February 09, 2023

Hermes Lands Decisive Victory In First Ever NFT Trademark Trial Held In New York

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On February 8, 2023, in the first trial to reach the question of whether the unauthorized use of someone else's trademark in NFTs and a domain name promoting those NFTs constitute trademark infringement, dilution, and cybersquatting, the jury found in favor of Hermès and against self-proclaimed artist Mason Rothschild. Rothschild is using Hermès's trademarks in the famous "Birkin" name and the handbag's visual appearance in his "MetaBirkins" NFTs and on his metabirkins web site.

After a five-day trial in the United States District Court for the Southern District of New York, the nine-person jury reached the verdict in this closely-watched case to award Hermès $133,000 in profits Rothschild received from sales of his MetaBirkins NFTs and damages for cybersquatting.

The verdict comes after cross-motions for summary judgment have been denied by Judge Rakoff, who affirmed the Court's earlier ruling that the test applicable to evaluate the infringement was the Rogers v. Grimaldi test, which is used to determined trademark infringement in works of "artistic expression," as opposed to the more general test applicable to use by a defendant of plaintiff's trademark in cases dealing with works that are primarily intended to serve a commercial purpose. In so finding, the Court also clarified exactly what works are at issue—and agreed with Rothschild that "the title ‘MetaBirkins' should be understood to refer to both the NFT and the digital image with which it is associated," which was likely crucial for Rothschild to be able to assert that his work was art at all. Thus, and unlike Yuga Labs v. Ryder Ripps, the Court reaffirmed that Rothschild's MetaBirkins "are in at least some respects works of artistic expression," as the Judge instructed the jury.

The evidence adduced at trial included those that supported the notion that MetaBirkins are art, for instance, Rothschild's interview characterizing the MetaBirkins as "an experiment to see if [he] could create that same kind of illusion that [the Birkin bag] has in real life as a digital commodity" and the addition of fur as a statement on fashion's anti-fur movement. The Hermès team focused on evidence suggesting Rothschild's profit motives, such as a text message from him stating that he was "sitting on a gold mine," a text message that "he doesn't think people realize how much you can get away with in art by saying ‘in the style of'" and that he was "in the rare position to bully a multi-billion dollar corp[oration]." In another text message, Rothschild told his associates that he wanted to make "big money" by "capital[zing] on the hype" in the media generated for the collection. Rothschild's team argued that a court may not strip him of First Amendment protection simply because the artist sought to make money.

Early on in the trial, Hermès prevailed in excluding defense expert witness Blake Gopnik, an art critic who would have made a favorable comparison of the MetaBirkins to Andy Warhol's works such as the Campbell's Soup, leaving Rothschild to make the comparison himself.

In total, Rothschild and his associates produced 100 MetaBirkins NFTs, which, through June 2022, sold for over $1.1 million. Rothschild received a cut of those proceeds as well as a royalty of 7.5% for each resale, which he estimated to be about $125,000. The evidence also indicated that Rothschild was at some point considering releasing an upward of 900 MetaBirkins NFTs and was discussing potential future digital projects centered on other luxury products such as "MetaPateks" modeled after the famous Patek Philippe watches.

Testimony by the Hermès team revealed that the fashion house had been planning an NFT venture of its own as early as in October 2021 when the Hermès Innovation Lab created a digital Birkin bag that was never publicly released. And some evidence of the existence of actual confusion, which is necessary for an award of damages, were introduced, namely, inaccurate media coverage by several news outlets that reported that MetaBirkins was affiliated with Hermès.

Although the outcome is disheartening for NFT artists, it is important to recognize some helpful rulings that emerged from this case. The Court's holding that the "work" in question includes both the NFT and its associated digital image is a positive development for NFT artists. Also beneficial for NFT artists is that the Court regarded the MetaBirkins to contain in some respects artistic expression, which enabled the application of the Rogers test, indicating that First Amendment protection could attach to NFT projects. But the ultimate outcome suggests that there is a fine line between a protectable expressive work and one that is not. Exactly how to draw that line is still unclear and will be dependent on the specific facts of each case, but in the case of the MetaBirkins, the jury did not draw that line in favor of MetaBirkins. Rothschild stated on his Twitter that the outcome was influenced not by his creation "but because [his] CV doesn't scream artist with a pedigree from a world class art school."

Hermès's complaint also seeks a permanent injunction, which is an equitable remedy that will be awarded by the judge and not the jury. It remains to be seen how Judge Rakoff will rule, but he will likely be guided by the jury's decision. Currently, the MetaBirkins NFTs are available for purchase in the secondary market.

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