“One of the most important questions in this case thus far has been how the court will analyze trademark infringement claims in connection with NFTs – will the court analyze the case in the context of consumer confusion, the way Hermes sought for, or is this a case about artistic expression?
Between November 1961 and the Spring of 1962, American pop artist Andy Warhol created his famous silkscreen art ‘Campbell’s Soup Cans’ depicting the 32 varieties of soup offered by the company at that time. In response, the product marketing manager of Campbell Soup Company sent Warhol a letter in 1964 praising his work and wishing him success.
Fast forward 57 years to 2021, when another artist, Mason Rothschild, decided to create NFT artwork featuring the iconic Birkin handbag (a luxury accessory trademark-protected by Parisian fashion house Hermes) covered in colorful fur, and the response wasn’t quite so warm, and fuzzy. Hermes sued the NFT artist and, despite a defense of First Amendment Free Speech asserted by Rothschild, won their lawsuit before a New York jury. Does this decision sound the death knell for NFT depictions of protected intellectual property?
Furry Digital Handbags
In December 2021, a Miami art gallery exhibited Rothschild’s new NFT collection of digital handbags titled ‘MetaBirkins’. The artwork, consisting of 100 of the iconic Hermès Birkin bags covered in colorful fur, was acknowledged as a nod to the high fashion handbag and, although priced at 0.1 ETH (or about $450 at the dollar exchange rate at that time), one was sold for as high as $46,000. Hermès responded on December 16, 2021, by issuing a cease-and-desist letter to the artist, claiming a violation of their trademark. By January 2022, the collection had made over $1 million in sales; however, shortly thereafter, OpenSea and other digital artwork platforms delisted the NFTs.
When Rothschild responded that he was rendering artistic expression as opposed to creating actual handbags, Hermès proceeded to file a trademark infringement lawsuit on January 14, 2022. The lawsuit claimed that Rothschild was ‘stealing the goodwill in Hermès’ famous intellectual property to create and sell his own line of products’ and that the artist’s conduct would create confusion among Hermès’ consumers.
Trademark Violation versus Art
Rothschild responded to the lawsuit by declaring, “I am not creating or selling fake Birkin bags. I’ve made artworks that depict imaginary, fur-covered Birkin bags. The fact that I sell the art using NFTs doesn’t change the fact that it’s art.” He further likened his use of a well-known commercial product as the subject of his artwork to featuring Campbell’s Soup Cans in artwork by Andy Warhol in the 1960s. Rothschild had also sought to bolster his position by way of testimony from art critic Blake Gopnik who opined that “the images and NFTs produced and sold by Mason Rothschild find their natural and obvious home among the artistic experiments carried out by modern artists over the last century.” However, early on, the presiding judge, perhaps tellingly, ruled Gopnik’s testimony inadmissible.
Hermès’ argument all but disregarded the artistic implications and rights of expression and instead focused purely on their intellectual rights. Although Hermès had not yet sold any NFTs depicting their products, they allegedly had plans to do so, and Rothschild’s exploitation of their product for his own NFT artwork supposedly harmed their ability to do so. They further pointed out that some media reports had mistakenly identified the MetaBirkins as a project endorsed by Hermès. As stated by Hermès’ general counsel in his testimony before the jury: “If we want to bring our bag into this virtual world, there will always be a reference to the MetaBirkins.”
Application of the Rogers Test
Among Rothschild’s lawyers were IP scholars from the Lex Lumina PLLC law firm, who asserted that the case should be decided based on the widely-recognized ‘Rogers’ test taken from the 1989 Rogers v. Grimaldi ruling. According to that standard, artists may use a trademark without permission as long as it meets a minimal level of artistic relevance and doesn’t explicitly mislead the consumer. Another Rothschild attorney expressed the opinion that Hermès didn’t ‘come close to clearing the high bar of the First Amendment.’
Rothschild’s attorneys moved to dismiss the case based on the Rogers test; however, the presiding judge ruled a year ago that—although he believed the test did apply—he needed more evidence to evaluate the test. Both sides then offered expert testimony as to the level of confusion among consumers.
Contested Confusion
A Hermès expert testified that the confusion rate among potential NFT buyers was 18.7%, while an expert for Rothschild claimed that his survey showed a much lower confusion rate of 9.3% and that the Hermès survey had, in fact, misclassified respondents as ‘confused’ when they were not. Regardless, of the survey data, the judge ruled that the case should proceed to trial before the jury.
After six days of testimony pitting the 28-year-old artist against the international fashion house, the jury returned their verdict in favor of Hermès in the amount of $133,000: $23,000 in damages for cybersquatting (bad-faith use of another’s trademark in a domain name) and $110,000 in net profits earned by Rothschild to be returned to Hermès.
Post-verdict Analysis
Although many observers had expected a ruling that the sale of the NFTs violated Hermès’ rights to the “Birkin” trademark, what was more surprising was the finding that Rothschild’s NFTs were not protected speech under the First Amendment. Various parties reacted to the verdict and what it will mean for the Web3 community going forward. One lawyer criticized the ruling noting that “Trademark law allows Hermès to stop other people from selling products that compete with Hermès products, including, we would say, in the Metaverse. They can stop someone from selling NFTs that compete with their actual products in the Metaverse, but they cannot stop artists from selling artwork that depicts their products, just like they couldn’t in the real world.”
Gopnik, the expert witness whose testimony had been barred, tweeted his disapproval of the verdict. “So, artists aren’t allowed to have luxury goods as a subject, and make that clear in the title?”
A Digital Asset Precedent
Gai Sher, senior counsel at Greenspoon Marder, LLP in Los Angeles, observed, “This case is one of the first and arguably the most prominent lawsuits to ever focus on trademarks and NFTs and whether trademark rights extend to the digital sphere.” She further stated: “This case could very well set a legal precedent not only for trademarks in the context of NFTs but for all digital assets as they relate to fair use and free speech.”
Hermès succeeded in framing the issue in the context of confusion among consumers in line with the traditional trademark infringement approach. But what seems to have been swept aside were the First Amendment issues inherent when artistic expression meets a trademark-protected property.
What lens other courts might use to view the same controversy remains to be seen, however, as summed up by Attorney Alan Behr: ”If it’s art, the First Amendment and copyright issues will prevail. If it’s commerce, they’re gone. And effectively, what the court said is, this was commerce.”
Executive Summary
The Issue
Do notions of fair use and free speech apply to trademarks when turned into NFTs?
The Gravamen
According to a New York jury, NFTs based on trademarks were not protected speech under the First Amendment.
The Path Forward
If the verdict in the Hermes case is viewed as precedential, then NFTs—and all digital assets—may no longer depict trademarks in the context of fair use and free speech.
Action
1. IP Search:
Before your client embarks on the artistic use of an image, verify that it is not protected IP, and, if it is, ascertain whether permission can be granted to make use of the property.
2. Prohibit Dilution:
Just because your IP client has not yet made use of an NFT depiction of their property does not mean they should not take active steps to protect their future digital use of the property.
3. Documenting Confusion:
Clearly, consumer confusion was a keystone in the Hermes case, and therefore, your IP client should be advised to monitor whether any unauthorized use is creating confusion in the marketplace.
4. Digital Asset Platforms:
It is not just the NFT artist who needs to be concerned about trademark infringement, but even galleries and digital asset marketplaces should be cautioned as to determining whether an NFT infringes on a trademark.
Further Reading:
- https://www.scmp.com/magazines/style/luxury/article/3209623/hermes-wins-lawsuit-against-metabirkin-nft-artist-mason-rothschild-was-selling-digital-fluffy
- https://www.coindesk.com/web3/2023/02/06/hermes-vs-metabirkins-the-nft-case-that-could-have-major-trademark-and-artistic-consequences/
- https://www.retaildive.com/news/metabirkin-nft-artist-appeal-hermes-trademark-verdict/642412
- https://nftnow.com/culture/the-future-of-nfts-legal-experts-respond-to-the-hermes-lawsuit/
- https://fashionista.com/2023/02/hermes-metabirkins-nft-lawsuit-explainer
