Boon for brands in the metaverse as Hermès wins NFT case

Introduction

For the uninitiated the word Birkin may not mean a lot, but the handbag, a product of luxury fashion giant Hermès is one of the most expensive and highly sought-after bags money can buy.

In a case heard in New York in February 2023, Hermes brought an action against an artist, known as Mason Rothschild, who has created and marketed for sale digital works, depicting Birkin bags. These digital works are known ‘non-fungible tokens’ (NFTs). In these works, the Birkin bags are often depicted covered in fur and occasionally featuring works of art. These works, described as an “art project” titled “Metabirkins” were sold online for more than USD1m collectively, according to court records.

Hermès brought the action, claiming Mason Rothschild’s Metabirkins infringed Hermès’ Birkin trade mark by adding the generic prefix “meta” to the trade mark “Birkin”. Hermès also brought numerous alternative claims against Mason Rothschild for false designation of origin, false descriptions and representations, trade mark dilution, injury to business, unfair competition under New York Common Law, and cyber-squatting (in relation to the metbirkins.com domain) among other claims.

Mason Rothschild claimed in his defence, a first amendment right (freedom of speech) to depict the iconic Birkin bags in his artwork, using the analogy of Andy Warhol’s depiction of Campbell’s soup cans.

The jury found for Hermès and Mason Rothschild was ordered to pay USD133,000 in damages. This amount may seem small in a world where Birkin bags have sold for as much as USD380,000 (for a model made of exotic skin and diamonds sold at a Christie’s auction in Hong Kong in 2017), however the decision is a landmark one for brands attempting to assert their intellectual property rights in the new ‘online-only’ market.

What are NFTs?

NFTs are a type of digital asset stored on a blockchain. A blockchain is a distributed public ledger that records transactions. NFTs are assigned unique identification codes and metadata that differentiate them from other tokens which enables their origin, and ownership, to be easily identified. NFTs have a value which is set by the market based on supply and demand. They can be traded and exchanged for money, cryptocurrencies or other assets in the same way as physical assets and can represent ‘real’ items, such as artwork.

What is the legal status of NFTs?

Buyers of NFTs may be surprised to learn that this purchase does not usually transfer the underlying intellectual property (IP) rights in the work itself unless there is a separate written assignment of those IP rights.

This is most simply explained where an NFT represents a digital artwork. In the physical world, buying an artwork transfers the physical property of the piece to the buyer (the actual canvas and the physical representation of the art) but does not transfer the copyright in the art. You own the painting but you are not permitted to reproduce the piece for onward sale, by way of example. The same is the case for purchasers of NFTs, a buyer will own the digital asset and has a proprietary right over the unique code identifying it, but will not hold the intellectual property rights in the underlying work.

Comment

The case has been closely followed by the fashion world, as the world’s biggest brands look to grow their markets online and in the metaverse. The decision will no doubt be welcomed by luxury brands as it indicates a willingness by the judiciary to transpose the IP standards that apply in the “real” and online world to NFTs. While the case was tried in New York, USA, in a world where an ever-increasing level of business is done in the global online marketplace and litigation relating to blockchain technology becoming more common, it is not unreasonable to expect that other courts may take a similar approach to these cases in future.