Last week, the boundaries of art with non-fungible tokens (NFT) were tested as digital creations met the codes of luxury fashion in a court case. In the end, it was the latter who came out victorious. Hermès won the much-anticipated lawsuit against Mason Rothschild, an artist whom the house had accused of trademark infringement after releasing a series of “MetaBirkins” NFTs.
After several days of deliberations in the Southern District Court of New York, the verdict was reached by a nine-person jury, which ultimately ruled in favor of the French luxury brand. Hermès was awarded $133,000 in damages because Rothschild actually benefited from the brand by creating the NFTs.
The dispute began after Rothschild released 100 digital handbags in December 2021 that appeared to be modeled after Hermès’ Birkin style. While the artist noted that the collection was inspired by the brand’s “fur-free” fashion initiatives – evident in the use of fluffy textures for the NFTs – Hermès disagreed and sent Rothschild a cease and desist order.
The brand later filed a trademark lawsuit in January 2022 after Rothschild had already transacted over $1 million on the NFTs, Reuters reported at the time. The lawsuit accused Rothschild of intentionally violating Hermès trademark law for profit, which could “likely lead to consumer confusion” and damage the brand’s reputation.
It was the first process to explore the legal and creative boundaries of NFTs – defined as digital assets authenticated by a blockchain-backed certification – a product of the ever-expanding Web3 world that has so far remained largely unregulated. The case challenged the blurred lines between the digitization of assets and consumer goods rights. It will be interesting to see what will become of the verdict and how it could affect similar cases in the future.
The limits of digital art
Much of Rothschild’s argument was based on the idea that artists should be allowed to create art based on their “interpretation of the world,” with his attorneys regularly citing the US First Amendment in their defense. Rothschild also stressed that his NFTs are “part of an experiment” to challenge the value of luxury. Hermès lawyers emphasized that the lack of regulation could hurt the company as the concept is still very new and therefore cannot be fully understood by consumers. The two arguments defined the issues that accompany such a case, raising the question of whether to espouse the consumer perspective or freedom of creative expression.
As an attorney handling similar cases and an avid NFT buyer herself, Shermin Lakha, Founder and Managing Attorney at New York law firm Lvlup Legal, was particularly drawn to this case and its outcome. Speaking to FashionUnited, Lakha said: “He was interesting because there really isn’t any jurisdiction on the Web3 when it comes to trademark rights. That’s why this case was groundbreaking, because it really gave us some jurisdiction over Web3 and gave us boundaries and guidelines for how to proceed.”
Lakha took a fairly neutral stance on the matter, as she often represents both brands and artists in similar copyright infringement cases. However, she noted, “From a trademark perspective, it’s a really big win for companies because they now have protection for the marks they’ve filed. It’s really important. For artists, this has drawn a line between what they do in terms of NFTs and how they can express themselves artistically.”
However, Jimmy Au, head of streetwear and culture at NFT platform MADWorld, saw the verdict differently, arguing that it offers a brighter future for artists who want to make money in this space. “If anything, I think this lawsuit could boost creativity in the digital space. It marginalizes players in the NFT space who are notorious as ‘copycats’ of images and companies, and instead creates space for creatives who simply use NFTs as a springboard to offer new and innovative things to existing brands,” says Au.
Legal Restrictions in the Metaverse
Some might see the ruling as a blow to some digital artists, but it shows that laws formulated for consumer goods can also apply to their works. Commenting on the ruling, Josh Charalambous, senior associate in sports, entertainment and intellectual property practice, and Ciara Cullen, partner in retail and consumer group at law firm RPC, said: “It is a timely reminder for NFT creators and buyers that there is already a sophisticated set of legal principles that can be applied to the works they create.”
Like RPC’s attorneys, the jury found in its ruling that the NFTs in question can be associated with the physical consumer product, which is subject to stricter trademark laws in the real world. While some believed the result would set a precedent for future trials of this caliber, others noted there was still a long way to go. The legal duo underscores this view by pointing out that trademark law is administered differently around the world. As such, legal issues surrounding NFTs are fairly open and might be looked at from a different angle in a different market.
“However, this is a victory for brand owners in many sectors – both retail and consumer brands as well as well-known sports and entertainment brands, many of whom are proactively considering how best to protect their reputation, goodwill and brand , as we continue to see more use cases for Web3 technologies,” added Charalambous and Cullen.
The Future of Web3 Legality
Even though the first phase of this case is officially closed, this may not be the end of the road for Rothschild. In a post on Instagram, the artist hinted that “the fight is far from over.” He added: “I pride myself on starting things early, including Web3, and sometimes that comes with teething troubles like this.”
The attention of the fashion and NFT community will now turn to the ongoing conflict between Nike and StockX. The duo clashed after the platform began selling NFTs that bear a resemblance to the sporting goods giant’s footwear styles. As such cases become more common, brands will look for ways to protect themselves in the rapidly evolving Web3 world, forcing creators to become more cautious in their handling of digital art.
This article originally appeared on FashionUnited.uk. Translated and edited by Simone Preuss.