Motion to Dismiss Denied in Hermès’ Case Against ‘MetaBirkins’ Artist
By: Moish E. Peltz, Esq., with contributions from Simon Uritsky.
Last month, we published an article on the rise of NFT lawsuits including cases with issues of trademark infringement such as Hermès v. Rothschild. A recent Order further exemplifies how NFT litigation will be reviewed by federal courts.
As you may recall, the French luxury design house Hermès sued the artist Mason Rothschild over his NFT project “MetaBirkins”, which depicts fur-covered bags shaped like Hermès’ famous Birkin bags. This week, Judge Rakoff in the Southern District of New York released the long-form Memorandum Order in Hermès v. Rothschild, which follows the Court’s “bottom-line” May 5th, 2022 order that denied Rothschild’s motion to dismiss and allows Hermès’ case to proceed. Hermès v. Rothschild, 22-cv-384 (JSR), 2022 WL 1564597 (S.D.N.Y. May 18, 2022) (the “Order”). A recap of the decision is below.
Initially, the court distinguishes Rothschild's NFTs, styling them as NFTs which link to “digital images of (faux fur, not leather) Birkin bags, and not virtually wearable Birkin bags.” Order at n.1. This creates a distinction between NFTs which link to artistic images, and NFTs which link to wearable metaverse objects themselves (this decision only concerns the former, although Rothschild has apparently stated plans to develop the latter). Rothschild had argued that the digital images of the Birkin bags he sells as NFTs are “art.” Id. at 3. Therefore, Rothschild argues that the Second Circuit’s Rogers v. Grimaldi test should apply and the Court should dismiss Hermès’ claims on First Amendment grounds. See Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 2020).
Hermès’ countered that another test should apply (Gruner + Jahr USA Pub. v. Meredith Corp., 991 F.2d 1072, 1074 (2d Cir. 1993)), which would first ask whether Hermès’ mark is entitled to protection, and then apply the Polaroid factors to assess the traditional likelihood of confusion standard. Order at 8. Alternatively, Hermès argued that even under Rogers v. Grimaldi, it would be inappropriate to make a determination at this stage. Id.
The Court concluded that “the Rogers v. Grimaldi test applies, in part, to the trademark infringement analysis of Rothschild’s uses of 'MetaBirkins.'” Id. However, the Court also found that the amended complaint included “sufficient allegations of explicit misleadingness.” Id. This results in the Court's determination that it is inappropriate to conclusively apply the Rogers on a motion to dismiss given the factual analysis that would be required (Courts generally cannot make determinations as to contested factual questions on a motion to dismiss standard).
The Court then analyzes whether Rothschild’s use of “MetaBirkins” is as a “source identifier” (i.e., for a trademark purpose) or as part of “artistic expression” (and entitled to First Amendment protection). Id. at 4. The Court found that “Rothschild is selling digital images of handbags [as NFTs] that could constitute a form of artistic expression, balancing the First Amendment concerns with Lanham Act protection requires applying the Rogers test.” Id.
Interestingly, the Court reserved determination on the application of the Rogers test to the sale of “non-speech commercial products, i.e., virtually wearable Birkin bags” (again, Rothschild’s potential sale of wearable metaverse Birkin bags was not considered in this decision). Applying Rogers, the Court found that the complaint “contains sufficient factual allegations that the use of the trademark is not artistically relevant and that the use of the trademark is explicitly misleading as to the source or content of the work.” Id. at 5.
In sum, this analysis results in the Court finding that Hermès made sufficient allegations that cannot be resolved at the motion to dismiss stage. More specifically, the Court found sufficient allegations in the complaint related to Rothschild’s intent to associate the MetaBirkins mark “with the popularity and goodwill of Hermès’ Birkin mark, rather than intending an artistic association.” Id. These allegations also include Rothchild’s own statements and interviews about the MetaBirkins project, which are "plausibly interpreted as explicitly misstatements" and resulted in actual consumer confusion (which was pled by Hermès and acknowledged by Rothschild). Id. at 6.
The Court also found that under the Rogers test, even if Rothschild’s use of MetaBirkins was for an artistic purpose, the complaint contained sufficient allegations that the use was “explicitly misleading and thus still actionable under the Lanham Act.” Id. The Court concludes that “in considering explicit misleadingness under the Rogers balancing test, the Court should consider the Polaroid factors to determine whether the likelihood of confusion is sufficiently compelling to outweigh the interest in free expression.” Id. at 5.
The Court then turns to another case to interpret the Rogers balancing test, Twin Peaks Productions, Inc. v. Publications International, Ltd. 996 F.2d 1366 (2d Cir. 1993). Under Twin Peaks, the relevant test would be whether Rothschild’s use of the MetaBirkins mark “is misleading in the sense that it induces members of the public to believe [the allegedly infringing use] was prepared or otherwise authorized by Hermès.” Twin Peaks, at 1379. Applying Twin Peaks, the Court determined that application of this test would require a fact-intensive analysis of the Polaroid factors, which again would be inappropriate on a motion to dismiss. Thus, the Court denied the motion. For these same reasons, the Court denied the motion to dismiss Hermès’ related trademark dilution and cybersquatting claims, finding that they “rise and fall with the First Amendment defense.” Order, at 7.
For now, the case proceeds to discovery, so that the parties can further clarify the factual circumstances at issue in the dispute. After discovery, the parties can file summary judgment motions where the Court would be able to make limited factual determinations or send the case to trial to resolve issues of contested fact.
This case presents an early view into how US courts will frame the legal issues related to the creation of NFTs which invoke the intellectual property of others (including the trademarks of large brands). However, this preliminary decision narrowly relates to one type of NFT. The Court also implied that the legal analysis may differ as applied to different types of NFTs, which could include consideration of the artistic context of the NFT balance against its utility as a fashion item in the metaverse.
Read the full decision here: https://frblaw.com/wp-content/uploads/2022/05/Hermes-v.-Rothschild-5.18.2022-Memorandum-Order.pdf.
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