Hermés and Nike Trademark Disputes Will Explore Defenses To Trademarks Used On NFTS

Lawsuits involving NFTs are on an acute rise. A few weeks ago, French luxury brand Hermès filed a trademark infringement lawsuit against an individual named Mason Rothschild over his "MetaBirkins," a collection of 100 NFTs on the Ethereum blockchain resembling the famous Birkin handbag in faux fur. And earlier this month, Nike sued StockX, an online resale marketplace, asserting trademark infringement over the launch of its "Vault NFTs" depicting images of Nike's shoes and trademarks, also on the Ethereum blockchain.

The complaint in the MetaBirkins dispute quotes Rothschild as saying "[t]here's nothing more iconic than the Hermes Birkin bag," and with his project, he is trying to "create the same kind of illusion that [the Birkin] has in real life as a digital commodity." Rothschild apparently has been quite successful in this mission: as of January 6, 2022, the total sales for the MetaBirkin NFTs exceeded $1.1 million, with the lowest MetaBirkin selling at $15,200 and the highest at $45,100. (The price tag on a real-life Birkin bag ranges anywhere from "thousands of dollars to over one hundred thousand dollars.") In fact, he has been so successful in recreating this illusion that he even knows what it feels like to be Hermès: he is being "counterfeited" by "more and more fake MetaBirkins sold every hour."

StockX, on the other hand, is an online resale marketplace where people can sell and purchase used items. It operates much like eBay, except that StockX acts as an intermediary whereby the seller sends the product to StockX and StockX sends the product to the buyer. With the launch of its "Vault NFTs," a purchaser can buy and sell NFTs that are associated with a real physical product (in this case, Nike sneakers), and the purchaser will be able to "redeem" the NFT in exchange for the real product. Upon redemption, StockX will remove the NFT from the vault, and ship the physical shoes to the purchaser. According to the complaint, the Vault NFTs of Nike sneakers are being sold at prices many times higher than the cost of the actual sneakers. For example, a Vault NFT of the Nike Dunk Low Off-White Lot 50 shoe retailing at $150 is selling on average for $6,250 with the highest sale being $7,500.

Neither defendant has permission from the respective brands to use their trademarks on these NFTs. Nor, in StockX's case, is it an authorized distributor of Nike. So it was only a matter of time before these lawsuits were filed. The cases have obvious relevance given the substantial appetite to enter this space by both brands and creators alike: indeed, last week's post noted that Nike filed seven trademark applications for goods and services in the metaverse field. Accordingly, the parties in both cases seem well-poised to engage in a substantively robust legal battle. Just this past week, Rothschild filed a motion to dismiss asking the court to toss the action, primarily on the basis of the seminal First Amendment case of Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).

Rogers dictates that trademark laws "should be construed to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression." Use of a trademark in an expressive work will constitute trademark infringement only if the mark has: (1) no "artistic relevance"; and (2) if there is "artistic relevance," use of the trademark in the accused work "explicitly misleads as to the source or the content of the work." Rothschild argues that he meets this test because MetaBirkins are a commentary on today's brand-obsessed society, and likens his work to Andy Warhol's Campbell's Soup Cans and Coca-Cola 3. He argues it's of no moment that his works are sold as NFTs and say it is no different than selling limited edition prints. (The law is settled that prints of an artwork protected by the First Amendment enjoy the same protection.)

The defense that StockX is likely to advance is the fair use defense. Descriptive fair use permits the use of another's trademark to describe that user's goods or services, and nominative fair use permits the use of another's trademark to refer to the trademark owner's goods or services. Because StockX is selling NFTs of Nike shoes which are backed by actual Nike shoes with the ability to trade-in the NFT for the physical shoes, the argument would be that StockX is only making use of Nike's name or logos to refer to its services (or to Nike's product). But the complaint alleges several instances of actual confusion over whether Nike licensed StockX and whether it is profiting from the Vault NFTs, which may influence how the fair use defense is analyzed.

These cases appear to be the first instances where a court will consider the use of trademarks in NFTs, and the rulings will be of strong interest to many due to the ever-increasing fascination and business opportunities presented by NFTs. While the application of trademark law to this technological medium is new, an NFT is just a code with a link pointing to the location of the digital asset. So, the real issue is whether the underlying digital asset meets the First Amendment or fair use defense. In that sense, the disputes are not so different from traditional trademark infringement claims, legally speaking. Practically speaking, however, this new medium—with its low barrier to entry and the astonishing prices at which they are being bought and sold (and resold), combined with the fact that brands are eager to enter the space themselves—seem to elevate the stakes and competition to a level not previously imagined.

When Warhol fist created his Campbell's Soup Cans in 1962, Campbell's "had some initial concern," but it "took a ‘wait and see' approach" and ultimately became a proud supporter, even sending him cases of tomato soup. It may be some while before Hermès sends a Birkin bag to Rothschild in support of his work.