From Fashion to Digital Art: Implications of the Hermès v. Rothschild Dispute in NFT space

Does your head explode when you hear millions of dollars being spent on NFTs and digital assets? The metaverse has loosely been coined to mean a virtual reality world or a world that would perhaps resemble our world but in a digital format connecting many virtual realities. What is an NFT? A NFT, a non-fungible token, is a digital asset in art, video, music, or other form that can be bought and sold online. Each NFT is specifically coded to include ownership, and they exist on a blockchain that records a ledger of transactions. They are like physical collector items, except they are digital. Some people download images, videos, and screenshots all the time to have a copy on their digital devices; however, they don’t own these. People wish to purchase NFT to be able to show they actually own the digital asset. With artificial intelligence and digital artists out there, we must start questioning whether copyright, trademark, and other intellectual property apply to NFTs like they do with physical collector items and how they may interact with them, considering that NFTs have their own distinctive ownership. With art, someone can paint something that exists in real life or be inspired by something, but the copyright lies with the artist who painted it or the photographer who captured the image with his artistic eye. It becomes complicated, however, if someone then digitizes an artwork. Can the original artist claim their artwork was infringed upon by a digital artist who recreated it online?

NFTs have become popular commodities to sell, and both large and small businesses have expanded to sell NFTs or have considered expanding to NFTs. One recent famous case that discusses how a seller of NFTs could infringe a trademark is the case of Hermès v. Rothschild. Hermès’ Birkin bag, with its’ shape and design, is worldwide recognized. Mason Rothschild sold images of faux fur-covered versions of the Birkin bags, also known as “MetaBirkins,” via NFTs. I suppose it should have been obvious with not only the design of the bag but also his choice of title, “MetaBirkins,” that he intended to use the reputation and admiration of Birkin bags to sell. In addition, Rothschild also gave the following description:

“a tribute to Herm[e]s’ most famous handbag, the Birkin, one of ‘the most exclusive, well-made luxury accessories. Its mysterious waitlist, intimidating price tags, and extreme scarcity have made it a highly covetable ‘holy grail’ handbag that doubles as an investment or store of value.”

NFTs can attach to digital images or even a media file, allowing you to wear a virtual handbag or other fashion accessory in a virtual world. However, this initial dispute referred to only the digital images attached to NFTs by Rothschild and not to a virtual wearable product at the time. Hermès filed a lawsuit against Rothschild, claiming trademark infringement, trademark dilution, and cybersquatting. Rothschild moved to dismiss the matter; however was unsuccessful in 2022. Hermès has registered trademark rights for Hermès, Birkins, and trade dress rights in the Birkin bags and has thought about expanding to selling NFTs and the metaverse but has yet to. Rothschild first sold digital images of what he titled the “Baby Birkins,” which was an image of a fetus in a transparent Birkin shape bag for $23,500-$47,000, and then later in December 2021, his collection of “MetaBirkins,” which sold for comparative prices to real physical Birkin Bags on 4 different NFT platforms. Both the media and consumers have been led to falsely believe that there were some collaborations between Rothschild’s MetaBirkins and Hermès, as Elle, L’Officiel, and the New York Post have all mistakenly reported that “MetaBirkins” NFTs were launched by Hermès in partnership with Rothschild.

Rothschild argued that his collection’s images and title fall under artistic expression and, therefore, protected under the First Amendment of free speech in the U.S. Constitution. The First Amendment protects one’s right to create without censorship or intimidation, allows for artwork to be supported, and distributed, to be free to move and to associate, and protects the right to the protection of social and economic rights and the right to be a part of the culture. In the U.S., the Langham Act[1] is the statute that governs protection for trademarks. The landmark case of Rogers v. Grimaldi[2] provides a test that allows artwork to be protected by free speech and, therefore, protected from the Langham Act. Rogers says the Langham Act should only be applied to “artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression.”

The Rogers Test requires:

1) The title of the work has some artistic relevance to the underlying work and;

2) the title is not explicitly misleading as to the source of the content of the work.

Rothschild believed he could rely on the Rogers test and the First Amendment. Considering that Rothschild’s digital images could be construed as artistic work or had some artistic relevance here per the first test of Rogers, the Rogers second test was applicable here to balance the First Amendment concerns with the Langham Act. Hermès argued that Rothschild intended to associate the “MetaBirkins” mark with the goodwill of Hermès’ Birkin mark rather than intending it only for artistic expression. Hermès quoted Rothschild’s previous interview statements where he said it was a tribute to Hermès and that he “wanted to see as an experiment if [he] could create that same kind of illusion that [the Birkin Bag] has real life as a digital commodity.” To determine the second part of the test, the court considered the Polaroid factors, that is, a test from the Second Circuit court in Polaroid Corp. v. Polarad Electronics Corp[3] including 8 factors: (1) the strength of the plaintiff’s mark, (2) similarity between the marks, (3) the competitive proximity of the products in the market place, (4) the likelihood that Hermès will “bridge the gap” by moving into Rothschild’s market, (5) evidence of consumer confusion, (6) intent of using the mark and determining whether there was bad faith in adopting the mark by Rothschild, (7) the quality of the products and (8) the sophistication of the consumers in the relevant market to determine the likelihood of consumer confusion existing between trademarks. 

Rothschild argued that “(1) explicit misleadingness cannot be established by the use of the mark alone; (2) that evidence of confusion alone is not sufficient to prove explicit misleadingness; and (3) that evidence of confusion must relate to the nature of the behaviour of the identifying material’s user, not the impact of the use.” Hermès alleged there was more than simple use or actual confusion, and for the third rebuttal, there were sufficient facts even from Rothschild’s behaviour, and not just the impact on the consumers, media and public that Rothschild made statements himself that could explicitly be construed as misstatements to confuse consumers.

Rothschild also argued a narrow interpretation of Dastar Corp v. Twentieth Century Fox Film Corp.[4] suggesting that because his NFTs were “intangible creative content” and not physical goods, Hermès could not claim for Trademark infringement under the Langham Act as the Langham Act only covers physical goods. The court however rejected this argument and dismissed Rothschild’s motion to dismiss.

Ultimately, in 2023, the jury in New York Federal court, having been instructed to look at whether Rothschild actually intended to confuse potential customers into believing that Hermès was associated, and not just “objectively misleading potential customers” and reminded to “focus exclusively on whether Hermès had proved Rothschild’s ‘MetaBirkins NFTs were not entitled to First Amendment protection” putting the presumption that the NFTs were a form of artistic work and putting the burden on Hermès solely for proving the first amendment did not apply here, the jury found in that Rothschild did infringe on Hermès trademark rights, additionally ruling in favour of Hermès’ claim of trademark dilution and cybersquatting. Rothschild was ordered to pay $130,000 in damages to Hermès. Subsequently, Hermès filed for a permanent injunction and was successful, while Rothschild has been unsuccessful at appealing this matter to date.  Rothschild was ordered to transfer the metabirkins.com domain and all related materials, but not the NFTs themselves as it was found they are in some capacity works of art. He was also ordered to provide the profits he received from the MetaBirkins from the start of the 9-day trial in New York.

This case was considered a landmark case in determining whether a holder of trademark rights in physical works could claim rights over digital works. This case warns metaverse enthusiasts and artists that may consider recreating goods that exist in the physical world in the metaverse and commercializing these goods or using an existing trademark to market a digital asset without authorized collaboration from the creators or title holders of trademarks for goods and services provided in the physical world. I suspect we will see more similar cases to balance how we see art influenced by what exists in the physical world in the metaverse and protection of the goodwill of brands that have long existed in the physical world in being copied for commercialization purposes in the metaverse. As the metaverse develops, we may see more issues arise such as if Rothschild did expand his NFTs of wearable media files to include his MetaBirkins or other luxury goods that exist in the physical world in the digital world. In fact, we know Nike has similarly launched a lawsuit against StockX for creating virtual sneakers attached to NFTs and claims for trademark infringement and trademark dilution. Nike like Hermès has thought about expanding into the metaverse, with Nike’s acquisition of RTFKT Studios at the end of 2021. This definitely causes an expansion of potential claims for intellectual property in the metaverse.

What are your thoughts about the Hermès v. Rothschild case? What are your thoughts in general about luxury goods and brands transcending into the metaverse and if we are adequately balancing artistic works and the protection of goods? Do you think intellectual property should extend at all into the metaverse? Do you believe there is a basis for finding counterfeit NFTs? This exploration of the cross between fashion law and the metaverse is fascinating and we would welcome further discussions.

[1] Trademark Act of 1946 (“Lanham Act”), Pub. L. No. 79-489, 60 Stat. 427

(1946) (codified as amended at 15 U.S.C.A. §§ 1051-1127 (West Supp. 1996)).

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

[3] Polaroid Corp. v. Polarad Elect. Corp., 287 F.2d 492 (2d Cir. 1961)

[4] Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003)

Disclaimer: This post is for informational purposes only and does not constitute legal advice. I am not responsible for any damages resulted from using information in this article. Please consult a lawyer for advice on your unique circumstances.