MetaBirkin: a new precedent in the intersection between NFTs and IP rights

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What happened?

In January 2022, Hermès International and Hermès of Paris, Inc. (Hermès), the French luxury brand, brought an action for trademark infringement and trademark dilution against Mason Rothschild, a California-based digital artist who created and sold the ‘MetaBirkin’, a collection of 100 non-fungible tokens (NFTs) depicting faux-fur iterations of Hermès’ iconic Birkin bag, for 200 Ethereum (about $790,000 at the time).

Last week, the long-awaited judgment was released by the Manhattan federal jury ordering Rothschild to pay $110,000 of revenue generated by the MetaBirkin NFT sales as well as $23,000 for cybersquatting (or using a domain name similar to that used by Hermès). The judgment has set a crucial precedent in the intersection between NFTs and intellectual property rights.

Artistic expression or confusing copy?

Trademark infringement occurs when the same or a similar trademark is used in commerce in connection with the same or legally related goods or services, such that consumers may be confused as to the source of the goods. Therefore, the key question of this case was whether consumers were likely to associates the digital goods (ie, the MetaBirkin) with the same source that produces the physical goods (ie Hermès)?

One of the key arguments made by Hermès was that the unauthorised use of its intellectual property would cause consumer confusion. The luxury brand argued that consumers were likely to believe that Rothschild’s project was sanctioned by or otherwise associated with the Hermès brand. The Court agreed with this argument and found that Rothschild’s use of the Birkin name and trade dress was likely to cause confusion among consumers.

Rothschild, on the other hand, argued that the NFT collection was a work of art – similar to Andy Warhol’s depiction of Campbell’s soup can – and therefore protected by the First Amendment under the Rogers v. Grimaldi test. This test dictates that artists may use trademarks in the titles of works of art so long as the title has some artistic relevance to the underlying work and is not explicitly misleading as to the source of the content of the work. However, the Court found that Rothschild’s use of the Birkin name and trade dress did not meet the requirements of the Rogers test, as it was not sufficiently relevant to the underlying work and was likely to be misleading as to the source of the content.

Another key factor in the Court’s decision was the question of whether NFTs as goods are legally related to their real-world counterparts. The Court found that digital handbags, such as those featured in the MetaBirkin collection, were legally related to the physical handbags, and that consumers were likely to associate the digital goods with the same source that produces the physical goods.

Must know for businesses and brands

The ruling is a win for businesses and brands looking to protect their rights in the Web3 market. The case provides a useful precedent in support of the argument that consumers can associate digital goods with physical goods to form the basis of a trademark infringement case. This is particularly true in the case of major luxury brands, such as Hermès, who own highly recognisable trademarks in their products; although it may be more difficult for lesser-known brands to justify the same argument.

The case also outlines the Courts’ willingness to strengthen brand owners’ right to control the use and enforce infringement of their trademarks in the metaverse. In doing so, it provides more clarity to NFT cases by showing that established trademark principles of confusion, goodwill and dilution can also be applied to the virtual world. Presumably, it will push NFT owners or other digital content creators in the virtual world to think twice about using protected brands or images in their own creations.

The case also emphasises the importance of protecting intellectual property rights in the growing Web3 space. Large brands such as Formula One, Nike, McDonald’s have all included virtual goods and NFTs in their recent trademark applications to secure rights in this market. Nike has been particularly active in this space as it is also facing an NFT infringement case against StockX over the unauthorised minting of NFTs with Nike’s trademarks, Unsurprisingly, Hermès has also filed a trademark application in August 2022 that claims a long list of digital virtual goods, including digital collectibles and NFTs. This is a crucial strategy to safeguarding brands from infringement whilst cementing their rights in this new area, to capitalise on the growth of NFTs and the Web3 sector.

This trend towards virtual goods trademark applications has been steadily growing over the past few years. The EUIPO has announced that it is seeing a significant growth in EUTM applications related to NFTs and virtual goods. The 12th Edition of the Nice Classification includes the term ‘downloadable digital files authenticated by non-fungible tokens’ in Class 9. It is likely that a growing number of brands will following in the footsteps of industry leaders like Nike and Hermès to file their own trademarks in these categories to fight off any digital infringement.

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