What’s in the Bag: Real World Rights or New World Rights

Across the globe, the historical practice of trading goods has significantly adapted to the digitalization of common spaces. This has largely increased the efficacy of domestic and foreign trade by opening new forums for communication and increasing the productivity of business by reducing trade costs. Recently, however, upper-level courts have been faced with a series of cases considering the implications of the production and consumption of goods online. In 2021, Mason Rothschild created and sold one hundred digital “METABirkins.” According to Rothschild, these were images of the iconic Hermès “Birkin” covered in digital “fur” rather than leather, as a social commentary against animal cruelty in high fashion manufacturing. Hermès then sued Rothschild for “asserting trademark infringement, dilution, cybersquatting, and unfair competition.” [1] Hermès Int’l v. Rothschild is the first case focused on the interaction between non-fungible tokens (NFTs) and trademark law. The court was introduced to a whole new digital dynamic of trademark infringement and ultimately found that the NFTs linked to digital images of the Hermès “Birkin” were infringing on Hermès’s trademark rights. The New York Law Journal explored this case and described NFTs as “data added to a file that creates a unique signature...very hard to recreate and can be sold in digital form.” [2] The invention of digital spaces designed to facilitate the buying, selling, and trading of products has opened the doors of uncertainty with consideration for the legal intersection of NFTs and trademark law. The case has more significant implications for determining the line exists between artistic expression and trademark infringement for digital assets. Using the criteria for infringement established in Rogers v. Grimaldi, the question of trademark infringement will be highly fact-specific, centered on questions like the strength of the asserted marks, the intention behind the uses, and consumer impressions of the product.

This case introduced the court system to the legal ramifications of the unauthorized use of NFTs, both for the consumer and the producer, and established a series of questions that future courts may use during the consideration for possible infringement and copyright in NFT-related cases. Digital designs are in a unique position because the courts have yet to explicitly explore their role as art. As a result, there is serious consideration necessary to decide whether NFTs are protected under the First Amendment, or whether that is a privilege reserved strictly for tangible artwork. The first question the court was challenged with was deciding “which of the two frameworks for assessing trademark infringement applies to the claims in this case: the ‘Rogers’ test or the ‘Gruner + Jahr’ test.” [3] The Rogers test would consider whether or not the METABirkins were a form of artistic expression, and thus protected by the First Amendment. The Gruner + Jahr test would consider if the commercial uses of the product infringe upon Hermès’s intellectual property and cause consumer confusion. [4]

In 1989, the United States Court of Appeals for the Second Circuit evaluated and determined what specifically could be considered an “artistic” work and therefore deserving of First Amendment protection in Rogers v. Grimaldi. The plaintiff, Ginger Rogers, sued film director Alberto Grimaldi, claiming that the title of one of his films, “Ginger and Fred,” suggested that Rogers was involved in its production and ultimately fell under the category of false advertising. [5] “Under the Rogers test, use of a trademark in an expressive work is actionable as infringement only if (1) the trademark use has no artistic relevance or (2) it is explicitly misleading as to the source or content of the work.” [6] This interpretation questions whether or not NFTs have artistic relevance. The Hermès Int’l v. Rothschild case summarized that “as long as the plaintiff's trademark furthers plausibly expressive purposes, and not misleading consumers, [...] the First Amendment protects that use.” [7] Historically, the court system has been very lenient in determining what can be considered art. Their job is not to determine how strong an artistic connection is, but simply whether one exists at all. In fact, the Ninth Circuit has established a base level relevance of “above zero.” [8] However, applying these criteria to digital art, especially within a technological context, has proved difficult because NFTs are primarily considered commercial goods. Nevertheless, the courts seem to turn to the interpretation that as long as there is an artistic association that does not merely use the plaintiff's mark for exploitative purposes, digital goods deserve further analysis before being immediately categorized as infringement.

The second framework for assessing trademark infringement was determined in the 2007 Gruner + Jahr USA Publishing v. Meredith Corp. case. [9] The dispute arose when Gruner + Jahr, the publisher of the magazine “PARENTS,” accused Meredith Corporation of infringing on its copyright by publishing a similar magazine. In the 2021 Rothschild case, Hermès argued that this was the dominant framework for determining Rothschild’s culpability, because it established a test for general trademark infringement, applied to goods primarily intended to serve a commercial purpose. The key element of this case deals with a consumer's response to a questionable good. Specifically, whether the good could easily confuse the consumer, or even incorrectly lead the consumer to believe that the plaintiff produced the good. The factors that are typically weighed in determining the likelihood of confusion are known as the Polaroid factors, which include: “1) the strength of the plaintiff's mark; 2) the similarity of plaintiff's and defendant's marks; and 5) actual confusion between products.” [10]

Ultimately, the Hermès v Rothschild court decided to follow the Rogers test, as a result of Rothschild’s argument that there was an artistic purpose underlying his work. The court then had to determine if there was enough of an artistic intention that its use as a commercial good was secondary to its creative purpose. This was achieved by looking at the Rogers test more closely, and evaluating how the three main components of the test are present in the case.

a. Strength of marks: “The more the consuming public recognizes the plaintiff’s trademark, the more likely it is that consumers would be confused about the source of the defendant’s goods.” [10] While the METABirkin did not have any explicit Hermès label and was covered in fur, rather than the usual leather, it was similar enough that the court weighed the mark to be quite strong.

b. Intention behind uses: “Knowing the use by the defendant of the plaintiff’s trademark to identify similar goods may strongly show an intent to derive benefit from the reputation of the plaintiff’s mark, suggesting an intent to cause a likelihood of confusion.” Rothschild’s intention was made quite clear in an incriminating statement where he claimed to want to exploit the Hermès name and the “iconic Hermès Birkin Bag.” [11] This statement ultimately swayed the court to recognize that Rothschild had prioritized sales over the artistic message he wanted to share.

c. Consumer impressions: “If use by the defendant of the plaintiff’s trademark has led to instances of actual confusion, this strongly suggests a likelihood of confusion. Even if actual confusion did not occur, the defendant’s use of the trademark may still be likely to cause confusion.” [12] How the consumer understands the product is incredibly important. While this case did not explore whether or not METABirkin buyers believed they were actually buying Hermès products, future cases dealing in the realm of NFTs will look at how consumers will react to the trademark similarities. Traditionally, the courts have relied on customer surveys to evaluate consumer opinions and overall experience with companies. Nevertheless, NYU professors are “focused on modifying several existing trademark surveys to test for strength of belief” in order to yield better results about people’s beliefs regarding trademarked goods. [13]

These factors, laid out in Polaroid Corporation v. Polarad Electronics Corp., are incredibly important for current trademark infringement cases and digital infringement cases. This is because they are transferable to the digital space, and can apply current trademark law to online goods, such as NFTs, to ensure accurate identification. However, there are certain factors outlined in Polaroid that will need to be reevaluated to accommodate the complexities of virtual goods. Given that there have not been any NFT cases in which the courts have applied the Gruner case, the most weighty of these factors has yet to be determined.Nonetheless, consumer confusion will need to be seriously considered especially with regard to digital products that appear similar, or even identical, to their physical counterparts.

As the first case dealing with NFT property infringements, it is important to realize that the outcome may not necessarily set a precedent for all other digital cases. With tangible art, there is a much broader net in which art can be produced under the protection of the First Amendment. However, given the unexplored capability of digital tools, there is a greater chance that First Amendment protections will be more limited. A situation like this one is so fact-specific and context-dependent that the results are not a guarantee for all other cases. This reality is one that leaves the legal world with many cases to explore. The line between the digital world and the physical one has become increasingly blurred with the platforms of the Metaverse. The issue of how business owners, patents, and consumers will continue to purchase technological or tangible goods has not been solved in this case’s rulings. However, the Southern District of New York Court has made it clear that NFTs, and other digital platforms, can be considered artwork. Still, “the jury verdict casts a cautionary shadow. Even artwork can infringe trademark rights when it misleads consumers as to the source of the work.” [14] Artists, using all kinds of media, are learning to handle the conglomerate of issues that come with digital spaces, such as copying and intellectual property. As far as this case goes, Hermès, a powerful and well-known brand, will continue owning the Birkin bag, and Rothschild will suffer the consequences of the court finding him guilty of trademark dilution. This includes the court granting Hermès an award of $133,000 in damages, and a permanent injunction. Although Rothschild ultimately walked away with an unfavorable holding —and no digital designer bag to show off—not all artists will necessarily walk out of the courthouse with this result. Birkins, after all, may be notoriously hard to come by.

[1] Hermès Int'l v. Rothschild, No. 1:22-cv-00384-JSR 2, (S.D.N.Y 2022).
[2] Nyarady, Catherine, and Crystal Parker, "Trademark Infringement Liability for NFT Sales," New York Law Journal, March 20, 2023, https://www.law.com/newyorklawjournal/2023/03/20/trademark-infringement-liability-for-nft-sa les/.
[3] Hermès Int'l v. Rothschild,2.
[4] Rogers v. Grimaldi, 875 F.2d 994, (2d Cir. 1989);
Gruner + Jahr USA Pub., a Div. of Gruner + Jahr Printing & Pub. Co. v. Meredith Corp., 991 F.2d 1072 (2d Cir. 1993).
[5] Sean Carroll. “Rogers v Grimaldi,” Quimbee, https://www.quimbee.com/cases/rogers-v-grimaldi#:~:text=Rogers%20sued%20Grimaldi%20in %20the,a%20claim%20of%20false%20advertising.
[6] Rogers v. Grimaldi, 999.
[7] Hermès Int'l v. Rothschild, 12.

[8] E.S.S. Ent. 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095, 1100, (9th Cir. 2008).
[9] Gruner + Jahr USA Pub, 1075.
[10] Polaroid Corp v. Polaroid Elecs. Corp, 287 F.2d, 492, (2d Cir. 1961)

[11] Eugene Volokh, “Hermès Birkin Handbags, NFTs, Trademark Law, and Rothschild (but not Controlling the Weather),” Reason Magazine, May 18, 2022, https://reason.com/volokh/2022/05/18/Hermès-birkin-handbags-nfts-trademark-law-and-rothschi ld-but-not-controlling-the-weather/.

[12] “15.18 Infringement—Likelihood of Confusion—Factors—Sleekcraft Test (15 U.S.C. §§ 1114(1) and 1125(a)),” United States Courts for the Ninth Circuit, September 2021, https://www.ce9.uscourts.gov/jury-instructions/node/244.
[13] “Measuring Consumer Uncertainty: NYU researchers suggest more nuanced tools to gauge the marketplace confusion caused by similar trademarks,” NYU Law, December 1, 2021, https://www.law.nyu.edu/news/ideas/trademark-consumer-uncertainty-beebe-sprigman-germano- steckel.

[14] Arthur Gollwitzer, “Don’t Use My Trademarks in Your NFTs! The Hermès v Rothschild Verdict,” The Federalist Society, April 6, 2023, https://fedsoc.org/commentary/fedsoc-blog/don-t-use-my-trademarks-in-your-nfts-the-Hermès-v- rothschild-verdict#:~:text=In%20contrast%2C%20Hermès%20argued%20the,test%20when%20i nstructing%20the%20jury.

Sabrina GarciaSeptember 22, 2023