A copyright case over allegedly infringing non-fungible tokens (“NFTs”) listed on an online marketplace in China has resulted in what is being characterized as a “first-of-its-kind judgment.” Filing suit against Bigverse, plaintiff Shenzhen QiCeDieChu Culture Creativity Co Ltd. (“QiCeDieChu”) asserts that it is the copyright holder of a series of illustrated works by Chinese artist Ma Qianli, including one of a cartoon tiger receiving a vaccine, which was tied to an NFT and offered up on Bigverse’s NFTCNplatform without its authorization. As the operator of the marketplace site, Bigverse is contributorily liable for failing to adequately police the platform for infringements, QiCeDieChu argued.

Specifically, QiCeDieChu argued in its complaint that Hangzho-headquartered Bigverse has an obligation to review the NFTs that are minted and then offered up on its NFTCN platform – in connection with which it collects a portion of the sale – to ensure that the digital tokens are not tied to works that infringe the rights of others. Unsurprisingly, Bigverse argued in response to QiCeDieChu’s suit that it should be shielded from infringement liability, as it is merely a middleman and not the creator or the seller of the NFTs on its platform, which are created – and uploaded – by users.  

Following a hearing in April, the Hangzhou Internet Court sided with QiCeDieChu, holding that Bigverse does, in fact, have a duty to detect and prevent infringement before NFTs are actually listed on its platform, in addition to having an obligation to respond to infringement notices about infringing NFTs after the fact. By failing to fulfill that duty, which is critical when it comes to NFTs because of the generally irreversible nature of the transactions and the ability of “flaws in the copyright ownership of the underlying work of an NFT” to impact the “entire NFT transaction chain,” Bigverse infringed QiCeDieChu’s “right to disseminate works through information networks.”

As such, the court ordered that one-year-old Bigverse – which raised RMB 10 million ($1.6 million) in a Series A round in March – remove the infringing NFTs and pay RMB 4,000 ($589) in damages to QiCeDieChu. Additionally, the court also states that Bigverse should maintain a vetting system to verify that NFTs that users are looking to list on the NFTCN platform do not infringe the rights of others, as well as a takedown system to address infringing NFTs that have been listed.

The court noted that while NFTs cannot be destroyed, they can be sent to an “eater address” (or burn address) and thus, removed from circulation, which it asserted is a sufficient way to deal with infringing NFTs.  

Reflecting on the “landmark” case, DLA Piper’s Horace Lam states that it is the first time that a Chinese court has specifically spoken to the legal nature of NFTs and the obligations of an NFT platform. Specifically, Lam notes that the court characterized NFTs as “digital commodities,” and emphasized that the sale of an NFT does not equate to a transfer or license of the intellectual property of the underlying artwork, unless the terms of the sale provide otherwise. (The court also noted a party that mints an NFT should have rights in the underlying artwork, as distinct from merely having a copy of the underlying work.)

A key takeaway, according to Lam, is the court’s determination that the sale of an NFT that makes unauthorized use of another’s copyright-protected work “does not infringe upon the copyright owner’s ‘right of distribution’ in the underlying work, which is limited by the first-sale doctrine. Instead, it infringes the copyright holder’s “right of communication by information networks,” which he says is “a highly controversial issue in relation to copyright infringement of an NFT.” 

Given that the Hangzhou Internet Court is only a district-level court, Lam asserts that it is “unclear whether its ruling will be widely followed or is likely to be challenged in subsequent cases by other courts in China,” but says that the outcome is “meaningful,” nonetheless, in the light of the fact that formal NFT laws or regulations have not been enacted in China (yet). As such, he encourages players in the NFT space in China to “carefully consider the implications of the ruling.” 

In much the same way as NFTs have boomed in popularity in other countries across the globe, there has been significant interest in – and demand – for NFTs in China. The potential drawback, however, comes in the form of an inability to resell such digital tokens amid an enduring crackdown on cryptocurrency trading and mining by the Chinese government. 

MIT Technology Review reported last month that three national financial industry associations in China released a joint statement centering on NFTs. The three associations, “which collectively cover almost all Chinese banks, brokerages, and fintech companies,” according to MIT Tech Review’s Zeyi Yang, asserted that to “prevent financial risks,” they are asking their members “not to offer centralized trading platforms for NFTs, to refrain from investing directly or indirectly in NFTs, and to forbid using cryptocurrencies like Bitcoin or Ethereum in buying or selling them, among other measures.” 

“The initiative is designed to make it harder to trade NFTs and impossible to speculate in them,” Yang states. “Ultimately, the shifting political atmosphere around NFTs may help test whether they hold any intrinsic value.” 

An artist resale royalty, or droit de suite as it is often called in Europe, provides artists with an opportunity to benefit from the increased value of their works over time by granting them a percentage of the proceeds from the resale of their original works of art. The royalty originated in France in the 1920s and is in general practice throughout Europe, but is not part of United States copyright law. Instead, under the first sale doctrine, the lawful owner of a copyrighted work may “sell or otherwise dispose of the possession of that copy” and “display that copy publicly” all without the author’s permission. Thus, a purchased painting, sculpture, or another piece of art may be treated like a house, car, or any other possession.

Much of the value of non-fungible tokens (“NFTs”) tied to art for minters and artists who digitize and list their works lies in proceeds from resales of those NFTs as values rise. Determining whether the resale right, the first sale doctrine, a combination of the two, or some other legal concept should apply when it comes to NFTs will have a significant effect on the industry’s economic vitality. 

A Deeper Dive into Resale Rights and NFTs

The resale right affords artists protection against their works being sold too cheaply. It works by giving the creator a slice of the proceeds each time the work is resold and allowing them to participate along with collectors and speculators in the items’ appreciation. The right of resale originated during the explosion of cultural creativity known as the années folles (crazy times) that engulfed France in the 1920s, and it is established policy throughout Europe. Current U.S. copyright law, however, does not recognize the resale right – although numerous attempts have been made to incorporate it into federal legislation. When artists sell NFTs of their work, a typical sales agreement would include a mechanism that allows them to receive royalties not only on the original sale but also on subsequent resales thereafter. Blockchain smart contracts track payment transactions and automatically distribute royalties to the artists. 

The resale right comes into play for video game companies, for example, because NFTs are increasingly used as in-game assets that players can earn through gameplay, trades, and/or third-party sales. Common practice is for game companies to create NFT assets as work-for-hire or work products and retain the resale rights for themselves, earning ongoing revenues for rare and high-utility items. However, game companies that purchase rights to creative assets can arrange for the artists to receive passive income as players sell the related skins, in-game accessories, virtual real estate, and collector’s cards over the course of gameplay or trade on secondary markets. But since the U.S. copyright law does not recognize resale rights, it is unclear whether any provision regarding royalties under NFTs’ smart contracts would apply to video game companies operating in the U.S.

A Second Look at First Sale

U.S. copyright law does not recognize resale rights but instead stipulates that once an original copyright-protected work of authorship is sold, the buyer and all subsequent purchasers are free to resell that work without compensating the original artist or author. This first sale principle is the exact opposite of the resale right. 

However, successive judicial decisions have held that the first sale doctrine does not apply to digital works. For example, in Capitol Records LLC v.  ReDigi Inc., the U.S. Court of Appeals for the Second Circuit held that the first sale doctrine does not apply to digital music files because the resale would require making an unauthorized copy of the digital music file that would infringe upon the copyright owner’s reproduction right. Similarly, in Disney Enterprises Inc. v. Redbox Automated Retail LLC, the U.S. District Court for Central California held that the first sale doctrine did not apply to digital download codes because the sale of movie download codes essentially granted the ability to create physical copies at some point in the future rather than a particular, fixed copy of a copyrighted work.

Based on the existing precedent, it would seem that the first sale doctrine does not apply to NFTs that are tied to digital objects, such as audio files and digital images. In other words, the right to sell or distribute the digital version of a work, be it a drawing, digital music file, or photograph, belongs exclusively to the copyright owner. However, it is generally in the copyright owner’s interest to allow the resale because a limited form of contracting might be possible: while US copyright law does not recognize the resale right, the NFT sales agreement can be written such that the seller is obligated to pay royalties to the copyright owner if the in-game asset is sold to a third party. Moreover, these provisions can be executed by smart contracts to ensure they are accurately and consistently applied every time that a real occurs. In these cases, it is in the copyright owners’ interest to allow resales, as they will receive resale royalties under the terms of NFTs’ sales agreements. 

Further, it is unlikely that the first sale doctrine will apply to cases where a lawful digital artwork owner attempts the unauthorized minting of an in-game digital asset or NFT. Since “ownership” of digital artwork is more akin to possessing a license to access the work than actual ownership of a particular copy, the right to convert the artwork into an NFT resides solely with the copyright owner. In cases where the lawful owner of a physical artwork attempts to mint an NFT without the consent of the copyright owner, the outcome will likely be the same.

The surge in popularity and usage of digital assets, such as NFTs, and the murkiness surrounding the application of the first sale doctrine may force courts to draft a first sale doctrine that specifically addresses these use cases. In the meantime, the first sale doctrine is unlikely to be applicable to the sale of NFTs. This is because when a buyer purchases an in-game NFT, they would acquire a link to a digital version of the asset the NFT represents. This acts as an option to create a copy of the digital work, and U.S. courts currently do not acknowledge a first sale doctrine for digital works. Nevertheless, a limited form of contracting of royalty provisions in the NFT sales agreement might be possible. It is best to consult an attorney specializing in copyright, contracts, and NFTs for guidance on this complex issue.

David B. Hoppe is the founder and managing partner of Gamma Law, and a recognized authority on emerging legal issues in high-growth media/technology sectors, including video games and esports, blockchain and digital assets,VR/AR/XR, and digital media/entertainment.

Emily Ratajkowski and a paparazzi photographer have reached a settlement agreement in an ongoing lawsuit over an Instagram post. On the heels of Judge Analisa Torres of the U.S. District Court for the Southern District of New York determining that the copyright infringement case should move forward to trial to determine a number of questions of fact, including whether the multi-hyphenate model’s unauthorized use of an image of herself was fair use, Emily Ratajkowski and plaintiff Robert O’Neil, the paparazzi photographer who took the photo in question, alerted the court that they have reached a settlement in the lawsuit.

In a filing on April 13, counsels for O’Neil and Ratajkowski informed the court that they had “reached a settlement in principle pending their negotiation of a final settlement agreement,” and requested an order of discontinuance of the action while they hash out the terms of the deal. The settlement comes two and a half years after O’Neil filed a copyright infringement lawsuit against Emily Ratajkowski after she posted a photo of herself to her Instagram story, captioning the photo in which she is obscuring her face with a flower arrangement with “mood forever.” The model-slash-actress would later argue in response to the infringement claims that her use of the image was fair use, as it served as a commentary on the state of her paparazzi-plagued life. 

Instead of settling the lawsuit filed against her at the outset, which has been common practice for the vast majority of celebrities that have landed on the receiving end of a string of similar copyright infringement cases, Ratajkowski opted to O’Neil’s case, arguing in September 2020 motion for summary judgment that, among other things, her reposting of the photo constituted fair use.  

Deciding on the motion in September 2021, Judge Torres spent the bulk of the order dissecting the merits of Ratajkowski’s claim that her posting of the photo amounts to fair use, namely, by way of the four non-exhaustive fair use factors: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used; and (4) the effect of the use upon the potential market for or value of the copyrighted work. From the outset, the court was largely unwilling to decide on the various fair use factors, and ultimately held that both parties’ motions for summary judgment on the issue of fair use should be denied. 

In terms of the purpose/character of the work, which comes with a number of sub-factors (transformativeness, commerciality, and bad faith), the court stated that reasonable jurors could disagree about whether or to what extent Ratajkowski’s use of the photo is transformative, noting a reasonable observer could conclude that Ratajkowski’s Instagram post “merely showcases Ratajkowski’s clothes, location, and pose at that time – the same purpose, effectively, as the photograph.” On the other hand, the judge held that “it is possible a reasonable observer could also conclude that, given the flowers covering Ratajkowski’s face and body and the text ‘mood forever,’ the Instagram [post] instead conveyed that [her] ‘mood forever’ was her attempt to hide from the encroaching eyes of the paparazzi – a commentary on the photograph.” As such, the court determined that there was a genuine issue of material fact at issue that needed to be decided by a jury. 

As for the other sub-factors, the court found that Ratajkowski’s use was “slightly commercial,” but that this factor deserved “little weight” given the specific facts at play. Among some of the noteworthy elements: the court held that Ratajkowski’s Instagram is, “at least in part, a for-profit enterprise,” as she “has a link to her for-profit store on the Instagram account main feed,” and she estimates that “she has made more than $100,000 from the Instagram stories section of the Instagram account within the last three years, although posting sponsored posts to Instagram Stories is less common than to her main feed.” The balance also tipped the other way to some extent in the commerciality assessment as Ratajkowski was not paid to post the photo at issue, “nor was the infringed work displayed directly next to advertisements, or in a section almost exclusively meant for advertisements.” 

The court was not convinced by O’Neil’s claim that Ratajkowski’s use was in bad faith because of “her ‘omission of any credit,’ and her [failure to pay] a license fee despite knowing that celebrities occasionally license photographs from Splash.” Judge Torres stated that while “Ratajkowski rarely credits photographers, there is no evidence that she personally removed copyright attribution from the photograph.” Beyond that, the court stated that “there is no evidence that Ratajowski knew the photograph was copyrighted or who it was copyrighted by,” and held that her mention of “general ‘internet etiquette’ that ‘people will share [her] images and [she] share[s] their images,’ does not demonstrate specific knowledge about the photograph or Instagram stories.” 

Again, the judge held that there was a genuine issue of material fact as to “whether Ratajkowski’s use was transformative, and neither commerciality nor bad faith weigh heavily on the analysis— particularly if the use is deemed transformative.” 

In terms of the second factor, the nature of the copyrighted work, the court determined that this weighed in favor of O’Neil, “but only marginally so” because the photo is “essentially factual in nature” and O’Neil “captured [his] subject in public, as [she] naturally appeared, and [was] not tasked with directing the subject, altering the backdrops, or otherwise doing much to impose creative force on the [photograph] or infuse the [photograph] with [his] own artistic vision.” 

The court looked to the amount and substantiality of use of the photo next, and determined that Ratajkowski took “the vast majority, if not the entirety, of the photograph,” but also – interestingly – considered Ratajkowski’s argument that “by posting the photograph [via the temporary] Instagram Stories, rather than the main account, the use was less substantial.” The court sided with O’Neil on this factor, stating that “because Ratajkowski used a greater portion of the photograph than was necessary for her purpose, this factor weighs slightly in favor of the plaintiff.” However, “the fact that it was posted on Instagram Stories lessens that weight.” 

Finally, on the effect on the market front, which requires a plaintiff to show that “even if the photograph is deemed transformative, a market exists which would be affected if this manner of using the photograph became widespread,” the court did not make a determination for either party, on the basis that “there is no information in the record regarding that market” for the court to “rule on this factor at this juncture.”  

With the foregoing in mind, the court left the critical issue of fair use up to a jury. In light of the parties’ pending settlement agreement, no such jury trial will come into play.

No stranger to paparazzi-initiated copyright suits, Emily Ratajkowski was named in a similar copyright infringement lawsuit filed by photographer Javier Mateo in July 2021. The parties settled that case in January 2022. Around the same time, Ratajkowski’s brand Inamorata Swim LLC was named in – and swiftly settled – a copyright infringement case waged against it by Eva’s Photography.

The case is O’Neil v. Ratajkowski et al, 1:19-cv-09769 (SDNY). 

2021 was a big year for non-fungible tokens (“NFTs”) resulting in significant commercial value. The creators behind Cryptopunks, an NFT project with over $2 billion in trading volume, signed a representation deal with a leading Hollywood talent agency to pursue a range of commercial projects. Purchasers of the Bored Ape Yacht Club (“BAYC”) NFTs, including music producer Timbaland, distribution label Universal Music Group, and consumer products company Arizona Iced Tea, have all commercially exploited the NFTs they purchased for marketing and merchandising efforts. Still yet, adidas released a video on its collaboration with BAYC to begin its push into the metaverse.

The ability of NFT creators and purchasers to leverage and commercialize their NFTs is contingent upon ownership of the intellectual property rights and/or access to the commercial rights governing the underlying digital asset. Depending on the project, there may be limitations to how a buyer may commercialize the NFT-tied asset, including limits on revenue, limits on rights to create derivative works, and/or requirements to pay royalties to the NFT creators. There are, nonetheless, various approaches that popular NFT projects have taken when it comes to intellectual property rights, and the resulting commercial rights and benefits afforded to purchasers and creators. Here is an overview … 

Licensing of Commercial Rights While Retaining IP Rights

Some NFT projects have adopted the NFT License, a license originally created for the CryptoKitties NFTs, which aims to define the rights of both NFT purchasers and creators. Under the NFT License, the purchaser of an NFT obtains a limited right to use, copy, or display the art underlying their NFT “for the purpose of commercializing [their] own merchandise,” to generate up to $100,000 in gross revenue each year. The creator of the NFT retains ownership of all legal rights to the underlying art, including all intellectual property rights, such as copyright and trademark rights. Since its initial use in connection with the CryptoKitties NFTs in 2018, the NFT License has been adopted by several prominent NFT projects, such as CryptoPunks and Meebits.

Elsewhere in the market and in an attempt to strike a balance among the needs of NFT creators, purchasers, and the wider fan community, the Forgotten Runes Wizard’s Cult NFT project, for instance, has taken a more unique approach to licensing their Wizard-themed NFTs. Purchasers of these NFTs obtain a non-exclusive, royalty-free commercial license to the underlying art for up to $5 million in revenue per organization, after which a 20 percent blanket royalty is applied. The non-exclusive license also allows the creators to exploit the intellectual property rights governing the art. Meanwhile, individuals that are neither creators nor purchasers can also use the art underlying the Wizard NFTs under a Creative Commons non-commercial license, a popular open-source license for online creators.

Assignment of Commercial & IP Rights to Purchasers of NFTs

Yuga Labs, the creators behind the widely-known BAYC collection, took an approach that aims to provide unlimited commercial rights to the purchasers of their NFTs, with ownership of the NFT being mediated “entirely by the Smart Contract.” According to Yuga’s terms and conditions, “when you purchase an NFT, you own the underlying Bored Ape, the Art, completely.” More than that, purchasers obtain an unlimited, worldwide license to create derivative works based upon the underlying art with no cap on the revenue that a purchaser can generate or earn.

However, purchasers should note that although ownership is mediated entirely by the smart contract that serves as the foundation for each individual NFT, the BAYC smart contracts do not include a specific provision speaking to the ownership of the intellectual property rights governing the art tied to the NFTWhat this means – from a copyright perspective – is that there is no executed assignment of copyright, so copyright may not immediately vest to the owner upon purchase of a BAYC NFT. A written assignment is required to perfect the copyright transfer. 

From a trademark perspective, a purchaser would generally not receive any trademark rights, since trademark rights only arise upon use of a trademark in the course of commerce or upon registration of the mark. Instead, a BAYC NFT purchaser obtains permission to pursue trademark rights in the NFT, but the purchaser is fully responsible for assessing whether the mark is available to be used with the goods or services they plan to offer and to pursue protection for.  

The World of Women NFT project goes a step further than BAYC and assigns all of the rights, title, and interest to the intellectual property underlying the art to the purchasers of the NFTs. The project specifically addresses trademark rights by providing that purchasers may use the terms “World of Women”, “WOW,” or “WoW” when using the underlying art for non-commercial purposes. Upon resale of these NFTs, all rights must be transferred to subsequent purchasers, and the original creator is entitled to compensation upon resale in accordance with a commission determined by the relevant NFT marketplace.

IP Rights in the Public Domain: The Creative Commons License

In stark contrast to the NFT projects above, some creators have opted to take a fully open-source approach by adopting the Creative Commons license and dedicating the underlying copyright to the public domain. An example is the CrypToadz project, the website for which states that “to the extent possible under law, [the creator] has waived all copyright and related or neighboring rights to CrypToadz by [the creator].” Similarly, the Nouns NFT project, which aims to auction “one noun, every day, forever,” provides that “nouns artwork is public domain.” However, the project compensates the team behind the project by dedicating every tenth Noun NFT minted for the first five years of the project to be shared among the founding members.

NFT Creators and Purchasers Should Take Due Care 

With the foregoing in mind, NFT creators should carefully consider an appropriate intellectual property strategy and approach to manage how the rights underlying their project will be treated and/or transferred to the purchasers and the public. Creators that wish to retain control over intellectual property rights in a project may adopt a traditional licensing model, while those that wish to provide their community with unlimited commercial rights may assign these rights. Still yet, projects without a commercial focus may adopt the Creative Commons license.

Companies and brands looking to purchase NFTs for commercial use and marketing programs should be aware that the intellectual property and commercial rights obtained upon purchasing an NFT will vary depending on the approach to intellectual property and licensing taken by the creators. Purchasers should carefully examine the terms and conditions, licenses, and the smart contracts governing the specific NFT projects. And purchasers should also seek competent legal advice to ensure that a project provides a valid transfer of copyright upon execution of the smart contract, and to clear and protect the underlying trademark rights necessary to commercially exploit the NFT as a brand or marketing tool.

Daniel Anthony, counsel in Smart & Biggar’s Ottawa office, specializes in all aspects of trademark and copyright law, with a particular emphasis on enforcement issues.

Akiv Jhirad is an articling student in Smart & Biggar’s Toronto office.

A high fashion textile firm claims in a new lawsuit that Valentino has “illegally enriched” itself through its unauthorized use of copyright-protected fabrics and trade secret stitching techniques. According to the complaint that it filed in a New York federal court on March 25, Mrinalini, Inc. claims that Valentino S.p.A. and its American arm Valentino U.S.A., Inc. (“Valentino”) are on the hook for “taking, using and copying [Mrinalini’s] designs and swatches,” passing them off as its own designs, and failing to pay for them, giving rise to copyright infringement, trade secret misappropriation, unfair competition, unjust enrichment, conversion, and breach of contract claims. 

Setting the stage in the newly-filed complaint, Mrinalini claims that it has maintained a relationship with Valentino for over fifteen years, starting work with the Italian fashion brand back in the early 2000’s when the New York-based garment and textile firm claims that it was “already doing design work for other design houses, including Ralph Lauren, Fendi, Etro, and Diane von Furstenberg.” Over the course of the parties’ years of work together, Mrinalini asserts that there have been “many occasions where Valentino used and sold fabric designs that were wholly original to Mrinalini,” something that the company argues has “happened from the earliest days of the relationship up to the present.” 

Mayhoola-owned Valentino has “even taken complete, original dresses and other garments from Mrinalini, and shown them publicly on fashion runways, falsely passing them off as if they were created by Valentino,” Mrinalini claims, asserting that the brand failed to give it “credit, recognition, and compensation” in the process.  

Aside from to allegedly passing off Mrinalini’s work as its own, including copyright-protected fabric designs, which Valentino allegedly co-opted for couture collections, thereby, giving rise to copyright infringement and unfair competition, Mrinalini claims in the newly-initiated lawsuit that Valentino has engaged in trade secret misappropriation. Specifically, Mrinalini alleges that it “pioneered sewing techniques like its ‘Intarsia’ technique, which is an intricate way to join several pieces of fabric into a rich and textured whole, elegant to meet the tastes of sophisticated clientele,” and which has “resulted in materials not seen before in the industry,” and that has become “heavily in demand in the high fashion world.” 

Mrinalini copyright-protected print (left) & Valentino FW19 couture look (right)

Allegedly impressed with its Intarsia technique, and in light of the relationship between the two parties, one in which Mrinalini claims that it would present Valentino with “completely original designs and techniques, with the understanding and agreement that Valentino would pay for such designs and techniques if it used them” and/or Valentino “would invite Mrinalini to present specific fabric designs and swatches based on suggestions of varying specificity from Valentino,” Mrinalini contends that in or around 2013, Valentino changed “many of its commercial and runway offerings” to make use of textiles created by way of the sewing technique. 

But not only did Valentino start incorporating pieces created by way of the Intarsia technique, Mrinalini argues that Valentino sought out specific details about the technique, including photos and videos from the manufacturing process, which Mrinalini claims that shared with the brand – albeit “only after Valentino agreed to keep the photos and video confidential.” This agreement was “at least implied if not express,” Mrinalini asserts, noting that the brand “later affirmed its obligations under the agreement in writing.” 

Despite agreeing to keep such information confidential, Mrinalini alleges that Valentino employees shared the proprietary stitching techniques with “other suppliers, including Mrinalini competitors, apparently in an unscrupulous effort to source … large quantities of clothing for Valentino … [from] the cheapest supplier, all without permission from Mrinalini.” Beyond that, Valentino allegedly “induced another [one] of its suppliers, Shevie, to hire people Mrinalini had trained in the Intarsia technique,” which Valentino and Shevie did, per Mrinalini, “to gain improper access to the Intarsia technique and misappropriate Mrinalini’s trade secret for [its own benefit].”  

As a result of such alleged wrongdoing, Mrinalini claims that “Valentino – one of the largest fashion names in the world, has earned profits from Mrinalini’s proprietary designs and techniques that range well into the tens of millions of dollars, if not higher.”

In addition to arguing that Valentino has engaged in copyright infringement and pointing to an array of different instances in which Valentino allegedly “copied the expression covered by [one of Mrinalini’s copyright] registrations without permission [for] clothing items,” Mrinalini cites claims of trade secret misappropriation and breach of contract in connection with the brand’s alleged use of the Intarsia technique. Making its trade secret claim, including the critical element that it took “reasonable measures” to protect the trade secret, Mrinalini contends that since it developed the “secret stitching technique,” it has taken “reasonable measures to maintain the technique in secret.” Among other things, it asserts that “only a few trusted workers, subject to confidentiality obligations, know the technique on a need-to- know basis.”

“Though the technique is used to make clothing that is sold widely around the world,” Mrinalini alleges that “skilled artisans cannot learn anything about the technique from inspecting clothing made with the technique.” In fact, it argues that “Valentino itself had tried to learn the technique, but could not do so until it used improper and dishonest methods.” Valentino misappropriated this trade secret information – and breached its agreement with Mrinalini – when it shared the technique with others, including competitors, for its own benefit, Mrinalini argues. 

Mrinalini copyright-protected print (left) & Valentino garment (right)

The fashion house also engaged in unfair competition, according to Mrinalini, when it “took complete and original products from Mrinalini and passed them off as its own, both on runways and in stores,” which the textile company says “is sometimes referred to as ‘reverse passing off.’” 

With the foregoing in mind, Mrinalini is seeking monetary damages, including a disgorgement of Valentino’s profits in connection with such alleged wrongdoing, injunctive relief to bar the brand from “further wrongful activity, including further trade secret misappropriation, copying and unfair competition,” and an order from the court requiring Valentino offer up for destruction “any remaining inventory of wrongful goods.”

It is not difficult to imagine Valentino pushing back against Mrinalini’s claims on the basis that it has seemingly known about such alleged infringement and/or misappropriation for close to two decades and not taken action sooner. As for making a successful trade secret case, that is no small feat. The complexity of such cases, and any potential defenses at issue, is only heightened by the fact that it can be “a difficult task to convince a jury that a trade secret exists, that it has been stolen, and that the misappropriation caused harm,” DLA Piper’s Andrew Valentine has previously stated, pointing to the Huawei Technologies and Futurewei Technologies v. CNEX Labs and Yiren Ronnie Huang, and the Six Dimensions, Inc. v. Perficient Inc. cases, among others, as examples of this. 

More than merely convincing a jury, these matters are further muddied by the fact that quantifying the damages owed to the aggrieved party as a result of the alleged misappropriation can be complicated. This is often the case because dollar figures can be difficult to ascertain for things, such as know-how, manufacturing processes, and business practices, for instance, thereby, making these cases complicated and expensive to litigate. 

A representative for Valentino did not respond to a request for comment on the lawsuit. 

The case is Mrinalini, Inc v. Valentino S.p.A., et al., 1:22-cv-02453 (SDNY).