Introduction
Perhaps no other area of the tech sector aside from the recent explosion of generative AI models has raised as many difficult intellectual property rights issues as the proliferation of non-fungible tokens, or NFTs, many of which are based on, refer to, or even incorporate. expressive works. The charges have been cases that address whether NFT manufacturers who use other parties’ trademarks can turn to the First Amendment as a defense against trademark infringement. This request rests on the now decade-old Rogers test established by the Second Circuit in 1989. The Rogers test allows defendants to defend free speech if their use of a mark is artistically relevant to their work and does not explicitly mislead consumers as to its source.1
In the recent Yuga Labs case from the Central District of California, where NFT manufacturers sought to justify the use of the plaintiff’s “Bored Ape” trademarks as a commentary on the plaintiff’s alleged racist tendencies, the court rejected the defendants’ attempt to dismiss the case for free. pleadings under Rogers.2 The court held that the defendants failed to legally meet the threshold showing that their use of the marks was part of an expressive work because the defendant’s NFTs only pointed to the same digital images that made up the plaintiff’s NFT collection, and because defendants’ sales of their NFTs constituted “commercial activities designed to sell infringing products, not expressive artistic speech protected by the First Amendment.”3
In contrast, in Herms International v. Mason Rothschild, the United States District Court for the Southern District of New York found that Rogers potentially protected the defendant’s NFTs both on the motion to dismiss and on summary judgment, but declined to reach a conclusion because of issues of material facts.4 When the case became ripe for trial, the case proceeded to a jury. On February 8, 2023, a jury found the defendants liable for trademark infringement, trademark dilution, and cybersquatting, after deliberating for three days, in a highly publicized trial overseen by Judge Jed. S. Rakoff.5 The jury rejected the defendant’s free speech claim, and ordered the defendant to pay $110,000 for trademark infringement, as well as $23,000 in cybersquatting damages.6 This notice analyzes the summary judgment decision that set the stage for trial and provides some guidance. about the legal landscape for NFTs going forward.
Factual background
Herms International brought the high-end luxury fashion brand Herms, maker of the iconic Birkin bag, against an individual defendant known as Mason Rothschild, who created a collection of digital images, each depicting a blurry faux-fur Birkin bag, which he called “MetaBirkins .”7 Rothschild sold each MetaBirkin image as a unique NFT.8 Before even setting the MetaBirkin NFTs, Rothschild allowed customers to browse his website (with previews of the digital images sold via the NFTs), where they could buy the MetaBirkin. NFTs.9
After selling the rights to his first hundred NFTs, Rothschild considered minting another hundred MetaBirkin NFTs, later revising this number to nine hundred.10 In conversations with a colleague, Rothschild remarked that he was “sitting on a gold mine”, and referred to himself as a “marketing king.”11 He even discussed the idea of selling other NFTs based on luxury products, such as a collection of NFTs called “MetaPateks,” modeled after the well-known watches made by Patek Philippe. 12 In total, Rothschild produced one hundred MetaBirkin NFTs, which he sold for over $1.1 million.13
Herms filed a lawsuit against Rothschild in January 2022, claiming that the NFTs infringed on their trademarks in the word “Birkin” as well as in the design of the Birkin bag itself.14 Among other claims, Herms also filed a claim for trademark dilution.15
Judge Rakoff’s Summary Opinion
Like the court in Yuga Labs, Judge Rakoff began his analysis with the threshold question of whether Rothschild had made an artistic or expressive use of the underlying material subject to the Rogers test. The court explained that “so long as the plaintiff’s trademark is used to further plausibly express purposes, and not to mislead consumers about the origin of a product or imply that the plaintiff endorsed or is affiliated with it, the First Amendment protects that use.” 16 Unlike in Yuga Labs, Judge Rakoff determined that the Rogers test was potentially applicable to the NFTs.
Applying the Rogers framework, the court explained that summary judgment against Rothschild was inappropriate because “defendants have[d] identified admissible evidence supporting its claim that Rothschild’s use of Herms’ marks did not primarily serve as a source identifier that would mislead consumers into believing that Herms originated or otherwise endorsed the MetaBirkins collection.”17 The court pointed to the images of Birkin -the bags that were covered.with fur suggesting artistic expression, and to statements by Rothschild distancing himself from Herms and purporting to characterize the expressive nature of his project.18 For example, on his website Rothschild disclaimed any connection to Herms.19 In addition , in an interview, ” Rothschild characterized the NFT collection as “an experiment to see if [he] could create the same kind of illusion as [the Birkin bag] has in real life as a digital commodity.'”20 (In Yuga Labs, by comparison, the court found the defendant’s use not to implicate Rogers despite the defendant’s explanation that their use of the plaintiff’s mark served as a form of “art of appropriation. ” and despite disclaimers on at least one of their websites that the project was intended to be satire.)21
Judge Rakoff then turned to the two Rogers factors, finding that genuine issues of material fact exist with respect to both. As to whether Rothschild’s use of Herms’ mark was artistically relevant to the underlying work, the court found that reasonable minds could differ as to “whether Rothschild’s decision to center his work around the Birkin bag stemmed from genuine artistic expression or rather from an illegal intent to monetize a highly exclusive and uniquely valuable brand name.”22 On the one hand, Rothschild had made comments to investors suggesting an intention to exploit the Herms brand, such as that he was “in the rare position of bullying a multi-billion dollar corp[oration].”23 On the other hand, as described above, Rothschild also made comments early on that the MetaBirkins collection was an artistic experiment.24 In both cases, the court made it clear that Rothschild’s financial motives alone did not preclude the application of Rogers. 25 Because of competing evidence, and because the issue of artistic relevance is “a mixed question of law and fact,” the court found the issue suitable for a jury decision.26
As to the second factor of the Rogers test, which considers whether a defendant’s work “leads members of the public to believe that it was created or otherwise authorized by the plaintiff,” the court turned to the Second Circuit’s well-known Polaroid factors to examine the likelihood for confusion.27 Here, relevant considerations included the strength of the Herms mark, the similarity between the “Birkin” and “MetaBirkins” marks, the likelihood of Herms itself moving into the NFT space, and whether Rothschild was acting in bad faith.28 Because of quantity and fact-intensive nature of the factors, the court explained that where the Rogers test is applicable, there are likely to be genuine issues of material fact even at late stages of litigation, and found that this case was no different.29 Therefore, the court put these issues before the court.
After three days of deliberation, the jury found for Herms. As reported, Judge Rakoff apparently told the lawyers for each side, “I have no idea how this case is going to turn out, and that’s the way I like it.”30 Ultimately, he left it to the jury to decide whether Rothschild “coldly had intent to profit from an endeavor that appeared to be artistic but was in fact a “fabrication.”31 While the jury apparently rejected the artistic nature of Rothschild’s use, Judge Rakoff’s uncertainty about the outcome signals that other courts may also struggle to decide future matters.
Important takeaways
- Both Herms International and Yuga Labs suggest that, at least for the time being, courts will apply traditional trademark analysis to questions in the NFT space.
- Coincidentally, the limits of the Rogers test (as applied to NFTs or other use of trademarks) are currently somewhat up in the air. In Jack Daniel’s Properties Inc. v. VIP Products LLC, United States, No. 22-148, US
- The Supreme Court will revise and potentially limit the Rogers test as it applies to products that are both expressive and commercial. Although the case involves humorous physical goods and not NFTs or other digital products, the court’s decision has the potential to affect the Rogers analysis in the NFT space as well.
- While the Yuga Labs decision was decided under the motion to dismiss stage and involved less favorable facts than in Herms International (dueling NFTs vs. digital versions of physical goods), it suggests that some courts may be more hesitant than others to apply Rogers in NFT spaces or may at least set a higher bar for establishing an expressive purpose (especially if the Supreme Court raises this bar more generally in its Jack Daniels decision).
- Regardless, as illustrated by Judge Rakoff’s summary judgment opinion, whether NFT manufacturers can actually prevail on a First Amendment defense is an extremely fact-intensive inquiry that, in many circumstances, may be open to a jury to decide the merits of protracted litigation, even where the brand owner’s trademark claim or NFT -the seller’s First Amendment defense proves to be meritorious.
- While the Second Circuit uses the familiar Polaroid factors to examine the likelihood of confusion as part of the final step of the Rogers test, the Ninth Circuit may focus on “(1) the extent to which the junior user uses the mark in the same manner as the senior user; and ( 2) the extent to which the junior user has added his own expressive content to the work beyond the mark itself.”32 While the inquiries touch on the same basic concepts, different considerations may guide NFT’s analysis depending on where a case is dealt with.
