An Update on Hermès v. Rothschild: The Future of NFTs and Freedom of Expression
The Debate
Artists have well established the trend of using various media to pay tribute to or comment on cultural phenomena.[1] While intellectual property disputes surrounding the sale of art are nothing new, the rising popularity of non-fungible tokens (“NFTs”) has given new steam to this issue and brought it to the forefront of modern legal discussion.[2] Hermès’ suit against artist Mason Rothschild is the most recent example of the clash between federal trademark law and the First Amendment right to freedom of expression.[3]
What is an NFT?
A non-fungible token is a piece of digital media that comes in the form of anything from art to music to videos and is recorded on a blockchain.[4] “Non-fungible” means that the piece of media is unique and one-of-a-kind.[5] While NFTs can be anything digital, much of the current excitement surrounds using the blockchain to sell digital art.[6]Blockchain technology and NFTs provide artists a unique opportunity to sell their art without having to rely on galleries or auction houses.[7]
Framing of the Case
Hermès is a luxury fashion brand which owns trademark rights in the label and design for its infamous Birkin bag.[8] In 2021, Rothschild created 100 digital images titled “MetaBirkins,” selling them as NFTs for prices comparable to real-world Birkin bags.[9] In response, Hermès filed a complaint claiming trademark infringement, dilution, and cybersquatting.[10] Rothschild described these images as a “tribute to Hermès’ most famous handbag.”[11] In an interview with Yahoo Finance about his MetaBirkin collection, Rothschild opined that the difference between owning an actual Birkin versus one of his NFTs was blurred due to the ability to showcase certain possessions in the metaverse.[12] He has also asserted that the First Amendment gives him “the right to make and sell art that depicts Birkin bags, just as it gave Andy Warhol the right to make and sell art depicting Campell’s soup cans.”[13] Hermès has expressed concern that several consumers mistakenly believed that the MetaBirkin NFTs were affiliated with the Hermès brand.[14]
The Rogers Test and Rothschild’s Failed Motion to Dismiss
In response to Hermès’ complaint, Rothschild filed a motion to dismiss for failure to state a claim.[15] He argues that Hermès’ trademark infringement claims failed as a matter of law based on the test established by Rogers v. Grimaldi.[16]
Under Rogers, the use of a trademark in a work of art is not an infringement as long as it satisfies a two-prong test: (i) the name is artistically relevant to the work and (ii) the use of the trademark does not explicitly mislead as to the source or content of the work.[17] Hermès attempted to establish that the Rogers test should not apply, arguing that the First Amendment does not protect unauthorized use of a trademark as a “source identifier” for promotion and advertisement.[18] Hermès further argued that the sale of these NFTs should not constitute artistic expression and that the court should therefore only apply a “likelihood of confusion” analysis established by Polaroid in 1961. [19] This test asks whether the mark is entitled to protection and assesses likelihood of confusion.[20]
The court concluded that because the sale of these digital images could constitute a form of artistic expression, balancing these First Amendment concerns with concerns of protection against trademark infringement requires application of the Rogers test.[21] Despite this conclusion, the Court denied Rothschild’s motion to dismiss due to factual disputes not appropriate to resolve at the motion to dismiss stage.[22]
The court broke down the factual disputes according to the two prongs of the Rogers test: artistic relevance and explicit misleadingness.[23] The threshold for “artistic relevance” is intentionally low and easily satisfied so long as the use has some artistic relevance to the underlying work.[24] However, Hermès’ amended complaint used Rothschild’s statements that the digital images were meant as a “tribute” to the Hermès Birkin to allege that he intended to associate the “MetaBirkins” mark entirely with the Hermès Birkin mark.[25] Rothschild’s statements regarding his intention to replicate within the metaverse the value that the Birkin bag has in real life will likely work against his potential success in satisfying the Rogers test. This is evident in the court’s refusal to resolve at the motion to dismiss stage whether Rothschild’s images “clear the admittedly low bar of artistic relevance.” [26] Hermès’ allegation put forth that even if Rothschild’s work has some artistic relevance, it is explicitly misleading and therefore is still actionable as trademark infringement. [27]
The Parties’ Pre-Trial Efforts
On September 30, Judge Rakoff of the U.S. District Court for the Southern District of New York denied Rothschild’s interlocutory appeal, determining that the issues cited by Rothschild are not so exceptional as to warrant immediate appellate review.[28] On October 7, Rothschild filed a motion for summary judgment.[29] He reiterated that MetaBirkins are artworks protected by the First Amendment and that the images pass the Rogers test.[30] On October 8, Hermès filed a motion for summary judgment.[31] Hermès stressed the use of the “Birkin” name as the foundation for its trademark infringement claim, but cited the imagery used in the digital assets as an aggravating factor.[32] Hermès argued that Rothschild’s use of MetaBirkins would likely dilute the brand and cause harm to its goodwill.[33] In late October, both parties filed Memos in Opposition to each other’s motions for summary judgment.[34] On December 30, 2022, Judge Rakoff denied the parties’ respective motions and stated that an opinion explaining his ruling on summary judgment would be issued by January 20, ten days before the trial was set to begin.[35] Judge Rakoff’s opinion denying the summary judgment motions affirmed that the Rogers test should control the trademark issues and found that the existence of genuine issues of material fact should preclude summary judgment.[36]
A Contentious Trial
Trial began on January 30, 2023 in the Southern District of New York.[37] Hermès presented to the jury their argument that Rothschild’s project would likely confuse the public into falsely assuming Hermès was involved with MetaBirkins.[38] Rothschild stuck to his assertion that the project is artistically relevant and not misleading, and thus is protected by the First Amendment.[39]
Early in the trial, Judge Rakoff held that one of Rothschild’s proposed witnesses could not testify at trial.[40] The proposed witness was Dr. Blake Gopnik, who authored an Andy Warhol biography and was primed to testify that the MetaBirkin project is akin to Warhol’s Campbell’s soup cans and should therefore be protected as a work of art.[41] Hermès successfully argued that Dr. Gopnik should be precluded from testifying because his opinion is not based upon any reliable data, and he “improperly interprets and opines on Rothschild’s intent in creating and promoting” his MetaBirkin works.[42] When Hermès’ witnesses took the stand they confirmed the company’s plans to operate in the metaverse, spoke to Hermès’ previous efforts to develop NFTs, and further reiterated concerns about brand confusion surrounding the MetaBirkin NFTs.[43] During Rothschild’s own testimony, he specified that he created the MetaBirkin NFTs as an “experiment” inspired by the fact that Hermès had not followed other luxury brands in the trend of swearing off using fur.[44] Over the course of the trial the jury learned that Rothschild receives a 7.5 percent royalty when the MetaBirkin NFTs are resold, that Rothschild had sent text messages referring to the NFTs as “Birkins,” and had told the developer of the NFTs, “We’re sitting on a gold mine.”[45]
During closing arguments, Hermès’ attorneys argued that Rothschild was aiming to profit off the brand’s established value and called him a brand builder rather than an artist.[46] Rothschild’s attorneys then insisted that Rothschild never had any intention of confusing consumers, as evidenced by online disclaimers and Rothschold’s taking credit for the project on social media.[47] They also reiterated that Rothschild’s artistic freedom should be protected by the First Amendment.[48] On February 8, 2023, only one day after receiving instructions of law from the judge, the jury sided with Hermès, finding Rothschild liable on all three counts: trademark infringement, trademark dilution, and cybersquatting, and finding that he is not shielded by First Amendment protections.[49] The jury awarded Hermès about $133,000 in damages.[50] On February 14, 2023, the court entered a final judgment in favor of Hermès.[51]
Looking ahead, Rothschild’s legal team plans to appeal Judge Rakoff’s verdict, citing the greater importance that this verdict holds for art and NFT communities.[52]
Future Implications of the Case
Given the novelty of this type of suit, its verdict sets a precedent that will impact how future courts will enforce trademark rights against NFTs and digital assets in the metaverse.[53] Fordham Law’s own fashion law expert Susan Scafidi underscored the importance of this verdict, stating that “[e]very new medium or form of retail has its signature trademark lawsuit, and the MetaBirkin case is that lawsuit for art and NFTs.”[54] This is the first time a court has addressed the relationship between digital art, NFTs, and physical fashion.[55] As more household names launch NFTs and explore the metaverse, courts will have to continue reconciling trademark infringement claims with First Amendment defenses.[56] As blockchain and technology lawyer Michael Kasdan pointed out, it would have been a greater surprise and shift to the status quo if Rothschild had won, given where trademark law historically stands.[57] However, Scafidi holds out that creative or expressive adaptations of brand names could still escape similar trademark lawsuits in the future.[58] The future of this area of law gives the courts great power over companies and independent artists alike in their exploration of the metaverse.
Footnotes
