The hotly anticipated decision on the application of trade mark law in relation to non-fungible tokens ("NFTs") has finally been provided by the U.S. District Court for the Southern District of New York in relation to the luxury fashion brand Hermès International and Hermès of Paris, Inc. dispute over NFT-linked digital images that replicate the design of Hermès' famed Birkin bag and that incorporate the "MetaBirkins" name.
The jury concluded that MetaBirkins creator and artist, Mason Rothschild ("MR"), is liable for trade mark infringement and dilution, and cybersquatting (registering the MetaBirkins.com domain name) for the MetaBirkins NFTs, and is also not protected by the First Amendment free speech protections that encompasses freedom of artistic expression.
For brand owners this is a significant decision as it appears to strengthen their rights to control use of trade marks in the virtual world and affirms that existing trade mark registrations can extend into the virtual world. However, the decision is also a stark reminder to artists of the ongoing challenges of balancing artistic expression against commercial interests. MR has indicated that he will appeal.
Background
In December 2021, MR offered up and extensively promoted for sale NFTs which replicated the design of the renowned Hermès Birkin bag bearing the "MetaBirkins" name. Hermès swiftly sued MR, stating that due to his unlawful use of its HERMÈS and BIRKIN trade marks, and BIRKIN trade dress, MR was engaging in trade mark infringement, dilution, and unfair competition, as well as cybersquatting in relation to MR's use of the metabirkins.com domain. The claim was therefore focused on trade marks and trade dress issues, as opposed to copyright. Further, while MR's unlawful use of Hermès' Birkin bag trade dress and imagery was an aggravating concern, the unauthorised use of the BIRKIN name for MR's NFTs was the primary issue.
In seeking injunctive relief and damages against MR, Hermès relied upon actual confusion among consumers and media outlets, as to Hermès' involvement in and/or authorisation of the MetaBirkins. Hermès emphasised the high value of its trade marks, including the “Birkin” word mark, and argued that MR's NFTs were less about artistic expression than an attempt to profit from, and free ride off the coattails of, the Hermès brand. It relied on evidence at trial including messages from MR to his associates in which he stated that "he wanted to make ‘big money’ by ‘capital[izing] on the hype.”
In refuting Hermès' claims, MR argued that "MetaBirkins" is the title of an art project of a series of 100 artworks and is not a trade mark, with the furry appearance of the NFT-linked Birkin images inspired by ‘fur free’ initiatives and an embrace of alternative textiles. MR further argued he never had an intention to mislead consumers as to the source of the NFTs, as indicated by the disclaimer on the MetaBirkins website.
Counsel for MR argued his use of the “MetaBirkins” name is “protected free speech under the First Amendment because the artworks and associated NFTs are art and commentary on Hermès’ Birkin handbag,” and therefore, does not constitute infringement, dilution, or cybersquatting.
The decision
The case applied the so-called "Rogers test" applied in US trade mark law to assess infringement. The test has two prongs to allow the use of a trade mark without permission: 1) the work meets a minimum level of artistic relevance to the underlying work; and 2) the work does not explicitly mislead as to the source or content of the work. The jury found that the work failed the Rogers test, although it was not clear from the decision as to which prong was determinative.
Thus, the jury decided that the MetaBirkins NFTs infringed and diluted Hermès rights in their Birkin registrations, and awarded Hermès $133,000 in damages (Hermès' expert had suggested that the actual figure was closer to $250,000, including the profits of the MetaBirkins that MR received). The court has not yet ruled on injunctive relief.
Implications
For brand owners
The MetaBirkins case had been greatly anticipated given it is the first case to scrutinise the nature of digital assets and NFTs sold on the blockchain in the context of trade mark infringement and dilution. The decision is, of course, not binding on the UK courts, but provides helpful guidance to companies and creators in approaching branding and art in the virtual world.
Due to the interaction between tangible goods and those that exist in the virtual world, this decision is significant as it appears to strengthen brand owners' rights to control the use of their trade marks in the virtual world, and affirms that existing trade mark rights can extend into the virtual world. This may encourage brand owners to take action against unauthorised Web 3.0 uses, including where existing trade mark registrations do not expressly cover virtual goods/services. Notably, the BIRKIN registrations relied upon by Hermès did not include virtual goods/services (although Hermès has now filed various applications covering virtual goods/services in classes 9, 35 and 41).
For artists
Back in 2021 when MR was creating the MetaBirkins, NFTs were largely understood to form part of the artists' arena, supported by values of freedom of expression, autonomy and decentralisation. However, brand owners are increasingly establishing themselves as digital asset creators in their own right with their intellectual property rights now extending to digital realms.
Freedom of expression curtailed?
MR had argued that his art project fell within the confines of free speech protected by the First Amendment. Indeed, his lawyer argued that Birkin bags were a "cultural symbol of rarefied wealth and status", perfect fodder for artists to explore as metaphors of consumerism, as "art doesn't exist in a vacuum." The SDNY declined to allow MR's expert witness, Blake Gopnik, an art critic who studies the work of Andy Warhol, to present testimony. Gopnik supported MR's argument that the NFTs are protected artistic expression akin to Warhol's silk-screen prints of Campbell's soup cans. Nevertheless, Hermès focused its arguments on trade mark confusion, and characterized MR purely as a businessman, and not an artist. Hermès has not yet offered its own NFTs but stated that it had plans to do so, and the "MetaBirkins" would impede those plans and cause consumer confusion.
Artists and free speech advocates have argued that this case prioritises potential commercial interests against the rights of artist expression, which generally enjoys greater protection in the US than it does in the UK and EU, with an extensive history of case law. While that may be the case, it is worth noting that this case was brought on the grounds of trade mark infringement, which focuses on consumer confusion, while MR's arguments were better suited for a copyright defence of fair use under US law, where he could apply the "transformative use" test. Courts globally are likely to continue wrestling with this developing field over the next several years, and the challenges of balancing artistic expression against commercial interests.