MetaBirkins NFT creator can’t toss Hermès trademark suit

This week, Judge Rakoff in the Southern District of New York released his long-form opinion denying Mason Rothschild’s motion to dismiss Hermès’ complaint against him. Although the judge’s decision isn’t on the merits of the case, it’s the first time we’ve gotten insight into how a court views the interaction between trademark law and free speech in the NFT space. Since U.S. courts rely heavily on prior case law and precedent, this decision may be significant for NFT artists and trademark owners going forward.

Background of the case

Around December 2021, Mason Rothschild created an NFT project called MetaBirkins. Each NFT showed an image of a blurry faux fur-covered Birkin handbag. Hermès, the luxury retailer, sells the world-famous Birkin bags for thousands of dollars and owns the trademark in the BIRKIN mark and trade dress in the Birkin bag.

MetaBirkins #31 sold in March 2022 for 3.5 ETH (around $9,000 at the time)

This used Hermès Birkin bag sells for $33,600.

On January 14, 2022, Hermès sued Rothschild for, among other claims, trademark infringement, trademark dilution, and cybersquatting. After Hermès amended its complaint on March 2, 2022, Rothschild moved to dismiss it on March 21, 2022 for failure to state any claim.

The court’s decision

The first issue the court decided is what law to apply. Rothschild argued that the court should look to a 1989 case called Rogers v. Grimaldi, which established how to apply trademark rights to artistic works. Hermès, on the other hand, argued that because Rothschild was using “MetaBirkins” in commerce to brand a product line, there should be no special analysis under the Rogers case, and that the court should apply the traditional “likelihood of confusion” test.

The court sided with Rothschild because “Rothschild is selling digital images of handbags that could constitute a form of artistic expression.” Using “MetaBirkins” in a commercial manner—for example on social media to promote and advertise his NFTs or to identify his website, or selling his NFTs for profit—didn’t change that fact.

Interestingly, the court implied that it would come to a different conclusion if the MetaBirkins NFTs had some utility beyond being simply used as art. If, for example, the NFTs were able to be virtually wearable by characters in the metaverse, the “MetaBirkins” mark would refer to a non-speech commercial product instead of a piece of art, and the more stringent Rogers test would not apply.

Next, the court analyzed Rogers as applied to Rothschild’s use of “MetaBirkins” by considering artistic relevance and explicit misleadingness. The artistic relevance prong examines whether Rothschild intended an artistic (i.e., non-commercial) association with Hermès’ trademark, as opposed to an association with the BIRKINS mark in order to exploit the mark’s popularity. Unfortunately for Rothschild, the court used his own words against him. In earlier interviews and statements, Rothschild claimed that MetaBirkins were intended as “a tribute to Hermes’ most famous handbag, the Birkin,” and that he “wanted to see as an experiment if [he] could create that same kind of illusion that [the Birkin bag] has in real life as a digital commodity.” Thus, although the artistic relevance bar is low, the court declined to find that Rothschild satisfied it.

But even if Rothschild had satisfied the artistic relevance requirement, the court found that Hermès sufficiently alleged that Rothschild’s use was explicitly misleading. The relevant test here is whether Rothschild’s use “is misleading in the sense that it induces members of the public to believe [Rothschild’s use] was prepared or otherwise authorized” by Hermès. Analyzing this question is fact-intensive and requires wading through issues such as the strength of the BIRKIN mark, evidence of actual confusion, Rothschild’s bad faith, and the likelihood that Hermès would enter the NFT space itself. Because no fact discovery had taken place yet, the court said it was too early to resolve the question. For now, Hermès’ allegations in its complaint were enough to allow the case to go forward.

Hermès’ other claims for trademark dilution and cybersquatting also survived since those claims “rise and fall with the First Amendment defense to the trademark infringement claims and the application of the Rogers test: that if Rogers protects Rothchild’s ‘MetaBirkins’ uses against trademark infringement claims, it even more clearly protects against trademark dilution and cybersquatting claims.”

Next steps and takeaways

Hermès survived the first attempt by Rothschild to throw out its case. Now, the case proceeds to discovery, where the parties ask each other written questions, produce documents, and sit for depositions. If the current case schedule remains unchanged, the end of discovery is September 23, 2022 and the final pre-trial conference is November 4, 2022.

Although the judge wasn’t making any substantive decisions on the merits here, the order still gives some good insight into his thinking of the case, and it may be indicative of how other courts in the country may rule on similar issues. This could have significant consequences for artists in the NFT space. NFT creators (and artists in general) should be aware that the First Amendment isn’t a blank check to use others’ IP in their art, and they must carefully consider their motivations and their art’s use before doing so.

If you would like to discuss whether your NFT project is likely to infringe any third-party IP, contact us.

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