Luxury goods company Hermes International won a U.S. lawsuit against “MetaBirkins” NFTs creator Mason Rothschild – a ruling that could have massive implications on how items are bought and sold in the fledgling metaverse economy.
The 186-year old French multinational sued digital artist Rothschild in 2022 for trademark infringement following the release of MetaBirkins – a collection of 100 different and colorful Birkin handbag-inspired NFTs covered in fake fur.
US Court: NFTs are not art
Hermes argued that the digital artworks diluted their brand, confused current and potential customers and damaged its own plans for developing non-fungible tokens, or NFTs, in future, according to a Bloomberg Law report.
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On Feb. 7, Hermès won its lawsuit. According to the report, nine people sitting as a federal jury in Manhattan awarded the company $133,000 in total damages. The jury found Mason Rothschild liable for “trademark infringement, trademark dilution and cybsersquatting.”
After three days of deliberations and hearing testimony from several live witnesses and the defendant, the jury also found that Rothschild’s non-fungible tokens are not protected under the U.S. Constitution’s First Amendment, which guarantees freedom of speech.
In other words, the artists’ MetaBirkins NFTs are not art, per the verdict. A non-fungible token is an immutable and unique unit of data stored on the blockchain. NFTs can be used to represent items such as photos, videos, audio and other types of digital files.
Hermes’ case against NFTs ‘crucial’ for metaverse
The ruling is “crucial” for the emerging metaverse economy, observers say. NFTs play a major role in the metaverse, particularly in gaming metaverses. They can be used to “buy and sell accessories and collectibles such as skins, or even land.”
Ilman Shazhaev, founder and CEO of blockchain gaming metaverse Farcana, told MetaNews that the Hermes win was a defeat of the non-fungible token industry as a whole, not just the digital artist Mason Rothschild.
“The case of Hermès winning a lawsuit against NFTs is crucial. Many companies that work in metaverses are hesitant to use non-fungible tokens because there are no clear regulations,” he said, adding:
“Metaverse company strategies depend on tokenomics and such rules are essential. Without digital assets most metaverse projects struggle to identify sources of income.”
Shazhaev drew comparisons between the Hermes – Rothschild case and another one in the UK after which NFTs were recognized as property. “In a way, the court decision contradicted [what the] UK Jurisdiction Taskforce’s declared,” he explained.
“In 2022, the Law Commission published a consultation on its proposals to reform the law on digital assets. So after this case, we will have a clear path for using non-fungible tokens. It is a precedent. How does the government handle the tax issue in this case?” he added.
The Hermes – Rothschild case has drawn huge attention because of what it could mean for NFTs going forward. Experts say it could influence how intellectual property infringement and free speech rights “apply to non-fungible tokens and other areas of the digital world.”
Bloomberg quoted intellectual property attorney and artist Alfred Steiner saying, “Rothschild’s loss may have a chilling effect on NFT artists who want to use trademarks in their projects.”
“The commentary in Mason’s work was probably more difficult to discern because it was subtle,” he said. “It may have been lost on a pool of jury members or the general public.”
However, not everyone agrees that the ruling spells doom for NFT use in the metaverse. Speaking to MetaNews, Sandy Carter, senior vice president of Web3 domain service Unstoppable Domains, said the case could boost collaboration between brands and creators.
“This was a monumental decision on NFT and trademark law and one that will significantly benefit the utility of NFTs in the metaverse,” Carter stated.
“This ruling incentivizes brands and creators to work together and it is likely that we can expect more cases of luxury brand collaboration in the metaverse as a result. It also reiterates the appetite for these luxury items in the metaverse.”
Rothschild criticizes Hermes, ‘broken justice system’
Mason Rothschild criticized the verdict on Twitter, saying that the “multibillion dollar luxury fashion house” pretended to “care about art and artists.” But the company claims instead to “have the right to choose what art IS and who IS an artist.”
“Take nine people off the street right now and ask them to tell you what art is but the kicker is whatever they say will now become the undisputed truth. That’s what happened today,” he shouted.
“A broken justice system …What happened today was wrong. What happened today will continue to happen if we don’t continue to fight. This is far from over,” he said.
In 2020, NFTs emerged as a cultural storefront of the cryptocurrency industry, bringing up novel possibilities in the curation and circulation of art. NFTs swayed fascinated endorsements from pop celebrities such as Snoop Dog, Lindsay Lohan, Grimes and several others.
Digital artist, Beeple, sold an NFT for more than $69.3 million in 2021. Twitter founder, Jack Dorsey, converted his first ever tweet into a non-fungible token and sold it for $2.9 million.
Rothschild plans to appeal decision
Mason Rothschild’s 100 MetaBirkin NFTs are made after digital images of Hermès’ iconic Birkin luxury handbag. The artist created and sold the NFTs in late 2021, earning around $1.1 million, reports say.
Hermes sent a cease and desist shortly after and sued Rothschild in January of the following year. In reaching its verdict, the jury determined that the NFTs are more similar to “consumer products subject to strict trademark laws to protect brands from copycats.”
In closing arguments on Feb. 6, Rothschild’s lawyer said: “It was an artistic experiment. He wanted to see what kind of value people would ascribe to these two-dimensional pictures,” the lawyer said.
“It is unlikely that people who would pay thousands of dollars on bags would be confused these #MetaBirkins were from Hermes. He has a Constitutional right to create his MetaBirkins art work, and to make money from, as long as he doesn’t mislead people.”
Rothschild and his legal team are planning to appeal the decision, according to reports.