Clifford Chance

Hermès is a French luxury design house that is well known for the BIRKIN handbag. Hermès is the owner of the "BIRKIN" and "HERMES" marks, as well as a three-dimensional design mark for the BIRKIN handbag's distinctive design.

In December 2021, digital artist Mason Rothschild began to advertise NFTs bearing the "METABIRKINS" brand (for more information on the key IP issues surrounding NFTs, see: "NFTs – An Introduction and Some Key Intellectual Property Considerations"). Rothschild later produced a collection of one hundred NFTs depicting digital Hermès BIRKIN bags covered in designs never seen on any Hermès BIRKIN bag – namely faux fur, polka dots, and artwork including the Mona Lisa and Van Gogh’s Starry Night. Hermès said that Rothschild sold more than $1 million worth of METABIRKIN NFTs.

Hermès argued that, because of their widespread and constant use of the BIRKIN trademark and related trademarks registered by Hermès, the bags have come to be known as "source identifiers" for Hermès and for "renowned high-quality luxury goods".

Hermès filed a complaint against Rothschild in the Southern District of New York in January 2022. At trial in February 2023, the jury was asked to consider claims of (1) infringement of the Hermès BIRKIN trademark; (2) trademark dilution; and (3) cybersquatting.

Infringement of the Hermès BIRKIN trademark

Hermès claimed that Rothschild's use of the BIRKIN name and/or the handbag's unique appearance may have caused confusion among potential customers, leading them to believe that the METABIRKINS NFTs were produced, sold, or otherwise affiliated with Hermès and its BIRKIN brand.

To evaluate this claim, the jury was instructed to consider several factors, including:

• the strength of the Hermès BIRKIN trademark
• similarities between the Hermès BIRKIN trademark and the name and appearance of the METABIRKINS NFT
• whether the products offered by Hermès and Rothschild were similar in name and appearance and whether such similarity was likely to cause consumer confusion
• evidence of actual consumer confusion
• the level of care and attention an average consumer might exercise when encountering the products
• whether Rothschild acted in bad faith, i.e., if he intentionally disregarded the possibility of customer confusion
• whether Hermès had concrete plans to develop and release its own NFTs using the BIRKIN trademark.

Trademark dilution

To evaluate this claim, the jury was instructed to consider several factors, including:

• Rothschild's intent to create an association with the BIRKIN trademark
• any actual customer association of the METABIRKIN NFTs with the BIRKIN mark
• the level of recognition of the BIRKIN mark amongst the jury.

Hermès noted that the Hermès Birkin bag and the BIRKIN mark had received "unsolicited publicity" and praise from consumers and in media, citing references in television, film, magazines, and financial journals that discussed the benefits of a Birkin bag as a financial investment.

"Cybersquatting"

Hermès accused Rothschild of engaging in "cybersquatting", which involves registering a domain name that is identical or confusingly similar to another trademark, by using the domain name "metabirkins.com" in connection with the METABIRKINS. To prove this allegation, Hermès needed to establish several elements, including:

• the distinctiveness of the BIRKIN trademark at the time of registration of the "metabirkins.com" domain name,
• the identical or confusing similarity between "metabirkins.com" and the BIRKIN trademark, and
• that Rothschild had a bad faith intention to profit from the BIRKIN trademark, such as intending to divert customers from the Hermès online location to a site that could harm the goodwill represented by the BIRKIN mark.

First Amendment considerations

The jury was also instructed that, if Rothschild was found to be liable for one or more of the claims brought by Hermès, they must consider whether his liability was barred by the right to artistic expression. This right, which is safeguarded by the First Amendment to the U.S. Constitution and affirmed by U.S. courts as a form of fair use, would allow Rothschild to create METABIRKINS NFTs if he was engaged in "artistic expression" when producing the works. The court advised the jury that such protection could be waived if they determined that Rothschild intended to mislead consumers into believing Hermès was associated with the project by using the BIRKIN marks.

Conclusion

The jury concluded that the use of the METABIRKIN trademark violated Hermès rights and that the First Amendment did not bar Rothschild's liability. Rothschild was ordered to pay $110,000 in profit and resale commissions he received from selling the infringing NFTs and $23,000 in damages for cybersquatting. As of the date of this article, Rothschild has not appealed the jury's decision.

What this means for you

NFTs became a $40 billion market in 2021. In response to this trend, several luxury brands have proactively invested in virtual worlds by registering digital trademarks and releasing NFT collections. The inaugural Metaverse Fashion Week launched in March 2022, which cemented the growing importance of this digital market for the fashion industry (for more information, see "Virtual Fashion Week – the key IP implications"). To avoid the risk of third parties registering similar trademarks in the digital space, luxury brands should consider taking pre-emptive action to secure their rights and avoid costly litigation.

The decision represents a significant milestone in guiding luxury brands on the ambiguous boundary between the physical and virtual realms. The case has highlighted the importance of applying IP rights in the digital world just as they are in the physical world, and suggests that similar tests, such as the assessment of likelihood of confusion and reputation and balancing of First Amendment considerations, will also apply to activities in the virtual world.

The jury's verdict in the New York court has not yet established a firm legal precedent for other courts to follow, especially as we wait for a potential appeal to the Second Circuit. Furthermore, it is uncertain how comparable cases will be decided in other jurisdictions, as the outcome of this case might have differed if a judge had decided the case. Nevertheless, it is expected that this ruling will act as a deterrent to third parties who deliberately replicate well-known trademarks for financial gain.