By Gary Symons
TLL Editor in Chief
The luxury brand Hermès has won a landmark case that will help determine the future of NFT artworks in the United States.
A nine-person jury emerged from several days of consideration to name Hermès the victor in a copyright infringement trial.
NFT artist Mason Rothschild was also ordered to pay $133,000 in damages to Hermès, as the jury found Rothschild profited from Hermès brand value by producing NFTs based on the design house’s Birkin bags.
More critically for future cases in the sector, the jury also decided the NFTs were not protected under the First Amendment of the U.S. Constitution, as Rothschild’s lawyers had argued during the trial.
That means that in future, NFT creators must be far more careful to respect a company’s intellectual property when producing digital artworks and NFTs for sale to the public.
BACKGROUND OF THE CASE
The target of the lawsuit is the artist and entrepreneur Mason Rothschild (real name Sonny Estival), who created images of the legendary—and legendarily expensive—Birkin bags that often command sales prices of thousands of dollars. Rothschild’s MetaBirkin project saw the artist creating images of 100 Birkin bags covered in shaggy, vividly colored fur.
The MetaBirkin collection was unveiled at Art Basel in Miami in December 2021, and Rothschild then sold editions of the images online as NFTs through the trading platform Open Sea, earning more than $1 million for the project.
Rothschild had originally planned to create 1,000 MetaBirkins, but only 100 were released since the project began in 2021.
Each was priced at $450, and Rothschild received 7.5 percent of secondary sales. The court accepted evidence from Hermès that the sale resulted in approximately $1.1 million in total sales. Rothschild estimated he earned about $125,000 from the NFTs, which means the jury awarded Hermès slightly more than Rothschild earned.
Prior to that Rothschild had also created a one-of-a-kind artwork called ‘Baby Birkin’, which sold at an auction in May 2021 for 5.5 ETH, which was worth about $23,500 at the time.
Hermès was not amused by the similarity in both name and style to its lucrative line of purses, and they first sent out a ‘cease and desist’ letter to Rothschild shortly after the December 2021 auction, which also caused Open Sea to delist the NFTs from its trading platform, but not before they had earned more than $1 million.
Hermès then filed a suit in the State of New York in January 2022 against Rothschild in a case that will now help define whether brands are protected in the Wild West of NFT sales, and whether artists can create and sell altered duplicates of branded products.
Hermès says the works are clearly a rip off of its design and branding, describing the artist as a “digital speculator who is seeking to get rich quick” by creating copies of their world famous IP.
In addition to the fact the NFT images are essentially recreations of the Birkin bags, covered in fur, Hermès also argues, “The Metabirkins brand simply rips off Hermès famous Birkin trademark by adding the generic prefix ‘meta’.”
But the case was not straightforward, as art works are typically protected by First Amendment rights in the United States, which includes artists who create parodies of pop culture icons and product brands. Rothschild had countered with a statement of defence that argues his art is similar to the work of Andy Warhol, who famously portrayed a series of Campbell’s soup cans.
In fact, Rothschild tried to bolster his case by publishing the text of a letter from the product marketing manager to Warhol, in which he complimented the artist and lamented he couldn’t afford to buy one of the silk screens for himself.
“Your work has evoked a great deal of interest here at Campbell Soup Company for obvious reasons,” the manager wrote. “We admired your work and I have since learned that you like Tomato Soup. I am taking the liberty of having a couple of cases of our Tomato Soup delivered to you at this address.”
As well, the company recently entered into a licensing deal with the Andy Warhol Foundation to issue a line of sculptures with KidRobot, based on the 1962 Campbell Soup Cans artworks.
In an open letter to the NFT community published on Twitter, Rothschild argues, “I’m not creating or selling fake Birkin bags. I’ve made art works that depict imaginary, fur-covered Birkin bags.
“My lawyers … put it well when they said that the First Amendment gives me the right to make and sell art that depicts Birkin bages, just as it gave Andy Warhol the right to make and sell art depicting Campbell’s soup cans.
“The fact that I sell the art using NFTs doesn’t change the fact that it’s art,” Rothschild added.
Rothschild’s lawyers said the ruling failed to take into account the need for artists to rely on the First Amendment when creating parodies of popular brands or corporate culture. “Great day for big brands,” said Rhett Millsaps II. “Terrible day for artists and the First Amendment.”
IP lawyer Michelle Cooke told the British newspaper The Guardian that cases like this will define the rights of IP holders vs. artists and NFT creators for decades to come.
“It will be a very meaningful case for the fashion industry,” said Cooke, a partner at the law firm Arentfox Schiff LLP. “Their ability to control their brands in these digital spaces as much as they do in the real world will have significant implications about how much money they put into these new environments and how they enforce and protect their rights.”
The flip side of that issue is that NFT artists will also see their rights defined by the court rulings in this and other recent cases.
“We have a new wave of digital artists coming into existence and the benefit of an NFT is that it allows them to track and monetize their art in ways that they weren’t able to do before,” said Cooke.
Rothschild filed a motion to dismiss the case in May 2022 but was denied, as was a motion from Hermès asking the judge for a summary judgement in October 2022. The suit moved to trial at the U.S. District Court for the Southern District of New York and began on Jan. 30, 2023. After six days, the court heard evidence from witnesses and experts from both sides, and then proceeded to summary arguments.
Hermès’ lawyer Oren Warshavsky, said the use of the company’s brand and design created confusion for consumers as to who issued the NFTs, and that Rothschild was unfairly profiting from the value of the Birkin bag brand, which had been built up over many decades.
“Rothschild’s MetaBirkin NFTs and Birkin Bags aren’t sold side by side,” said Warshavsky, explaining the similarities between physical Birkins and MetaBirkin NFTs that might mislead NFT collectors. “If you saw [both of them] would you know the difference?
“MetaBirkins sold at the amount they did because of the Birkin name,” added Warshavsky. “People spent that money because of the name MetaBirkin, regardless of which NFT they were getting.”
But Rothschild’s lawyers brought in Dr. David Neal, managing partner and founder of Catalyst Behavioral Sciences, to analyze a pre-trial survey conducted by the president of MMR strategy group, Dr. Bruce Isaacson, to test for the likelihood of confusion as to whether Hermès’ Birkin bags and MetaBirkin NFTs were related.
Isaacson found that the percentage for likelihood confusion among the surveyed population was 18.7%, while Neal recoded the data and found a 9.3% figure, suggesting that more people were aware of the distinction between Birkin Bags and MetaBirkin NFTs than had previously been reported.
Robert Chavez, president and chief executive of Hermès of Paris, said he was not aware of any revenue that the company lost because of MetaBirkins.
However, the company’s lawyers argued that if creators continued to generate copies of their designs and branding, it would soon dilute the value of the brand, and cause prices and overall sales to decline. That’s a big deal for the fashion house, which earns approximately $100 million a year from the handmade Birkin bags.