NFT Legislation and the Hermès vs. Mason Rothschild Case
In December 2021, Mason Rothschild revealed on Instagram that the French fashion house, Hermès, had sent him a cease-and-desist letter demanding that he stopped selling his MetaBirkin NFTs. Hermès accused Rothschild’s digital art project, the MetaBirkin, to be a violation of their intellectual property rights by creating digital copies of the brand’s iconic bag–the Birkin. Rothschild, an artist and designer from Los Angeles, cited the First Amendment and claimed that, just as Andy Warhol had the right to depict Campbell’s soup cans, he too had the right to create art that depicts Hermès bags. Moreover, Rothschild stated that his NFTs were a new, digital alternative to fur products, commonly used in the designer fashion industry.
Non-fungible tokens, or NFTs, are digital representations of ownership that cannot be forged, and because of this, their value lies in their scarcity. For example, Rothschild produced only 100 NFTs in his MetaBirkin collection; the first MetaBirkin sold for a staggering $42,000, and, reportedly, total sales reached $1.1 million. Rothschild himself claimed that he made a total of $125,000 from his digital project. Although these statistics may appear insignificant next to the sales of real Birkins, which amass $100 million annually, Hermès’ lawyers argued that the MetaBirkin’s popularity and value was entirely derived from the Birkin name.
In February this year, Hermès was awarded $133,000 in damages on the basis of trademark infringement, dilution, and cybersquatting. The latter term refers to the use of a well-known trademark or domain in bad faith, for example, using it to generate profit or detract sales from the trademark owner. Also as a result of Hermès’ win, the MetaBirkin domain no longer exists, which is bound to produce negative implications for those who purchased Rothschild’s NFTs prior to the lawsuit. Following the outcome of Hermès International, et al. v. Mason Rothschild, there has been speculation that the designer brand is looking to expand into the metaverse itself. It wouldn’t be the first designer fashion house to create its own NFTs – Gucci, Balmain, Coach, and Givenchy have all announced unique forms of digital assets.
As digital creators increase their use of physical art forms as the underlying-asset for NFTs, the art market and legal world must face serious questions regarding intellectual property. On the one hand, some lawyers have claimed that NFTs are a form of art, and therefore, are protected under the First Amendment in U.S. law as a form of free speech. On the other hand, lawyers and art experts have pointed out that if the digital artist intends to generate profit, and potentially mislead consumers using unoriginal images, infringement is a more likely outcome.
Whilst non-fungible tokens are currently incredibly legally messy, there have been several different suggestions to regulate their production and sales. Many conflate NFTs with cryptocurrency, and insist that the two forms of digital assets should use identical legislation. However, the chief executive of OpenSea–the leading global NFT marketplace–has expressed a desire to maintain a distinction between the two. He even suggested that NFTs be denominated using the U.S. dollar, rather than a cryptocurrency such as ether, in order to guarantee greater stability. The real issues that arise, however, concern intellectual property and ownership rights. An NFT is made up of several lots of rights, for example, the rights to the underlying digital or physical asset or the rights to the NFT software code. Purchasing an NFT does not necessarily mean that the buyer will have ownership rights of the underlying asset, in fact, this usually is not the case.
The UK High Court ruled that NFTs should be considered as legal property as of last May. This followed a case of NFT theft, and therefore the decision was made in order to protect the victims in this case. The UK is currently one of the only places to have introduced NFT legislation, and how other countries will react to this precedent is yet to be seen.
Image via Wikimedia Commons.