This is a case the whole IP community has been waiting for in anticipation. Ever since the litigation started in January 2022, IP lawyers across the globe have closely followed every turn the case has taken. That is true at least for everyone interested in the metaverse, web3 and Non-Fungible Tokens (NFTs).

If you are unfamiliar with these terms, our recent post on the EUIPO's classification guidance already contains some helpful information (see here). As a recap, term “web3” describes a (future) state of the internet (with web 1.0 referring to the early “read-only” internet, and web 2.0 to “read+write” capabilities e.g. through the rise of social media). Web 3.0 adds a further layer to the internet and allows consumers to experience "digital ownership". Within this concept, NFTs can be understood as virtual deeds that certify, among other things, the ownership and provenance of the underlying digital asset. While NFTs can be and do so much more, this high-level summary will suffice for readers to appreciate what was at issue in the present case.

What was the background?

Mason Rothschild is an artist behind a collection of 100 NFTs, referred to as MetaBirkins, which represented virtual 'Birkin' handbags covered in colourful faux fur (one example of the associated images can be seen on the left). Presented in 2021, this collection was a great success, without any involvement from Hermès. Hermès sued in the Manhattan courts for infringement of its trade mark rights in the word BIRKIN. The mark was already registered for physical handbags but Hermès supplemented that with a new application, filed on an intent-to-use basis, both for physical and virtual handbags. The claims included brand dilution and (because Hermès was planning its own NFTs) cybersquatting. The artist pleaded a First Amendment defence of freedom of expression. This was on the basis that the NFTs were works of art (an 'artistic experiment') denouncing animal mistreatment.

What was the verdict?

The jury held Rothschild liable on the claims for trade mark infringement, dilution and cybersquatting. Moreover, the jury found that the First Amendment protection nonetheless did not bar liability. This verdict has already sparked discussions in the press and on social media as to how the findings are to be interpreted. As things currently stand, a number of questions remain unanswered.

One of the key issues of the case was how the so-called 'Rogers' test would be applied to 'crypto art.' The latter considers i) whether the use of a trade mark within a work of art is relevant to the work concerned, i.e. does it have at least a minimal artistic relevance and ii) whether the use of that mark would be explicitly misleading. While we know from the verdict that the rogers test has failed in the eyes of the jury, it is regrettably not entirely clear - as raised by Entertainment & IP Lawyer Ash Kernen on twitter - which of the two prongs was decisive (i.e. whether the MetaBirkin NFTs were already found to lack artistic relevance, or whether the use was considered to explicitly mislead consumers).

What will be the impact?

This is the first substantive US decision on the scope of trade mark protection in the virtual world, specifically as regards use on NFTs (there has been one case in Italy too and a couple of office actions by the USPTO). The decision will likely influence courts elsewhere in the world where brand owners have faced uncertainty about the enforceability of trade marks protecting real world goods against virtual world uses. For now, there is very limited case law on this in the UK and the EU.

Trade mark owners will be reassured that they can still prevent unauthorised use of their trade marks in the virtual world and that NFTs did not suddenly create a loophole in that area. Despite the above uncertainties, the decision clarifies the scope of registered trade mark rights in the US for 'real life' goods against potential infringement through digital products (such as digital images associated with NFTs).

The decision may also encourage established brand owners to enforce their trade mark rights against 'metaverse infringers' and be the beginning of the end for the NFT wild west – although it is still advisable to take the particularities of the web3 space into account when it comes to enforcing rights against NFT projects that might involve a larger faithful community or be meaningful in other ways.

In time, brand owners may not rush to file trade marks covering NFTs when they may have no genuine intention to use their mark online in that way. This is because courts all over the world could follow the judgment and hold that trade mark registrations covering 'real life' goods can be relied on to stop such virtual infringements. This is especially the case for well-known brands which can make claims based on freeriding and/or dilution.

However, less known brands will not have those options and an infringement claim may only succeed if they can show there is a real risk of confusion as to the trade source of the NFT. Such cases are likely to be harder to win and will involve a global appreciation test of the interdependent factors established by the CJEU.

Co-authors: Inès Tribouillet, Magdalena Borucka, Christian Tenkhoff