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In a significant legal development, a New York court recently addressed trade mark infringement in the context of non-fungible tokens (NFTs). The court ruled in favour of luxury fashion brand Hermès International in a case involving a collection of digital images of fur-covered handbags attached to an NFT called “MetaBirkins”. The court found that the collection could confuse consumers and infringe upon Hermès’ trade mark rights (Hermès International v Mason Rothschild, Case 1:22-cv-00384-JSR). 

The Case

Hermès presented several arguments, asserting that the “MetaBirkins” collection infringed upon their trade mark and trade dress rights, and also involved cyber-squatting and unfair competition. On February 8, 2023, the court upheld all of Hermès’ claims and awarded the brand $133,000 in damages, although the decision is subject to potential appeal.

The central legal issue revolved around whether NFTs containing an unauthorised use of a protected trade mark for physical goods could constitute trade mark infringement. Importantly, Hermès had not yet entered the market for virtual goods, whether authenticated by NFTs or not. However, Hermès contended that the “MetaBirkins” collection hindered their plans to enter the NFT market and capitalise on the well-known reputation of the Birkin bag. Rothschild had sold NFTs at prices comparable to physical Hermès Birkin bags, which can retail for thousands of dollars.

Trade Mark Infringement

The court applied the Rogers v Grimaldi test (875 F.2d 922, 1000 (2d. Cir. 1989)) to determine trade mark infringement. This test adopts a speech-protective approach when evaluating alleged trade mark infringement in works of “artistic expression”. An individual accused of trade mark infringement cannot be held liable if their work is not artistically irrelevant or misleading. However, if the alleged infringing use explicitly misleads regarding the source or content of the work, it is not protected.

Hermès successfully argued that the NFTs misled consumers about the origin of the product, leading them to believe that Rothschild’s work was affiliated with or endorsed by Hermès. The brand presented evidence such as the @METABIRKINS Twitter and Instagram accounts, as well as advertising slogans like “#NotYourMothersBirkin”, which indicated confusion over Hermès’ involvement in Rothschild’s project.

NFTs and Smart Contracts

An intriguing aspect of this case involved Rothschild’s claim that the title “MetaBirkins” referred solely to the NFTs and not to the images of the bags linked to them through a smart contract. According to Rothschild, selling the NFTs did not confer ownership of the name “MetaBirkin”. However, the court disagreed, asserting that the name “MetaBirkins” encompassed both the NFTs and the associated digital images of the bags. From the consumers’ perspective, there was no distinction between Rothschild’s NFTs and the underlying images of the “MetaBirkins” bags.

This decision suggests that existing trade mark rights for physical goods could potentially be enforced against their unauthorised use in virtual environments. This is noteworthy even if the trade mark owner is not yet active in the metaverse or the market for NFT-certified digital assets. Furthermore, it indicates that digital images associated with NFTs, utilising existing trade marks for “plausibly expressive purposes,” can be considered a form of artistic expression in the United States. Although this may impact the strength of future infringement claims, the court’s decision affirms that individuals cannot unfairly benefit from the reputation of brand owners. It may require courts to balance the fundamental rights at stake when dealing with trade mark infringements related to NFTs and new forms of artistic expression.

Lastly, it suggests that the distinction between owning the digital images and owning the ownership rights to the NFT, although irrelevant from a consumer’s perspective, can influence the trade mark proprietor’s ability to take legal action to stop infringement. Both in the United States and Europe, the proliferation of minted NFTs increases the risk of trade mark infringement, but the Hermès decision revolves around a reputed mark, which is generally easier to protect than lesser-known marks.