NFTs raise stark questions about brands

Axel Dumas, the executive chairman of Hermès, told shareholders this week that the luxury brand’s management was “curious and interested in” the metaverse as a potential communications tool. The metaverse-focused comment comes amid the trademark battle that bag maker Birkin has waged against Mason Rothschild, the creator of a collection of non-fungible MetaBirkins (“NFT”) tokens, for allegedly infringing copyrights. ‘Hermès on the Birkin name and model protected by commercial clothing. Hermès filed its trademark infringement and dilution and cybersquatting case against Rothschild in federal court in New York in January, arguing that Rothschild leveraged the fame of its name and its Birkin bags to offer and sell its NFTs. as something akin to luxury goods.

In one of the latest developments in the case, Rothschild’s attorney, who is seeking to have the case thrown out of court, doubled down on his claims in an April 18 letter to the U.S. District Court for the Southern District of New York, arguing that Hermès cannot escape the precedent created by Rogers vs. Grimaldi. (Under the roger test, expressive use of a mark may be protected by the First Amendment and immune from liability for trademark infringement “unless the use of the mark has no artistic relevance to the underlying work” and “unless it explicitly misleads as to the source or content of the work.”) (In this case, Rothschild’s attorney primarily argues that the court should stay the discovery until his motion to dismiss is decided.)

Hermès tries “to exile [the] metaBirkins of the art world (and, therefore, First Amendment protection)” by “characteriz[ing] the MetaBirkins as “virtual handbags” or “digital counterfeits”, or digital versions, of physical BIRKIN handbags,” according to Rothschild’s attorney. In a similar vein, the luxury goods supplier claims that Rothschild created and offered these virtual bags – or “commodities” – as an “analog to [its] physical handbags (and at similar prices!)”, while “exchanging the important goodwill” held by Hermès.

However, Rothschild argues that Hermès falls short, as it “can’t help but admit that the MetaBirkins are actually static digital images, not actual handbags”, and therefore, the court should reject “Hermes’ claim that the MetaBirkins are somehow outside the concern of the First Amendment.

The distinction between virtual handbags or merchandise, which is how Hermès describes NFT MetaBirkins, and art, which is what Rothschild says they are, is essential, because “to escape defeat by Rogers vs. Grimaldi, and its offspring”, Hermès must “plausibly allege that the MetaBirkins are something other than art”. This is precisely why the bulk of the arguments on both sides have focused on what is – exactly – at issue here and how the court should interpret the nature of the MetaBirkins NFTs.

This case – and the crucial question of whether the MetaBirkins are, in fact, works of art subject to First Amendment protections – will ideally provide guidance to others in the space by potentially shedding light on how art and fashion can both exist in the so-called “metaverse”.

At the same time, the brand new Nike vs. StockX The case raises questions about the purpose and value of NFTs. In this case, Nike claims that StockX is liable for trademark infringement and dilution, as well as unfair competition, for offering NFTs related to images and physical versions of Nike shoes – albeit without the participation or permission from Nike. The Sneaker & Apparel Market argued fair use in response, saying its Vault NFTs “are absolutely not ‘virtual goods’ or digital sneakers,” and that each of the NFTs are “tied to a physical good. specific that has already been authenticated”. by StockX. As such, NFTs themselves have “no intrinsic value” and essentially serve as a “claim ticket or ‘key’ to gain ownership of the underlying stored item”, placing them in the domain of the first sale doctrine and nominative fair use. (Rothshild has made similar statements, arguing that NFTs, themselves, are merely “the technological means by which [he] authenticates his works. “)

Both cases demonstrate that “applying even well-established brand concepts to NFTs requires a determination of what the NFT represents; is it a physical good, a digital good, a simple certificate of ownership? ”, according to Laura Franco and Dhruva Krishna of Winston & Strawn LLP. And these questions are “just the tip of the iceberg”, they state, noting that “as NFT technology develops and its use expands to non-commercial products, the application of traditional principles brands to this new technology will only become more complex.

For example, Franco and Krishna point to the use of NFTs as governance tokens for Decentralized Autonomous Organizations (“DAOs”) – which are member-owned communities with no centralized direction that are organized and governed by smart contracts on a network. blockchain – as bringing to the table “layered uses” of NFTs that go beyond simply representing physical and digital products. For the DAOs, they argue that “NFTs not only represent an underlying image or practical function, but also convey valuable governance” – and ownership – of “rights”, representing each person’s participation in the DAO and potentially allowing buyers to vote on things like “how the organization is run, how assets are allocated, how authority is conferred, [and] how tokens are used.

As the use of NFTs continues to evolve, “brand owners will be forced to answer the question of what the NFT represents, but they will also have to answer the question of who it can sue, and whether a recourse in the form of an injunction is even possible,” according to Franco and Krishna. to grow at the same time.