On May 5, 2022, U.S. District Court Judge Jed S. Rakoff of the Southern District of New York denied a motion to dismiss trademark infringement claims brought by the international fashion brand Hermès against an artist name Mason Rothschild – a digital artist who created a collection of digital images called “MetaBirkins” and sold them in non-fungible tokens (NFTs) on multiple NFT marketplaces.
While, at the case's pleading stage, the district court's decision denying the artist's motion to dismiss does not resolve the issue of whether the creation and selling of the MetaBirkins NFTs infringe Hermès' trademarks and trade dress rights to its most coveted Birkin bags. The decision provides the framework under the Rogers test (explained below) for analyzing the digital artist's use of a famous trademark and brand for creating artworks while protecting the artist's First Amendment interests.
On June 6, 2022, Rothchild moved to certify an interlocutory appeal to the district court's order, among other things, that the district court “[m]isapplies Rogers and its Progeny.”
While an appeal may be pending, in this article, we'll discuss the facts and reasoning behind the district court's decision, and provide takeaways for startup owners, digital artists, and brands in the areas of digital assets and cryptocurrency.
The background of the case
Birkin bags are highly coveted and have been known to sell for upwards of $100,000. They are often seen as status symbols and have red in many popular culture references, including Sex and the City, The Devil Wears Prada, and Keeping Up with the Kardashians.
NFTs are digital data recorded on a blockchain; they can be traded on decentralized exchanges. When an NFT is tied to an actual real-world object, the NFT may serve as a form of ownership or a certificate of authenticity.
The case: Hermès International, et al. v. Rothschild
Mason Rothschild created images of faux-fur-covered versions of the luxury Birkin bags, and named them “MetaBirkins.” He then used NFTs to sell these “MetaBirkins” on NFT marketplaces through “smart contracts” – a series of self-executed computer codes built and administered on a blockchain to execute the transfer of digital assets when certain conditions are met.
After MetaBirkins' debut, counterfeits emerged. Consumers were confused, believing that was an affiliation between Hermès and MetaBirkins when there was not.
In response, Hermès filed a lawsuit against Rothchild, subsequently amended, claiming trademark infringement, tradition, cybersquatting, and other similar state law claims. Rothchild moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
District Court's Decision to Deny the Artist's Motion to Dismiss
In the motion to dismiss the amended complaint filed by Rothchild, the parties disputed the applicable legal test that the district court should use in determining whether Hermès's alleged trademark infringement claims should be dismissed at the pleading stage of the litigation or are allowed to move forward in the proceeding.
In asking the court to dismiss Hermès's claims, Rothchild argues the MetaBirkins (i.e., the digital images of Birkin bags tied to the NFTs) were “art.” Thus the court should apply the Second Circuit test in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) and dismiss the case under the Rogers test on the First Amendment grounds.
Under the Rogers test, if an artist uses a famous mark to create and sell artworks that “could constitute a form of artistic expression” but not as a source identifier of his products, the use of the mark is entitled to the First Amendment protection. The exception to the Rogers test is if the title artwork's title “explicitly mislead[s]” as to the work's source or content.
Hermès argues that Rothchild uses the “MetaBirkins” mark as a source identifier to promote and sell his NFTs as commodities. Therefore, the First Amendment does not protect him from unauthorized use of the mark. The district court rejected Hermès' argument, reasoning, among other grounds, that:
“[B]ecause 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 many more selling numbered copies of physical paintings would make the paintings commodities for purposes of Rogers.”
If the artist's appeal is denied, the Rogers test will become the applicable legal framework under which the district court will hear evidence in analyzing the case. During discovery, Hermès will need to show that Rothchild's creation of the MetaBirkins has no “artistic relevance” and “is explicitly misleading as to the source or content of the work” to prevail on its trademark infringement claims. As the district court stated in its opinion and based on Rogers, the “threshold for ‘artistic relevance' is intended to be low and will be satisfied unless the use ‘has no artistic relevance to the underlying work whatsoever.” Rogers, 875 F.2d at 999.
The three primary takeaways
To slim down the district court's order in denying Rothchild's motion to dismiss into something more digestible, here are the three primary takeaways from the recent decision:
- The sale of NFTs under a name similar to a well-known brand may be found to be infringing on the trademark of that brand if the title of the artwork that used the famous mark “has no artistic relevance to the underlying work whatsoever.” Rogers, 875 F.2d at 999.
- NFTs created as artistic expressions are protected by the First Amendment and are not trademark infringement unless the party claims the infringement can show “explicit misleadingness.”
- Pending the result of the appeal, trademark infringement claims involving NFTs and First Amendment are unlikely to be dismissed at the pleadings stage under the Second Circuit's Rogers test.
The title of the case is: Hermes Int'l et al. v. Rothschild, 22-CV-384 (JSR)