The highly anticipated jury verdict in the Hermès litigation over MetaBirkins NFTs has some important takeaways for both artists and sellers of NFTs as well as brand owners.
In the lawsuit, Hermès alleged that defendant Mason Rothschild’s MetaBirkins NFTs infringed and diluted Hermès’ trademark rights in the Birkin word mark and design. Rothschild asserted that, due to the artistic nature of his NFTs, all of Hermès’ claims were barred by the First Amendment.
The jury disagreed with Rothschild, rejecting his First Amendment defense, and finding him liable for trademark infringement, trademark dilution, and cybersquatting. They awarded Hermès $110,000 of Rothschild’s net profits for trademark infringement and $23,000 for cybersquatting. Although this was a fraction of Hermès’ requested relief, the jury’s findings provide helpful insight for creators and brand owners conducting business in web3.
Below are some takeaways for both artists and sellers of NFTs, as well as brand owners.
For creators and sellers of NFTs:
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The crux of trademark law is to protect consumers from confusion about the source and affiliations of products and services so they can make informed decisions.
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A common misconception is that if you are not using a mark that is identical to a brand owner’s, i.e., you added or changed words, that you are not liable for trademark infringement. That is not true. You can be liable for infringement based on use of a mark that is not identical but is confusingly similar to a third-party’s mark. In this case, the use of “MetaBirkin” infringed the mark “Birkin.”
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Trademarks are more than words or logos. They include anything that can act as a source-identifier, including, in this case, the design of the Birkin handbag.
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You can be liable for trademark infringement even if you are using third-party marks (or something confusingly similar) in connection with artistic works.
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The First Amendment does not necessarily protect your use of a third-party’s trademarks. The First Amendment protects your “right to speak out against a mark holder, but it does not permit [you] to suggest that the mark holder is the one speaking.” (Hermès Int’l v. Rothschild, No. 22-cv-384 (JSR), 2023 U.S. Dist. LEXIS 17669, at *11 (S.D.N.Y. Feb. 2, 2023) (citation omitted).)
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Specifically, your artistic work is not entitled to First Amendment protection if the mark owner can show that either “(1) the use of its trademark in an expressive work was not ‘artistically relevant’ to the underlying work or (2) the trademark is used to ‘explicitly mislead’ the public as to the source or content of the underlying work.” (Id. at *20.)
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A work is “explicitly leading” if it “‘induces members of the public to believe’ that it was created or otherwise authorized by the plaintiff.” (Id. at *23.) This is a highly fact-specific inquiry that depends on multiple factors.
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Ownership of trademark rights is not contingent on a registration. In the United States, trademark rights are acquired through exclusive, continuous use, not registration. Therefore, you can be liable for trademark infringement for using someone’s mark that is not registered at all, or for using it in connection with goods and services that are not listed in the owner’s registration.
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A disclaimer does not save you from trademark infringement liability. In this case, Rothschild “placed a prominent disclaimer on the MetaBirkins website stating that his project was ‘not affiliated, associated, authorized, endorsed by, or in any way officially connected with Hermès, or any of its subsidiaries or affiliates,’” but that did not avert liability.
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Selecting a domain name that incorporates a third-party mark or something similar may give rise to liability, depending on the mark and your reason for doing this.
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Your internal and external communications will be used against you in litigation. This may include text messages, messaging apps, posts on any social media platform, and other forms of communication. In this case, Rothschild’s text messages were produced, including his communications that discussed “how much [he] could get away with” and “bully[ing] a multi-million dollar corp[oration].” (Id. at *17-18.) While none of these kinds of statements alone would subject anyone to liability for trademark infringement, they may have an impact on the jury that is not favorable to you. For example, they may impact whether the jury believes that the “decision to center [your] work around the [Brand Name] stemmed from genuine artistic expression or, rather, from an unlawful intent to cash in on a highly exclusive and uniquely valuable brand name.” (Id. at *21.)
For brand owners:
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Although a registration is not required to confer rights, there are significant legal and practical benefits to obtaining a trademark registration. Thus, it is very important for brands to develop a web3 IP strategy, and to take into account various use cases, such as art-related NFTs. This strategy should include applying for trademarks that cover any intended web3 uses.
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Even if your brand has decided to “opt out” of entering the metaverse, this case demonstrates that brand owners should nevertheless remain vigilant in policing and enforcing their marks against web3 users. It is important to develop a plan for how to protect your marks and to diligently monitor for any unauthorized use in the metaverse and other web3 platforms. Technologies for identifying on-chain infringing and counterfeit NFTs have been and are continuing to be developed.
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Besides the main benefits conferred by trademark registration, such as presumed validity, the Hermès case tells us that juries may find trademark registration significant for other reasons. In the Hermès case, the Inner City Press reported that the jury submitted a question to the Judge asking ”when Hermès applied for a digital trademark” to which the Court responded that such information was not in evidence. While common law marks are protectible to some extent and failure to file for NFT-specific trademark registrations is not dispositive, failure to do so may impact the jury’s view of the mark’s value. In this case, the jury awarded Hermès much less than it sought, which was all of Rothschild’s profits, statutory damages of $100,000, and trebled damages. Investing in your intellectual property prior to infringement is the best way to protect your property and ensure maximum recovery from potential infringers.
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