What has happened?

• The dispute started in 2021 when the American artist, Mason Rothschild, sold an NFT version of the iconic Hermès Birkin handbag named “Baby Birkin” (for those unfamiliar with NFTs, see an earlier article here). It included an animated image showing the handbag with a foetus inside.
• The “Baby Birkin” NFT sold for €23,500 but it was a subsequent collection of 100 NFTs named “MetaBirkins” representing the iconic handbag covered in colourful faux fur that pushed Hermès to file a lawsuit against Rothschild before the U.S. District Court for the Southern District of New York. 
• The sale of the MetaBirkins generated more than US$1 million and, to add salt to the wound, Rothschild registered and used the domain name <metabirkin.com> and social media handles including @metabirkins to promote the NFTs.
• Hermès sued for trade mark infringement and dilution, misappropriation of its BIRKIN trade mark, cybersquatting, false designation of origin and description, and injury to business reputation.
• In the first substantive decision of its kind, the jury found that Rothschild’s use of the MetaBirkin NFTs was not only likely to dilute the distinctiveness of, but also to create a likelihood of confusion with, the BIRKIN trade marks. This is important since it implies that the jury considered real-world handbags similar to virtual-world handbags – an important issue on which brand owners have been seeking clarification. The jury also rejected the application of the First Amendment "artistic expression" defence (a defence peculiar to the US), which permits certain uses of trade marks within artistic works. While the case relates to the US only, brand owners will be relieved that it has gone in their favour.

Want to know more?

Beyond the issue of qualification for infringement in a virtual world per se, the trial also raised the question of the application of the “artistic expression” defence in the same virtual setting. In short, should a work of art taking the form of an NFT be treated differently from a painting or drawing reproducing a trade mark in the real world? This revolved around the protection of artistic expressions under the Second Circuit’s 1989 Rogers v. Grimaldi test, which consists of assessing whether:

i) the use of a trade mark within a work of art is relevant to the work concerned; and

ii) the use of that mark would be “explicitly” misleading.

Rothschild invoked this First Amendment defence and claimed that the works behind his NFTs included “nothing explicitly misleading” and were an “artistic expression" denouncing animal mistreatment, which should be treated in the same way as Andy Warhol’s Campbell soup cans. The jury took a different view.

On 8 February 2023, a nine-person jury found that Rothschild was not protected by the First Amendment, decided in favour of Hermès on each count and awarded Hermès US$133,000 in damages (US$110,000 for trade mark infringement/dilution and US$23,000 for cybersquatting).

While the decision is perhaps good news for trade mark owners, one can legitimately debate the reasoning that led the jurors to reject the First Amendment defence a rejection which may worry artists. If use of a trade mark on a work of art in the real world is fine (provided it meets the relevant criteria), should it be treated differently in the web3 space? Does crypto art lack artistic relevance? Or was it the use of the name "MetaBirkin" that explicitly mislead consumers? These are questions that are perhaps more relevant to US practitioners who must consider the application of the First Amendment defence.

One aspect that is more interesting to UK and EU practitioners, and which may have swayed the jurors to decide in favour of Hermès, is the broader issue of unauthorised use of trade marks in a virtual world. As brands move into the metaverse and famous trade marks appear on virtual products worn by avatars, it becomes relevant whether brand owners should be given the right to stop unauthorised third parties from either causing confusion or taking unfair advantage of their reputation in this new area of commerce.

What does the decision mean for you?

IP practitioners all over the world have been witnessing a flurry of trade mark applications covering a plethora of virtual goods, especially in the fashion industry. Many of these have been filed to safeguard the applicant's position while the case law settles and the plans for each brand crystalize. As there has been no clear guidance on whether virtual world goods will be considered similar to their real-life counterparts, brand owners who fail to file for virtual goods may be exposing themselves to a risk of being unable to take action when a clever infringer strikes in the metaverse. This is why a belt and braces approach of filing key trade marks for virtual goods specifications mirroring that already obtained for real-life goods has been favoured.

This may have seemed to be less of a worry for long-established brands who can rely on their reputation and argue free riding and dilution (where it is not necessary to show that the allegedly infringing goods are similar to those for which the earlier mark is registered). However, the same weapons may not be available to less established brands who are reliant on arguments of likelihood of confusion (which requires showing similarity between the allegedly infringing goods and those for which the earlier mark is registered).

The BIRKIN trade mark was registered in the US for physical handbags at the time Hermès filed the lawsuit. Hermès filed an application for virtual handbags in 2022 but given that this application is still pending, it is our reading that the decision was based on the "real world" registration. This means that the decision clarifies the scope, at least in the US, of protection granted to trade marks registered for physical goods against “metaverse infringers” as the jury decided that Rothschild’s use of the MetaBirkin NFTs was not only likely to dilute the distinctiveness of, but also to create a likelihood of confusion with, the BIRKIN trade marks (which assume that the respective goods must have been considered similar).

Although the application of the Rogers test (referred to above) is not relevant in the EU and the UK, the clarification as to what approach the courts will take when it comes to enforcement and whether a trade mark registration, which designates only physical goods (and does not necessarily have a reputation), will be sufficient to stop unauthorised use of such a trade mark in the virtual world, very much is. Although not binding, this case may very well influence the EU and UK judges, which is why we should all pay attention.

Even though this case does not provide a definitive answer, it may put a stop to mass filings for virtual goods, which may well be challenged if no actual use in that space ever commences. However, it is unlikely to stop these altogether as it is too early to say whether trade mark owners will indeed be able to shoot down any potential “virtual infringements” in the future without ever filing for suitable protection or entering the space themselves.