The luxury fashion brand was awarded $133,000 in a closely watched case that will have a lasting impact on how artists and brands will interact in the metaverse.
A federal jury has ruled that an NFT artist violated the trademark of luxury fashion brand Hermès, setting a precedent on whether and when digital assets created on a blockchain can be considered artworks protected by the First Amendment.
On Wednesday, the jury ruled that artist Mason Rothschild's line of 100 MetaBirkin non-fungible tokens were not protected speech under the First Amendment. The NFTs contained images of the fantastically expensive Birkin handbags covered in faux fur and various designs ranging from polka dots to the Mona Lisa.
He was ordered to pay $133,000 in damages — $110,000 for infringing the intellectual property of Hermès and $23,000 for cybersquatting by using the URL "metabirkins.com."
Rothschild, whose real name is Sonny Estival, said he plans to appeal.
The verdict is a "great day for big brands" and a "terrible day for artists and the First Amendment, Rothschild attorney Rhett Millsaps II said. The defense had compared MetaBirkins to Andy Warhol's use of iconic Coca-Cola bottles and Campbell's soup cans in artworks.
Rothschild had argued that his bags were a commentary on animal cruelty in the production of leather goods.
Commerce or Art?
The ruling effectively found the MetaBirkin NFTs were more like commodities than artworks, making them subject to strict trademark laws designed to prevent knockoffs from diluting a brand's intellectual property.
"The jury's decision makes clear that the First Amendment does not provide entrepreneurs with carte blanche to trade on the good will of brand owners," Felicia Boyd, Head of IP Brands, United States, for the firm of Norton Rose Fulbright, told CoinMarketCap after the verdict was announced.
While the facts were specific to this NFT project, Boyd said that as one of the first cases "involving non-fungible tokens and the intersection of trademark and First Amendment law, the case has significant ramifications for artists looking to create and promote works which may comment upon products or services offered by brand owners."
That means that artists should "proceed with caution" when promoting their work and limit the use of the trademark to what is "artistically necessary" rather than making it central to a commercial campaign.
And, she added, they should document the reason they used the brand and the message the work is intended to convey at the time of its creation.
Brand Protection
The ruling comes in the wake of a stampede by major brands ranging from McDonald's to Walmart to file trademarks covering NFTs and digital assets in the metaverse last year.
A top fashion status symbol, Hermès Birkin bags start at $12,000 and have sold and resold for as much as $500,000, as they are virtually impossible to buy without a connection to the fashion house.
Hermès had said in court that Rothschild was "stealing the goodwill in Hermès' famous intellectual property to create and sell his own line of products."
The company's attorneys pointed to text messages by the artist they said show he wanted to "create the same exclusivity and demand for the famous handbag" and that he was "sitting on a goldmine."
The MetaBirkins were each sold for $450 in ETH at the time, and came with a 7.5% royalty of resales. Rothschild said he earned about $125,000 from the bags.
What is Art?
Rothschild's case was based on a test created in Rogers v. Grimaldi, which protects against trademark infringement claims "if their use both (1) is an artistic expression and (2) does not explicitly mislead consumers," Boyd said in an earlier blog about the case.
The company argued that Rothschild's use of its trademarks in the URL of his website and on social media showed the collection was using the trademarks for commerce rather than artistic expression.
That was a key point, she said via email, noting that Rothschild's "use of the Birkin name went far beyond a digital version of the Birkin bag."
Attaching little registered trademark symbols after each use of the name — Birkin® — Boyd pointed out that "in the name of 'business art,' Rothschild sought to use the Birkin brand as part of domain names, social media handles and across various digital platforms." She said:
"The First Amendment defense does not give artists the unfettered license to infringe another's trademarks. At some point the public's interest in avoiding consumer confusion or competitive exploitation will override the interests sought to be protected by the First Amendment."
On the other hand, Boyd said:
"The verdict is a signal to brand owners who are not yet using their brands in a virtual environment, as was the case with Hermes, that rights in the 'real' world may be sufficient to preclude use in a virtual world."
