Injunction granted: Handbags at dawn – the latest twists in the MetaBirkin case

EDIT 27 June 2023:  on 23 June 2023 Judge Rakoff of the U.S. District Court for the Southern District of New York granted the injunction requested by Hermès to stop Rothschild making, selling or otherwise dealing with the MetaBirkins NFTs (and from otherwise infringing the BIRKIN trade mark). 

Rothschild was also ordered to pay to Hermès all financial benefits received, and to transfer to Hermès the domain name metabirkins.com.
 
The judge echoed the jury's view that Rothschild was seeking to make a profit by making consumers believe Hermès endorsed the MetaBirkins, and that he had thereby waived any protection the First Amendment may otherwise have given him.  However, the judge did not order the transfer to Hermès of the NFTs or smart contracts, citing an "abundance of caution" for First Amendment concerns, "because the MetaBirkins NFTs are at least in some respects works of art", and the transfer was not necessary for Hermès to receive an effective remedy. 

Original text published on 17 March 2023:

In March 2022 we blogged on the potentially groundbreaking US case of Hermès v Rothschild, dubbed the 'MetaBirkin case' (see Handbags in the Metaverse | Fieldfisher). Here we analyse the latest twists in this action.

Latest news on the litigation
 
The trial of this matter began on 30 January 2023 and in early February, the jury returned a verdict finding Rothschild liable for trade mark infringement, trade mark dilution and cybersquatting. Rothschild had claimed that his virtual bags were art and argued that in trying to stop him, Hermès was fettering his right to freedom of artistic expression given to him by the First Amendment to the US constitution. That defence was resoundingly thrown out, with the jury deciding he was plainly looking to cash in on the Hermès value, not to create art.
 
As infringement had been found, Hermès was able to apply for a permanent injunction (which is not automatically granted in US law) and on 3 March 2023, it did so. What is interesting here is that in addition to a standard injunction restraining further infringement, Hermès has requested a transfer to it of the smart contracts and NFTs relating to the 'MetaBirkin' virtual goods as well as the domain name metabirkins.com, from which Rothschild promoted sales of them. Rothschild has opposed this application and has filed a motion for a judgment overruling the jury verdict.
 
The MetaBirkins remain for sale. Hermès claims that Rothschild is flagrantly continuing to infringe the BIRKIN trade mark and that he is not to be trusted to stop doing so without an injunction. It has pointed to a text from Rothschild referred to in the trial that he does not “think people realise how much you can get away with in art by saying ‘in the style of’”. He has also made numerous posts from his various 'MetaBirkin' social media accounts, showing no intention of stopping selling the virtual items.
 
Hermès says this must be remedied by removing from him the tools enabling the infringements. 
 
A smart contract is essentially a set of operating rules for NFTs – it is a program built into the token's code that performs certain functions when trigger conditions are met, e.g. remittance of payment to the creator's wallet on a resale. For so long as Rothschild retains control of the smart contract, he remains able to mint further NFTs under it and deal with the ones he already has, both of which will enable him to continue to derive benefits from his infringement. He could also transfer the smart contract to a third party, leaving Hermès in a difficult position. Therefore Hermès claims that the way to deal with this fairly is to transfer the smart contract and the NFTs to it – it presumably sees this as the digital equivalent of delivery up. How the court deals with this is likely to be persuasive on how such requests are dealt with in other jurisdictions, and indeed is likely to influence how other rightsholders deal with similar infringements. 
 
Trade mark specifications
 
On another note, the various trade mark offices are in different places on catching up with this new technology and it is not yet clear how virtual goods and services will be classified for the purposes of trade mark specifications. The EUIPO and WIPO have both indicated that firstly, virtual goods are not the same as their physical counterparts and secondly, merely saying “virtual goods” and/or “NFTs” is inadequate. 
 
In the Hermès case, one question before the court was whether the virtual bag (in reality, merely software) infringed trade mark registrations for the physical bags. This was important because whilst Hermès had registrations for the physical bags, it did not have registrations for virtual bags or software. It was up to the jury to decide on the impact and extent of the distinction between virtual and physical goods. The judge instructed the jury as follows: "Hermès contends that Mr. Rothschild's use of the Birkin name and/or the handbag's distinct visual appearance is likely to confuse potential consumers into thinking that the MetaBirkins NFTs are made and sold or otherwise connected with, associated with, sponsored by or approved by Hermès” and that the jurors should decide whether “consumers are likely to be confused”. The jury decided they would; the virtual goods were similar enough to the physical goods to amount to infringement.
 
It will be interesting to see what, if any, impact that jury decision will have on trade mark office practices, particularly as the EUIPO and WIPO's guidance and the direction of travel of the UK (where no guidance has yet been issued) are contrary to the US decision, being broadly as follows:
 
- Virtual goods are proper to Class 9 because they are treated as digital content or images. However, the term "virtual goods" on its own lacks clarity and precision; the type of good must be specified, e.g. “downloadable virtual goods, namely virtual handbags”
 
- For NFTs or rather the assets underlying them, the term "non-fungible tokens" on its own is not acceptable; the type of good authenticated by the NFT must be specified e.g. Class 9: “downloadable virtual handbags, authenticated by an NFT”
 
- For non-downloadable services the relevant services class must be specified and worded broadly as follows:  “provision of an online marketplace for downloadable virtual handbags authenticated by non-fungible tokens [NFTs]”.
 
It is notable that during the course of the litigation, Hermès applied to register a US trade mark using the wording format suggested by the EUIPO and WIPO to cover virtual goods and services (not yet registered). Given the current uncertainty and divergent approaches, businesses who are potentially at risk of similar online infringements would be well advised to protect themselves by doing the same.
 
Other cases to watch
 
As with the Hermès case, the following cases are all outside the UK, but given how nascent the legal landscape is in this area, it is certainly possible that their outcomes will influence how the UK might approach such a case.
 
Nike v StockX (US): StockX minted NFTs using Nike trade marks which enabled people to purchase physical Nike trainers, which it would then keep on behalf of the NFT owner, who could trade it in for the physical goods at any time. Nike claims this is trade mark infringement, and it further claimed it had purchased counterfeit trainers; it is therefore suing for conventional trade mark infringement as well as infringement via the NFTs.  We are expecting trial this year.
 
Juventus v Blockeras (Italy): Blockeras (a blockchain-based platform) created and marketed NFTs attaching to cards featuring images of former player Christian Vieri wearing a Juventus strip, and using Juventus’s trade marks. Blockeras had Vieri’s permission to use his image, but it had not obtained Juventus’s permission. The Rome court granted Juventus a preliminary injunction. The full trial should be this year.
 
VEGAP v Mango (Spain): Mango announced it planned to display a series of unique artworks in a virtual museum located in the metaverse platform Decentraland. The collection was set to re-interpret several works of art by Spanish artists, which are still under copyright. VEGAP (a Spanish collective society for artists) sued for copyright infringement and breach of moral rights. Mango has denied both and claims the fact that it owns the physical copies of the works means it does not infringe. It denies creating reproductions but appears to admit the works are adaptations, although it points out that the NFTs are not reproductions or adaptations of the works but merely digital assets that have not yet been minted, and can only be viewed using an NFT platform. Furthermore, as the assets have not been minted, they are not in the possession of Mango, and are therefore only in existence as a listing in OpenSea. Nonetheless the Spanish court granted a preliminary injunction and we expect full trial this year.
 
Bored Ape Yacht Club v Ryder Ripps (US): Yuga Labs, the owner of the BAYC NFT collection of artworks, has sued artist Ripps for trade mark infringement and various other causes of action, which do not include copyright – seemingly on the basis that it does not have registered copyright in the artworks. Yuga Labs claims that Ripps's NFTs contained links to the BAYC digital assets underlying their NFTs, thereby devaluing and damaging the reputation of the BAYC assets. Meanwhile, a class action has been filed relating to the alleged inflation of the value of the BAYC NFTs. Both actions are at an early stage.
 
We will continue to monitor these cases and report on developments in this area. For further details on NFTs, please see our articles here:  NFTs - legal ownership | Fieldfisher, Non Fungible Tokens: a legal perspective - IP infringement | Fieldfisher and Non Fungible Tokens: a legal perspective — Commercial and Data Privacy Issues | Fieldfisher.