Trademark Protection vs. Freedom of Expression in the NFT World

Trademark Protection vs. Freedom of Expression in the NFT World

Ever since their creation Non-Fungible Tokens or NFTs have been widely used and sold by artists as a form of digital art. This allows artists to avoid using intermediaries for selling their artwork without undermining the works’ authenticity. Yet in a recent case in the Southern District of New York a jury concluded that NFTs are comparable to commodities (which are subject to strict trademark protections that prevent copycats) and not artwork, where appropriation is protected. See Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), 2023 WL 1458126 (S.D.N.Y. Feb. 2, 2023). Generally, appropriation is defined as copying or imitating a well-known work and transforming it into a new piece of art. To be protected, appropriation art must be transformative enough that the courts do not consider it as infringing on the original work it imitates. Appropriation may also involve incorporating a trademark, in which case an artistically expressive use of a trademark may be protected by the First Amendment. Are NFTs appropriation art, infringing on the registered trademark and confusing potential consumers?

The French luxury goods manufacturer Hermès filed a lawsuit in January 2022 against artist Mason Rothschild, alleging “trademark infringement, trademark dilution and cybersquatting” after Rothschild created a collection of digital images titled “MetaBirkins,” NFTs, sold by Rothschild, depicting a unique image of a blurry faux-fur-covered Birkin handbag. Hermès’ Birkin bag, made from high-quality leather and featuring the brand’s signature lock and key, has become one of the most coveted luxury items in the world. Hermès argued that the name “Birkin” as well as the handbag’s “design and iconography” is associated exclusively with its brand and that Rothschild’s use of the name variation was likely to cause confusion among consumers. Hermès further argued that Rothschild’s use of its trademark “diluted and damaged the distinctive quality and goodwill associated with the Birkin trademark”, because Birkin handbags are known for being made of high-quality leather materials and having unique designs, and that Rothschild’s use of the domain name constituted cybersquatting. Rothschild, in response, asserted that the digital images he created and sold in the form of NFTs are a form of artistic expression and are therefore afforded First Amendment protections. Both parties moved for summary judgment, but the court denied both motions. At trial, the jury found for the plaintiff and concluded that Rothschild violated Hermes’ trademark rights.

In the court’s opinion the Rogers test, 875 F.2d 994 is applicable in this case, since Rothschild’s MetaBirkins “could constitute a form of artistic expression”. Furthermore, Rothschild’s use of Hermès’ trademarks did not function primarily as a source identifier that would mislead consumers into thinking that Hermès originated the MetaBirkins collection, but rather was a “part of an artistically expressive project”. Under the Rogers test, alleged trademark infringement in works of “artistic expression” should be evaluated under the two-fold speech-protective test, requiring the plaintiff to “show that either (1) the use of its trademark in an expressive work was not “artistically relevant” to the underlying work or (2) the trademark is used to “explicitly mislead” the public as to the source or content of the underlying work” see Rogers test, 875 F.2d 994. To convince the Court that his NFTs were “artistically relevant”, Rothschild cited his testimony, claiming that the MetaBirkins NFT was “part of his artistic experiment to see how people with money and influence who drive the culture would respond.” See Def. SOMF ¶17.Hermès countered by focusing on Rothschild’s comments to investors that “he doesn’t think people realize how much you can get away with in art by saying ‘in the style of’” and that he was “in the rare position to bully a multi-billion-dollar corp[oration]” See Plfs. SOMF ¶¶ 176, 178. Hermès further presented survey evidence of 18.7% net confusion among potential NFT consumers as to Hermès’s association with the “MetaBirkins” project. Although Rothschild placed a disclaimer on his website in an attempt to avoid confusion, the survey showed that the disclaimer was not effective in distinguishing the brands in the minds of consumers. The Court ultimately concluded that there was a genuine dispute of fact, as it remained unclear whether Rothschild’s decision to center his work around the Birkin bag stemmed from genuine artistic expression or unlawful intent to cash in on a highly exclusive and uniquely valuable brand name. The jury concluded that Rothschild was liable to Hermès for trademark infringement, trademark dilution, and cybersquatting, and further determined that Rothschild cannot use the First Amendment as a bar to liability. Hermès was awarded damages in the amount of $133,000.

Generally, appropriation artists both in the real and digital worlds need to be cautious when using a registered trademark or trade dress as an inspiration for their artwork. Specifically, artists should refrain from creating appropriation artwork that confuses a reasonable person as to the source of such art. As Hermès International v. Mason Rothschild shows, large companies will vigorously defend their trademarks in the metaverse, including NFTs. While artists claim their artistic value, the opinion of the public has demonstrated that NFTs are more likely to be regarded as digital assets rather than works of art and are therefore not entitled to protection by the First Amendment. Despite Rothschild’s claims of artistic relevance and a simple website disclaimer, it is apparent that there was clear consumer confusion. Even if we disregard artistic expression of Rothschild’s NFTs, it was the Birkin name that allowed MetaBirkins to become so popular among consumers. It is unlikely that with a different name the project would have been as well-known and successful as it was due to the incorporation of the Birkin name.

While being one of the first cases of its kind, Hermès International v. Mason Rothschild will not be the last one. As numerous high-end luxury and popular brands choose to enter the Metaverse to further promote their goods, it is imperative to ensure that their IP rights are protected in all dimensions. It is therefore likely that lawsuits by other brand name companies will follow. As a precautionary measure, some NFT platforms have instituted formal processes for submitting IP takedown requests. It would be advisable for companies to extend their trademarks’ coverage to classes covering NFT-related goods and services to include protection of trademarks in the Metaverse (such classes include e.g. International Class 9, 35, 36, 41 and 42, depending on the type of the company’s goods and services). Conversely, an artist should conduct a simple trademark clearance search for the title and subject of the artwork, whether digital or real. Such trademark clearance search is a necessary first step to avoid possible litigation of appropriation art inspired by an iconic trademark.