In the U.S. District Court for the Southern District of New York, the highly anticipated trial of Hermes Int’l v. Rothschild, 1:22-cv-00384, has become the first benchmark to shape the law around intellectual property rights and NFTs. 

This closely watched case was the first of its kind. Luxury goods manufacturer Hermes International sought legal remedies against Los Angeles artist Mason Rothschild for his creation and sale of digital non-fungible tokens (NFTs), without obtaining Hermes’ authorization, depicting digital images of revised versions of Hermes’ iconic “Birkin” handbag.  Hermes also complained about Rothschild’s use of the term “metabirkin” to sell his NFTs.

This week, the jury sided with Hermes and held that Rothschild was liable for trademark infringement, trademark dilution, and for unlawfully cybersquatting on the domain name MetaBirkins.com, awarding Hermes over $133,000 in damages.

Regardless of the jury’s verdict, and any subsequent post-trial motions, appeal, or rulings by Judge Rakoff as to whether their verdict is supported by the evidence, this case will remain a turning point in the legal struggle to control use of intellectual property in the metaverse, and no doubt influence a myriad of decisions to come.

In this article, we discuss the unusual confluence of three legal theories presented by this case, all of which are still currently evolving: fair use of copyright; fair use of trademarks; and the use of trademarks in the so-called “metaverse,” in which virtual goods are increasingly being created and sold without regard to the trademark rights of the manufacturers of real-world versions of those goods. 

Fair Use of Copyright

First, Rothchild, the author of the NFTs in issue, claimed that his use of adapted images of “Birkin” handbags in the NFTs he sold and his use of the term “metabirkins” are legal, citing the doctrine of fair use.  According to this well-known doctrine in copyright law, an author is entitled to conjure up or even copy another artist’s work in order to comment upon it.  Rothschild claimed his use of images of Hermes bags in his NFTs is therefore legal, just as Andy Warhol’s use of images of “Campbell’s” soup cans in his iconic prints have long been viewed as legal fair use. 

However, on the eve of trial, Judge Rakoff rebuffed Rothchild’s attempt to call an art critic as an expert witness to support that view. Instead, Judge Rakoff ruled that such expert testimony would prejudice the jury without offering enough probative value. This ruling may have solidified Hermes’ favorable jury verdict.

Coincidentally, the Supreme Court is currently considering the edges of the doctrine of fair use in a case challenging Andy Warhol’s use of another’s artwork, namely a photograph of recording artist Prince by Lynn Goldsmith.  Goldsmith, like Hermes, has challenged the use of her copyrighted work by another artist to create and sell new artworks without consent.  To date, the Supreme Court has not issued its ruling on the limits of fair use.  Judge Rakoff therefore applied existing fair use law when instructing the jury on how to assess Hermes’ similar claim that Rothchild’s NFTs are unauthorized infringements.

Fair Use of Trademark

Hermes’ claims more directly raise the related legal theory of trademark law, namely, whether an artist may incorporate another person’s trademark into their artwork without consent.  Unlike the doctrine of fair use of copyright referenced above, this issue depends upon a widely accepted legal test formulated in a well-known 1989 federal appeal court ruling named Rogers v. Grimaldi.  In that case, the court ruled that the First Amendment protected “minimally relevant use of [another’s trademark in] an artistic work where the [use] does not explicitly denote authorship, sponsorship, or endorsement … or explicitly mislead as to content.” 

Whether the “Rogers v. Grimaldi” test is still good law was questioned in Stouffer v. Nat’l Geographic Partners, 2019 U.S. Dist. LEXIS 140947 (D. Colo. Aug. 20, 2019), in which another court suggested scrutinizing more carefully whether an artist is truly merely referencing another’s trademark, rather than seeking to capitalize on it.  In particular, that court supported relying on separate statements by an artist that reveal an ulterior motive to profit by association.  But Judge Rakoff explicitly applied the “Rogers v. Grimaldi” test earlier in the Hermes case, and then later ruled that an appeal by Rothschild would have to await the outcome of the trial of Hermes’ claims against him.

Trademarks in the “Metaverse”

Finally, these various rulings in Hermes v. Rothschild represent rare and recent examples of a court ruling on the extent to which a trademark owner can extend its trademark rights into the “metaverse,” in which purely “virtual” novelty goods such as Rothschild’s NFTs arguably do not compete with Hermes’ real world luxury goods.  The makers of such real-world luxury goods, like other manufacturers, object to others capitalizing on the goodwill and reputation associated with their goods, arguing they already have or may in the future extend their markets for “real world” goods into virtual goods.  Courts have not yet determined how the markets for real goods and virtual goods interrelate – and how that affects trademark owners’ rights.

Meanwhile, Judge Rakoff’s decisions to allow Hermes’ claims to proceed to trial demonstrate his view that a trademark claim exists against a vendor of “virtual goods” when consumers are confused into believing that the “virtual goods” were authorized or endorsed by the “real world” manufacturer and owner of the trademark in question. That view supports tighter regulation of the new and quickly developing practice of selling in the metaverse. 

For now, a jury has determined that Rothschild’s NFT collection cannot escape such regulation by claiming artistic license. Rothchild, however, will likely not let the battle end here, as he expressed on Twitter that “[t]his is far from over.” In time, an appeals court may have to affirm, modify or update its long-standing “Rogers v. Grimaldi” test and either uphold or overturn Hermes’ win and further settle the law of NFTs and intellectual property rights.