A tale of bags to riches in the metaverse: Hermès, its trade mark rights, and infringing NFTs
13
Apr
2023
Hermès brought this trade mark action against Rothschild in 2022, shortly after sending him a cease and desist letter in December 2021 when it became aware of the MetaBirkins

In the first case of its kind, Hermès International v. Rothschild[1], a decision of the Court of the Southern District of New York, answers the question of whether a brand owner’s trade mark rights in physical goods are capable of being infringed by virtual goods.

Last month, following a six-day trial, a Manhattan jury found in favour of the plaintiffs Hermès International and Hermès of Paris, Inc. (collectively “Hermès”) in their action against the Los Angeles-based artist and entrepreneur Mason Rothschild (real name Sonny Estival). The creator of MetaBirkin non-fungible tokens (NFTs) was found liable on the claims of trade mark infringement, trade mark dilution, and cybersquatting (due to his registration of the domain name MetaBirkins.com), and also that the First Amendment of the U.S. Constitution protecting freedom of speech did not bar the defendant’s liability. Rothschild was ordered to pay a total of $133,000 in damages, which included $110,000 in estimated profits from NFT sales and $23,000 for cybersquatting on the MetaBirkins.com website.

 

The birth of the Birkin

1984, that’s when it all started. No, this has nothing to do with George Orwell. In fact, the space inhabited by the protagonists in this tale is probably the furthest away from the bleakness of Orwell’s chilling totalitarian dystopia as one could imagine – the designer brand world of very, very expensive handbags. Although maybe these two worlds are not so distant really, since the metaverse plays a major part in this tale; a digital world which itself spells a dystopian future to some.

Anyway, back to the bags. In 1984, on a flight from Paris to London, the English-French actress Jane Birkin (of “Je t’aime… moi non plus” fame with Serge Gainsbourg) while sitting next to Jean-Louis Dumas, then Executive Chairman of the French luxury design house Hermès, was lamenting the fact that she couldn’t find a bag suitable for her life as a young mother. Monsieur Dumas, as the story goes, immediately sketched out a picture of a large rectangular tote bag with a leather flap (and rather touchingly a compartment for Ms Birkin’s baby’s bottles). From this chance meeting and humble beginning as a bag useful for on-the-go nappy changes, the Hermès Birkin bag has gone on to become arguably the most famous example of a Veblen[2] good, a product for which demand actually increases as the price increases, and is a worldwide symbol of wealth, status, and exclusivity due to its high price (up to half a million US dollars) and long waiting lists.

Hermès owns trade mark rights in the Hermès and Birkin marks and trade dress rights [3] in the Birkin handbag design.

 

The birth of the MetaBirkin (but first, a foetus)

In May 2021, artist Mason Rothschild created a single NFT titled “Baby Birkin” linked to a digital animation of a 40-week old human foetus gestating inside a transparent Birkin handbag. He sold the NFT for $23,000, and it subsequently resold for $47,000. In December 2021 Rothschild created a collection of 100 NFTs linked to digital images of the iconic Hermès Birkin handbag, which he dubbed “MetaBirkins”, each of which depicted the Birkin bag covered in brightly-coloured faux-fur. This collection sold for over $1 million.

Hermès brought this trade mark action against Rothschild in the Southern District of New York in January 2022, shortly after sending him a cease and desist letter in December 2021 when it became aware of the MetaBirkins.

 

Summary Judgment denied

Both Rothschild and Hermès unsuccessfully filed cross-motions for summary judgment, although it was not until the fourth day of trial before the Judge belatedly provided his opinion setting out his reasons for sending the dispute before a jury. Whilst it makes for fascinating reading, we haven’t got space in this article to do it justice, but the pertinent points are set out briefly below.

The claims had to be assessed under the test defined in the 1989 decision Rogers v. Grimaldi[4] which balances free speech and trademark rights. That test requires the court to determine (1) whether the defendant’s use is artistically relevant to the underlying work; and (2) whether the defendant’s use is explicitly misleading as to the source or content of the work.

According to the judge, there was “a genuine factual dispute between the parties as to whether Rothschild’s decision to centre his work around the Birkin bag stemmed from genuine artistic expression or, rather from an unlawful intent to cash in on a highly exclusive and uniquely valuable brand name”. Given that these facts were material, summary judgment in favour of either party was inappropriate.

 

The trial and outcome

Hermès contended that the MetaBirkin NFTs confused consumers, diluted the brand, and impacted its own plans in relation to NFTs. Put simply, Hermès argued at trial that the MetaBirkin NFTs were duping consumers into believing they came from Hermès.

For a brand owner to succeed in its trade mark infringement claim it needs to show that the same or a similar trade mark is used commercially in connection with the same or legally related goods or services, such that consumers may be confused as to the source of the goods. The unique aspect of this action was whether consumers were likely to associate the MetaBirkins, which are digital goods in the metaverse, with the same source, Hermès, that produces the physical goods.

Rothschild argued that his use of the bags was similar to Andy Warhol’s portrayal in 1962 of Campbell’s soup cans in his famous pop art screen prints. He also stated that his depictions of the bags were a commentary on fashion’s fur-free initiative, an experiment in replicating the luxury handbag’s perceived value in the digital world and an act of artistic expression that is protected under the First Amendment.

Applying the test defined in Rogers v Grimaldi, the jury found in favour of Hermès based on evidence that MetaBirkins are more akin to consumer products, and subject to trade mark laws, as opposed to art which can be protected by the First Amendment. Ultimately, the jury found that, on the facts of the case, Rothschild had capitalized on Hermès’s goodwill for his own profit. However, post-trial comments from the Rothschild camp were that they would appeal, hence it could be case of “watch this space”. Let’s wait and see.

 

Take-home messages

Whilst this result for Hermès is something of a win for businesses and brands looking to protect their rights in the NFT realm / metaverse, this first instance decision (of a New York jury) should be viewed in the context of the highly fact-specific nature of this case. For example, to what extent might the outcome have been different had Birkin not been a world-famous brand? Also, Mason Rothschild did not sell just a handful of NFTs, he sold 100 – when does artistic expression become commercial exploitation? Identifying this tipping point in any similar situation will almost always be very dependent on the facts.

The issue of the territorial nature of trade marks, such that trade mark rights are limited to the jurisdiction where they have been granted, used, or are well known, is beyond the scope of the Hermès case and this article. It is, however, helpful to touch on it briefly, as part of the broader context and legal landscape. The practical effect of the territoriality of trade marks is that currently, for online activity to amount to trade mark infringement, such online use of a protected right must actively target the protected jurisdiction (as evidenced for example by the language, currency, or delivery options). All of this potentially becomes much less clear-cut or even non-applicable in the metaverse.

Nevertheless, this decision should strengthen potential cases of trademark infringement, since brand owners can more easily make the argument that consumers do associate virtual goods with physical goods; there is now a clear (albeit first instance) precedent that in principle this link can be made.

In any event, it’s still worthwhile for brand owners to consider widening their trade mark filing strategies to specifically cover virtual goods and services – using Hermès as an example, this would mean registering in Class 9 (which covers both virtual goods and the digital certificates (NFTs) which authenticate such virtual goods) as well as Class 18 (for handbags). Another practical step for brand owners is to extend their established watching/monitoring services to classes in which trade mark applications for NFT-related goods and services are commonly being filed.

One thing that’s very clear is that we’ve all come a long way since 1984: for Hermès, an idea for a baby-bottle tote bag has gone on to become an iconic, worldwide symbol of opulence and exclusivity. Much more importantly for all of us, the metaverse is no longer something hypothetical – it’s now part of common parlance, with exciting and fascinating ramifications on the enforcement of IP rights.

And what about Mason Rothschild? He may well appeal this decision. But for the time being at least, whilst his current predicament is a far cry from the tyrannical world of George Orwell’s 1984, his view of the situation could be summed up by paraphrasing the famous quotation from Orwell’s allegorical novel Animal Farm, as it must seem to Mr Rothschild that this is most definitely a case of “some handbags being more equal than others”.

 

Footnotes

[1] Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), (S.D.N.Y. Feb. 2, 2023)

[2] A Veblen good is a good for which demand increases as the price increases due to its exclusive nature and appeal as a status symbol. This runs counter to the prevailing circumstance of demand falling as prices rise. Thus, a Veblen good has an upward-sloping demand curve rather than the typical downward-sloping curve. A Veblen good is generally a high-quality, coveted product. (Source: Investopedia)

[3] Trade dress is a predominantly US term which encompasses the visual appearance of your goods or services and packaging.

[4] Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989)

 

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