trademark rights can be applied in virtual spaces.  It strengthens brand owners’ right to control trademarks in the digital sphere, even if they are not concurrently operating in the virtual world.  As a result, creators like Rothchild likely will have to routinely obtain licenses from trademark owners or ensure they do not explicitly misrepresent the source of their content.  Companies should consider taking affirmative steps to protect their trademarks in the digital world, including expanding trademark enforcement to NFT marketplaces, enforcing trademark rights in federal court as soon as possible and, if a company intends to enter the NFT space, applying to register trademarks for the relevant goods or services with the United States Patent and Trademark Office.

This case highlights the disparity between the status of a company’s trademark rights in the “real world” and those that can be enforced in the digital realm.  This is the first and most prominent lawsuit examining trademarks and NFTs.  The verdict sets a legal precedent for trademarks, NFT creators, NFTs, and digital creators in the future, building a framework for intellectual property in the digital sphere.  It sheds light on how far a brand’s trademark rights extend in the virtual space and allows for trademark law to grow with the rapid pace of technological advancement.  As the legal relationship between NFTs and trademarks continues to evolve, counsel for brand owners must understand the technology behind NFTs and keep an eye on developments.

 

Student Bio: Lily Keene is a second-year law student at Suffolk University Law School.  She is a staff writer for the Journal of High Technology Law.  She graduated from the University of New Hampshire with a Bachelor of Arts in Communication with a focus in Business.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.