NFTs and Trade Marks: MetaBirkins in the bag?

NFTs
have swiftly claimed their place in the high-tech world of cryptocurrencies,
blockchain and the metaverse. They are expanding over a wide range of sectors including
fashion, much to the dismay of major fashion houses. This was made painfully
clear by the recent clash between French fashion house Hermès and American
artist Mason Rothschild about his virtual handbag series ‘MetaBirkins’ in the
form of NFTs. On 14 January 2022, Hermès lodged a complaint with the United
States Southern District Court of New York,[1]
stating that Rothschild infringes Hermès’ trade marks and constitutes unfair
competition. This case provides valuable insight into how trade mark protection
for real-world brands and products translates into the virtual metaverse.

Factual background

Non-Fungible Tokens (NFTs) are units of
digital data (‘tokens’) stored on blockchain
that are not inherently interchangeable with other digital assets (‘non-fungible’). The ‘metaverse’ refers
to a virtual world and marketplace where digital assets such as NFTs can be traded.
NFTs allow brands to directly interact with consumers using this new
decentralised technology. Artists and creators can commercialise and monetise
ownership of these digital assets, which offers plenty of potential. Regarding
intellectual property however, trade mark owners should nowadays make sure that
their registrations also cover virtual/digital commodities such as NFTs and
cryptocurrencies as to accommodate 3D-shopping in the metaverse.

NFTs are currently most prominent in the
art sector, of which there are countless examples. Prices of these virtual
tokens are skyrocketing, with the sale of ‘The Merge’ by Pak for 91.8 million
USD leading the pack. Similarly to
the art sector, NFTs have proven to be very lucrative in fashion as well.
Fashion houses and their designers however are not amused by this development,
and perceive the use of NFTs more as intellectual property infringements,
rather than a refreshing technological evolution throughout the sector.

LA-based artist Mason Rothschild saw
potential in the iconic design of the Birkin-bag by Hermès, and issued 100 NFTs
of virtual Birkin-bags – called the ‘MetaBirkins’. Rothschild wanted to provide
customers with a non-fur, sustainable alternative while keeping the iconic
design of the bags.

Legal considerations

On 14 January 2022, Hermès lodged a
complaint with the NYSD-Court for damages, declaratory and injunctive relief
(cease and desist) and requested that already minted NFTs (i.e. already stored on blockchain) would be destroyed. In March 2022, Rothschild filed a motion to
dismiss. The case is currently pending before the Court.

The main legal grounds relied upon by the
parties set the battle scene between NFT’s and intellectual property rights:

Hermès
on the one hand, invokes its BIRKIN-trade mark (no.
2991927)[2]
and its trade dress design (no. 3936105)[3]
with the USPTO. The company claims that the MetaBirkins “falsely create the impression that the
goods sold by Rothschild are authorized, sponsored, or approved by Hermès when,
in fact, they are not.” Consequently, consumers are misled and the ability
of its trade marks to identify Hermès as the unique source of goods sold under
the BIRKIN-trade mark is undermined. Hermès argues that the MetaBirkins could “ultimately pre-empt Hermès’ ability to
offer products and services in virtual marketplaces that are uniquely
associated with Hermès and their quality standards.” Hermès thus accuses
Rothschild of usurping future opportunities that could emerge from trading in
the metaverse.

Hermès stated in its complaint that
Rothschild is “a digital speculator who
is seeking to get rich quick by appropriating the brand METABIRKINS for use in
creating, marketing, selling, and facilitating the exchange of digital assets
known as non-fungible tokens (“NFTs”). Hermès continues that “METABIRKINS brand simply rips off Hermès’
famous BIRKIN trademark by adding the generic prefix “meta” to the famous
trademark BIRKIN.” Since sales prices of the MetaBirkins amount to a total
of over 1 million USD, getting rich quick is at least one correct statement by
Hermès. MetaBirkins’ success would result from the confusing and dilutive use
of Hermès’ famous trade marks. The use of a disclaimer that Rothschild’s NFTs are
not related or in any way affiliated to Hermès does not detract from this, so
Hermès argues.

Rothschild from his side made some good arguments in his defence as well,
which demonstrates that things may not be as clear-cut as they seem:

Firstly, one should investigate the goods
and services that Hermès’ trade marks are registered for, since this is
obviously a major impacting factor in the assessment of the Court. As one may
expect from a company like Hermès, almost everything in existence is covered by
their trade marks, be it in relation to physical (leather/textile) goods. It is
arguably a different story on the digital side of things, including NFTs, where
Hermès – until now – did not (yet) engage in.

Secondly, Rothschild invokes the right of
free speech: “I am not creating or
selling fake Birkin bags. I’ve made artworks that depict imaginary, fur-covered
Birkin bags”, so he stated. Rothschild relies therefore upon the precedent
set forth in Rogers v. Grimaldi (875
F.2d 994; 2d Cir. 1989), which permits the use of trade marks in artistic works
provided that the trade marks have no artistic relevance or otherwise create a
false designation of origin, and thus are not misleading consumers.

Conclusion and key
takeaways

That Hermès is not (yet) active in the metaverse where the MetaBirkins were released, should in our
opinion not automatically prevent the company from acting against any
unauthorised use of their trade marks relating to identical or similar goods
and services. Since the persons interacting with the metaverse are ultimately
human beings, the general requirement of avoiding a likeliness of confusion should
still stand, be it in the metaverse or in the real world.

Three basic considerations to keep in mind
for trade mark owners who – now or in the future – wish to engage in trading in
the metaverse are:

• Check the goods and services
  that your trade marks are registered for, and re-apply for digital/virtual commodities.
  Worth considering are Nice Class 9 for “downloadable and recorded virtual
  goods”, Class 35 for “online retail store services featuring virtual goods”, as
  well as services in Classes 36 and 41.
• Perform a due-diligence when
  entering the metaverse-market to get a clear view on which brands or products
  are already traded.
• When minting NFTs, it may be a
  good idea to already include contractual terms in the blockchain-registered
  smart contract regarding (future) trading in the metaverse.

Only time will tell what the decision of
the NYSD-Court will be, but it is clear that trade marks are to be reckoned
with, also in respect to more exotic digital formats such as NFTs. However,
since scarcity also exists in the metaverse, the contradictory effect of all
this is: the more attention Hermès and the media pay to the MetaBirkins, the
higher its sales price seems to be.

---

[1] Case no. 1:22-cv-00384.

[2] See https://tmsearch.uspto.gov/bin/showfield?f=doc&state=4810:dopxag.4.8.

[3]See https://tmsearch.uspto.gov/bin/showfield?f=doc&state=4810:dopxag.5.1.