With the increase in interest in Non-Fungible Tokens from brands and fans, it is unsurprising that IP law around NFTs is now being tested in the courts.
The first time a trial court has considered the application of trademark rights to NFTs in the virtual world was the case of Hermès Birkin brand vs the “MetaBirkin” NFTs depicting digital faux-fur versions of the coveted handbag named after English-French actress and singer Jane Birkin.
I first heard about this case when I spoke with Nick Abrahams, Global Co-leader Digital Transformation at Law Firm Norton Rose Fulbright, for an episode of The Actionable Futurist Podcast.
When we recorded the episode in the first part of 2022, we spoke about quirky legal issues around IP and NFTs and Nick mentioned this case. You can listen to the section of the podcast I recorded with him in 2022 where he spoke about the case below.
Fast forward to February 8, 2023, and a jury returned a verdict against Mason Rothschild, creator of the “MetaBirkins” non-fungible token, on claims of trademark infringement, dilution and cybersquatting brought by Hermès.
The outcome was that Hermès won the case, marking the first time that a trial court has considered the application of trademark rights to NFTs in the virtual world. We can expect many more as NFTs proliferate, and their ownership and associated IP are questioned.
The folks at law firm Baker McKenzie also have a great analysis of the case – quoting from their piece:
Hermès claimed that the NFTs infringed upon the brand’s BIRKIN trademark, resulting in consumer confusion as to source, sponsorship or affiliation. In response to Hermès’ allegations, Rothschild argued that his works were artistic expressions protected by the First Amendment. The jury disagreed. After a three-day deliberation, it found that the digital assets were not protected by free speech because the MetaBirkins were intentionally designed to mislead consumers into believing the source of the NFTs was Hermès.
The jury delivered a verdict in favour of Hermès and ordered Rothschild to pay USD 133,000 in damages: USD 110,000 due to the profits reaped from the sale and resale of MetaBirkins and USD 23,000 for domain squatting of MetaBirkins.com.
What is fascinating about this case is that now legal frameworks are catching up with the NFT world.
The Baker McKenzie team concluded:
The jury’s verdict confirms that brands can still enjoy robust protection over their intellectual property assets in digital spaces. The case highlights the delicate balance courts must strike in preventing consumer confusion while protecting artistic expressions. This balance applies with equal force in worlds both real and virtual.
While the verdict marks the first final judgement in a case considering the impact of NFTs on intellectual property rights, many questions still remain. The MetaBirkins verdict reinforces the notion that incorporating a trademark into an NFT could constitute infringement, but because NFTs openly straddle the line between commerce and artistic expression, the outcome of similar cases will continue to turn on fact-intensive questions of artistic expression and the likelihood of marketplace confusion.
That last point is key – marketplace confusion.
While the MetaBirkin creator relied on the fact that his works were artistic expressions and therefore protected by the First Amendment, the jury disagreed.
The jury found that the digital assets were not protected by free speech because the MetaBirkins were intentionally designed to mislead consumers into believing the source of the NFTs was Hermès.
This may not be the case in future actions, as superfans may wish to create their own digital assets because they love the brand, not because they want to mislead people intentionally and profit from this.
In my keynote talks on this subject, I cover the issues brands need to consider before they jump head-first into Web3, The Metaverse, NFTs and crypto – namely: Do you have a Web3 strategy, and do you need one?
Have you considered issues such as the implications for Intellectual Property, how to protect your band – as this case beautifully highlights, and the ability to implement and manage a virtual land?
Is there someone on your team that has a gaming mentality and can help you better comprehend what it means for your products and services?
My advice is that rather than just following suit, brands need to fully explore the implications of its adoption across the business and consider whether it is something they see as a commercial activity rather than just following the crowd.
Watch my Points of View on this topic below.