Trademark Infringement Archives - Foresight Valuation Group

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

Posted on February 14, 2023 8:18 pmModified on February 14, 2023 8:19 pmby 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 June 28, 2020 5:50 pmModified on June 28, 2020 5:51 pmby 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.

Fair Use: Friend or Foe?

Posted on March 29, 2019 10:45 pmModified on April 19, 2021 8:32 pmby Sebastian Custodia

Several months back in an article discussing Brand Extendibility, I touched on a humorous exchange between In-N-Out Burger and a microbrewery regarding some obvious trademark infringement. In that case, the burger chain’s attorneys decided to approach the situation in a light hearted manner, issuing a pun-filled cease and desist notice. Earlier this month, however, the company decided to take a different approach in dealing with infringement on its coveted trademarks. German shoe maker, Puma, recently released a sneaker called the “Cali-0 Drive Thru”which prominently features the In-N-Out palm tree logo on the laces, in addition to the white, yellow, and red color scheme used by the burger company. It is possible that Puma, and shoe designer Mike Cherman of Chinatown Market, felt that use of the trademark was in the confines of fair use, particularly given the amusing promotional videos released on Puma’s Instagram page. Although a statement made by In-N-Out’s executive vice president firmly asserts otherwise:

“By using In-N-Out’s designs and trade dress, Puma and Cherman intentionally confused consumers for their own benefit and have also created the impression that our marks and unique trade dress are available for public use.”

Trademark protection allows owners to stop the use of their registered marks in order to prevent any confusion by the public regarding the source of a good or service. Under certain circumstances, however, fair useof a registered trademark is permitted. According to the International Trademark Association, there are two types of fair use: Descriptive Fair Useand Nominative Fair Use. Descriptive FairUsepermits the use of an existing trademark in order to describe your own product or service. For example, courts ruled that the WD-40 Company’suse of the word “inhibitor” was permitted to describe its product as one that inhibits long-term corrosion, even though “The Inhibitor” is a registered trademark. Another example is the use of the phrase “sweet-tart” to describe the flavors of a juice, despite SweeTart being a registered trademark of a candy company. In Puma’s case, it would seem that descriptive fair use does not apply. In fact, after reviewing the official description of the sneakers, which says that they pay homage to California’s “burger diners,” one might argue that infringement of the In-N-Out palm trees is even more blatant. Puma might be covered by descriptive fair use if it described a pair of shoes as “easy to slip in and outof,” for example, but in this case infringement seems probable.

The second type of fair use, Nominative Fair Use, permits the use of a trademark to refer to the actual good or service offered by the trademark owner. Most commonly, nominative fair use is used by the media in its reporting on certain events or products, such as the Boston Marathon, which is a registered trademark of the Boston Athletic Association. Nominative fair use is also often leaned on for parody of a brand or product. I suspect that Puma may have gambled on the Drive Thru shoes being covered by nominative fair use given the videos (mentioned earlier) that show the sneakers frolicking in a field of hamburgers. However, Puma still included the palm tree logo on its shoes and never directly mentions or gives credit to In-N-Out. Under different circumstances, Puma may have been permitted to use In-N-Out’s name in a parody promotional video for its Drive Thru shoes, although direct use of the palm trees for Puma’s own benefit without In-N-Out’s consent would likely never be permitted.

In-N-Out has a reputation for taking swift action against any party that might be threatening the integrity of its brand. After investing millions of dollars to build brand equity, most companies aim to protect their brands with the same vigor. Fair use may seem like just another legal loophole at first; however, in some cases brands might actually stand to benefit from the use of its trademark (particularly through parody and nominative fair use) by nature of increased exposure. Take Levi’s for example – a company that has been successfully working to re-build its brand equity through various means such as stadium naming rights, which I’ve covered in the past. In 2017, Saturday Night Live broadcasted a skit that parodied both pop culture and the brand itself, titled “Levi’s Wokes.” Among the SNL regulars, the skit also prominently featured movie star Ryan Gosling wearing a pair of ridiculous jeans jokingly produced by Levi’s. As of this writing, the video has over 3.3 million views on the SNL YouTube channel alone. For a company that was looking to reinvent itself and reintroduce its brand name as a pop culture icon, one can only assume that this type of publicity was welcomed with open arms.

Monitoring trademark infringement is key to any successful branding strategy. The last thing a brand manager wants is to lose control of public perception of the brand, and infringing products or services can be a catalyst for just that. In-N-Out actually sells its own pair for branded shoes on the company website and seems to command adequate public attention without Puma’s help – a quick Google search for something like “In-N-Out vs. Shake Shack” reveals just how prominent the burger chain is in pop culture. In certain instances, particularly those covered by fair use, brand managers with a keen instinct to protect their investments may have to take a back seat. In such cases, it is important, to understand and even embrace fair useof a brand, and recognize the benefits that it may bring. Just ask Levi’s who recently went public after a 30+ year hiatus from the stock exchange and has seen a roughly 30% increase over its $17 IPO price.