A Case Study for NFT and Intellectual Property Lawsuits:

INTRODUCTION

The concept of Intellectual property (IP) protection for NFTs has been established over time but the extent of protection has been subject to controversial debate. NFTs may be subject to IP protections, including copyright, design patent, and trademark rights.

NFTs are Non-Fungible Tokens which are a form of digital certificates for authenticating asset ownership using blockchain technology. Common examples include art, videos, music, in-game items, videos, etc.

BACKGROUND FACTS

In December 2021, a variant of the upscale signature line of Birkin handbags owned by Hermès International and Hermès of Paris, Inc. (“Hermès”) was developed by Mason Rothschild, an interdisciplinary artist, and designer. The variant designs were wrapped in faux fur and were called MetaBirkins- a collection of 100 NFT Birkin bags in a range of colors and designs.

Hermès filed a lawsuit for infringement of intellectual property against Rothschild on January 14^th, 2022 seeking declaratory and injunctive reliefs as well as monetary damages for the alleged infringement. Rothschild in his defense through his Attorney stated that MetaBirkins were protected by the First Amendment of the US Constitution.

WHAT IS TRADEMARK INFRINGEMENT?

The exclusive rights associated with intellectual property are infringed when they are used without the owner's consent or outside the scope of the licensor’s consent. Using a trademark without permission is therefore prohibited. Infringing on a trademark might result in trademark dilution or deceptive similarity and the owner may access applicable protections under the Paris Convention.

Rothschild’s legal counsel had argued in his defense that MetaBirkins were protected by the principle of fair use, which was also validly recognised and protected by the First Amendment of the United States Constitution as it relates to free expression in artistic usage.

RULING AND AWARD

At the trial, Hermès was able to demonstrate that Rothschild's intent was to confuse people into thinking that his MetaBirkins NFTs were sponsored or associated in some way. The defense reportedly failed to persuade the jury that Rothschild's MetaBirkins NFTs were original works of art. In fact, the defendant had allegedly openly acknowledged that he elected to sell his NFTs as MetaBirkins because a Birkin handbag is a highly valuable asset in the physical world.

On February 8^th, 2023, the nine-person jury decided that Rothschild's MetaBirkins NFTs are not First Amendment-protected speech and awarded a total of US$133,000 in damages in favour of Hermès.

CONCLUSION

The NFT sphere frequently blurs the border between art and consumer goods, which will be significantly impacted by the case. Nevertheless, it is unclear what the full legal repercussions of this decision will be in the future with this instant suit being the first of its kind determined by a Law court vis-a-vis NFT and IP. Although Rothschild still promotes the sale of the MetaBirkins NFTs publicly, however, considering the alleged damaging effect on Hermès’s business, an injunctive relief restraining the sale and promotion of MetaBirkins NFT would have been a more effective approach. Hermès cannot erase all existing NFTs from the blockchain except by an NFT burn, but it could also claim ownership of those MetaBirkins NFTs still in Rothschild’s possession and transfer to a Hermès-controlled wallet if granted through a court-ordered injunction. (Burning an NFT is basically deleting it, where the NFT Tokens are considered unusable since the burn transaction is irreversible).

Post-determination of the suit, Hermès’ have further claimed MetaBirkins NFTs are interfering with its own NFT plans and have taken filed a fresh legal action in March 2023 against Rothschild to restrain further sales and promotion.

DISCLAIMER

The information contained herein is neither exhaustive nor does it constitute legal counsel. You can reach out to us if you require legal advice via contact@legalpreneurconsulting.com or +234 8154141095