A Legal Dispute in the Metaverse: Hermès v. Mason Rothschild
You couldn’t miss it…if you have not heard of the Metaverse already, you have probably at least heard about the recent change of the company name Facebook into Meta, seeking to become the new face of this futuristic virtual world.[1]
The non-fungible token – commonly referred to as an “NFT “– is part of the metaverse world.[2] NFTs are cryptographic assets stored on a blockchain network, with unique identification codes and metadata that distinguish them from each other.[3] These new tools quickly became very attractive for luxury and fashion brands to reflect their values, enlarge their audience, and create priceless customer experiences to improve brand awareness, increase engagement, and boost sales.[4] In 2021, Louis Vuitton launched a game app, “Louis: The Game”, to celebrate the 200th anniversary of the birth of founder Louis Vuitton.[5] The gaming giant Fortnite was one of the first games to really fuse high-fashion and gaming by partnering with the singer Ariana Grande in 2021, and few months later collaborated with the Spanish fashion brand Balenciaga to release an exclusive and limited line of clothing items.[6]
However, the explosion of interest in the metaverse is raising all sorts of new intellectual property (IP) issues about—amongst others—the use of trademark, trademark infringement, and the interaction between physical goods and NFT items.
French luxury brand Hermès is currently in the midst of an IP battle against the artist Mason Rothschild over his ‘MetaBirkin’ NFT project.[7] The MetaBirkins is a collection of 100 unique NFTs representing a unique, fanciful interpretation of the Birkin bag.[8] Some feature common patterns, such as polka dots and smiley faces, while others originally reinterpreted artwork, like Vincent Van Gogh’s Starry Night and Leonardo da Vinci’s Mona Lisa.[9] In a statement published on his social media in reply to the cease-and-desist letter sent by Hermès, the artist characterized his work as “a commentary on fashion’s history of animal cruelty and inspired by the acceleration of fashion’s ‘fur free’ initiatives and embrace of alternative textiles”.[10] Created in 1984, the iconic bag was originally designed for, and then named after, the artist Jane Birkin before ascending to cult status and picking up an ever-heftier price tag.[11] On January 14, 2022, Hermès filed a lawsuit in the Southern District of New York for trademark infringement, dilution, and cybersquatting.[12] In its complaint, Hermès pointed to a handful of its existing registrations across twenty classes of goods and services, but none of which are metaverse-specific.[13]
The MetaBirkins case raises questions about what activities in the metaverse can constitute IP infringement and who owns what in the metaverse.
It is reasonable to assume that the rights and registrations that brands have amassed in connection with their core “real world” business activities including marketing and selling garments and accessories at retail by way of e-commerce may extend to related endeavors in the metaverse.[14] On the other hand, the “real” world and the virtual world may potentially diverge on the remedies front because the allegedly infringing goods are not physical handbags, but images extracted from blockchain-hosted digital tokens.[15] By acquiring these MetaBirkins, the consumer essentially obtains a digital certificate of ownership that consists of code that points to the individual images of the faux-furry bags that exist in the metaverse, but not in the “real world”.[16]
In this case, it is worth highlighting that Hermes did not merely contest the existence of the MetaBirkins faux-fur bags, but rather how the NFTs are marketed insofar as the uses of the iconic Hermès bag trade dress may confuse consumers and create a false association between those products and the French luxury house.[17] At this stage, the platform OpenSea has removed the disputed NFT.[18] In the event that Hermès prevails on its infringement claims, a more appropriate remedy might come in the form an injunction against the future listing of the NFTs in a way that is infringing.[19]
Ultimately, some questions can be raised from the fact that using registered right in art may be assimilated to trademark use. In Rogers v. Grimaldi, the use of a trademark in an artistic work was deemed actionable only if the use of the mark has no artistic relevance to the underlying work, or explicitly misleads as to the source or content of the work.[20] Recently, an Arizona district court, relying on the Ninth Circuit, expanded the scope of First Amendment protection by stating a “Bad Spaniels” dog toy (parodying the name Jack Daniels) was an “expressive work” protected by the First Amendment.[21]
In the MetaBirkins case, the creator responded with a motion to dismiss the complaint, claiming that the First Amendment provides protection to create art as a commentary on culture under the “fair use” doctrine.[22] Given that the NFT “Birkin” artworks were recently trading for as much as $790,000, it is indisputable that the artist is benefiting financially, and there is a strong likelihood that consumers might think they are authentic.[23] Hence, the NFTs might be reasonably perceived as more akin to counterfeits than cultural commentary (and thus fair use).
Similar, but not identical, disputes surrounding ownership have bubbled up over a series of unauthorized NFT photos of Olive Garden restaurants owned by Darden Restaurants. The American multi-brand restaurant company lodged an IP Takedown Request with NFT platform OpenSea covering NFTs linked to images of 880 physical outposts of its Olive Garden chain that violate its trademarks and OpenSea’s anti-infringement terms.[24]
Another case recently filed by Nike against StockX points out another issue arising from the interaction between the NFT in metaverse and physical products in the real world.[25] StockX launched Vault as the first NFT project that allows customers to buy and sell like-for-like digital sneakers that serve to certify ownership of the physical item.[26]. Afterward, the NFTs can be exchanged for the physical identical item at any time.[27] StockX today has 76,537 items listed under ‘Nike’ and is selling those NFTs at heavily inflated prices.[28]
In October 2021, Nike became one of the first brands to file trademark applications for its virtual goods and planned to release a number of virtual products in collaboration with the digital art studio Rtfkt alongside its Nikeland experience available on Roblox.[29] In its complaint, Nike alleged that StockX prominently uses Nike’s trademarks and associated goodwill to sell its NFTs at heavily inflated prices to consumers who are likely to believe that those digital assets are authorized or created in association with Nike.[30] Interestingly, it remains to be determined in this case whether StockX NFTs are an extension of the company’s reselling process and thus simply denote ownership, or if the NFTs are standalone products infringing on Nike’s trademarks.[31]
According to University of Kentucky Law professor Brian Frye, these recent cases raise fundamental questions about whether trademark infringement remains the same in the metaverse as they do in the real world.[32] The rights and registrations that brands have amassed in connection with their core “real world” products may be extended to related endeavors in the metaverse.[33] However, to strengthen their position, the brands will need to “wrap their heads around what is taking place…and understand the nature of the claims they want to make and why they want to make them.”[34]
In November 2021, third parties filed two U.S. trademark applications for Gucci and Prada in a wide range of metaverse-related arenas, including “downloadable virtual goods”, virtual worlds, and virtual clothing used in virtual spaces.[35] Some creators are currently selling clothes that feature logos looking like Louis Vuitton, Prada, and Chanel on Metaverse platforms such as Roblox.[36] Famous brands are likely to succeed against these registrations and the unauthorized digital use of their trademarks due to their brands’ well-known status offline. However smaller brands may be preempted by opportunist registrants betting on a similar first-come, first-served doctrine to legitimate and benefit from the unauthorized use of their trademarks in the metaverse.[37]
Some brands have made an early start with trademark applications in the United States, including Ralph Lauren and DKNY that filed trademark applications for items including “downloadable virtual goods, namely, computer programs featuring footwear, clothing, accessories” and “for use in online virtual worlds” (class 9), “store services featuring virtual clothing and accessories for use in online virtual worlds” (class 35), and “online, non-downloadable virtual clothing and accessories for use in virtual environments” (class 41) to strengthen the protection of their brand in light of the increasing attraction of the virtual world.[38] Another solution that can be considered by fashion brands prior to their entrance on the metaverse is using licensing and distribution agreements with the main actors in the virtual world so they retain their rights in the metaverse.[39]
The MetaBirkins case remains the first major example of a brand taking legal action over the use of its trademarks in the metaverse. Its outcome will be watched with scrutiny and may shape the way artists and companies function in this still-unfamiliar territory.
Footnotes
