Credit: MetaBirkins
Intro
After the initial market depression of the COVID-19 pandemic lockdowns, the global population that was fortunate enough to have discretionary funds all but ceased spending money on travel, restaurants, and experiences. However, this lucky group additionally turned to luxury goods. Suddenly, brands such as Rolex, who supplied their watch designs at the same, careful pace both before and during the pandemic, saw their waitlists exceed five years due to a heightened demand for luxury. One of the top-five economic profit performers across 2019 and 2020 was the luxury brand, Hermès, which became the center of a trademark infringement suit in New York.
On February 8, 2023, a Manhattan jury in the Southern District of New York ruled in favor of Hermès International in its trademark infringement lawsuit against the artist Mason Rothschild over the release of his “MetaBirkins” NFTs. This is one of the first litigations to scrutinize the nature of digital assets sold on the blockchain. The court debated whether NFTs are strictly commodities or art shielded by the First Amendment.
The Birkin Bag
Hermès is a luxury French fashion brand known for designing, producing, and marketing the iconic Birkin bag since 1986. Ranging from $8,500 to $300,000, it is generally agreed that the Birkin bag has come to occupy a place of cultural importance as a symbol of wealth and exclusivity. In fact, unless you are a celebrity, heiress, or head of state, the bag may only be purchased after developing a relationship with a Hermès Sales Associate, demonstrating a knowledge of the brand and establishing a significant purchase history. This bag is a significant epic in Hermès’ collection, having “sold over $1 billion worth of these handbags in the [United States] alone, including over $100 million dollars’ worth in the past ten years alone.” Hermes Int'l v. Rothschild, No. 22-CV-384 (JSR), 2023 WL 1458126, at *1 (S.D.N.Y. Feb. 2, 2023).
The MetaBirkin
Mason Rothschild claims to be a “marketing strategist” and “entrepreneur.” Id. at *1. He created a collection of Non-Fungible Tokens (NFTs) titled “MetaBirkins,” with each digital image depicting a different color design on a furry version of a Birkin bag. NFTs are “digital records of ownership, typically recorded on a publicly accessible ledger known as a ‘blockchain.’ On the blockchain, an NFT functions as a sort of ‘digital deed’ representing ownership in a physical or digital asset or assets.” Hermes, 2023 WL 1458126 at *2. Each NFT sold by Rothschild was a “digital deed” of a singular and unique MetaBirkin. In total, Rothschild and his associates produced one hundred MetaBirkins, which sold for over $1.1 million as of June 2022.
The Case
"Birkin” is a federally registered trademark that covers both the word "Birkin" and the handbag's distinct visual appearance. Hermès claims that Rothschild's use of the Birkin name and distinctive design is trademark infringement because it confuses consumers and gives the impression that MetaBirkin NFTs are associated with the Hermès brand.
To determine confusion, a jury must evaluate a set of factors, including: (1) the strength of the mark, (2) the degree of similarity between the two marks, (3) whether the products compete for the same consumers, (4) whether or not there is evidence that consumers are actually confused about the affiliation between the MetaBirkins and Hermès, (5) the degree of care and attention that an ordinary consumer would use when encountering the two, (6) whether Rothschild acted in bad faith with the intention to confuse consumers into believing Hermès endorsed the MetaBirkin NFTs, and (7) the likelihood that Hermès had concrete plans to produce and sell its own NFTs using the Birkin mark such that potential consumers could mistakenly believe that the MetaBirkin NFT project represented Hermès' entry into the NFT market.
The jury was also asked to consider whether Hermès had proven that Mr. Rothschild's use of the Birkin mark was likely to dilute the distinctiveness of the Birkin mark. Hermès had provided evidence that it had discussions of plans to enter the NFT space.
To prevail on this claim, Hermès had to prove that the Birkin mark was distinctive at the time the domain name <https://metabirkins.com> was registered, that the domain name is identical to, or confusingly similar to, Hermès's Birkin mark, and that Mason Rothschild had a bad faith intent to profit from the Birkin mark.
However, none of those issues were the most important part of this case. The most important issue was whether artistic expressions are protected under the First Amendment. The question is if the MetaBirkiin NFT should be treated more like art or like a commodity. Rothschild claimed that the NFTs are “paradigmatic works of art” because he originally created the MetaBirkin for artistic reasons. Hermès claimed that Rothschild's intention was to confuse people into thinking his MetaBirkins NFTs were associated with Hermès.
Under the Rogers Test, the applicable test for the Second Circuit to determine trademark dilution and confusion, the jury had to determine: (1) whether the use of the trademark in the expressive work is artistically relevant to the underlying work; and (2) if it is, whether it is explicitly misleading of the source or content of the work.
The judge told the jury that “[i]t is undisputed that the MetaBirkins NFTs are in at least some respects works of artistic expression, for example, in their addition of a total fur covering to the Birkin bag images.” Here, Hermès had to prove that Rothschild “intentionally designed the MetaBirkin and used the Birkin mark to mislead potential consumers into believing that Hermès was associated with the MetaBirkin project.” If Hermès was able to prove this by a preponderance of the evidence, any First Amendment protections were waived for Rothschild.
The jury found for Hermès on all counts. This First Amendment ruling communicated that the MetaBirkin NFTs are not forms of artistic expression protected by the First Amendment, but rather commercial uses that are likely to cause consumer confusion.
Looking Ahead
There have been concerns raised that this verdict will create a precedent favoring big brands over small artists. But it is important to consider how many conditional factors led to this outcome. The question of trademark infringement has long been highly fact-specific, centered on questions regarding the strength of the asserted marks, the intention behind the uses, and consumer impressions measured in methodologically sound surveys. Trademark cases are ultimately decided by a jury, with instructions varying across jurisdictions.
Rothschild asserted that Andy Warhol’s silk screen depicting Campbell’s soup cans was protected under the First Amendment as artistic expression. A notable difference here is the size of the enterprise. Rothschild released 100 versions of the MetaBirkin and vocalized plans to release an additional 900. Hermes, 2023 WL 1458126 at *2. It is possible this had an impact on the jury’s distinction between art and commodity.
Lastly, this verdict sheds some light on how the courts will treat NFTs that incorporate others' intellectual property in the name of artistic expression. The same IP rules apply—trademark, artistic expression, fair use, and the First Amendment will be analyzed the same way in the metaverse as they are in the physical universe. Just because it is a new space does not mean that established laws will not follow. After this case, brands are likely to feel more confident pursuing claims against NFT creators, and creators are likely to act on cease and desist letters to avoid the cost of litigation.
*The views expressed in this article do not represent the views of Santa Clara University.
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