The boundaries of non-fungible token (NFT) art were put to the test last week, in a trial that saw digital creation come head-to-head with the codes of luxury fashion. In the end, it was the latter that came out on top. Hermès won the highly anticipated trial against Mason Rothschild, an artist who the house had accused of trademark infringement after he released a series of ‘MetaBirkins’ NFTs.

The outcome came after several days of deliberation at the Southern District of New York court, by a nine-person jury who eventually ruled in favour of the French luxury brand. Hermès was awarded 133,000 dollars in damages, determining that Rothschild had indeed profited from the brand by creating the NFTs.

The conflict began after Rothschild released 100 digital handbags seemingly modelled after Hermès’ signature Birkin style in December 2021. While the artist noted that the collection had drawn inspiration from the brand’s “fur-free” fashion initiatives – as seen in the use of fluffy textures for the NFTs – Hermès did not approve, and sent out a cease and desist order to Rothschild.

A trademark suit was later filed by the brand in January 2022, after Rothschild had already made over one million dollars in sales of the NFTs, as reported by Reuters at the time. The filing claimed Rothschild intentionally meant to infringe on Hermès, with the goal of profiting from the brand in a move it said was “likely to cause consumer confusion” and could damage the brand’s reputation.

It was the first trial to fully explore the legal and creative boundaries that come with NFTs – defined as digital assets that are authenticated through a blockchain-backed certification – a product of the ever-growing Web3 world, which has largely remained unregulated. The case brought to question the blurred lines between the digitalisation of assets and the rights over consumer products, with many eyes set on what could come of the ruling and how it could impact similar cases in the future.

Boundaries of digital art

Much of Rothschild’s case was formed around the idea that artists should be allowed to create art based on their “interpretations of the world”, with his lawyers regularly referencing the US First Amendment in their defence. He further iterated that his NFTs were “part of an experiment”, through which he aimed to question the value of luxury. Meanwhile, Hermès’ lawyers doubled down on the harm that could come out of such a lack of regulation, noting that the concept is still very new, and could therefore not be fully understood by consumers. The two arguments defined the queries that come with such a case, raising the question of whether one should be in favour of consumer perspective or freedom of creative expression.

Photo Credits: NFT MetaBirkins by Mason Rothschild for sale on the specialized LooksRare platform.

As both a lawyer overseeing similar cases, and an avid NFT purchaser herself, founder and managing attorney of New York-based Lvlup Legal, Shermin Lakha was particularly drawn to this case and what outcome would unfold. Speaking to FashionUnited, Lakha said: “It was interesting because, in terms of trademarks in Web3, there is really no jurisdiction. That’s why this case was so groundbreaking, because it really allowed there to be some jurisdiction in terms of Web3 and it gave us boundaries and guidelines on what to do next.”

Lakha’s stance on the matter remained fairly neutral, as she often represents both brands and artists when it comes to similar infringement cases. She did note: “From a brand perspective, it is a really great win for companies because now they have protection for the brands that they filed under. That’s really important. For artists, it really drew a line between what they’re able to do in terms of NFTs and how they are able to express themselves artistically.”

Meanwhile, Jimmy Au, streetwear and culture lead for NFT platform MADWorld, had a different view on the outcome, believing that it brought a brighter future for artists looking to monetise in the space. Au said: “If anything, I think this lawsuit could spark more creativity in the digital realm. It cuts out players in the NFT space who have been braided as ‘copycats’ of images and entities and instead breeds room for creators who are simply utilising NFTs as a stepping stone to bring novelty and innovation to existing brands.”

Legal limitations in the metaverse

While some may see it as a blow to some digital artists, the ruling does send a message that laws formulated around consumer products can still apply to their work. Josh Charalambous, sports, entertainment and IP senior associate, and Ciara Cullen, retail and consumer group partner, at law firm RPC, commented: "It is a timely reminder for NFT creators – and purchasers of NFTs – that there is a sophisticated set of legal principles already in place which can be applied to works that they create.”

The duo continued: “Much like the boom in digital content online, the law does have a way (and a long history) of being moulded to new technologies, and so it would be a misstep for creators to think that these can be ignored. However, the decision should not necessarily be seen as an impingement on artists or creators – the point really is that intellectual property laws that already exist are simply continuing to be applied.”

Like the sentiments of RPC’s lawyers, the jury’s decision determined that the NFTs in question could be linked to the physical consumer product, which are subject to stricter trademark laws in the real world. While some believed that the outcome would set a precedent for trials of this calibre in the future, others noted that there is still a long way to go. This was a sentiment that the lawyer duo emphasises, as they further noted that trademark laws are handled differently around the world. Therefore, legal matters surrounding the topic of NFTs are fairly open ended and could be approached from a different angle in another market.

Photo Credits: Vault NFT by StockX. StockX, official website.

They added: "But make no mistake: this is a victory for brand owners across many sectors – both for retail and consumer brands, and also recognisable sports and entertainment brands, many of whom are pro-actively considering how best to protect their reputation, goodwill and branding as we see more use cases for Web3 technologies. The decision brings issues relating to brand protection to the forefront of minds when it comes to NFTs – and it raises the awareness of creators that they do need to be mindful of using other people's content and branding.

"This is important because it is much easier for brand protection teams if they can deter people from creating potentially infringing items at all, and high-profile legal cases such as this can make all the difference in reminding creators of the need to be aware of intellectual property rights of others.”

The future of legality in Web3

While the first phase of this case has officially wrapped, it may not be the end of the line for Rothschild. On Instagram, the artist also hinted at things to come, in a post that stated “the fight is far from over”. He added: “I pride myself on being early to things, Web3 included, and sometimes that comes with growing pains like these. It’s early. Most people don’t understand what this is but it doesn’t mean they never will. It is my duty and the duty of other creators in this space to show them. We keep it moving.”

Legal frameworks surrounding the Web3 and metaverse industry are also still in their infancy, as noted by Lvlup’s Lakha, who said: “I do think this case will potentially be appealed and this is just one ruling. It does create some guidelines but there’s so much more that could be said about the role of artists and how far branding and trademarks can go. In this instance, Rothschild was using something that had been trademarked, but when looking at something that doesn’t have this type of notoriety, especially for smaller, lesser known brands, a different outcome could arise.”

The attention of the fashion and NFT crowds will now be turning towards the ongoing conflict between Nike and StockX, a duo that began to butt heads after the latter took to selling NFTs that drew a likeness to shoe styles of the sportswear giant. With such cases becoming more evident, brands will be looking for ways in which they can protect themselves in the fast developing Web3 world, forcing creators to become more wary of how they approach digital art.

MadWorld’s Au said: “Creators are often consumed by the artistry and the creativity behind their work, and potentially let the legal matters behind the work fall by the wayside. Brands have to do their due diligence and secure their requisite intellectual property rights. As this may delay collection launches and impact strategies, brands should acquire the appropriate legal team and create clear, outlined agreements with partnerships and creators.”