How is Intellectual Property Protected in the Metaverse?

by Arielle Hillock, SF Philosophy

In February 2023, a New York jury set a novel legal precedent regarding intellectual property rights in the Metaverse The case, Hermes International v Rothschild, has increased the visibility of challenges involving virtual ownership rights and jurisdiction, which creators, distributors, and lawyers are now facing more than ever. French luxury goods company, Hermes - a high fashion brand built on exclusivity and famous for their coveted Birkin Bag - filed a suit against Mason Rothschild in a New York federal court for the creation and distribution of “NonFungible-Token” MetaBirkin bags NFTs are unique digital identifiers for cryptocurrency, often exceedingly pricey and highly coveted. Ultimately, the court ruled in favour of Hermes and awarded the company $133,000. The court stated that Rothschild’s MetaBirkins “constituted trademark infringement, trademark dilution, and cybersquatting of Hermès’ protectable intellectual property rights.” The significance of the ruling lies not within the compensation awarded or dicta, but within the momentous impact of the decision on the preservation of property rights in the virtual world

In December 2021, Hermes sent a cease and desist letter to artist Mason Rothschild alleging that his sale of NFT MetaBirkins was in violation of the company’s federally-registered trademarks. Rothschild, however, viewed his works as safeguarded by the First Amendment of the US Constitution, which protects free speech online or in the press Rothschild argued that this protection “gives me every right to create art based on my interpretation of the world around me.” Rothschild first claimed that his NFTs, first sold for $42,000, were created in tribute to Hermes' long lasting influence on fashion which he hoped to extend into the virtual world. However, upon receiving the cease and desist letter from Hermes, Rothschild decided his MetaBirkins, covered in fur, were instead a “commentary on fashion’s history of animal cruelty, and its current embrace of fur-free initiatives and alternative textiles ” Rothschild’s failure to cooperate led Hermes to finally file suit in January 2022, alleging federal and common law trademark infringement, trademark dilution, cybersquatting, false designation of origin, and injury to business reputation by Rothschild under New York General Business Law. Hermes sought monetary reparations, particularly Rothschild’s profits from selling the NFTS, and injunctive relief to prevent any further trademark infringement.

Rothschild immediately attempted to have the case dismissed and argued that the trademark infringement and dilution allegations should follow the precedent set in Rogers v Grimaldi Rothschild asserted that his artistically designed MetaBirkins complied with the “low threshold of minimal artistic relevance”. He claimed that there was “nothing explicitly misleading about [his] depictions of the Birkin bags or his use of the ‘MetaBirkins’ name as the title of his art project,” or in his use of the name online. While Manhattan District Judge Jed Rakoff agreed with the logic of the precedent set in Rogers v Grimaldi regarding immunity to artistic work, he believed that the MetaBirkins misled consumers as to their source and that there was no artistic relevance for the use of Hermes’ trademark Therefore, Judge Rakoff found Rothschild’s work to not be protected by Rogers v Grimaldi, and did not dismiss the case upon Rothschild’s request. The judge further disallowed testimony by art critic Blake Gopnikin in support of Rothschild, both men likening the MetaBirkin to Andy Warhol’s graphic painting of Campbell’s soup cans

Ruling in favour of Hermes, The New York jury ultimately decided that Rothschild’s use of the Birkin mark was unlicensed and therefore, illegal The jury reasoned that the name “MetaBirkin” was likely to confuse potential consumers as to whether these MetaBirkins were officially affiliated with the Hermes brand and could mislead customers into investing in the product. Thus, Rothschild’s attempt at defending his virtual creations using the First Amendment proved unsuccessful

In considering whether Rothschild’s work constituted trademark infringement, the jury appreciated factors such as the similarities between the appearances of the Birkin and MetaBikrin, the level of fame possessed by the Hermes’ Birkin Bag, whether the target consumer audience for the individual products overlapped, whether Rothschild’s operation was formed upon mal-intent, and the likelihood that Hermes would enter the metaverse to sell NFT Birkins of their own While no one factor is solely determinative of trademark infringement, the jury found through their evaluation of all relevant factors that Rothschild was liable for trademark infringement

Additionally, the jury found Rothschild to be guilty of ‘cybersquatting’ the practice of registering internet domains of well-known brands in the hopes of reselling them for profit. The jury was persuaded that Rothschild’s internet domain selling the MetaBirkin NFTs and Hermes’ Birkin internet domain were nominally and aesthetically similar same time, and that there was bad i Rotschild’s MetaBirkin domain T that acting for commercial gain sati malicious intent required t cybersquatting charge.

As one of the first rulings dealing property in the Metaverse, the dec Rothschild will guide future courts of NFT ownership rights and de expression While individual crea newly set precedent favours large renowned brands over small-scale, the application of the precedent Rothschild does not necessarily s brands. Historically, intellectual pr been a complex topic and they will on scenario-specific evidence including the intention behind use, the strength and influence of the product in question, and its effects on consumers While Hermes’ legal arguments concerning the trademark infringement of the MetaBirkin prevailed due to Rothschild’s non-benevolent intent and the dilutive effects of the NFTs on the Birkin brand, one wonders how the ruling may have been affected if the conditions for MetaBirkins in the metaverse had been different If the Birkin marking was merely a small component of a larger metaverse world rather than a stand alone, sellable NFT, would the ruling have changed?

It is hard to tell exactly how intellectual property laws will apply to the Metaverse in the future, as the nature of the space is changing rapidly and is poorly understood by most of the general public. Furthermore, determining infringements of intellectual property in the Metaverse is a difficult task because the defendants behind NFT drops and creators of meta-property are often unknown or anonymous Thus, it will be difficult to prevent infringing uses also Despite this, Hermes v Rothschild can inspire some confidence in IP owners that their intellectual property rights will still be protected when represented in virtual reality. The ruling has already been relied upon in the Yuga Labs, Inc v Lehman trademark lawsuit and in another case regarding the Bored Ape NFT in the Singapore high court