Decided on: 2 February 2023
Coram: Judge Jed S. Rakoff
Citation: No. 22-CV-384-JSR, 2023 WL 1458126 (S.D.N.Y. Feb. 2, 2023)
Issuing Authority: U.S. District Court for the Southern District of New York
Introduction
In an interesting suit involving, Hermès International (“Hermès”), a French luxury fashion brand that is highly popular for its high-end fashion bags, clothing and accessories, the Southern District of New York considered whether trademark law applied to Rothschild’s MetaBirkins Non-fungible tokens (“NFTs”), which depicted Hermès’ famous fur-covered Birkin bags. The defendants, Mason Rothschild designed a set of MetaBirkin bags as digital art inspired by the design of the famous Birkin handbag and sold the digital artwork as NFTs, which serve as proof of ownership. Hermès brought a lawsuit against Rothschild claiming trademark infringement, among others. In response, Rothschild claimed protection from free speech provisions of the U.S. Constitution
Background
Hermès has sold more than $1 billion worth of Birkin bags in the United States since 1986. Hermès has successfully obtained IP rights over the trademark “Birkin” as well as the design of the bag.
Mason Rothschild, whose legal name is Sonny Estival, is a self-described marketing strategist. In December 2021 he sold 100 NFTs under the name MetaBirkins through the website metabirkins.com. Each NFT was linked to a digital image of a faux-fur Birkin. Sales passed $1.1 million by June 2022. Rothschild received a 7.5% royalty on each resale and retained control over the NFTs’ underlying smart contracts.
Hermès sent a cease and desist letter to Mason Rothschild on 16 December 2021 and sued them on 14 January 2022 claiming trademark infringement, dilution, cybersquatting and unfair competition. Hermès also said the project blocked its own plans to enter the NFT market.
Both parties asked for summary judgment. The court had to answer two questions. The first was which test applies: Rogers for artistic works, or Gruner + Jahr for ordinary trademark disputes. The second was whether the MetaBirkins infringed or diluted the Birkin marks under whichever test applied.
Pertinently, in the case of Rogers v. Grimaldi[1], the issue of balancing trademark law with freedom of expression was discussed by the courts in relation to the First Amendment. The Petitioner, Ginger Rogers had objected to the use of her name in connection with the movie “Ginger and Fred.” In this case, the court set out a standard to shield artistic works against the misuse of trademarks. According to the Rogers Test, the use of the trademark in an artistic work is protected unless one of the following occurs:
- The use of the trademark has absolutely no artistic relevance to the work; or
- The use of the trademark explicitly misleads consumers.
Whereas in the case of Gruner + Jahr USA Publishing v. Meredith Corp.[2], the courts laid down the usual standard used for trademark infringement cases, based on the probability of confusion among consumers. In this case, there was a situation where there were two publishing companies, using names that were too close or very similar to each other in their magazines. The question here was whether there was any probability of confusion among consumers regarding the origin of these magazines. With respect to this general rule, courts consider whether the consumers will get confused with regard to the source, sponsorship, or affiliation of these goods.
Judgment
The court applied for Rogers. It confirmed its earlier ruling on the motion to dismiss and found that Rothschild had presented admissible evidence that he used the Birkin name as part of an expressive project and not mainly to identify the source of goods.
The court first decided what “MetaBirkins” refers to. Hermès claimed that the name described only the NFT, because the image could be changed through the smart contract. The court disagreed. Buyers understood that they were paying for exclusive ownership of the image, so the name covered both the NFT and the image.
Rothschild’s evidence included a disclaimer on his website after the cease and desist letter. His publicist also asked publications to correct reports that Hermès was involved. Elle UK, L’Officiel and the New York Post had made those reports. In an interview on 6 December 2021, Rothschild described the project as an experiment in digital scarcity. He said the fur added irony to fashion’s move away from fur.
Hermès relied on other evidence. Rothschild had told investors that artists can get away with a lot by saying “in the style of”. He had said he was in a rare position to bully a multi-billion dollar corporation. His text messages spoke of making “big money” and told an associate to produce the images quickly to “print some money”. The court held that this shows a profit motive. A profit motive does not remove Rogers’ protection, since artists may sell their work.
Rogers has two parts. Under the Rogers test, a trademark used in an artistic work may be protected if it has artistic relevance and does not explicitly mislead consumers about the work’s source or content. The court found disputed facts on both parts.
On artistic relevance, the evidence conflicted on whether Rothschild chose the Birkin as an artistic subject or to profit from the brand’s name. This is a mixed question of law and fact, suited to a jury.
On explicit misleading, the court said that the eight Polaroid factors apply and that confusion must be clear to outweigh the First Amendment interest. The parties disputed most of the factors. Hermès offered a survey showing 18.7% net confusion among likely NFT buyers, along with social media posts from users who appeared to link the NFTs to Hermès. Rothschild challenged the survey method. He said the posts showed that users used “Birkin” as shorthand, which is consistent with no confusion.
The dilution and cybersquatting claims depend on the Rogers outcome. Cybersquatting also requires bad faith intent to profit, and the court found that dispute unresolved. Summary judgment was denied in full.
Conclusion
The ruling lays down the procedure in a case where a popular brand name is used as a title of an NFT. The court gave Rogers’ argument a lot of weight and granted him a broad definition. Further, the test is not meant to allow copying of a trademark. The intent, profit message, and evidence of confusion are decided by a jury.
The jury delivered its verdict on 8 February 2023. In this verdict, Rothschild was found liable for infringement, dilution, and cybersquatting. The ruling awarded Hermès a $133,000 compensation. The judge issued a permanent injunction in June 2023. The Second Circuit will hear the appeal on 23 October 2024.
Artists need to be wary of potential trademark claims arising from the use of a popular brand name as a title for creative works. One could reduce risks by choosing a different name and indicating that there is no link between the work and the brand. Brand owners need to monitor NFT marketplaces and record any instances of confusion.
[1] Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).
[2] Gruner+ Jahr USA Pub. v. Meredith Corp., 793 F. Supp. 1222 (S.D.N.Y. 1992)