Trademark Protection 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.

The “Secret Formula” for Choosing a Brand Name

Posted on February 21, 2019 6:17 pmModified on April 19, 2021 8:27 pmby Sebastian Custodia

Unarguably, one of the most important branding decisions to be made by an entrepreneur is the name of the venture. Some of the world’s most iconic brands not only have catchy names, but also names with a great story behind them. These stories often offer a glimpse at the company’s history, whether or not the name actually has anything to do with the product or service itself. The origin of the Apple name, for example, is tied to a story told by Steve Wozniak in his autobiography, in which Steve Jobs suggested the name after returning home from a stint in a commune which he referred to as an “apple orchard.” The name Google was the result of a misspelled search in the domain name registry, and a welcomed change to the company’s original name, “BackRub.” And who can forget Justin Timberlake (as Sean Parker) advising Mark Zuckerberg to “drop the ‘The’” from TheFacebook.

From these examples, and many more, we learn that the origin of the name is arguably equally important as the actual name itself. From a sheer branding perspective, having these stories to tell about your company history can greatly aid in the building of a community around your brand – fostering loyalty and contributing to sustained success. In fact, some suggest that brand names that are directly related to a product or service are less likely to succeed than an extraneous name. Scrolling down any list of top brands reveals that this notion seems to be accurate. Perhaps the reason is that the disconnect between the name of a company and its offerings provides for much stronger and sustainable Brand Awareness, Brand Association, Brand Positioning, etc. when consumers are tasked with connecting a name to a product or service themselves rather than being told exactly what to expect. In my own mind, for example, I was tasked with creating the associations between the Disney name (which at its origin is simply a surname with no relation to animation) with family-oriented, funny, and wholesome cartoons. Because I have learned to associate the name with the product and accompanying emotions on my own, that bond is far stronger. Conversely, another animation brand that I have grown up with is Cartoon Network. The company offers a brand name that is immediately reconcilable with their offering. Over the years, it is possible that by allowing me to skip the step of creating this brand association on my own, the brand has fostered a less meaningful and sustainable relationship. Among many other factors, the difference in brand power in my mind is conceivably attributable to the mechanics of the brand name itself.

Given that the brand name is so important, entrepreneurs spend countless hours mulling over their options to find the perfect fit. Sometimes, however, there are roadblocks. In a recent U.S. circuit court case, an entrepreneur was denied the right to use “The Krusty Krab” as the name for his new restaurant venture. The Krusty Krab, a Bikini Bottom staple, is of course the name used by the fictitious restauranteur Mr. Krabs in the SpongeBob SquarePants cartoon show and movies. The case is an example of an interesting rule around trademark protection for things that are not officially registered with the Trademark Office and that originate from fictional sources. Having appeared in over 80% of SpongeBob episodes, in addition to 2 feature films, the court ruled that Viacom (the rights holder to SpongeBob) should retain the rights to The Krusty Krab. In court, Viacom successfully proved that diners at the proposed Krusty Krab restaurant would likely confuse the establishment with SpongeBob’s fictional employer. The courts have taken a similar stance in the past on trademark related cases, granting trademark protection to the Daily Planet (from the Superman universe), as well as the General Lee (from The Dukes of Hazzard).

When developing a brand strategy, brand name is a pivotal decision. The various components of Brand Equity can be bolstered by a solid name with an interesting origin story. Unsurprisingly, entrepreneurs tap in to any and all available resources while attempting to derive the perfect name. It is important, however, to remember that trademark protection can be awarded for things outside of the official registry. But just because a name may be protected, does not necessarily rule out the possibility of its use for your venture. Interestingly enough, Viacom itself has a history of lending its marks in the food business. A license of the Bubba Gump Shrimp Co. name from the hit movie Forrest Gump is responsible for the turnaround and massive success of a once declining seafood provider. In this case, Mr. Krabs was not quite ready to grant access to his infamous secret formula.