A nine-person jury in Manhattan federal court found this week that Rothschild’s NFTs, which link to digital images of Hermès’ famous Birkin handbag covered in colorful faux fur, infringed on Hermès’ trademark rights. Rothschild’s attorneys have already signaled they plan to appeal the decision, only the first at the intersection of NFTs and intellectual property law.
Meanwhile, the US Supreme Court is set to review another trademark case testing the boundaries of the free speech balancing test from the Second Circuit’s ruling in Rogers v. Grimaldi, which governs the unauthorized use of marks in expressive works. That adds up to a lot of uncertainty for courts about how to decide whether such NFTs really run afoul of trademark rights.
“This has been such a difficult area of the law for litigants and practitioners to operate in,” said Mark Sommers, an attorney at Finnegan Henderson Farabow Garrett & Dunner LLP. “There really is a lot of gray.”
The jury determined that Rothschild’s NFTs—digital assets bought and sold using blockchain technology— aren’t protected by the First Amendment.
Rothschild’s attorneys attempted a last-ditch effort to escape the suit, asking Judge
“Artists will be in the dock repeatedly” if a strong First Amendment standard isn’t applied by judges, Christopher Sprigman, a New York University law professor and Lex Lumina PLLC founder, told Rakoff minutes after the jury left to deliberate.
But Rakoff was unconvinced, ruling that only the jury could resolve factual disputes around whether Rothschild intended to mislead consumers into believing the MetaBirkins came from Hermès.
The specific language of Rakoff’s instructions to the jury could be potentially reviewed by an appeals court, University of San Diego trademark law professor Lisa Ramsey said.
“If the jury instructions did not include the exact language from the Second Circuit’s current interpretation of the Roger test, then this is one reason the Second Circuit might reverse the decision,” Ramsey said.
The US Court of Appeals for the Second Circuit established the two-pronged test in a case involving Hollywood star Ginger Rogers. Under the test, an artist may use a trademark without the owner’s permission as long as the use is artistically relevant and doesn’t explicitly mislead consumers.
Rothschild argued in pretrial motions that his NFTs passed the test, but Rakoff disagreed. The judge said that while the Rogers test did govern the case, a jury would need to evaluate evidence to determine if the NFTs passed.
At trial, Rakoff determined that Rothschild’s use of the “Birkin” trademark was artistically relevant to the NFTs, so they did pass the first prong of the test. However, Rothschild’s attorneys said the judge misapplied the second prong by improperly asking jurors to examine the artist’s intent.
While the second prong of the Rogers test asks whether the artist “explicitly misleads” consumers, the jury instructions asked them to evaluate whether Rothschild “actually intended to confuse” potential NFT buyers
The controlling case law says that Rothschild could only be found liable if he told explicit lies about the NFTs, which he never did, Sprigman told the judge.
High Court Look
The Supreme Court is preparing to hear the case Jack Daniel’s Properties Inc v. VIP Products LLC in which it will scrutinize the nature of the Rogers test and examine the difference between commercial products protected by trademark laws and artistic works protected by the First Amendment.
In that case, VIP Products is arguing that its dog chew toy shaped like a Jack Daniel’s whiskey bottle and covered in poop-related puns is a parody of the famous whiskey brand and therefore passes the Rogers test.
Although the Hermès verdict was based on specific facts presented at trial, further clarity from the high court on the Rogers test could provide more guidance to courts on how to referee disputes between trademark owners and artists who reference their intellectual property—in both the NFT space and the real world.
“The fact that there was an NFT involved is almost a little bit of a sideshow to the main trademark versus art issue,” said Stuart Levi, an IP attorney at Skadden Arps Slate Meagher & Flom LLP.
Rothschild and other legal observers have argued that allowing the case to go all the way to trial has put a chilling effect on other artists who want to use trademarks in their artwork.
Alfred Steiner, an intellectual property attorney and artist involved in the NFT space, said that judges and juries shouldn’t be acting as art critics, but the subtle artistic message behind the MetaBirkin NFTs may have harmed Rothschild’s chances before a jury.
“What the verdict may do is push artists to create works that lack subtlety which, I think, is unfortunate for everyone,” Steiner said.
Rothschild told the jury that the NFT project was an “artistic experiment” meant to examine how society places value on status symbols like the Birkin bag, even if they are digital images. He first sold the NFTs for around $450 each, before they skyrocketed in resale value.
But not all attorneys agree, especially given that jury verdicts are based on specific facts.
At trial, Hermès argued that Rothschild wanted to cash in on the Birkin name, pointing to dozens of text messages that Rothschild sent to potential investors about wanting to “pump” or “schill” the NFTs.
Those texts “most likely turned the jury against” Rothschild, said Gina Bibby, a fashion tech attorney at Withers LLP. But other cases may turn out differently, Bibby said.
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