[Guest post] The NFT Hermés Case: Mainly Relevant for Large Collection of NFTs

The IPKat is pleased to host the following guest post by Katfriend Paolo Maria Gangi (Studio Gangi). Here’s what Paolo writes:

The NFT Hermés Case: Mainly Relevant for Large Collection of NFTs

by Paolo Maria Gangi

Over the past few weeks a lot has been said about the decision – on 14 February last – of the Southern District Court of New York in favour of Hermès against NFT creator Rothschild. This was a case that many commentators have considered “landmark” in relation to NFTs. In particular, it has been noted by many that this decision legally implies that the NFT digital twin of a physical product can be considered to be in direct competition with that physical product itself.

The case in brief

Mason Rothschild is an American artist and NFT creator who created and successfully sold for about $1 million US a collection of NFTs named Metabirkin. The associated image essentially represents the digital twin of Hermés iconic Birkin bags, a well-known luxury status symbol as well as a form of investment. Rothschild’s Metabirkin is a collection of 100 NFTs and associated images (i.e., the artwork linked to the NFT) representing Hermès Birkin although, in the Metabirkin collection and contrary to the physical Hermés product, the bags are depicted as fur-covered).

The Metabirkin collection

Hermés registered the Birkin mark in the USA, both as a word “Birkin” and as a figurative sign representing the Birkin bag's visual appearance. Neither trade mark covered digital assets.

The French fashion house sued Hermés for trade mark infringement, essentially referring to a risk of confusion for consumers, as well as trade mark dilution and cybersquatting.

Defendant Rothschild mainly centred his counterarguments on the Roger test (as established in 1989 case Rogers v. Grimaldi) whereby the right to protect a registered trade mark (a protection given in the USA law essentially by the Lanham Act), under some circumstances, cannot be enforced to detriment of “the right of others to express themselves freely in their own artistic work” (from the Rogers v. Grimaldi case). In the words of the defendant: “[I]n general the [Lanham] Act should be construed to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression”.

Rothschild also cited the reproduction, by well-known artist Andy Warhol, of brands like Campbell’s Soup and Coca Cola in his artistic work: “Andy Warhol famously depicted iconic brands, including Campbell’s Soup and Coca-Cola, in stylized but plainly recognizable form. Warhol was one of many pop artists who depicted branded products, and brands remain highly relevant to contemporary artists”.

The Judge’s instructions

It is interesting to summarize the Judge’s relevant instructions to the Jury.

In instructions n° 10 the Judge told jurors that “specifically, Hermes contends that Mr. Rothschild's use of the Birkin name and/or the handbag's distinct visual appearance is likely to confuse potential consumers into thinking that the MetaBirkins NFTs are made and sold or otherwise connected with, associated with, sponsored by or approved by Hermes” and that the jurors had to determine whether “consumers are likely to be confused”.

In instructions n° 14, the Judge instructed jurors to “If, and only if, you find Mr. Rothschild is liable for any one or more of the three claims described above you must then consider whether, nonetheless, Mr. Rothschild is protected from liability on any claim because, in creating the MetaBirkins NFTs, he engaged in artistic expression protected by the First Amendment to the U.S. Constitution”.

Furthermore, the Judge asked jurors to consider that “It is undisputed, however, that the MetaBirkins NFTs, including the associated images, are in at least some respects works of artistic expression, such as, for example, in their addition of a total fur covering to the Birkin bag images. Given that, Mr. Rothschild is protected from liability on any of Hermes' claims unless Hermes proves by a preponderance of the evidence that Mr. Rothschild's use of the Birkin mark was not just likely to confuse potential consumers but was intentionally designed to mislead potential consumers into believing that Hermes was associated with Mr. Rothschild's MetaBirkins project. In other words, if Hermes proves that Mr. Rothschild actually intended to confuse potential customers, he has waived any First Amendment protection”.

The main question at stake

Together, Instructions 10 and 14 required the jurors to determine whether the Metabirkin collection is a product in direct competition in the market with the Hermés physical bag up to the point of being capable of misleading consumers (and, therefore, of damaging economically Hermés).

In assessing this question, it is worth noting that the value of a Birkin physical bag relies not so much on the utility of the object as a handbag but rather on its importance as a symbol of luxury and as a form of investment. While an original Hermés bag can have a cost in the range of EUR 10,000, the same type of bag without the Hermés brand (a simple leather bag, in other words) will have a value of a few hundreds of Euros (if not even less).

It is also worth considering that, while Warhol artworks depicting Campbell’s Soup or Coca Cola were – like every kind of physical art – unique pieces of art, the Metabirkin collection was composed of 100 NFTs. Mason Rothschild could have also easily created many more NFTs (i.e., minted) in little time and with very low cost of production. Also, unlike the Metabirkins, there is clearly no danger of a consumer who wanted to buy a can of Campbell’s Soup in a supermarket to end up buying the Warhol piece of fine art depicting the Campbell’s Soup – they are clearly different products destined to very well different types of consumers in the market.

Therefore, it is reasonable to say that a collection of 100 NFTs (but potentially many more given the low level of costs of minting an NFT) which will likely be purchased essentially for the iconic luxury value of the Hermés-Birkin brand as well as a form of investment might easily mislead consumers of the original Birkin Hermés (physical) bags who, as indicated above are essentially attracted by the value of the brand in terms of luxury symbol as well as for its value as an investment.

The same could be said for the other major NFTs projects like, to name a few, the Bored Apes Yacht Club (BAYC), the Crypto Punks, the World of Women or the Moonbirds. In all these collections, the artistic value of the associated image (i.e., the artwork) is, in fact, negligible while the value of the NFT is its value as a symbol of luxury and as a form of investment.

In relation to BAYC, in fact, in a recent case (here and here) the complaint was mainly based on trade mark infringement rather than on copyright. This was because the trade mark regime is (probably) more suitable to protect a product (the BAYC NFT) which is essentially sold as an iconic luxury item as well as an investment rather than as a piece of fine art.

Coming back to the Hermès v. Rothschild case, it is arguable that the final decision might have been different if Rothschild had created a unique NFT, like famous Beeple’s unique NFT “Everydays: the First 5000 Days”, with an associated artwork depicting some luxury bags including, inter alia but not exclusively, the Birkin bags. In a similar situation, there would have not been any real danger of confusion between that single, unique, NFT and a Birkin bag which, although a luxury product and with a limited level of production, is still created in series. The specific character of NFTs is to confer non-fungibility to a digital asset which is otherwise “fungible by default”. This said, a collection of multiple NFTs is actually a collection of multiple, non-fungible, products similar in kind to a physical product produced and sold in a series although within a limited edition.

As a sidenote, it is also worth noting that the forthcoming EU Market in Crypto Assets Regulation (MICA) states that “the issuance of crypto-assets as non-fungible tokens in a large series or collection should be considered as an indicator of their fungibility” (Recital 6c, last available version of October 5, 2022).

Conclusion

In conclusion, it seems that the importance of Hermés v. Rothschild for the development of a case law in relation to NFTs may be limited to NFT projects in series and not to an NFT which has been minted in one unique copy and which is more similar to a piece of fine art.