New District Court Ruling Provides Helpful Guidance on Applying Trademark Law to Virtual Goods

May 20, 2022

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On May 18, 2022, U.S. District Judge Jed S. Rakoff for the Southern District of New York issued a ruling in an ongoing dispute between international luxury fashion house Hermès and the self-proclaimed artist doing business as Mason Rothschild involving the line of the artist. non-fungible tokens (NFTs) called “MetaBirkins”. This litigation is one of the first major trademark actions involving NFT offerings. Importantly, Judge Rakoff denied the artist’s motion to dismiss the trademark claims. While Judge Rakoff’s ruling denying the artist’s motion to dismiss does not resolve the merits of Hermès’ claims, it does offer some of the first available insights into how courts will consider trademark claims regarding NFTs.

In Hermes International, et al. against Mason Rothschild, Hermès sued the artist doing business as Mason Rothschild in federal court in the Southern District of New York for producing and selling NFTs he called MetaBirkins, each of which was a digital image of the Hermès Birkin handbag depicted as if in fur; the artist has also sold MetaBirkins and other NFTs through social media channels and digital storefronts under the MetaBirkin name. No. 22-cv-384 (JSR), Dkt. 24 (SDNY 14 January 2022). Hermès argued that the sale of these MetaBirkin NFTs infringed and diluted Hermès’ Birkin trademark, misrepresented the origin of the NFTs as if they were digital products authorized by Hermès, harmed and diluted the commercial reputation of Hermès. ‘Hermes. Hermès also asserted a cybersquatting claim based on Rothschild’s use of the domain name for the website used to offer the NFTs. Identifier.

The artist offered to dismiss. Identifier. Dekt. 26, 27. The artist primarily argued that the use of the term “MetaBirkin” was protected expression under the seminal Second Circuit case. Rogers vs. Grimaldi875 F.2d 994 (2d Cir. 1989), which held that the use of a famous mark (in this case, a mark consisting of a celebrity name) in connection with a work of art does not bear trademark infringement so long as (1) the name is “minimally artistically relevant” to the product, and (2) the use does not “explicitly mislead” as to content, authorship, sponsorship, or approval. Identifier. The artist argued that calling his products “MetaBirkins” was at least irrelevant to his claimed project to interrogate the fashion industry’s cruelty to animals and the nature of luxury and value. , and that the term was not explicitly misleading, whether or not some observers were actually confused. Hermès opposed the motion to dismiss, pointing to the artist’s extensive commercial use of the MetaBirkin label, including selling other products under that label and operating digital storefronts and marketing campaigns using the name. Identifier. Dekt. 31. Hermès also pointed to evidence of real confusion among consumers and industry observers as to the origin and authorization of MetaBirkin NFTs. Identifier. And Hermès pointed to the artist’s own statements, notably in an interview with Yahoo! Financein which he called the MetaBirkin a “digital commodity” and said there wasn’t “much difference” between having the “crazy purse” in real life or, “now”, being “able to bring it into the metaverse with these iconic NFTs,” and complained about people selling counterfeit MetaBirkins NFTs in competition with his NFTs. Identifier. Hermès argued that the second circuit roger case should not apply to commercially sold “goods” such as MetaBirkin NFTs. Identifier. Hermès also argued that, although the roger case applied, the court must still assess whether the MetaBirkin label misled the public by applying the “venerable Polaroid factors,” a set of criteria taken from a 1961 Second Circuit decision that courts use to assess whether a defendant’s mark will confuse the public. Identifier. The artist’s reply insisted that roger case should apply because the MetaBirkin NFTs were works of art, and should apply equally to the works themselves and the commercialization of those works. Identifier. Dekt. 38. The artist also argued that if the roger test applied, the court should disregard the Polaroid multifactor test, as the only question should be whether the MetaBirkin label explicitly misleads the public, not whether he could actually mislead them. Identifier.

Judge Rakoff heard oral argument on May 4, 2022 and issued an abbreviated order on May 5, 2022 denying the motion to dismiss. Identifier. Dekt. 49. On May 18, 2022, Justice Rakoff issued a Memorandum Order setting out the reasons for his decision. Identifier. Dekt. 50. Rakoff J. held that the Second Circuit’s roger test applied because MetaBirkin NFTs, “digital images of handbags”, “could constitute a form of artistic expression”, regardless of whether the artist also used the label to market and advertise these works. Identifier. Notably, Judge Rakoff held that “Rothschild’s use of NFTs to authenticate images” does not “modify the application of roger:because NFTs are simply code pointing to the location of a digital image and authenticating the image, using NFTs to authenticate an image and enable subsequent resale and transfer traceable does not make the image a commodity without First Amendment protection, any more than the sale of numbered copies of physical paintings would make the paintings merchandise for the purposes of Rogers.Identifier.

Justice Rakoff declined to rule at the motion to dismiss stage whether the MetaBirkin label was characterized as artistically irrelevant because the roger the case requires protecting a defendant. The court recognized that the threshold of artistic relevance under the roger case is “weak”, but also observed that Hermès had alleged that the artist “had the full intention of associating the trademark ‘MetaBirkins’ with the popularity and goodwill of the Birkin trademark of Hermès, rather than to intend an artistic association”. Identifier. Judge Rakoff cited the artist’s own statements to the press about his efforts to “create that same kind of illusion that [the Birkin bag] has in real life as a digital commodity. Identifier.

Regardless of whether the MetaBirkin label qualified as artistically relevant, Judge Rakoff held that Hermès had correctly alleged that the MetaBirkin label was explicitly misleading, which was sufficient to assert that the roger test does not protect Rothschild’s conduct. Accordingly, the court dismissed the motion to dismiss. Identifier. Judge Rakoff explicitly rejected the artist’s argument that Second Circuit courts should ignore the long Polaroid risk factors for confusion in determining whether a mark is explicitly misleading with regard to the roger test. In addition, the court concluded that Hermès had sufficiently alleged specific facts under the Polaroid factors leading to the conclusion that the MetaBirkin label was misleading. Justice Rakoff further concluded that, even if the artist was correct in saying that the Polaroid factors should not apply, the motion to dismiss would still fail under the roger criterion because Hermès had sufficiently alleged sufficient actual confusion and sufficient effort on the part of the artist to mislead the public, including the artist’s own statements to the press. Identifier.

Judge Rakoff’s decision was clearly influenced by the commercial nature of Rothschild’s activities, with an eye to potential future sales of virtual goods in a metaverse or augmented reality context. The court noted that NFTs could do not be considered works of art” if the NFTs were attached to a digital file of a practically wearable Birkin handbag, in which case the mark “MetaBirkin” would refer to a non-verbal commercial product (although it is not not yet considered ordinary or everyday).” Identifier. 12 n.3. But because Hermès only suggested that the artist might sell “virtually wearable MetaBirkins in the future,” Judge Rakoff declined to consider that issue for purposes of the motion to dismiss. Identifier. As Justice Rakoff acknowledged, the growing prevalence of virtual objects and their potential applications and uses in relation to “metaverse” technologies will require further analysis.

This decision marks one of the first rulings by a court in a trademark dispute arising from non-fungible tokens and provides an initial set of guidance on how courts will assess trademark claims related to NFT. Other lawsuits involving NFTs are already pending in court. Judge Rakoff’s decision will likely be considered when these other disputes reach the stage of judicial decisions.

The following Gibson Dunn attorneys prepared this Client Alert: Howard Hogan and Connor Sullivan.

Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. Please contact the Gibson Dunn attorney you usually work with, the authors, or one of the following Intellectual Property, Fashion, Retail & Consumer Products, Media, Entertainment and technology, global financial regulation or privacy, cybersecurity and data. Innovation practice groups:

Intellectual Property Group:
Kate Dominguez – New York (+1 212-351-2338, [email protected])
Y. Ernest Hsin – San Francisco (+1 415-393-8224, [email protected])
Josh Krevitt – New York (+1 212-351-4000, [email protected])
Jane M. Love, Ph.D. – New York (+1 212-351-3922, [email protected])

Fashion, Retail and Consumer Goods Group:
Howard S. Hogan – Washington, DC (+1 202-887-3640, [email protected])

Media, Entertainment and Technology Group:
Scott A. Edelman – Los Angeles (+1 310-557-8061, [email protected])
Kevin Masuda – Los Angeles (+1 213-229-7872, [email protected])
Benjamin S. Ross – Los Angeles (+1 213-229-7048, [email protected])

Global Financial Regulatory Group:
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Michelle M. Kirschner – London (+44 (0) 20 7071 4212, [email protected])
Jeffrey L. Steiner – Washington, DC (+1 202-887-3632, [email protected])

Privacy, Cybersecurity and Data Innovation Group:
Ahmed Baladi – Paris (+33 (0) 1 56 43 13 00, [email protected])
S. Ashlie Beringer – Palo Alto (+1 650-849-5327, [email protected])
Alexander H. Southwell – New York (+1 212-351-3981, [email protected])

© 2022 Gibson, Dunn & Crutcher LLP

Publicity for Lawyers: The attached materials have been prepared for general information purposes only and are not intended to be used as legal advice.

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