February 2023 saw a landmark decision for brand owners and digital assets, as a first instance court decided the first US case to consider the application of trademark rights to digital artworks linked to Non-Fungible Tokens (NFTs). The decision (detailed in our alert here) centered around “MetaBirkins”: a collection of unique virtual tokens linked to digital faux-fur versions of the coveted Hermès Birkin bag. Hermès sued Rothschild for trademark infringement, dilution and cybersquatting, and the creator argued his works were non-commercial social commentary protected by freedom of speech. The argument failed to convince the US jury, which found that the MetaBirkins infringed upon the BIRKIN trademark and were intentionally designed to mislead consumers into believing the source of the NFTs was Hermès.

This is the second decision worldwide on trademark infringement involving NFTs. The first decision was issued in November 2022 by the Rome Court of First Instance in Juventus F.C v. Blockeras s.r.l.., No. 32072/2022. In that case, Juventus Football Club sued Blockeras S.R.L for minting and selling NFT player cards bearing the club’s trademarks. Blockeras argued, amongst other things, that Juventus’ trademark registrations (like Hermès) did not cover downloadable virtual products. The Court was not persuaded and found Blockeras to have infringed Juventus’ registrations. Brand owners will now be wondering what these decisions mean for the protection of their brands in the wider virtual world. In this alert we consider a number of questions which apply not only to NFTs, but to the digital space and metaverses more broadly: the scope of trademark protection for tangible versus virtual goods and services, freedom of speech or artistic expression as a defense to trademark infringement, the impact of disclaimers, and other factors that might impact the outcome of a trademark infringement action against digital assets.

Scope of protection of trademark registration for tangible goods and services versus virtual equivalents

As consumer and commercial interest in virtual environments grows, a key question is whether a trademark registration for tangible goods or services can be asserted against digital goods or services, including (but not limited to) NFTs.

In Hermès v Rothschild, Hermès successfully asserted registrations for physical goods against Rothschild’s virtual handbags.  While certainly useful to brand holders, this decision doesn’t establish a blanket rule that rights pertaining to physical goods can be asserted successfully against new digital products in the US. The jury verdict simply found Rothschild liable for trademark infringement, without providing any underlying reasoning that could be relied on in future cases. However, the decision does seem to have been influenced by the fact that NFTs were considered to fall under the “natural zone of expansion” for Hermès, supported by evidence that Hermès had plans to enter the NFT market, which will not be the case for every brand owner. Finally, the decision is likely to be appealed, and with the interaction of trademark rights with freedom of speech up for consideration by the US Supreme Court very shortly, the outcome is difficult to predict.

In Juventus v Blockeras, while Juventus’ trademark registrations did not cover downloadable virtual products, the Court found that claims for downloadable publications in class 9 in Juventus’ registration would encompass downloadable digital files authenticated by NFTs. There is also a suggestion in the decision that even if Juventus’ registrations did not cover those goods, Blockeras may still have been found to infringe Juventus’ registrations due to the well-known nature of Juventus’ marks and there was evidence that it had recently sought to become active in the field of crypto games and crypto assets. This is in line with the “natural zone of expansion” view in the Hermès v Rothschild decision.

Most other jurisdictions presently lack any case law on whether the protection afforded by a registered trademark for tangible goods or services extends to the virtual sphere. Of course, the outcome will be fact-specific and may depend on the trends within a particular industry. For instance, subject to evidence, courts in Australia and New Zealand would, similar to the US and Italian courts, likely consider trademark protection in the virtual context to fall under the “natural zone of expansion” for the fashion and luxury goods sector where brand owners are increasingly offering digital assets as a product or part of their marketing strategies. However, it is less clear how far this would apply to other industries. Moreover, in certain jurisdictions, such as the European Union, this may not be a factor for assessing likelihood of confusion, unlike in the United States.

Enforcement is also likely to be easier for well-known brands. In many jurisdictions, such as Colombia and Andean Pact countries, well-known trademarks carry additional protections, and it is likely that virtual goods would be held to infringe a registered trademark for a well-known brand held for physical goods.

This is also true in the UK and EU where well known trademarks can be enforced against infringing use, even when that use is for different goods and services to those for which the mark is registered, provided the trademark enjoys a “reputation” in the relevant jurisdiction and the infringing sign is seeking to “ride on the coat tails” of that reputation, or would otherwise harm or dilute the mark. These types of claim feel like the route by which trademarks for real world goods and services might enjoy protection in the virtual world, but the privilege only extends to those already well-known marks that can be said to enjoy a “reputation”. 

However, in order to be infringing under a reputation claim, use of the sign in question has to be “without due cause” in order to strike a balance between the interests of the trademark owner and the third party use of the sign. Given the risks posed by the “artistic expression” defence deployed by Rothschild (unsuccessfully in this instance) and arguments as to whether artistic use could be deemed to be with due cause, the advice remains firmly that, where possible, rights holders should seek to register their trademarks for virtual goods and services as well as real world ones to avoid getting mired in complicated arguments about similarity of goods, reputation or use without due cause.

It is also worth considering whether the tort of “passing off” in the UK, or “unfair competition” in the EU, might protect brand owners from imitation in the metaverse, as these causes of action are potentially wider than trademark infringement and can protect all the ways a brand is recognised, not just those elements registered as trademarks for specific goods and services. In the UK, passing off requires the three pillars of goodwill, misrepresentation and damage, in order for a claim to be successful. The goodwill doesn’t have to be attributable to a specific trademark, but rather the general “get-up” or brand indicia, as long as they are attributable to the claimant in the mind of the public. In EU countries, such as Spain, unfair competition may arise where the way in which a party represents itself or its products may mislead consumers as to the source of origin of the same, where it takes advantage of the reputation of a third party or when it disparages the same. Although trademark infringement and passing off or unfair competition are often pleaded together, misrepresentation is considered to be a higher threshold than mere confusion – however, the jury’s finding that Rothschild intentionally designed the MetaBirkins to mislead consumers into believing the source of the NFTs was Hermès may have got Hermès over the line for passing off in the UK and may also have resulted in unfair acts in Spain.

Freedom of speech and artistic expression as a defense to infringement

A key defense from Rothschild was that his NFTs were protected under his First Amendment right to freedom of speech, as a non-commercial social commentary. US case law imposes a stricter standard for trademark owners seeking to enforce their rights against artistic works, which in this case required Hermès to prove actual intent to confuse consumers.

Even in the US, however, the outcome of future cases is not certain: there has been renewed judicial focus on the balance between freedom of speech and brand protection, and the Supreme Court of the United States is set to tackle this very issue shortly.

A general right to freedom of speech is present in many jurisdictions, such as Colombia (and other Andean Pact countries) and Spain (and other Member States of the European Union), but there are no specific requirements or detailed guidelines on how this right should be balanced with the exclusive rights created by a registered trademark.

In the EU, arguments relating to artistic expression will be relevant to whether the alleged infringer is using the mark for trademark purposes: the court would have to assess whether the depiction of the trademark has an artistic, social or public interest purpose, in which case that use could be considered to be licit, or whether, on the contrary, it has a profit-making purpose at the expense of the trademark in question, in which case it could be considered a prohibited use. As discussed above, arguments relating to artistic expression could also be relevant to whether the use is “without due cause” when a mark with a reputation is being asserted against use in relation to goods or services that are not similar. That being said, not all jurisdictions have a statutorily enshrined “freedom of speech” which must be balanced against a trademark owner’s rights. In such cases (for instance, in Australia), this would make it slightly easier for brand owners to assert their rights even where the use is an “artistic expression”.

Disclaimers as a defense to infringement

Rothschild attempted, but failed, to argue that disclaimers on his website denying any relationship with Hermès were sufficient to avoid infringement. Disclaimers are generally not favored due to their limited effect in dispelling confusion between marks and this argument is also unlikely to succeed elsewhere, although the use of a disclaimer may be a relevant factor (along with other evidence) in a passing off action in the UK, or in other contexts where the alleged infringer’s intention to deceive consumers is considered.

What other factors are likely to prove important in similar disputes?

Territoriality will play a key role in many jurisdictions. For example, notoriety, fame or recognition must have been proved in the Andean Community to build up a trademark case. In the European Union, as discussed above, in order to enforce a trademark against goods or services that are not similar to those for which the mark is registered, it’s necessary to show that the mark enforced has a reputation within the EU. In the EU, reputation in a certain territory can also play a key role in the assessment of likelihood of confusion within that territory.

Lack of trademark registration also plays a key role in first-to-register countries, particularly for marks which are not famous or well-known. Even if trademark owners may still have arguments to defend their position, lacking registration will be an important obstacle and require the submission of complex additional evidence.  The current balance of policy imperatives is also an important consideration. For example, and unlike in the US, the balance of policy imperatives has shifted over time in some countries, such as in Australia and New Zealand, towards the identification and protection of commercial products and services and preventing unfair competition than the protection of consumers, although the latter remains an objective.