Trademark law is doing well, endowed with a strong capacity for execution and an ability to adapt to any new situation. The already prominent Hermès v. Rothschild provides a further illustration. Founded in 1837 by Mr. Thierry Hermès, Hermès has acquired prestige and a reputation for excellence, in particular for its leather goods, including the iconic “Birkin” handbag, made initially for Mrs. Jane Birkin, an icon and muse of fashion and arts and, then, a young mother. The “Birkin” rare and prized handbags are often estimated at several tens of thousands of dollars (Annex 1).
Mr. Mason Rothschild defines himself as an entrepreneur from the fashion industry. In May 2021, Mr. Rothschild created a digital image of a fetus inside a transparent “Birkin” handbag. Mr. Rothschild sold the non-fungible token (NFT) associated with this image for $23,500. Subsequently, this NFT was resold for the sum of 47,000 USD. Exalted by this success, Mr. Rothschild made a collection representing “Birkin” bags covered with fur. In December 2021, he put the NFTs associated with these images up for sale as part of a “MetaBirkins” project (Annex 2). On November 7, 2021, to carry out his new business, Mr. Rothschild registered the domain name <metabirkins.com> (Annex 3), used to designate a site promoting the “MetaBirkins” collection (Annex 4). In a marketing logic, Mr. Rothschild also created @metabirkins accounts on Twitter (Annex 5), Instagram, and Discord, as well as the hashtag #metabirkins, to catapult the eponymous collection. The virtual bags were auctioned on platforms specializing in selling NFTs, including LooksRare (Annex 6), OpenSea, Rarible, and Zora. NFTs representing Mr. Rothschild’s “MetaBirkins” handbags sold at prices comparable to physical Hermès’ Birkin handbags (Annexes 7 and 8). Finally, it is established that users, consumers, and fashion journalists believed that the “MetaBirkins” collection emanated from Hermès.
1. Summary of the procedure
The table above refers to a selection of documents from the case. Complete documentation is available at courtlistener.com.
On December 16, 2021, Hermès sent Mr. Rothschild a letter of formal notice to end the “MetaBirkins” project. However, faced with the obstinacy of Mr. Rothschild, Hermès sued him for trademark infringement, on January 14, 2022, before the United States District Court for the Southern District of New York (District Court, S.D. New York). Pseudonyms seem to constitute a harsh and alarming obstacle for the holders of intellectual property rights confronted with NFTs. However, fortunately, the defendant had not acted under anonymity, so there was no argument as to the effectiveness and validity of the summons.
Regarding territorial jurisdiction, beyond the federal nature of the infringement of intellectual property rights, Hermès has provided several arguments to justify the territorial jurisdiction of the New York court. The defendant, nor ex officio by the judge, did not raise the question of territorial jurisdiction. Nevertheless, looking briefly at Hermès’ arguments does not seem superfluous. First, the site <metabirkins.com> was accessible in New York. Second, the claimant asserted that “the defendant [had] targeted New York consumers by operating the MetaBirkins website and creating storefronts to advertise, sell and offer for sale the MetaBirkins collection of NFTs using ‘smart’ contracts on four NFT marketplaces” (Amended complaint, para. 18). Third, the claimant provided a connecting factor based on the location of the main establishment of the company managing one of the platforms through which the defendant sold the virtual bags (ibid.). Fourth, the claimant claimed that at least one virtual bag was purchased from New York (Amended complaint, para. 19).
2. Proactive brand protection
Concomitantly with the formal notice sent by Hermès to Mr. Rothschild, the claimant urged the marketplaces OpenSea, Rarible, and Zora to withdraw the “MetaBirkins” project from their platforms. The latter, young companies concerned about legal risks and their reputation, accepted Hermès’ requests. However, the auction of virtual bags was reborn on a competing platform, namely LooksRare. The intangible nature of digital objects makes intellectual property infringement volatile, which requires vigilant and rigorous tracking.
It should be noted that Hermès did not initiate extrajudicial adjudicatory proceedings to obtain the transfer of the domain name <metabirkins.com>. The UDRP procedure (Uniform Domain Name Dispute Resolution Policy) was available. However, the UDRP procedure was not necessarily appropriate for several reasons. First, the content of the disputed site could simply have been moved to another domain name for a handful of dollars and in a few clicks. Secondly, in any case, the heart of the operation took place on the NFTs market platforms, so the hypothetical immediacy of the transfer of the domain name would have had the effect of a sword blow in the water. Third, “hypothetical transfer” because, in the presence of parallel proceedings, it is not uncommon for the panel to declare itself incompetent because it does not have the powers conferred on the state judge, particularly regarding the administration of evidence. Fourth, the UDRP procedure does not give the power to the panel to award monetary compensation, whereas the state judge can order the opposing party to pay damages. That said, the constraints of the UDRP in Hermès v. Mason Rothschild cannot be systematically transposed to the countless cases relating to domain names reproducing a trademark associated with terms belonging to the lexical field of Web3 (NFT, meta, crypto, etc.). Therefore, rigorous monitoring of domain names remains appropriate, with the defense strategy to be determined on a case-by-case basis.
3. Trademark rights v. artistic freedom
Trademark law is two-sided. On the one hand, trademark law is “proprietary” in that it aims to guarantee the owner of a trademark exclusive use of the latter for the relevant products or services. On the other hand, trademark law is “consumerist” in that it aims to protect the consumers by allowing the latter to identify the source of a product or service. In his decision of February 2, 2023, short of 26 pages, Judge Rakoff used the word “consumer” 23 times, strongly emphasizing the central place of the consumer in this case:
“Given the centrality of consumer confusion to trademark law generally, it is best to view this issue from the perspective of the prospective consumer. Individuals do not purchase NFTs to own a “digital deed” divorced from any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT” (Hermès International v. Rothschild (1:22-cv-00384), Order, February 2, 2023, p. 14).
(…)
Thus, the title “MetaBirkins” should be understood to refer to both the NFT and the digital image with which it is associated. Indeed, a reasonable inference from the admissible evidence presented on these motions is that the relevant consumers did not distinguish the NFTs offered by Mr. Rothschild from the underlying MetaBirkins images associated with the NFTs and, instead, tended to use the term “MetaBirkins NFTs” to refer to both“. (Hermès International v. Rothschild (1:22-cv-00384), Order, February 2, 2023, p. 15).
Further on, Judge Rakoff insisted that the consumer flank of trademark law should be placed at the heart of the debates, including in a situation opposing trademark law and freedom of expression:
“In certain instances, the public’s interest in avoiding competitive exploitation or consumer confusion as to the source of a good outweighs whatever First Amendment concerns may be at stake.” (1:22-cv-00384), Order, February 2, 2023, p. 19).
On March 21, 2022, Mr. Rothschild submitted a motion seeking to dismiss Hermès’ claim based on freedom of expression (First Amendment to the Constitution of the United States of America) and, more precisely, artistic freedom by relying on Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). The defendant had produced and distributed Ginger & Fred, directed by Fellini. Comedian Ginger Rogers sued Grimaldi, and the following question was raised: can the use of a celebrity’s first name in a film create the confusing impression that this celebrity has endorsed the film in violation of the Lanham Act? The court considered that, even if there was a risk that the title of the work did mislead some spectators, the contentious title Ginger & Fred presented no explicit indication of such a nature as to suggest that Ms. Rogers had approved the film or played a role in its production. In addition, the court concluded that the risk of misunderstanding was so outweighed by the interests in artistic expression as to preclude the application of the Lanham Act.
Here, Mr. Rothschild relied on Rogers v. Grimaldi to argue that he was using “MetaBirkins”, admittedly for pecuniary purposes, but above all as an artistic expression protected by the creative freedom, not as a business sign aimed at identifying the source of the products in an explicit way.
First, in his decision of May 18, 2022, Judge Rakoff dismissed Mr. Rothschild’s request to have Hermès’ claim rejected on the basis of freedom of expression for the following reasons, presented here in a succinct manner:
– the complaint contains sufficiently convincing allegations to consider that, more than the search for a simple artistic association, Rothschild intended to associate the sign “MetaBirkins” with the notoriety of the “Birkin” trademark of Hermès (Hermès International v. Rothschild (1:22-cv-00384), Order of May 18, 2022, p. 14);
– the complaint contains sufficiently substantiated factual allegations to conclude that there was explicit deception, in particular concerning the notoriety of the “Birkin” trademark, proof of actual confusion and bad faith on the part of the defendant in the choice of the trademark (Hermès International v. Rothschild (1:22-cv-00384), order of May 18, 2022, p. 16).
Secondly, in his decision of February 2, 2023, Judge Rakoff recalled the conditions, born or drawn from Rogers v. Grimaldi, which allow the author of an artistic work to benefit from the protection of the First Amendment. Thus, the author of a work cannot benefit from this protection if the owner of the trademark demonstrates, on the one hand, that the use of the concerned trademark in the said work is not artistically relevant or, on the other hand, if the trademark is used, explicitly, to mislead the public (Hermès International v. Rothschild (1:22-cv-00384), Order of February 2, 2023, p. 19). However, the implementation of the rule, which is delicate and embarrassingly complex, can fuel hesitation.
Thus, concerning the first ground, on the issue of knowing whether the use of the “Birkin” trademark in “MetaBirkins” was artistically relevant, judge Rakoff preferred to kick into touch, that is, to put the fate of the parties in the hands of a jury: “Because reasonable individuals could reach different conclusions on the “artistic relevance” factor, the Court denies both parties’ summary judgment motions on it” (Hermès International v. Rothschild (1:22- cv-00384), Order of February 2, 2023, p. 22).
As for the second alternative, it is recalled, on the one hand, that “A work is “explicitly misleading” if it “induces members of the public to believe” that it was created or otherwise authorized by the plaintiff. Id. “This determination must be made, in the first instance, by application of the venerable Polaroid factors,” with the important qualification that the “likelihood of confusion” assessed under these factors “must be particularly compelling to outweigh the First Amendment interest recognized in Rogers.” (1:22-cv-00384), Order of February 2, 2023, p. 22). The test is based on Polaroid Corp. v. Polarad Elecs. Corp. (287 F.2d 492 (2d Cir. 1961), from which Rakoff drew eight relevant considerations:
“(1) the strength of Hermès’ mark, with a stronger mark being entitled to more protection;
(2) the similarity between Hermès’ “Birkin” mark and the “MetaBirkins” mark;
(3) whether the public exhibited actual confusion about Hermès’ affiliation with Rothschild’s MetaBirkins collection;
(4) the likelihood that Hermès will “bridge the gap” by moving into the NFT space;
(5) the competitive proximity of the products in the marketplace;
(6) whether Rothschild exhibited bad faith in using Hermès’ mark;
(7) the respective quality of the MetaBirkin and Birkin marks; and, finally,
(8) the sophistication of the relevant consumers.” (Hermès International v. Rothschild (1:22-cv-00384), Order of February 2, 2023, p. 23).
Given the complexity of the necessary analyses and the degree of disagreement between the parties, the court considered the implementation of Polaroid Corp. v. Polarad Elecs. Corp. not appropriate. Accordingly, the court declined to grant summary judgment on this issue and left it to the jury.
Similarly, the questions relating to cybersquatting and dilution, being closely related to the previous ones, were also posed to the jury.
4. Jury Verdict
After receiving instructions from Judge Rakoff, the jury returned its verdict on February 8, 2023, in favor of Hermès. The jury found Mr. Rothschild guilty of trademark infringement, dilution, and cybersquatting. The jury members were, therefore, not convinced by the defendant’s arguments relating to artistic freedom. On the contrary, they considered that Mr. Rothschild had explicitly sought to mislead the consumers. Indeed, several indications make it possible to deduce that the “MetaBirkins” project was, in fact, part of an operation oriented by a purely financial purpose (Hermès International v. Rothschild (1:22-cv-00384), Order of February 2, 2023, pp. 15 to 18).
The letter of instructions to the jury also gave the latter the power to set the compensation awarded to Hermès. For trademark infringement and dilution, the jury evaluated the award at $110,000 based on the profits made by the defendant. As for cybersquatting, it was specified in the letter of instructions that the amount should be fixed, by law, between 1,000 and 100,000 USD (according to the law). The jury estimated it at USD 23,000 (the claimant had requested the maximum: Amended complaint, p. 58).
5. Injunctions
In the presence of a proven trademark infringement, the judicial authority pronounces obligations to do and not to do. The obligation to do is most often translated into a commitment to undoing consisting in removing from public access the content constituting the trademark infringement. However, many observers claim that, given the technique used, deleting an NFT would be inconceivable. The method would therefore obstruct the law. Following these technical restrictions, it would be impossible to delete hateful, terrorist, or paedo-criminal content. That said, sovereign states have the monopoly of coercion, and the judge, its representative, must have the power to order appropriate measures or technical means to ensure compliance with the law. Theoretically, a judge can therefore order the destruction of illicit NFTs. It remains to be seen whether this is technically possible or whether it will be in the future. In the event that the destruction of an illicit NFT would indeed be impossible, alternative solutions seem likely. Thus, Hermès’ complaint includes solutions specific to NFTs which, insofar as the defendant is identified, appear capable of being implemented, including the prohibition on transferring, selling, and promoting NFTs using Hermès’ trademarks (Amended complaint, p. 56) and the following measures:
“3. Directing Defendant to transfer control of the smart contract which minted the METABIRKINS NFTs to Hermès or to a non-functional address on the Ethereum blockchain.
4. Directing Defendant to modify the smart contract which minted the METABIRKINS NFTs to no longer point to the images currently associated with the METABIRKINS NFTs;
5. Directing Defendant and all those in active concert or participation with him to burn the METABIRKINS NFTs in their possession custody or control.” (Amended complaint, p. 57).
It is, therefore, of course, on the smart contracts that the intellectual property owner must act since everything is determined or predetermined there. For example, it is very likely that the smart contracts used in transactions relating to the sale of “MetaBirkins” include a right resale clause (droit de suite), giving Mr. Rothschild a percentage of the resale price of the NFTs. However, these NFTs have been declared against the law. Therefore, every percentage collected by Mr. Rothschild should be deemed undue. Hence the need to obtain control of the smart contract. Nevertheless, in the current state of the art, such a measure seems to be able to be implemented only on the condition of having identified the creator of the disputed NFTs.
6. The liability of the NFT platforms
Finally, what about the liability of intermediaries, namely marketplaces allowing the organization, promotion, and implementation of NFT auctions? The companies operating these platforms deliver a discourse often centered on the absence of censorship and the immutability of NFTs. Nevertheless, when confronted with a legal reality likely to have an impact on their economic reality, intermediaries comply with the requirements of the legislation. Similarly, NFT service providers will be incentivized to compromise. Thus, in the present case, the companies operating OpenSea, Rarible, and Zora responded favorably to Hermès’ request to delist the “MetaBirkins” collection on their respective platforms. Otherwise, that is to say, in the event of obstruction of the removal of access to infringing or, more generally, illicit content, the recalcitrant platform would likely incur liability, at least in the States which provide legislation for this possibility.
This article was first published in News From There, our Web3 Brand Protection Newsletter, Issue, February 2023.
Annexes
Annex 1: Birkin handbags at auction on the Sotheby’s website (February 10, 2023)
Annex 2: A copy of a “MetaBirkin”
Annex 3: Result of a Whois query for MetaBirkins.com on the Verisign site (February 10, 2023)
Annex 4: Screenshot of the website metabirkins.com
Annex 5: Screenshot of @metabirkins Twitter account
Annex 6: Screenshot of the LooksRare page dedicated to the MetaBirkins collection
Annex 7: Screenshot of the @metabirkins Twitter account announcing the sale of a virtual bag for 2.3 Ether (about 4000 USD)
Annex 8: Screenshot of the @metabirkins Twitter account announcing the sale of a virtual bag for 4 Ether (about 13500 USD)
