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.