MetaBirkins: What now for NFTs?
It’s a case that was much discussed, written about and awaited with bated breath. Finally, on February 8, the verdict was delivered.
Luxury fashion house Hermès emerged victorious as a nine-person jury deemed that digital artist Mason Rothschild had indeed infringed the trademarked Birkin bag with his MetaBirkins project.
Minting 100 unique NFTs will now cost Rothschild $133,000 in damages.
While Rothschild has indicated that he will appeal, this precedential decision undoubtedly provides legislative guidance for the use of physical trademarks in the virtual world.
The case is a litmus test as to whether non-fungible tokens (NFTs) are subject to ‘physical’ trademark law, not to mention the implications for digital assets in the metaverse.
As Crowell & Moring’s Preetha Chakrabarti puts it, “questions still remain as to where and how transformative fair use applies, particularly with new technology that powers and creates NFTs”.
But what of NFTs themselves? What does the outcome mean for the future of the NFT market, digital art and artists?
‘Destabilising’ effect
Mark Caddle, partner and trademark attorney at Withers & Rogers, believes that the decision will have a "destabilising" effect on the NFT marketplace.
“It may make NFT owners or other content creators in the virtual world think twice about using protected brands or images in their own content,” he tells WIPR, especially since the case confirms that trademark and other IP rights are enforceable in the virtual space.
“So it's quite a reassuring decision,” he adds, and while the decision may be appealed by Rothschild, “it does give comfort to brand owners that there will be protection for them in the virtual world”.
Previously, he explains, there was a fear that trademark portfolios that don't cover virtual products might not be enforceable in the digital space.
The “destabilising element” was more to do with the fact that “there was no marker in the sand that said brand owners could take action if their trademarks were infringed in a non-traditional way, in a virtual space. That might alter behaviour somewhat”.
A message to the marketplace
John Krieger, a member of the IP Practice at Dickinson Wright, hopes that the value of infringing NFTs is dented as a result of the case.
He tells WIPR: “I would like to think that once you get a ruling like this, it does decrease the value of those types of NFTs that infringe—particularly in this case, famous and well–known legacy marks.
“Hopefully it sends a message to the marketplace that if you decide to buy, sell and trade in this type of merchandise that is highly susceptible to losing its value, because the thing it was based on was an infringement to begin with—and so it was wrong to begin with—[then] hopefully the value goes down.”
Caddle, meanwhile, suggests that the decision creates uncertainty for investors in NFTs.
“Investors can no longer be sure that their crypto assets are secure, and more infringement claims could be around the corner,” he says.
Virtual counterfeits
Looking more deeply into the NFT owner’s perspective, does the court’s decision in Hermès v Rothschild render MetaBirkins—or any other NFTs found to infringe real-world trademarks—as counterfeits?
Krieger doesn’t believe it goes that far. “Unfortunately, I think this case is really limited to its facts,” he says. “I don't think that this is a commentary on NFTs, and I do not think this is a commentary on counterfeiting.
“I think Hermès was very pointed in the causes of action they brought in, looking at just trademark infringement, dilution and cybersquatting, and really narrowing it down on the use of the word ‘Birkin’ and on that famous mark.”
Caddle suggests that while MetaBirkins may be considered virtual counterfeits, it depends on the definition of ‘counterfeit’.
“I think typically, we would associate counterfeit with physical-world products that are made without authorisation to look exactly like the brand owner's product,” he explains.
“In this case, there isn't a physical equivalent. It's not necessarily counterfeit, but the tests for trademark infringement would be similar, whereby if you use an identical trademark for identical products, there is an implicit underlying understanding that there would be confusion.
“That is exactly the sort of test that would apply in these NFT situations and in the real world. So although the present terminology might not cover the actual virtual equivalent, the legal test for capturing it would be similar, if not the same.”
Mauricio Uribe partner Knobbe Martens looks at it another way.
“It’s not so much about looking at them as counterfeits as considering them as goods that are leveraging value from another entity's intellectual property,” he says.
He points to the balance between First Amendment rights, which allows the Rogers test to be applied, and trademark rights.
“Maybe it does raise awareness of that balance…that the author had the ability to generate this as an expression of the First Amendment. But at the end of the day, the court had to look specifically at the facts.”
He continues: “I might create an artistic work, and not have the same commercial activity that Rothschild did. And maybe in that situation, the court would find that it was in fact, under that Rogers test, more of a First Amendment priority than a trademark priority, [and therefore] that the artwork is fine, the value is retained, the whole principle is there.”
Art or commodity?
But given the jury held that MetaBirkins were not artistic works protected by the First Amendment—and could not be likened to Andy Warhol’s silk-screen prints of Campbell’s soup cans, as Rothschild argued—where does that leave the artistic interpretation of MetaBirkins?
Elizabeth Sbardellati of Greenberg Glusker says the case tells us how consumers are viewing NFTs “as commodities that are essentially one-to-one replacements for items in the real world”.
“A MetaBirkin is just a bag in the metaverse; it’s not art simply by virtue of being marketed as an NFT,” she adds.
According to Uribe, the jury’s decision that they are infringing was more to do with the commoditisation of the NFTs, as well as Rothschild’s statement behind them.
“I think what swung this case, or at least had a greater influence, was the commercial activities and commentary made by the author of these NFTs,” adds Uribe.
“Some of the underlying commentary [in court] was that he was choosing to do this, almost in spite of Hermès and the Birkin bag. So that probably swung the decision more than saying there was something not unique about the NFTs and artistic expression but more of commercial activities.”
If anything, he says, the decision maintains that the legal doctrine to consider the commercial activities behind the NFTs is still valid.
Caddle goes back to the counterfeits question to answer whether NFTs are art.
“If [NFTs] essentially ride on the coattails of existing well-known brands, then that isn't really independent creation. Therefore they are more asset-driven commodities that people are trying to make money from, and are not really that artistically valuable.
“I guess it depends what you're willing to pay for—that's the point.”
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