The future of NFTs and trademarks

In the first case of its kind, a court has ruled that an NFT has infringed a registered trademark. The landmark  case between luxury fashion brand, Hermès, and digital artist Mason Rothschild, has potentially opened the door to a slew of similar claims.

Many are speculating whether IP law will need to change to accommodate new digital assets with roots in the metaverse, such as NFTs, however, although the technology involved in this case was complex, the judgement ultimately relied on the fundamentals of IP law. As technology continues to advance, however, some aspects of IP law may need to start evolving in order to continue serving its purpose.

Although this case was filed in Manhattan, New York, it ultimately rested on one of the universal principles of IP, that the two products involved—the iconic Birkin bag designed by Hermès, and Mason Rothschild’s NFT of a ‘MetaBirkin’—were competing interests.

It was argued that the two products were in direct competition with each other, and there was a significant risk of confusion around the association between the Metabirkin and the physical Birkin bag.

Although this case relied on established IP statutes and case law, as technology becomes more advanced the lines for trademark infringement could become more blurred. Since the internet has become widely available, and as a result, it is now incredibly easy to copy and distribute images, data and recordings, these types of cases have always challenged the boundaries of IP law.

IP law forced to adapt

While Hermès v Rothschild did not need IP law to evolve to help settle the case—as no doubt there will be more cases in the future—there may be others that require the law to re-evaluated and updated in order to keep up with future technological advancement.

The internet is forever changing and as the metaverse gears up for a truly global launch, nearly every aspect of the law, including IP, will have to adapt. The metaverse will also potentially make it even easier to duplicate original creations in any format, globally distribute and monetise them.

Although details of exactly how the metaverse will work are not yet fully realised, there is no doubt it will further globalise the world, creating more disputes that cross geographic jurisdictions. This means that jurisdictional differences—for example, the US IP has image rights that the UK does not—will need to be harmonised to some extent on virtual platforms. The metaverse presents many logistical issues, including the possibility that it will need its own legal framework created specifically tailored to it, and part of this will include IP.

To further complicate matters, there have been trademark court cases in the US where the defendants have relied on the right of ‘freedom of expression’ written into the US constitution.

While this is not strictly IP law—these rights can be used as a defence and may affect the outcome. Despite the fact that most countries have some form of ‘freedom of expression’ in their legal framework, how that is interpreted, and to what extent it can overrule trademark and copyright law, is different in every country. These laws and rights will be more difficult to harmonise between counties as they are integral to how a country is governed and are arguably important to its cultural identity.

The other main issue this creates for businesses is that the metaverse could give users more anonymity, making it more difficult to bring a case to court. While there may be measures in place to keep metaverse users accountable and traceable, there are no details currently available as to what these are and how they will work in practice.

Litigation over digital assets

As the Hermès v Rothschild case is the first of its kind, there is currently no precedent or case law in the UK to indicate what the outcome of a similar case would be. NFTs can be incredibly valuable, with some being valued at millions of pounds, and with brands eager to protect their assets no doubt there will be an influx of cases around the world, including the UK.

Businesses that want to prevent their product and branding from being copied should consult an expert about which aspects of their products can be protected. There is a misconception that only words or logos can be trademarked, but in fact shapes, sounds, smells, and colours can be protected, and this can strengthen cases if and when infringements happen in the future.

Currently, much about the metaverse and the future of trademarks is speculative, and until is it launched on a large scale how it will work and how it will affect the current system can only be theorised, although there is no doubt it will bring an increase in international disputes.

Hermès v Rothschild is the beginning and more NFT trademark infringement cases will follow, as will more disputes involving digital or virtual assets.

Kerry Russell is an intellectual property expert and legal director at law firm,  Shakespeare Martineau. She can be contacted at kerry.russell@shma.co.uk