Jury Finds NFT Artist Liable in Trademark Infringement Lawsuit

In a closely watched case with major implications for the NFT (non-fungible token) industry, a jury in the United States District Court for the Southern District of New York found a digital artist liable for trademark infringement and dilution for his unauthorized sale of digital artworks that were based upon images of luxury retailer Hermès International SA's famous Birkin handbags. The artist, Mason Rothschild, had created a collection of 100 "MetaBirkin" NFTs which depicted the Birkin bags covered in playful designs, such as thick fur, smiley-face emojis, and Van Gogh paintings. The MetaBirkin NFTs were originally sold for approximately $450 each, but the prices soon appreciated into the tens of thousands of dollars, and Rothschild received a percentage of all secondary sales.

Hermès filed a lawsuit against Rothschild in January of 2022, arguing that the unauthorized sale of the MetaBirkin NFTs was likely to cause consumers to mistakenly believe that the NFTs were issued by, sponsored by, or associated with Hermès, and would dilute the value of Hermès' trademarks. Hermès claimed that there were examples of actual consumers who mistakenly thought the MetaBirkin NFTs were associated with Hermès and argued that the continued sale of the MetaBirkins would interfere with Hermès' plans to offer its own NFTs.

Rothschild's main argument in his defense was that the NFTs should be treated as artistic works rather than commercial goods and should therefore be protected by the First Amendment. Rothschild's defense relied heavily on the U.S. Court of Appeals for the Second Circuit's decision in Rogers v. Grimaldi, in which the court determined that the use of another's mark in an artistic work is not infringing if it has artistic relevance and does not explicitly mislead as to the source of the work. Rothschild's counsel pointed to other examples of artwork that incorporated famous trademarks, such as Andy Warhol's famous images of Campbell soup cans. However, Rothschild's artistic expression argument was weakened by the fact that Rothschild had sent numerous text messages regarding the financial potential of the NFTs and had sought to promote the NFTs through social media influencers in order to "pump" the value of the NFTs. Rothschild also pointed to a disclaimer on his web site and argued that the types of consumers who purchase Birkin bags, which typically cost thousands of dollars and have lengthy waiting lists, would not be confused into believing that the MetaBirkin NFTs were associated with Hermès.

However, the jury disagreed with Rothschild's arguments and sided with Hermès' position that the MetaBirkin NFTs were more akin to commercial goods rather than artistic works. In addition to injunctive relief, the jury awarded $133,000 in damages to Hermès.

This decision is likely to have a major impact on the NFT industry, as there are many other examples of NFTs that have been issued or sold which contain the image of a famous product or the mark of a well-known brand. There are several other NFT-related cases making their way through the courts, including another closely-watched case in New York in which Nike is suing a sneaker reseller selling NFTs featuring virtual Nike sneakers. Furthermore, if NFTs are going to be treated as commercial goods, then it is very possible that a trademark owner's failure to police or enforce its mark against use in NFTs could substantially weaken the value of the marks. While the values of NFTs and the hype surrounding the NFT market have decreased significantly over the last year, it is still important for trademark owners to monitor the NFT mark for unauthorized uses in order to protect the value of their marks, particularly if they have plans to offer their own NFTs in the future.