When a New York jury rendered its recent verdict in favor of fashion house Hermès and against the artist-creator of a collection of “MetaBirkins” non-fungible tokens (“NFTs”), there were many breathless takes about whether NFTs are now no longer artworks and if they fall outside of First Amendment protection. But a closer look at the verdict and the issues presented at trial provides a more nuanced view, both for artists dabbling in digital assets and for brands seeking to protect their trademarks.
A short recap: On February 8, 2023, after three days of deliberations, a federal jury found Los Angeles designer Mason Rothschild (real name Sonny Estival) liable for infringing and diluting Hermès International’s trademarks for its iconic Birkin handbag and for unlawfully cybersquatting on the MetaBirkins.com domain name and awarded Hermès $133,000 in damages. Hermès had accused Rothschild of trademark infringement for promoting and selling the MetaBirkins, a collection of 100 NFTs sold for $450 each, which feature unique images of Hermès’ iconic (and expensive) Birkin bag in a range of colors and graphics. Hermès argued that consumers were likely to believe that the MetaBirkins NFTs were connected to, or affiliated with, the Hermès brand. In response, Rothschild argued that his NFT collection was a work of art and that therefore, under the test established in Rogers v. Grimaldi, his use of the BIRKIN name was protected by the First Amendment.
While the reasons for and lessons of the MetaBirkins verdict can be hotly debated, here are five key takeaways for brands and creators to consider …
First, the verdict does not impugn NFTs generally or suggest they are a lesser form of artwork, but rather indicates that digital assets’ commercial component must be considered. Whether a newfangled digital asset or a more conventional good, the question is where to draw the line between artistic works meriting robust First Amendment protection and commercial offerings that merits less protection.
Indeed, in a case that may make significant waves, in March 2023, the U.S. Supreme Court will hear oral arguments in Jack Daniel’s Properties Inc. v. VIP Products, LLC, a trademark infringement case between the manufacturer of Jack Daniel’s whiskey and a novelty toy company, VIP Products. Jack Daniels alleges that VIP Products is liable for selling a toy that resembles Jack Daniel’s iconic bottle with dog-related puns based on the actual beverage’s labels. The case will likely provide direction on how to draw the line between parodic products and commercial merchandise – with respect to both physical and digital assets – and, as discussed below, may impact the use of the Rogers test in the future.
Since Rothschild was selling NFTs, which are bought and sold in the digital metaverse, the jurors were very likely to understand this to mean that he was selling a commercial product with the “added bonus” that it was attached to a piece of art. The irony is that when someone walks into a gallery and purchases a work of art, they are also purchasing a commercial product, but in this case, because of the extenuating factors, the jury did not see it that way.
Second, there were various “plus” factors at issue in this suit that led the jurors to the final verdict. By adopting the MetaBirkin name to sell his MetaBirkins NFT collection, Rothschild made blatant use of Hermès’ famous mark to identify and market his NFT collection. He also specifically purchased a domain name that included the word “Birkin” in it – giving rise to a claim for cybersquatting – and created a social media handles bearing the Birkin name.
The evidence elicited at trial may have also colored the jurors’ view of the case and against the artist, leading them to believe he was motivated more by money than by artistic expression. Specifically, he used words like “pump” and “shill” in text messages to describe the NFTs, he referred to the MetaBirkins as a “goldmine,” and he sought backers for the project that he called “whales.” Rothschild had also told others that he attempted to partner with Hermès, despite never contacting the fashion house. Hermès was also able to show that it was the value of the Birkin brand name that drove interest in – and revenue generated for – the sale of the MetaBirkins NFTs.
Third, the Rogers test still – for the moment at least – governs these inquiries. The test, first defined in the decision of the 1989 case Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), allows artists to use a trademark in their work without consent as long as the use is artistically relevant and does not explicitly mislead consumers. In the MetaBirkins case, Judge Rakoff ruled that while the Rogers test may apply, he could not make that determination at the pleading stage or at summary judgment.
Although the Hermès verdict was based on specific facts presented at trial, further clarity from the Supreme Court in Jack Daniel’s Properties Inc. v. VIP Products, LLC about the continuing viability of Rogers and/or how such works should be analyzed under the First Amendment could provide more guidance to courts on how to referee disputes between trademark owners and artists who reference their intellectual property—both in the digital asset space and for physical goods.
Fourth, the decision fits within a line of other related cases, which may also shed light on the extent of permissible uses of NFTs. Last year, Nike filed a lawsuit against resale marketplace StockX over digital renders of Nike sneakers that were sold to StockX customers as NFTs. Nike alleged that StockX “has chosen to compete in the NFT market not by taking the time to develop its own intellectual property rights, but rather by blatantly freeriding, almost exclusively, on the back of Nike’s famous trademarks and associated goodwill.” StockX has taken the position that its NFTs depict proof of ownership of physical sneakers. The suit is ongoing and may shed some light on whether such NFTs are considered new products or instead, can be virtual representations of sneaker inventory.
And in September 2023, a Second Circuit panel heard arguments from MSCHF Product Studio Inc., a Brooklyn art collective, and Vans Inc. concerning allegations that MSCHF’s “Wavy Baby” sneaker infringes Vans Inc.’s “Old Skool” shoe trademarks. Vans alleges that the Wavy Baby is a deliberate modification of Vans’ Old Skool sneaker and that the public will believe Vans was involved in the creation and sale of the work. MSCHF counters that Wavy Baby is a parody of the Vans shoe, satisfying the “artistic relevance” prong of the Rogers test and forcing Vans to demonstrate that Wavy Baby “explicitly misleads” the public. While not an NFT or digital asset case, it poses similar questions, and the lessons and results may be transferable between digital and physical products.
Fifth, considerations are different for the creators and sellers of digital assets versus for purchasers, licensees, or end users. There are several key characteristics of digital assets like NFTs that affect the legal rights and obligations of the parties to such transactions. NFT sellers may be explicitly or implicitly representing to buyers that the NFT validly conveys rights in the asset, including the purchaser’s right to exploit the NFT (and even perhaps to make derivative works based on the NFT). Such rights are often spelled out in smart contracts accompanying NFTs. Of course, if the seller does not actually have the right it purports to convey, or if the work infringes the rights of others, it may impact what the NFT purchaser can do with the digital asset and possibly lessen its value and utility.
Therefore, buyers may have a caveat emptor issue; they must determine whether they will have a problem reselling or exploiting NFTs (e.g., licensing to a TV show, comic book) if the NFT turns out to be infringing, and they have not received clean title to the asset. Representations and warranties, including any questions about indemnification, may be at issue. But the NFT creator may not be around or have assets sufficient to repay the purchaser, particularly in such a young industry.
Ultimately though, if the crypto winter has illustrated anything, it is that digital assets can represent not only financial risks but also legal risks that should be carefully weighed.
Nathaniel Bach is a Los Angeles-based Entertainment litigation partner at Manatt, Phelps & Phillips, LLP. He represents prominent clients in the media, entertainment, and technology industries.
Sherli Furst is counsel at Manatt, Phelps & Phillips, LLP. She has extensive experience handling complex intellectual property matters spanning various industries, including entertainment, health care, fitness, fashion and apparel, food and beverage, and other consumer products.
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