The Lanham Act is seventy-six years old. Can it be applied effectively in a world coming to grips with non-fungible tokens? A lawsuit involving the luxury brand Hermès gives us a glimpse into a skirmish that is very much of the moment.
An NFT is a unit of data stored on a blockchain which memorializes the transfer of ownership of a tangible thing or digital media. Once created, an NFT is listed on a marketplace for sale or trade. Most NFTs are tied to a “smart contract” which governs its transfer. When an NFT is linked to a digital media file the smart contract and NFT are stored on a blockchain, and a link to a digital media file is included. If a particular NFT is desirable, its value can increase over time and, because it is tied to a blockchain, the chain of ownership can be easily established.
We have written about the intersection of intellectual property protections with NFTs. See our articles regarding trademark, copyright and patent protection. Hermes Int'l v. Rothschild, pending before a federal judge in Manhattan, concerns the actions of one Mason Rothschild, who last year created a collection of digital images which he called “MetaBirkins.” His images depict a blurry faux-fur covered handbag which resembles the famous Birkin handbag produced by Hermès. The Birkin bag is widely understood to be among the world’s quintessential luxury goods.
Indeed, Rothschild himself pays the compliment that the Birkin’s “mysterious waitlist, intimidating price tags, and extreme scarcity have made it a highly covetable ‘holy grail’ handbag that doubles as an investment of store of value.” In an interview given to Yahoo! News, Rothschild said that he “wanted to see, as an experiment, if he could create the same type of illusion of value that a Birkin has in real life as a digital commodity.” At the time of the NFT’s first sale Rothschild created the @MetaBirkins account on both Twitter and Instagram and registered the domain metabirkins.com.
Commenters on social media were quick to demonstrate their inaccurate belief that Hermès and Rothschild were collaborating. The press was also confused. Articles in Elle magazine and the New York Post mistakenly reported that the “MetaBirkins” NFTs were created via a partnership between Hermès and Rothschild.
Given the importance of the Birkin brand to Hermès, and because it lacked control over the actions of Mr. Rothschild, who was using a trademark that contained the Birkin mark, Hermès filed suit in New York seeking damages based on trademark infringement, dilution and cybersquatting. Rothschild filed a motion to dismiss on the grounds that Hermès had not stated a claim upon which relief could be granted. The trial court addressed that motion in a May 2022 decision.
Rothschild’s primary defense was that a well-known Second Circuit case precluded Hermès’ trademark infringement claims because the work in question had artistic relevance. Under Rogers v. Grimaldi (1989), authors of works of art have some insulation against trademark infringement claims that are based on the titles given to their works, due to protections afforded to artists under the First Amendment. While titles of works of art can be source identifiers, capable of performing a trademark function, titles are also “inextricably intertwined” with a communicative, artistic function.
Hermès argued that traditional tests of likelihood of confusion analysis should be applied, but the Court was not swayed, and found that Rogers was applicable to the sale of Rothschild’s images. An interesting wrinkle in the case, discussed by the Court but not dwelled upon, was that Rogers might not apply if MetaBirkins could be worn by avatars in the metaverse. Since the MetaBirkin did not currently have that functionality the Court decided that the product had no functional utility and was thus mainly artistic.
Even though the Rogers test was found to apply, the court denied Rothschild’s motion to dismiss the lawsuit. The MetaBirkin may have some artistic relevance (satisfying the first prong of Rogers), but the court was swayed by Hermès’ allegations that Rothschild took actions that were intended to associate his “MetaBirkins” with the popularity and goodwill of the Birkin mark, rather than to form an artistic association. Rothschild’s use of MetaBirkin, the court agreed, was “explicitly misleading,” because it may have induced members of the public to believe that it was authorized by Hermès. If Hermès could prove this allegation, its claim of trademark infringement could be sustained.
Finally, the court denied Rothschild’s argument that claims were barred by the Supreme Court’s ruling in Dastar Corp. v. Twentieth Century Fox (2003). The high court held, for purposes of actions brought under Section 43(a) of the Lanham Act (which prohibits false designations of origin), that only a tangible good could have an understood “origin” since artistic works could have a multitude of origins, none of which are of much importance to consumers. In addition, the Supreme Court reasoned that a broader reading of “origin” in 43(a) could cause the Lanham Act to apply to cases about plagiarism, which the court divined was not Congress’s intent.
In this case, the trial judge was quick to dismiss Rothschild’s reliance on Dastar stating that the decision pertained only to the unaccredited copying of an existing work, not to the creation of a new work containing an explicitly misleading title. It remains to be seen how Dastar might apply to the sale of NFTs which are linked to famous but uncopyrighted images which are not made by the seller.
By allowing Hermès’ case to proceed, the trial court gave encouragement to brand owners who may need the protections of the Lanham Act to police against intentionally misleading use of their trademarks to promote or sell images linked to NFTs.
The creation, distribution, and transfer of NFTs will prompt novel applications of existing intellectual property law to this new frontier. Brand owners will need to stay informed of how the law is being applied and update their policing and enforcement strategies accordingly. For now, the order denying Rothschild’s motion to dismiss means that the traditional avenue for bringing infringement claims under the Lanham Act remains open.
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