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Hermes vs. Rothschild - IP Issues Arising with NFTs

Posted by Patrick Ivy | Jul 18, 2023 | 0 Comments

What is the Blockchain?

The blockchain is a digital public ledger. Like its physical counterparts, the blockchain is a record of transactions and ownership. Information is recorded in "blocks," and each new block is linked to all preceding blocks using certain cryptographic functions.

In short, every new block contains a unique identifier that can only be found using the information of all preceding blocks. To change a past transaction for fraudulent purposes, an actor would need to change all preceding blocks—a very difficult task. Such difficulty ensures that the blockchain is reliable as a system of public recordation. Actors trading digital assets can be assured of the provenance of a given asset by checking its ownership and transaction history on the blockchain's public ledger.

What are NFTs?

Non-fungible tokens, or NFTs, are a digital serial number. They are associated with an asset, digital or physical, and the ownership of a given token is recorded on the blockchain. Thus, unlike traditional serial numbers or identifiers, NFTs are very difficult to forge or erase. NFTs leverage the security and reliability of the blockchain to produce a verifiable record of ownership and identification for a given asset.

Mason Rothschild's Big Idea

NFTs have become a hot internet commodity, with celebrities, businesses, brands, artists, and internet influencers hawking their one-of-a-kind digital art and assets. The NFT market represents tens of billions of dollars in value. At the time of this writing, the number one trending NFT brand on OpenSea, an NFT marketplace, was BEANZ Official, with a total trading volume of 164,000 Ethereum (a type of digital currency) – or $309 million.

Mason Rothschild, a self-described “marketing strategist,” saw the potential of such a market. Rothschild created a series of “digital images” called “MetaBirkins.” These images were low-resolution digital drawings of fur-covered Birkin handbags. Rothschild sold these images through the use of NFTs – for a price, buyers could own the digital art by a transfer of the unique, non-fungible token identifier associated with it. By the time litigation commenced, Rothschild had “minted” one hundred MetaBirkins NFTs, which sold for “over $1.1 million.”

Hermes International Sues Mason Rothschild

In response to Rothschild's actions, Hermes International sued Rothschild, also known as Sonny Estival, in the Southern District of New York for trademark infringement based on his use of the word “Birkin,” and in the “design and iconography” of the handbags in his digital image. Hermes also claimed that Rothschild's use of the Birkin name “diluted and damaged” the Birkin brand. “The METABIRKINS NFTs feature the distinctive design of the Birkin handbag, which in conjunction with the use of the METABIRKINS Mark, adds to the likelihood of confusion and dilution,” Hermes wrote in its complaint against Rothschild.

Finally, Hermes alleged violations of the Anti-Cybersquatting Consumer Protection Act. Rothschild's use of the”” domain name, they alleged, was “intended primarily to capitalize on the goodwill associated with the BIRKIN mark,” confusing consumers who may believe, based on the domain name, that the NFTs or digital art are associated with Hermes International and the Birkin brand.

Trademark Law's Applicability to this Case

A business's trademark is used to inform consumers of the origin of a particular product – it is also meant to distinguish a business's products from other similar products, signaling to consumers its quality, reliability, or value. Trademarks have been used this way for centuries.

Trademark legislation serves a dual function: to protect companies from the theft or unauthorized use of their trademark, which may dilute their brand, and to protect the general public, which can be assured of the provenance of a product by looking at its trademark. Individuals or companies wishing to protect their trademarks must register them with the United States Patent and Trademark Office.

What is the Lanham Act?

American federal trademark law is governed by the Lanham Act, which defines a trademark as “any word, name, symbol, or device… used by a person to identify and distinguish his or her goods.” The Lanham Act intended to make "actionable the deceptive and misleading use of marks in such [regulatable] commerce…to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce…"

Liability Under the Lanham Act

The Lanham Act renders liable any person who uses, in commerce, a reproduction, counterfeit, copy, or imitation of a registered trademark to sell, offer a sale, distribute, or advertise any good or service in connection with the mark without the consent of the registered trademark holder, which may cause confusion to the consumer. This is an infringement of a trademark – the direct use of a registered trademark.

The Lanham Act also renders liable any person who uses certain words, terms, names, symbols, devices, or any combination of the preceding, which is likely to "cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person…."

Note that this provision of the Lanham Act does not apply only to registered trademarks but also to distinctive names or marks of a company, individual, or enterprise. The Act also bars dilution, which is the use of a mark or trade name which, while not directly infringing on the trademark, and whether or not there was actual confusion or damage to the brand, still dilutes the original trademark by “impairing the distinctiveness” of the trademark.

The Lanham Act and First Amendment Rights

As should be obvious, the Lanham Act poses some First Amendment difficulties, especially in its provisions relating to dilution or using expressions likely to "cause confusion" to a public consumer. Using another's trademark for commercial reasons is one thing, but what about when using a trademark serves both as artistic expression, protected by the First Amendment, and as a commercial tactic?

Rogers v. Grimaldi

In Rogers v. Grimaldi, the U.S. Court of Appeals for the Second Circuit ran headlong into these difficulties. In that case, Ginger Rogers sued a movie production studio for their (fictional) movie entitled “Ginger and Fred.”

The title was an oblique reference to Rogers herself and Fred Astaire, “among the most famous duos in show business history.” Could Rogers prevent the movie production studio from even using her first name in conjunction with Fred Astaire's if it was "likely to cause confusion" about her endorsement or involvement in the movie?

In a landmark decision laying out the framework of the so-called Rogers test, the Second Circuit held that Rogers could not prevent using her name in the movie title. The court balanced the conflict between free artistic expression and the protection of distinctive marks or names – "Where a title with at least some artistic relevance to the work is not explicitly misleading as to the content of the work, it is not false advertising under the Lanham Act.”

The Southern District of New York's Preliminary Ruling

After the litigation started, both parties moved for summary judgment, meaning they wanted the court to decide that they were right based on the facts at hand without the need to continue the trial.

The first issue that presiding judge Jed S. Rakoff had to decide was whether Rothschild's use of Hermes's trademarks was a form of "artistic expression" with a commercial, pecuniary component – like the movie title in Rogers. If that was the case, the use merited the extra protections that Rogers affords, or was Rothschild's work "primarily intended to serve a commercial purpose" and therefore subject to the stricter – more plaintiff-friendly – test under Gruner + Jahr?[1]

District Judge Rakoff had to decide whether Rothschild's use of the Birkin brand and his digital images and associated NFTs represented sufficient "artistic expression" to merit more protections under the Rogers test. “The gist of these [prior holdings on what constitutes artistic expression]," wrote Judge Rakoff, "is that as long as the plaintiff's trademark is used to further plausibly expressive purposes and not to mislead consumers about the origin of a product or suggest that the plaintiff endorsed or is affiliated with it, the First Amendment protects that use."

The relatively broad protections for artistic expression in trademark law, explained Judge Rakoff, as compared to copyright law, flow from the purposes of trademark law – it is designed to protect consumers from confusion, not to “protect the owner's right to creative output.” Therefore, trademark law must subordinate itself to First Amendment concerns.

The Ruling

Judge Rakoff ruled that Rothschild's “MetaBirkins” could constitute a form of artistic expression, and thus the Rogers factors discussed above should be applied. However, Hermes's argument was the most interesting part of this determination. This argument claimed that while the digital images associated with the NFTs may be a form of artistic expression, the product that was actually sold by Rothschild, the asset at issue called “MetaBirkins,” was actually the digital signature of the NFT itself. The digital signature was the cryptographically protected digital identifier that recorded the ownership of the digital art. The NFT – a kind of "digital deed" – would not be subject to the Rogers test because it is not a form of artistic expression.

Judge Rakoff, however, rejected this clever argument. “Given the centrality of consumer confusion to trademark law generally, it is best to view this issue from the perspective of the prospective consumer. Individuals do not purchase NFTs to own a “digital deed” divorced from any other asset: they buy them precisely so that they can exclusive own the content associated with the NFT.”

Conclusion: The Jury Verdict and Its Consequences

Following Judge Rakoff's ruling on the motions for summary judgment, and his decision that the Rogers factors applied, the case was sent to a jury for trial, which returned a verdict for Hermes International. Most importantly, the jury concluded that the First Amendment did not protect Rothschild's MetaBirkins.

The consequences of the verdict remain to be seen. To some, the verdict represents a definite shift away from the protections afforded to artistic expression, with dire implications for other artists. On the other hand, the verdict could represent nothing more than the peculiar facts of the case – facts, such as Rothschild's statement that he was sitting "on a goldmine," which may have led the jury to be decidedly unfavorable toward him. As Justice Brown Jackson recently wrote, “Other cases presenting different allegations and different records may lead to different conclusions.” So it may be here.

[1] Hermes Int'l v. Rothschild, 22-cv-384 (JSR) (S.D.N.Y. 2023); The Gruner + Jahr test involves assessing whether a defendant's use “of something akin to plaintiff's trademark confused customers as to the source of the work or product.”

About the Author

Patrick Ivy

Patrick is a native of the Texas Hill Country. He attended The University of Texas at Austin, earning his undergraduate degree in finance in 2003 and his law degree in 2007. In the winter of 2010, he relocated to Denver, Colorado. He enjoys spending time with his family and alpine skiing.


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