January 2024
Jane Tsai, Doris Hsu, Elesha Wang
The Metaverse has surged since 2021, enveloping both the virtual and real worlds and giving rise to a trend of integrating the digital and physical realms. While this trend brings limitless business opportunities, it also sparks numerous intellectual property disputes. In our series on Metaverse trademark issues, titled “Have You Deployed Your Trademarks to Embrace the Metaverse? (Taiwan),” we discussed the case where Hermès International and Hermès of Paris, INC. (hereinafter referred to as “Hermès”) filed the world’s first lawsuit claiming infringement of physical product trademark rights through the issuance of NFT digital assets by American NFT artist Mason Rothschild for the Hermès Birkin bag. The U.S. court delivered a judgment in 2023, making it a classic case in Metaverse trademark disputes. This article aims to explore the implications of this landmark ruling for trademark owners of physical goods and how businesses should comprehensively understand and carefully handle trademark protection issues in the Metaverse world.
I. The world’s first lawsuit claiming infringement of physical product trademark rights through NFT digital assets resulted in victory for the owner of the physical product trademark.
In January 2022, Hermès filed a lawsuit against American NFT artist Mason Rothschild, claiming that Rothschild’s “MetaBirkins” series of NFTs unauthorizedly used the registered textual trademark “Birkin” and the visual appearance of the Birkin bag, causing consumer confusion and constituting trademark infringement. The lawsuit also claimed dilution of the Birkin trademark leading to damage to the brand’s reputation, the illegal registration of the domain name (so-called “cybersquatting”) <https://metabirkins.com> for selling NFTs, and violations of unfair competition laws under federal and state regulations. Hermès sought a court order to cease infringement and payment of all sales profits along with triple damages.
During the substantive trial on February 8, 2023, the jury awarded Hermès $133,000 in damages for trademark infringement, dilution, and cybersquatting. On June 23, 2023, the Southern District Federal Court of New York granted Hermès’ request for a permanent injunction against Rothschild, prohibiting the continued sale of the MetaBirkins NFT series. Rothschild was also mandated to notify previous purchasers of the MetaBirkins NFT series about the court’s decision and transfer the domain name <https://metabirkins.com> to Hermès by July 15, 2023. The court’s main rationale included:
(1) The recognition that NFTs, despite being digital representations verified and tracked through blockchain, still qualify as an artistic form of expression, applying the Rogers Test – infringement is established only if the likelihood of confusion is so high that it exceeds the protection of freedom of speech under the First Amendment of the U.S. Constitution.
(2) The acknowledgment that applying the Rogers Test doesn’t grant unlimited rights to the defendant to use the plaintiff’s trademark without restrictions. The court had to balance fair competition in the market and prevent consumer confusion about the origin of the goods. If the plaintiff could provide substantial evidence that (1) the use of the mark has no “artistic relevance” or (2) the use of the trademark is “explicitly misleading[1]” which induces members of the public to believe that it was created or otherwise authorized by the plaintiff, the defendant would still be liable for trademark infringement.
(3) As both of the above factors involved factual disputes, the court left it to the jury to decide. The jury concluded that, despite the artistic nature of the MetaBirkins NFT series, it still misled consumers about the origin of the work, making them believe there might be an affiliation or association between “Birkin” and “MetaBirkins.” Therefore, the MetaBirkins NFT series and the domain name <https://metabirkins.com> were deemed to infringe Hermès’ physical product trademark rights, resulting in a victory for the plaintiff.
II. Insights from the MetaBirkins trademark infringement case for trademark owners in the trademark deployment strategy of the Metaverse.
As of now, there haven’t been any lawsuits in Taiwan concerning the unauthorized sale of NFTs infringing the physical trademark rights of brand owners. However, considering the vibrant development of the Metaverse, trademark owners may face the risk of trademark infringement. The application of the Rogers Test in cases involving artistic expression and how the court determines whether the defendant’s actions constitute obvious deception under this standard could become crucial factors in Taiwan’s future rulings on whether Metaverse trademarks constitute “use” of physical product trademarks and whether they cause consumer confusion.
Furthermore, before this case occurred, the “Birkin” trademark registered by Hermès primarily applied to physical leather goods rather than virtual products. From the context of the court proceedings, it is evident that registered trademarks for use in the physical world are not automatically associated with NFTs or the Metaverse in the United States. Referring to the trademark registration categories published by the Taiwan Intellectual Property Office, physical and virtual goods fall under different specified product or service categories. Hence, even if a trademark is registered for physical products in the real world, brand owners need to separately apply for trademarks in the Metaverse to ensure complete protection. Therefore, it is advisable for trademark owners to seek timely professional legal advice to determine the most effective Metaverse trademark deployment strategy.
[1]The court instructed the jury to make judgments based on factors revealed by the Polaroid Test. Relevant considerations include: (1) the strength of Hermès’ mark, with a stronger mark being entitled to more protection; (2) the similarity between Hermès’ “Birkin” mark and the “MetaBirkins” mark; (3) whether the public exhibited actual confusion about Hermès’ affiliation with Rothschild’s MetaBirkins collection; (4) the likelihood that Hermès will “bridge the gap” by moving into the NFT space; (5) the competitive proximity of the products in the marketplace; (6) whether Rothschild exhibited bad faith in using Hermès’ mark; (7) the respective quality of the MetaBirkins and Birkin marks; and, finally, (8) the sophistication of the relevant consumers.
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