Hermes Birkin Handbags, NFTs, Trademark Law, and Rothschild (but not Controlling the Weather)

From Hermes Int'l v. Rothschild, an opinion issued today by Judge Jed Rakoff (S.D.N.Y.):

Around December 2021, defendant Mason Rothschild created digital images of faux-fur-covered versions of the luxury Birkin handbags of plaintiffs Hermes International and Hermes of Paris, Inc. (collectively, "Hermes"). Rothschild titled these images "MetaBirkins" and sold them using so-called "NFTs" (non-fungible tokens), explained further below. In response, Hermes filed a complaint, subsequently amended, claiming trademark infringement, trademark dilution, and cybersquatting….

Unless otherwise indicated, the following factual allegations are taken from the amended complaint. Hermes is a luxury fashion business known for, among other products, its unique Birkin handbag, which sells for anywhere from thousands of dollars to over one hundred thousand dollars. Hermes owns trademark rights in the Hermes and Birkin marks as well as trade dress rights in the Birkin handbag design.

NFTs, or "non-fungible tokens," are units of data stored on a blockchain that are created to transfer ownership of either physical things or digital media. When NFTs are created, or "minted," they are listed on an NFT marketplace where NFTs can be sold, traded, etc., in accordance with "smart contracts" that govern the transfers. Because NFTs can be easily sold and resold with a transaction history securely stored on the blockchain, NFTs can function as investments that can store value and increase value over time.

When an NFT is linked to digital media, the NFT and corresponding smart contract are stored on the blockchain and are linked to digital media files … to create a uniquely identifiable digital media file. {This means that an NFT could link to a digital media file that is just an image of a handbag or could link to a different kind of digital media file that is a virtual handbag that can be worn in a virtual world. Fashion companies are just starting to branch out into offering virtual fashion items that can be worn in virtual worlds online (most commonly, for now, in the context of videogames, but with potential to expand into other virtual worlds and platforms as those develop), and NFTs can be used to create and sell such virtual fashion items. However, while Hermes calls what Rothschild sells "digital handbags," they do not dispute that what Rothschild sells are digital images of (faux fur, not leather) Birkin bags, and not virtually wearable Birkin bags.} The NFTs and smart contracts are stored on the blockchain (so that they can be traced), but the digital media files to which the NFTs point are stored separately, usually on either a single central server or a decentralized network.

Fashion brands are beginning to create and offer digital replicas of their real-life products to put in digital fashion shows or otherwise use in the metaverse. NFTs can link to any kind of digital media, including virtual fashion items that can be worn in virtual worlds online. Brands sometimes partner with collaborators in offering co-branded virtual fashion products.

Defendant Mason Rothschild is a "marketing strategist" and "Entrepreneur" who "come[s] from the fashion industry." In or around May 2021, Rothschild created a digital image entitled "Baby Birkin," which depicted a 40-week-old fetus gestating inside of a transparent Birkin handbag. Rothschild sold the NFT linked to the "Baby Birkin" digital image for $23,500; it later resold for $47,000.

In or around December 2021, Rothschild created a collection of digital images titled "MetaBirkins," each of which depicted an image of a blurry faux-fur-covered Birkin handbag. Rothschild used NFTs to sell these "MetaBirkins" digital images. Each NFT in the "MetaBirkins" collection is titled with a number from 0 to 99 and not the "MetaBirkins" name. The NFTs have sold for prices comparable to real-world Birkin handbags.

When Rothschild initially sold the NFTs of the "MetaBirkins" digital images, Rothschild described them as "a tribute to Herm[e]s' most famous handbag, the Birkin, one of the most exclusive, well-made luxury accessories. Its mysterious waitlist, intimidating price tags, and extreme scarcity have made it a highly covetable 'holy grail' handbag that doubles as an investment or store of value." In an interview with Yahoo Finance about the "MetaBirkins" collection, Rothschild stated that "for me, there's nothing more iconic than the Herm[e]s Birkin bag. And I wanted to see as an experiment if I could create that same kind of illusion that it has in real life as a digital commodity."

He went on to state that "there's not much difference" between owning a MetaBirkin and "having the crazy car or the crazy handbag in real life because it's kind of just that, that showing of like wealth or that kind of explanation of success"; that "now you're able to bring that into the metaverse with these iconic NFTs"; and that "I feel like the difference between the two is like getting a little bit blurred now because we have this new outlet, which is the metaverse, to showcase, showcase them in our virtual worlds, and even just show them online." …

Consumers posting on the "MetaBirkins" Instagram page have expressed actual confusion, believing that there is an Hermes affiliation with Rothschild's "MetaBirkins" collection. Similar confusion exists in the media. For example, the magazines Elle and L'Officiel and the New York Post have all mistakenly reported that the "MetaBirkins" NFTs were unveiled by Hermes in partnership with Rothschild.

Rothschild argues that, because the digital images of the Birkin bags that are tied to the NFTs he sells are "art," the Second Circuit's test in Rogers v. Grimaldi (2d Cir. 1989) applies, and that applying the Rogers test requires dismissing Hermes's claims on First Amendment grounds. [Under Rogers, the use of trademarks in expressive works, such as movies, songs, video games, and the like isn't an infringement if the use is relevant to the work's artistic or expressive message, and the work isn't expressly misleading as to "explicitly misleads as to the source or the content of the work." -EV] …

The Court concludes that the Rogers test applies, at least in part, to the trademark infringement analysis of Rothschild's uses of "MetaBirkins." Because, however, the amended complaint includes sufficient allegations of explicit misleadingness either as a function of likelihood of confusion under the Polaroid factors, or under Rothschild's own theory of the explicitly misleading analysis, the Court denies the motion to dismiss the trademark infringement claims.

While the Second Circuit in Rogers was considering the title of a movie that used plaintiff Ginger Rogers's name, the Second Circuit has not only applied the Rogers test to titles, but also has found that it "is generally applicable to Lanham Act claims against works of artistic expression." Even the amended complaint's allegations acknowledge the artistic aspect of some of the digital images sold through the NFTs. In any event, even if the commercial aspects of a work are intertwined with artistic content, the trademark-using speech must be treated as noncommercial…. Because [such] trademark claims therefore implicate First Amendment interests, accounting for these different interests requires a separate test, as the Court laid out in Rogers, and it is that test that applies here….

[But] the amended complaint contains sufficient factual allegations that Rothschild's use of the "MetaBirkins" mark is explicitly misleading and thus still actionable under the Lanham Act…. The amended complaint's allegations may not be overwhelming evidence of explicit misleadingness, but they are sufficient to survive a motion to dismiss…. [Among other things,] the amended complaint contains sufficient factual allegations as to Rothschild's behavior—not just the impact of the use on consumers, the media, and the public, but also that Rothschild himself made statements that are plausibly interpreted as explicitly misstatements and that this engendered the confusion on the part of consumers.

Apropos "a model based off the Rothschilds controlling the climate to create natural disasters they can pay for to own the cities, man," see here. To be sure, it seems defendant isn't one of those Rothschilds. Or is he?