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Birkins, NFTS and Trademark Infringement in the Metaverse
The case of Hermes Int’l & Hermes of Paris, Inc. v. Rothschild, 22-cv-384 (JSR) (S.D.N.Y.) has generated widespread interest among those in the legal profession as well as purveyors of luxury fashion goods. The lawsuit was filed in January 2022 by Hermès, the makers of the uber-chic and expensive Birkin handbags, which can retail for more than $25,000. Hermès alleged that the trademark it uses to identify its iconic handbags, BIRKIN, was infringed by the defendant, “Mason Rothschild” a/ka/ Sonny Estival, through his use of the mark, METABIRKINS, to identify non-fungible tokens or NFTs. Although a jury decided in favor of Hermès in February 2023, the case continues because Estival appealed the jury’s decision, meaning the verdict could be overturned.The case is one of the first in the nation to go to trial to grapple with the scope of trademark protection in the metaverse. Hermès and other fashion houses waited with bated breath for the jury’s verdict, which, had the jury found in favor of Estival, might have meant that counterfeiters could infringe trademarks in the metaverse with impunity, causing potentially untold losses to the coffers of some of the world’s biggest luxury retailers. And if storied, deep-pocketed companies like Hermès with brands as exclusive as BIRKIN could be freely copied, what chance do smaller brands have of protecting their marks in cyberspace and capitalizing off of the consumer goodwill their marks have generated over the years?The metaverse is an all-virtual world where people use avatars to represent themselves and other objects found in the physical world in order to interact with one another. Estival used his METABIRKINS trademark to denote virtual Birkins that he sold on the internet, which were not endorsed by or associated with Hermès. The jury found that Estival intentionally copied the design and label of authentic Birkins to free-ride off of their reputation so that consumers would associate Estival’s fake goods with the genuine article.Before the jury reached its verdict, the judge presiding over the case made an early key ruling, finding that the NFTs identified by the METABIRKINS mark contained creative elements. He wrote:[Just] because NFTs are simply code pointing to where a digital image is located and authenticating the image, using NFTs to authenticate an image and allow for traceable subsequent resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings would make the paintings commodities for purposes of Rogers.
This early decision by the judge was important because a finding of trademark infringement typically involves a multi-factor analysis to determine whether the use of a mark is likely to cause confusion in the minds of the public with another mark as to the source of the goods or services associated with the competing marks. However, when a mark identifies a product that has creative or expressive elements, such as a movie, book, or song, a different test for infringement is used, the Rogers test created in the seminal case of Rogers v. Grimaldi, 875 F.2d 994 (2nd Cir. 1989). That test asks only whether the mark has some artistic relevance to the product or service it identifies and, if so, whether the mark explicitly misleads the public as to the producer or manufacturer of the product or service. Practically speaking, the Rogers test is much more forgiving of would-be infringers, allowing them to appropriate another’s mark without consequences, which is why the judge’s early ruling that the NFTS possessed artistic elements was significant.However, even though the judge ruled that Rogers applies, the jury wasted little time returning a unanimous verdict that Estival purposely intended to confuse the public into thinking that there was an association between Hermès and METABIRKINS. After the verdict was issued, Hemes sought a permanent injunction, which the judge granted in June 2023, enjoining Estival from, among other things, using the METABIRKINS mark to sell, promote, or advertise MetaBirkin NFTs. But the case wasn’t over yet.Just a few weeks before the permanent injunction was ordered, the Supreme Court issued its precedential decision in Jack Daniel’s Properties, Inc. v. VIP Products LLC, 143 S.Ct. 1578 (2023). That case involved a defendant using the “Jack Daniels” mark and trade dress of the whiskey maker’s famous bottles to sell chewable dog toys. There, as in the Birkin’s case, the defendant argued that the Rogers test should apply. The Court held otherwise, ruling that the traditional multi-factor analysis should be employed to determine trademark infringement when a mark is used as a source identifier, i.e., as a trademark, regardless of whether the mark denotes an expressive or parodic work covered by the First Amendment.Somehow believing that the decision in Jack Daniel’s gave him new ammunition, Estival argued that the jury’s verdict was erroneous, so he should either be granted a new trial or the judge should reverse the jury’s verdict and rule in his favor as a matter of law. The judge disagreed. Not only had the judge instructed the jury to apply Rogers, as Estival requested, and despite the fact that the judge had earlier found that Estival did not use METABIRKINS “primarily as a source identifier” (emphasis added), the jury, under the judge’s guidance, went further and applied a “very pro-defendant interpretation of Rogers” and still found him liable for a host of violations, including direct trademark infringement, trademark dilution, and cybersquatting.One might think that Estival would have accepted his losses and moved on. Not so. He went before the same judge and requested a clarification of the injunction since a Swedish museum had given him an opportunity to display his MetaBirkins artwork as part of an exhibition on Andy Warhol and business art. He wanted to ensure that such use was not prohibited by the injunction. In his purported attempt to comply with the injunction, he told the judge that he would not receive any royalties for his participation, and his MetaBirkins artwork at the museum would be accompanied by explanatory text informing the public that he lost the Birkins lawsuit and was found liable for infringement. The court ordered a hearing on the matter.At the hearing, things went from bad to worse for Estival, and the judge’s concerns that Estival was merely attempting to circumvent the injunction only intensified. Estival’s agreement with the museum was oral. So, since there was no written agreement, the judge could not conclude that Estival was not using the exhibition to promote MetaBirkins further and enrich himself at the expense of Hermès. The judge found that Estival blatantly misrepresented the truth about placing a caption near his artwork to explain to patrons that he had been found liable for trademark infringement, as a museum representative testified that displaying such a caption was news to her. She knew nothing about it, and even if she did, she said would be opposed to posting signage informing the public that she was showcasing the work of “an artist who is a fraud.” The misrepresentations continued to unravel for the defendant at the hearing as the museum official learned for the first time that the named plaintiff, Mason Rothschild, was actually an alias. His real name was Sonny Estival.In his opinion and order denying Estival’s request to display MetaBirkins at the museum, the judge showed his increasing intolerance for the defendant’s shenanigans by exposing his true identity. Using unflattering language in referencing Estival’s duplicity and denying his request, the judge wrote:In fairness, Sundberg herself was not even aware of the extent of Estival’s deceptiveness. In fact, she only learned for the first time at the hearing that “Mason Rothschild,” the name that Estival used to peddle his infringing NFTs, was entirely phony…Given the lack of any details whatsoever about how the exhibit will describe Estival’s MetaBirkins NFTs to the public, and knowing full well that the person curating the exhibit is openly hostile to the jury’s verdict, the Court cannot approve Estival’s requested permission as compliant with the injunction…The Clerk is also respectfully directed to amend the caption of this case to conform to the caption listed on this Opinion and Order.Although Estival lost at trial, lost in opposing the permanent injunction, and lost in his request to display the MetaBirkins artwork in a museum, all that could change as he continues to fight for his right to use the METABIRKINS mark on appeal. The appellate case is currently before the Second Circuit, with oral arguments scheduled for October 23, 2024. If he wins there, the Second Circuit could do several things, including ordering a new trial, canceling the permanent injunction, or even, in what would be a remarkable turn of events, granting judgment in his favor.The Birkins case shows the power of trademark law. Hermès was able to get a court to force an infringer to stop using its mark and turn over to it all profits it had earned from such unlawful usage since the trial’s inception. None of that would have been possible had Hermès not acquired, maintained, and policed its mark. Even though there is a chance Estival may ultimately succeed, for now at least, would-be copycatters should take heed: Whether in the real world or the metaverse, the scope of trademark protection is the same. If a party uses a trademark that’s similar to another’s mark, that party may be found liable for trademark infringement and ordered to pay damages, attorney’s fees, and profits derived from the infringement.
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