Intellectual property owners should add the metaverse to places to watch for possible infringement, especially trademark or copyright infringement in the form of NFTs or non-fungible tokens. This is evidenced in the case of Hermes International against Mason Rothschild, currently pending in the Federal District Court of New York. In this case, Hermès asserts that the NFTs called METABIRKINS—which allude to the iconic Hermès (and trademark) BIRKIN® handbag – infringe and dilute the Hermès trademarks.

NFTs are unique tokens based on blockchain technology and used as digital assets. Unlike cryptocurrency tokens such as Bitcoin, which are fungible, NFTs are digitally unique – no two NFTs are the same. NFTs can be based on three-dimensional objects or illustrations, or can be purely digital creations, for example, a collectible digital sneaker or a token used in a video game. Most NFTs are protected by US copyright law as creative works and/or may be derivative works based on pre-existing copyrighted works. NFTs may also embody or use trademarks. For a brief overview of NFTs, see Your NFT Playbookby our colleagues Kyle Fath, Alan Friel and Carlton Daniel, published in Consumer Privacy World.

As artists, commentators and parodists flock to this new medium, the headaches for intellectual property owners have multiplied. Witness the Hermès case, which involves NFTs created by digital artist Mason Rothschild. NFTs, which Rothschild dubbed METABIRKINS, are based on the Hermes BIRKIN® handbags, but sport fur surfaces rather than polished leather. Rothschild started selling his METABIRKINS NFT in December 2021. Its NFT sales reportedly topped $1.1 million, with the most expensive METABIRKINS NFT sold for $45,100.

On January 14, 2022, Hermès filed a lawsuit in the Southern District of New York alleging trademark and trade dress infringement, trademark dilution, false designation of origin, cybersquatting, damage to corporate reputation and misappropriation, under Federal Lanham Law and New York State Law. In addition to alleging trademark infringement due to Rothschild’s use of BIRKIN in METABIRKINS as the name of its NFT collection, Hermès complained that Rothschild infringed by using METABIRKINS as a domain name, an identifier on Twitter and other social media platforms, as a brand name. on NFT sales platforms, and as a hashtag. Hermès also alleged infringement based on Rothschild publications and advertisements proclaiming “Not your mother’s Birkin” as well as the hashtag #notyourmothersbirkin.

On February 9, 2022, Rothschild filed a motion to dismiss Hermès’ complaint on the grounds that the METABIRKINS NFTs are artistic expressions and commentary protected by the First Amendment, and no one would be confused or think that Hermès sponsored or endorsed its furry images. Her memoir argued that Hermès handbags and trademarks are not infringed because the NFTs are “represented as covered in fur…[which] comments on the animal cruelty inherent in Hermès’ manufacturing of its ultra-expensive leather handbags. The brief further argued that the term METABIRKINS refers both “to the context in which he makes the art available (i.e. the online virtual environment commonly dubbed the ‘metaverse’) and alludes to his work’s ‘meta’ commentary on the Birkin bag and the fashion industry in general.”

Rather than opposing the motion to dismiss, Hermès preferred to modify its complaint. The Amended Complaint, filed March 2, 2022, provides additional context and context for Hermès’ claims. The Amended Complaint has 51 exhibits, many of which attest to the reputation and reputation of the BIRKINS mark and trade dress. The amended complaint also adds details about Rothschild’s sales plans and business efforts, presumably in order to undermine its defense of artistic commentary. The amended complaint highlights the growing importance of NFTs in the fashion and brand markets, and accuses Rothschild of usurping opportunities that rightfully belong to the brand owner, Hermès.

While the Hermès affair is still in its infancy, it highlights several critical points. First, NFTs have enormous importance in the IP world. Although NFTs have been around since 2014, their deep and multi-layered legal implications are only now recognized. As evidenced by the METABIRKINS imbroglio, companies and brand owners should be very careful about the use of their intellectual property, now that digital currency, blockchain and NFTs are becoming more common. Once again, technology has outpaced normal legal constraints and lawyers need to catch up.

Brand owners have already started to catch up. As of March 12, 2022, the USPTO TESS database contained 2,551 trademark applications or registrations using NFT in product/service descriptions. Of these, only a handful have registered, but more than 1,400 of the applications had been filed since January 1, 2022. These statistics show growing awareness of the NFT market and likely some FOMO (or “Fear of Missing Out “) from brand owners.

One thing is clear: NFTs are hot topics in the brand world, with huge potential for counterfeiting (or commentary) as well as brand extension. The news is full of reports of brand owners, including McDonald’s, Crocs and CVS, launching promotional NFT Drops or filing trademark applications covering NFTs.

Other trademark owners have fought back against counterfeiters, commentators and/or parodists as in the METABIRKINS saga. For example, Darden Restaurants, owner of the OLIVE GARDEN brand, reportedly fought against “non-fungible olive gardens” — NFTs that depict real-world Olive Garden restaurants with digital tokens called Breadsticks.

And in February 2022, Nike, Inc. filed a lawsuit in federal court in New York against online retailer StockX. The complaint alleges trademark infringement, misrepresentation and unfair competition due to StockX’s minting of sneaker-related NFTs using the NIKE trademarks without Nike’s authorization. StockX responded that its NFTs are a “fair use” of the authorized mark in connection with its retail sales and advertising of genuine NIKE sneakers. These challenges show that brand owners face new, multidimensional legal issues at the edge of the metaverse.

For now, here are some thoughts for resolving these IP issues in the ever-expanding metaverse:

  • Ask yourself if the metaverse should be on your company’s horizon. If so, and plans are underway, consider filing US trademark applications based on intent to use to assert your claim and avoid surprises.

  • The USPTO’s trademark review process currently takes one to three years after an application is filed, so companies should have plenty of time to solidify their launch plans. After successful review, notice of acceptance is issued for trademark applications based on intended use (rather than actual use). At this point, US trademark applicants have an additional 3 years to begin using the mark in US commerce.

  • Also consider international markets. Although NFT’s related marks are clearly protected by US law, the laws of other countries may differ. Map the potential markets for your business around the world and develop a protection plan for other markets.

  • Do due diligence on the metaverse before entering it: determine what rights buyers/licensees will have over NFTs, compare marketplace platforms and underlying contracts and rights, including “smart contracts” providing resale royalties for artists and other NFT creators. .

  • Make sure all intellectual property rights are protected before publishing your NFTs to the metaverse.

  • Market leaders cannot protect themselves from all counterfeits or reviews. However, taking protective action and planning now for new markets and enforcement programs can give brand owners an edge and help protect brands from misappropriation as new markets develop.

The metaverse is here to stay, and brand owners need to pay attention to this new frontier. So, from our point of view, NFTs do not only mean “non-fungible tokens”, but also “new frontiers for brands”.

© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 77