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Tag: Trademark

The MetaBirkin NFT Project: When the First Amendment Meets Trademark Law

Posted on Modified on by Lynn Dudinsky

Major brands such as Nike, Tiffany, Gucci and Lacoste have embraced the emerging market provided by blockchain based technologies such as NFTs and the metaverse. As these markets grow, so do instances of potential trademark infringement by entities and creators looking to carve out their niche in this new market and profit from their early adoption. This dynamic led to the case of Hermes International v. Rothschild (U.S. District Court for the Southern District of New York, Case No. 1:22-cv-00384), where Hermes accused Mason Rothschild, whose legal name is Sonny Estival, of trademark infringement, dilution and cybersquatting with the launch of Rothschild’s MetaBirkin NFT project. The MetaBirkin project featured the release of 100 NFTS depicting fur-covered Birkin handbags which were sold for over $1.1 million ($45,000 from the initial sale and approximately $1 million in secondary sales) with Rothschild receiving a portion of initial sales as well as 7.5% of every re-sale of a MetaBirkin NFT.

As a bit of a primer for those who are not aware of the Hermes Birkin line of handbags, these handbags are prices from $9,000 to $50,000 and have received much higher prices at auctions while also generating over $1 billion in sales for Hermes. Hermes owns the trademark rights in the “Birkin” mark related to the name of the handbag as well as trade dress rights in the design of the Birkin handbag. Hermes is not one of the brands mentioned above that have entered into the NFT/blockchain market but there have been reports that Hermes has intentions of entering this space either in the form of NFTs or, more likely, embracing blockchain technology to verify authenticity and ownership via proof of ownership NFTs.

With that out of the way, we return to the case where the MetaBirkin NFT project produced 100 NFTs, each featuring a fur-covered Birkin bag. Mr. Rothschild claimed that this project was an artistic expression and commentary on the use of fur and other animal based materials by luxury brands such as Hermes. Hermes claimed that the use of the Birkin mark and the look of the MegaBirkin handbag infringed upon Hermes’ trademarks. This dispute pins First Amendment artistic expression against Federal Trademark law with the evaluation of which public policy wins to be determined under the speech-protective test set forth in Rogers v. Grimaldi. This test effectively states that an artistic work is not entitled to First Amendment protection if the plaintiff can show that either (1) the use of its trademark in the 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.

Evidence in this case suggested that the purpose behind the use of the Birkin mark was to make a connection to and leverage the Birkin brand to drive sales of the MetaBirkin NFTs.  Mr. Rothschild’s use of the Birkin mark in the project name, on the project website and the handbag bearing a close resemblance to a Birkin bag, albeit covered in fur, illustrates the desired connection to the Hermes mark. Moreover, studies showed close to 20% of people surveyed believed there to be a connection and multiple publications stated there was a connection. While Mr. Rothschild sought corrections in those publications through his publicists, those requests for corrections occurred after receipt of a cease and desist letter from Hermes.

It is important to take a step back at this point and remember the purpose of trademarks. As explained by the court in this case, Trademark law is concerned with preventing consumer confusion and making it easier for consumers to make informed decisions about products on the market. More specifically, the reason that trademark law protects a mark holder’s rights in certain symbols, elements, or devices used to identify a product in the marketplace is so that consumers can reliably determine the producer or origin of a particular good. It is this concept that makes the second factor of the Rogers test the important test in this case because even if there is a finding that the use of the trademark bears some artistic relevance to the underlying work, the First Amendment does not protect such use if it explicitly misleads as to the source or content of the work.

The instructions to the jury further explained the policy weighting between First Amendment protection and Trademark law in saying that Mr. Rothschild is protected from liability on any of Hermes’ claims unless Hermes proves by a preponderance of the evidence that the use of Birkin mark was not just likely to confuse potential consumers but was intentionally designed to mislead potential customers into believing that Hermes was associated with the MetaBirkin project, thereby waiving any First Amendment protection. With this instruction in mind, the jury found in favor of Hermes on Trademark Infringement, Trademark Dilution and cybersquatting. The damages for Trademark Infringement/Dilution are based on the profits earned from the infringement and/or dilution and awarded net profit damages of $110,000. Cybersquatting damages are based on statutory damages where the jury may award damages not less than $1,000 and not more than $100,000 with the jury setting the statutory damages at $23,000.

Hermes v. Rothschild presents an early example of what we can expect will be a growing area of trademark litigation as the market for NFTs and other blockchain innovations lowers the barrier of entry for content creators to monetize their creations. Given the abundance and ease of creating NFTs, leveraging established brands to stand out and increase profits is one strategy that must be done with extreme caution and with a full understanding of the limitations of First Amendment protections. Moreover, the anonymity that is oftentimes enabled by blockchain technologies creates an additional hurdle for brands seeking to police their marks in an space where the identify of the alleged infringer is unknown.

Romag v. Fossil: Resolving a Circuit Split on Willfulness and Profit Awards for Trademark Infringement

Posted on Modified on by Lynn Dudinsky

In the midst of the COVID pandemic, the Supreme Court resolved an issue that was split evenly between the circuit courts. The issue before the Court was whether the Lanham Act, which is the federal statute governing trademarks, required a plaintiff to prove that the defendant had willfully infringed their trademark before the plaintiff could recover the infringer’s profits. In a surprisingly unanimous decision, the Supreme Court in Romag v. Fossil held that a plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to a profits award.

This dispute began when Fossil signed an agreement with Romag that allowed Fossil to use Romag’s magnetic snap fasteners in Fossil’s handbags and other products. During the initial years of the relationship, both parties were content with the arrangement but after some time, Romag discovered that the factories Fossil hired in China to make its products were using counterfeit Romag fasteners. Romag alleged that Fossil did little to prevent the factories from continuing this practice and when both parties were not able to resolve the issue internally, Romag initiated litigation. A trademark case followed with Romag accusing Fossil of infringing its trademark and falsely representing that the fasteners came from Romag. At trial, a jury agreed with Romag and found that Fossil acted in callous disregard of Romag’s rights but rejected Romag’s claim that Fossil had acted willfully and therefore denied Romag’s recovery of Fossil’s profits. This decision by the jury was based on the definition of the district court which relied upon precedent from the Second Circuit. The Second Circuit happened to be one of the six circuits that required proof of willful infringement as a precondition to a profits award. This case was then accepted by the Supreme Court to resolve the split.

The Supreme Court was careful to rely on the plain language of the Lanham Act in describing the unanimous holding. This is important because the plain language of the Lanham Act does require willfulness as a precondition to a profits award for a trademark dilution cause of action. However, Romag’s cause of action was not for dilution (conduct that lessens the association consumers have with a trademark), it was for the false and misleading use of their trademarks and the plain language of that section does not require proof of willfulness. Fossil, and half of the circuit courts, had read into this cause of action the willfulness requirement of a dilution cause of action. The Supreme Court rejected this inclusion of willfulness language where the Act had been silent, holding that courts must be more careful when reading into statutes words that are not there when Congress has included that language elsewhere in the same statutory provision. In making its decision, the Supreme Court refused to insert this language, and noted other examples within the Lanham Act where the statutes speak to mental states and how the mental state impacts the damages award (i.e., increasing damages for intentional acts and with specific knowledge, increasing the statutory cap on damages for certain willful violations and limiting the types of awards for innocent infringers). With these references in mind, the Supreme Court made it clear that, while the mental state of a trademark defendant is a “highly important consideration in determining whether an aware of profits is appropriate,” the use of willfulness as an “inflexible precondition to recovery” cannot be read into the statute as written. Based on this determination, the Supreme Court vacated the judgment of the court of appeals and remanded the case for further proceedings consistent with its opinion and left the door open for policymakers to insert this language into the Lanham Act should it determine that this requirement for willfulness would further the goals of the statute.

The Annual Intellectual Property Report to Congress: Risking 40% of GDP to Recoup 3%

Posted on Modified on by Lynn Dudinsky

The Office of the U.S. Intellectual Property Enforcement Coordinator (IPEC) issued its Annual Intellectual Property Report to Congress this month (“Annual IP Report”). The Annual IP Report details the coordinated efforts of the White House, the Departments of Commerce, Justice, Homeland Security, State, Treasury, Health and Human Services, and Agriculture, the Office of the U.S. Trade Representative, and the U.S. Copyright Office to promote strong intellectual property rights protection and enforcement, both domestically and abroad. Included in the Annual IP Report is the Administration’s four-part strategic approach to promote and protect intellectual property which is quoted below:

  1. Engagement with our trading partners;
  2. Effective use of all our legal authorities, including our trade tools;
  3. Expanded law enforcement action and cooperation; and
  4. Engagement and partnership with the private sector and other stakeholders.

While the Annual IP Report goes into great detail about the above referenced strategic approach, as well as other actions taken by the Administration to enforce intellectual property rights over the 197-page report, one interesting section that occupies only 2 pages of the report describes the impact of intellectual property on the U.S. economy as well as the economic costs related to theft of U.S. intellectual property (pages 32-34 of the report). The one-page summary titled “Intellectual Property and the Economy” highlights the significant role intellectual property plays in the U.S. economy. Below are a few highlights from this section of the report that are worth mentioning:

  1. Intellectual Property Intensive Industries Accounted for 30% of U.S. Employment in 2014: The Annual IP Report references a 2016 report published by the USPTO in conjunction with the Economics & Statistics Administration that details the impact of intellectual property on the U.S. economy. In this report, IP-intensive industries directly accounted for 27.9 million jobs in 2014. Interestingly, Patent-intensive industries rank last in the IP-intensive employment with 3.9 million jobs in 2014 compared to 5.6 million for Copyright-intensive industries and 23.7 million jobs in Trademark-intensive industries. The downstream impact of IP-intensive employment includes nearly 18 million additional supply chain jobs resulting in the share of employment directly and indirectly supported by IP-intensive industries totaling approximately 30 percent of all U.S. employment.
  2. Intellectual Property Intensive Industries Accounted for $6.6 trillion in value added in 2014: This figure represents an increase of more than 30% since 2010. This also represents 38.2 percent of the U.S. GDP which is attributable to IP-intensive industries, an increase over the 34.8 percent of GDP in 2010. IP-intensive industries also provide a 46% wage premium over non-IP-intensive industries. Patent and Copyright-intensive industries see an even larger wage premium of 74% and 90%, respectively.
  3. Innovation-Driven Growth is Linked to Roughly 75% of U.S. Growth Since the Mid-1940s: Referenced in this section of the Annual IP Report is a study from the Department of Commerce that investigated the impact of technological innovation on U.S. growth.

It is unfortunate that the Annual IP Report does not include more recent statistics regarding the impact of Intellectual Property on the economy in the past 5 years. However, the report does include some recent statistics on the economic cost of IP theft, which may explain the focus of this Administration on imposing sanctions and tariffs in an effort to protect U.S. IP rights internationally, rather than engaging in efforts directed at promoting the role of U.S. IP in domestic and foreign markets. The Economic Cost of IP Theft section of the Annual IP Report largely focuses on the role China plays in the misuse and misappropriation of U.S. intellectual property. The focus on China is not limited to this section of the report and can be found throughout the report, and China is specifically the target of the Administration’s four-part strategic approach to promote and protect intellectual property. The focus on China’s role in IP theft and the impact on the U.S. economy relies on the following statistics:

  1. The U.S. Customs and Border Protection Bureau (CBP) reports that approximately 88% of seized goods were sourced to China and Hong Kong in 2016.
  2. It is estimated that the total value of seized counterfeit goods from China and Hong Kong was between $52.9-$101.4 billion in 2016, roughly 0.5% of 2016 GDP.

Given that an estimated 1.2-2.3 percent of counterfeit goods are actually seized by CBP, it is difficult to see how the approaches outlined in this report will make a meaningful impact on preventing IP theft, and in turn on the U.S. economy. Time will tell whether this approach will further the Administration’s stated goal of advancing American economic interests overseas and enabling American innovators and creations to operate in foreign markets with clear paths to secure and use their intellectual property. However, given the profound impact of IP-intensive industries on the U.S. economy, any approach to promoting and protecting U.S. intellectual property must balance the economic value add of the status quo which accounts for roughly 40% of the U.S. GDP against the risk of disrupting IP-intensive industries to address the 1%-3% cost to the U.S. GDP from IP theft in the form of counterfeit goods, pirated software and theft of trade secrets.

Insights from WIPO’s “World IP Indicators 2017” Report: Key Patenting Trends Around the Globe

Posted on Modified on by Efrat Kasznik

The World IP Organization (WIPO) has recently published its annual report titled: “World Intellectual Property Indicators 2017”, covering world IP filing activity for 2016.  The report is a comprehensive coverage of global patent and trademark filing trends, comparing and ranking the world’s leading regional patent and trademark offices (“IP Offices”) by their level of activity in the various categories.

At a high level, it seems like many of the trends observed in 2015 continue into 2016: the global number of filings and grants keeps trending up; China continues to dominate in terms of annual filings and grants (breaking another record of 1.3 million filings this year); and the top 10 filing companies worldwide are all Asia-based multinationals.

Patent Filing Trends

A record number of 3 million patent applications were filed worldwide in 2016, up 8.3% from 2015, as seen in the figure below:

Source: World IP Indicators 2017, WIPO

Driving the strong growth in global filings was an exceptional number of filings in China. The State Intellectual Property Office of the People’s Republic of China (SIPO) received 1.3 million patent applications in 2016 – more than the combined total for the United States Patent and Trademark Office (USPTO; 605,571), the Japan Patent Office (JPO; 318,381), the Korean Intellectual Property Office (KIPO; 208,830) and the European Patent Office (EPO; 159,358). Together, these top five offices accounted for 84% of the world total in 2016.

Below is a summary table showing the activity in the top 10 IP Offices in 2016:

Source: World IP Indicators 2017, WIPO

When it comes to understanding China’s continued explosive growth in new patent applications – over 1.3 million filed in 2016, an increase from the 1.1 million in 2015 (the first year the 1 million filings barrier has been exceeded in any country) — the circumstances surrounding the increase in Chinese patent filings are unique and should have come as no surprise to anyone following the Chinese government’s five-year plan of 2011. As explained in an article published in Nov. 2016 in the EE Times by Foresight’s president, Efrat Kasznik, over the last 50 years the Chinese Communist Party implemented a series of five-year plans which guided China’s rapid economic growth.  The 2011 five-year plan’s themes of sustainable growth included some specific targets for patent filing per capita.  The increased filing activity over the last five years is the direct result of a calculated government effort, enabled by an unprecedented allocation of legislative and administrative resources to support China’s State IP Office. Thus, the sharp rise in Chinese patent filings between 2010 and 2016 is very unique to China’s political circumstances, and is not necessarily correlated with the natural progression of innovation.

When reviewing filing trends by country, one of the most critical observations is the ratio of resident to non-resident filings.  A higher ratio of non-resident filings in any given country, is usually an indication not only of the size of that market for the underlying innovations, but also of the strength of the IP enforcement regime in that country.  Here, the trends from 2015 are repeating in 2016: as explained by Ms. Kasznik in her article, ratio in China is about 90% resident filers to 10% non-resident filers, a reflection of the relatively weak enforcement regime in China.  Conversely, the USPTO and the European Patent Office exhibit a ratio of resident to non-resident filings of about 50/50, attesting to the strength of IP enforcement regimes in those regions.

Patent Grants Trends

In 2016, an estimated 1.35 million patents were granted worldwide, up 8.9% on 2015.

Source: World IP Indicators 2017, WIPO

SIPO granted 404,208 patents in 2016, followed by the USPTO (303,049), the JPO (203,087), KIPO (108,875) and the EPO (95,956). The top five IP offices issued more than 1.1 million combined, accounting for 83% of the world total.

Not surprisingly, the number of new grants is trending upwards over time along with the number of new filings.  The WIPO report also includes statistics related to the operational efficiency of IP offices, such as: the number of examiners, application pendency times, and patent examination outcomes.  The workload of IP offices as measured by the number of incoming patent applications has increased over time, but so has their examination capacity to process those applications. The WIPO data show there has been no significant increase in application-to examiner ratios, and for a number of IP offices, growth in numbers of examiners has outstripped the increase in applications.

Another interesting metric reported is the number of patents in force in 2016: the estimated number of patents in force worldwide rose from 7.8 million in 2009 to 11.8 million in 2016. The USPTO leads with 2.8 million patents in force in 2016, followed by the JPO (2 million), SIPO (1.8 million) and KIPO (1 million). These four IP offices account for 63% of all patents in force worldwide.

Filing by Company

The top 10 patent applicants worldwide are Asia-based multinationals: Canon Inc. (Japan) was the top applicant for the period from 2011 to 2014, with 30,476 patent families worldwide, followed by Samsung Electronics (Korea) with 26,609 patent families, and Japanese companies Panasonic (22,899), Toshiba (22,627) and Toyota (22,190). Robert Bosch of Germany (16,582) was the highest-ranking non-Asian company at number 12.

Only 9 countries of origin comprise the top 100 list of applicant companies for the period from 2011 to 2014: Japan (40), China (26), Korea (15), U.S. (9), Germany (6) and one each from France, the Netherlands, Sweden and Taiwan.

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