Lawsuits involving NFTs are on the rise. A few weeks ago, the French luxury brand Hermès filed a trademark infringement action against an individual named Mason Rothschild for his “MetaBirkins», a collection of 100 NFTs on the Ethereum blockchain resembling the famous faux fur Birkin handbag. And earlier this month, Nike sued StockX, an online resale marketplace, alleging trademark infringement when launching its “NFT Vaultfeaturing images of Nike’s shoes and brands, also on the Ethereum blockchain.
The complaint in the MetaBirkins dispute quotes Rothschild as saying “[t]there is nothing more iconic than the Hermes Birkin bag”, and with his project he tries to “create the same kind of illusion as [the Birkin] has in real life as a digital commodity. Rothschild has apparently succeeded in this mission: as of January 6, 2022, total sales of MetaBirkin NFTs exceeded $1.1 million, with the lowest MetaBirkin selling at $15,200 and the highest at $45,100. (The price of an actual Birkin bag ranges from “thousands of dollars to over a hundred thousand dollars.”) In fact, he’s been so good at recreating that illusion that he even knows what it’s like to be Hermès: it is “counterfeit” by “more and more fake MetaBirkins being sold every hour”.
StockX, on the other hand, is an online resale marketplace where people can sell and buy used items. It works much like eBay, except StockX acts as an intermediary through which the seller sends the product to StockX and StockX sends the product to the buyer. With the launch of its “Vault NFTs”, a buyer can buy and sell NFTs associated with an actual physical product (in this case, Nike sneakers), and the buyer will be able to “redeem” the NFT in exchange for the real product. Upon exchange, StockX will remove the NFT from the vault and ship the physical shoes to the buyer. According to the complaint, Nike’s Vault NFT sneakers are priced several times higher than the cost of the actual sneakers. For example, a Vault NFT from the Nike Dunk Low Off White The $150 shoe retail lot 50 sells for an average of $6,250, with the highest sale being $7,500.
None of the defendants have permission from the respective brands to use their brands on these NFTs. In the case of StockX, it is also not an authorized distributor of Nike. So it was only a matter of time before these lawsuits were filed. The cases have obvious relevance given the substantial appetite to enter this space by both brands and creators: indeed, last week’s post noted that Nike has filed seven trademark applications for goods and services in the metaverse realm. As a result, the parties in both cases appear well placed to engage in a substantially robust legal battle. Last week, Rothschild filed a motion to dismiss asking the court to dismiss the action, primarily based on the landmark First Amendment case of Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).
Rogers dictates that trademark laws “should only be construed as applying to artistic works where the public interest in avoiding consumer confusion outweighs the public interest in free expression”. Use of a trademark in an expressive work will only constitute trademark infringement if the trademark: (1) has no “artistic relevance”; and (2) if there is “artistic relevance”, the use of the mark in the work charged “explicitly misleads as to the source or content of the work”. Rothschild argues that it passes this test because MetaBirkins is a commentary on today’s brand-obsessed society and compares its work to Andy Warhol’s Campbell’s Soup Cans and Coca-Cola 3. it’s no different than selling limited edition prints. (The law is established that commercial prints of a work of art protected by the First Amendment enjoy the same protection.)
The defense that StockX is likely to advance is the fair use defense. Descriptive fair use allows the use of a third party’s mark to describe that user’s goods or services, and nominative fair use allows the use of a third party’s mark to refer to the goods or services. of the brand owner. Since StockX sells NFTs of Nike shoes that are backed by real Nike shoes with the ability to exchange the NFT for physical shoes, the argument would be that StockX is only using Nike’s name or logos to make reference to its services (or Nike’s product). But the complaint alleges several instances of actual confusion over whether Nike licensed StockX and whether it takes advantage of the NFT Vault, which may influence how the fair use defense is analyzed.
These cases appear to be the first instances where a court will consider the use of trademarks in NFTs, and the rulings will be of great interest to many due to the growing fascination and business opportunities presented by NFTs. While the application of trademark law to this technological medium is new, an NFT is only a code with a link pointing to the location of the digital asset. So, the real question is whether the underlying digital asset meets the First Amendment or the fair use defense. In that sense, litigation is not that different from traditional trademark infringement claims, legally speaking. In practice, however, this new medium – with its low barrier to entry and the astonishing prices at which they are bought and sold (and resold), combined with the fact that brands are eager to enter the space themselves – seems to raise the stakes and competition to a level unimaginable before.
When Warhol created his Campbell’s soup cans in 1962, Campbell’s “had some initial concerns”, but he “took a ‘wait and see’ approach” and eventually became a proud supporter, even sending him soup cans at the tomato. It may be some time before Hermès sends a Birkin bag to Rothschild to support their work.
Stay tuned for more NFT litigation news coverage from the NFT Newsroom.