Bit Parts

"Artistic Relevance" Test Applied to NFTs

The U.S. District Court for the Southern District of New York applied an "artistic relevance" test to litigation over the creation and sale of digital non-fungible tokens (NFTs). Hermès International v. Rothschild, 22-cv-384. Defendant Mason Rothschild had created digital visuals of Hermès International's luxury Birkin handbags that he named "MetaBirkins," claimed were "a tribute to" the Hermès handbag, and was selling online via NFTs. Hermes sued Rothschild for trademark infringement in violation of the federal Lanham Act and state law. District Judge Jed S. Rakoff explained for technological context: "When an NFT is linked to digital media, the NFT and corresponding smart contract are stored on the blockchain and are linked to digital media files (e.g., JPEG images, .mp4 video files, or .mp3 music files) to create a uniquely identifiable digital media file. The NFTs and [accompanying] smart contracts are stored on the blockchain (so that they can be traced), but the digital media files to which the NFTs point are stored separately, usually on either a single central server or a decentralized network." District Judge Rakoff agreed with Rothschild that Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), should be utilized to determine whether Rothschild's use of the "Birkins" brand was "artistically relevant" to his NFTs and whether the NFTs were "explicitly misleading" as source identifiers. "[B]ecause NFTs are simply code pointing to where a digital image is located and authenticating the image, using NFTs to authenticate an image and allow for traceable subsequent resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings would make the paintings commodities for purposes of Rogers," District Judge Rakoff noted. But denying Rothschild's motion to dismiss for failure to state a claim, the district judge found: "Even if the 'MetaBirkins' satisfied the artistic relevance prong, the amended complaint contains sufficient factual allegations that Rothschild's use of the 'MetaBirkins' mark is explicitly misleading and thus still actionable under the Lanham Act."