NEW YORK — The limits of art and trademark law were tested this past week as the trial between 28-year-old non-fungible token (NFT) artist Mason Rothschild and Hermès comes to a close.
Tensions have been brewing between the two entities since December 2021, when Rothschild released his collection of 100 furry digital handbags titled MetaBirkins – a name that serves as a nod to Hermès' signature Birkin handbag – at Art Basel in Miami. The project was an extension of a one-of-one NFT artwork called "Baby Birkin," which originally sold at auction in May 2021 for 5.5 ETH, or about $23,500 at the time.
Upon release, Rothschild said his new series was "inspired by the acceleration of fashion’s 'fur-free' initiatives and embrace of alternative textiles." The NFTs in the collection had a starting price of 0.1 ETH, or about $450 at the time of its release.
Hermès International filed a trademark lawsuit against him on Jan. 14, 2022, claiming that Rothschild was "stealing the goodwill in Hermès' famous intellectual property to create and sell his own line of products," which could create confusion among its consumer base.
According to a message posted by Rothschild to Twitter, he called the claims made by Hermès "baseless" and said he hoped to set a precedent in the art and NFT spaces.
"I am not creating or selling fake Birkin bags. I've made artworks that depict imaginary, fur-covered Birkin bags," he wrote. "The fact that I sell the art using NFTs doesn't change the fact that it's art."
Rothschild sought to bolster his case by referencing a letter sent by the product marketing manager for the Campbell Soup Company to artist Andy Warhol in 1964, which praised his iconic pop-art work featuring a can of Campbell's tomato soup, among others, and wished him success.
In March 2021, Rothschild argued that his work was a commentary on the "animal cruelty inherent in Hermès’ manufacture of its ultra-expensive leather handbags," and was protected by the First Amendment of the U.S. Constitution. "These images, and the NFTs that authenticate them, are not handbags; they carry nothing but meaning," his lawyers wrote in the filing.
The suit officially moved to trial at the U.S. District Court for the Southern District of New York on Jan. 30, 2023.
Inside the court room
After six days, the courtroom assembled Monday for closing arguments from the Hermès and Rothschild's lawyers ahead of the jury's deliberations.
Oren Warshavsky, a lawyer representing Hermès, outlined the findings gathered from the week's testimonies. He explained that Hermès was "trying two different cases," which included confusion for consumers as to who issued the NFTs as well as damage to the Birkin brand through dilution.
“Rothschild’s MetaBirkin NFTs and Birkin Bags aren’t sold side by side," said Warshavsky, explaining the similarities between physical Birkins and MetaBirkin NFTs that might mislead NFT collectors. "If you saw [both of them] would you know the difference?”
"The NFT market is immature and highly speculative, and most people don’t know how it works," he added.
Rothschild's defense brought in Dr. David Neal, managing partner and founder of Catalyst Behavioral Sciences, to analyze a pre-trial survey conducted by the president of MMR strategy group, Dr. Bruce Isaacson, to test for the likelihood of confusion as to whether Hermès' Birkin bags and MetaBirkin NFTs were related.
While Isaacson found that the percentage for likelihood confusion among the surveyed population was 18.7%, Neal recoded the data and found a 9.3% figure, suggesting that more people were aware of the distinction between Birkin Bags and MetaBirkin NFTs than previously reported.
Warshavsky additionally highlighted that dilution to the Hermès brand stems from using the Birkin name in the NFT collection itself. He claimed that the more people who use a given trademarked name, the fewer people associate it with the original brand. Using the international coffee chain Starbucks as an example, he noted that if an entrepreneur chose to make a sportswear company called Starbucks, over time the name Starbucks would hold less value as a café brand.
Other testimony in the case pointed to the fact that Rothschild's use of the trademarked Birkin name helped him acquire value for his collection. Warshavsky referenced Harvard Business School professor and investment firm a16z researcher Scott Kominers' Friday testimony, when he said the MetaBirkin NFT collection raked in major profits before it minted due to its use of the Birkin name.
“MetaBirkins sold at the amount they did because of the Birkin name," said Warshavsky. "People spent that money because of the name MetaBirkin, regardless of which NFT they were getting.”
The jury is expected to reach a verdict by this week.
What's at stake?
The trial has garnered attention from spectators across the crypto, art and law spaces because the case ties together questions regarding trademarks, NFTs and First Amendment rights.
"This case is one of the first and arguably the most prominent lawsuits to ever focus on trademarks and NFTs and whether trademark rights extend to the digital sphere," Gai Sher, senior counsel at Greenspoon Marder LLP, told CoinDesk. "This case could very well set a legal precedent not only for trademarks in the context of NFTs, but for all digital assets as they relate to fair use and free speech."
Last week, Rothschild argued that his NFTs were "part of an experiment" to showcase what defines value in the luxury space. "Is it the image or the actual product?" he told the nine-person jury.
"One of the most important questions in this case thus far has been how the court will analyze trademark infringement claims in connection with NFTs – will the court analyze the case in the context of consumer confusion, the way Hermes sought for, or is this a case about artistic expression?" Sher said.
Sher says a pivotal point in the case came in May 2022, when the district court said it would analyze the case with the Rogers v. Grimaldi standard – a pivotal 1988 trademark lawsuit between actress Ginger Rogers and film producer Alberto Grimaldi – that examines the balance between artistic expression and trademark infringement.
"The Rogers Test states that an artist can use a trademark in connection with an expressive work if the trademark is artistically relevant to the product and doesn’t explicitly mislead consumers as to the sponsorship, endorsement or other connection to the brand," she said. "Hermes argues that although Rothchild’s NFT bags don’t have real-world utility, many luxury brands are entering the digital space and creating digital assets of their own which creates consumer confusion."
She added that the case also looks at whether Rothschild's NFTs do not have any added utility and are not virtual wearables for metaverse spaces, which would be considered "non-speech, commercial and arguably functional products that just now happen to be in virtual form."
"The increasing innovation around virtual products in connection with metaverse technologies will require further analysis that the courts have not yet addressed," she added. "It will be interesting to see how courts will analyze trademark infringement claims in the context of virtual functional NFTs and how this in turn will affect brands’ decisions to launch functional NFTs in the virtual space."
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