Traditional Intellectual Property Law Still Applies In The NFT World

Brand owners can breathe a sigh of relief, perhaps. In Hermes Int'l v. Rothschild, Mason Rothschild's MetaBirkins NFTs were found to have violated Hermès trademark of its famous Birkin handbags.¹ An NFT, or Non-Fungible Token, is a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership.² NFTs can transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.³ Still developing case law suggests that trademark law will remain applicable in the world of NFTs, while balanced against first amendment principals on a case by case basis. Moreover, the Supreme Court's decision in the Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith case may provide a stronger understanding of copyright law and fair use principals that would also be relevant to NFTs.

Hermes Int'l v. Rothschild

Around December 2021, defendant Mason Rothschild created digital images of faux-fur-covered versions of the luxury Birkin handbags of plaintiffs HermèsInternational and Hermès of Paris, Inc.⁴ Rothschild titled these images MetaBirkins and sold them using NFTs.⁵Rothschild described the MetaBirkins as a tribute to Hermès' most famous handbag, the Birkin.⁶ Clearly not impressed with such a tribute, Hermèsfiled a complaint claiming trademark infringement, trademark dilution, and cybersquatting.⁷ Rothschild responded by arguing that he was entitled to First Amendment protection under Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) because he used MetaBirkins as the title of the artwork and not as a source identifier of his products.⁸

The Rogers Test

In Rogers v. Grimaldi, famed actress Ginger Rogers sued movie producers and distributors of the film Ginger and Fred for violating section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1982), by creating the false impression that the film was about her or that she sponsored, endorsed, or was otherwise involved in the film.⁹ The court held the use of Rogers' name in the title and film did not violate the Lanham Act because the use was an exercise in artistic expression and the title Ginger and Fred contained no explicit indication that Rogers endorsed the film or had a role in producing it.¹⁰ From this case, a First Amendment protection was born. To determine whether an artistic work should be afforded First Amendment protection, the Rogers two-prong test asks (1) whether the work has some artistic relevance to the underlying work and (2) whether the work is explicitly misleading as to the source of the content of the work.¹¹

Rothschild was not granted First Amendment protection and instead was found liable for trademark infringement. The jury in Hermes Int'l v. Rothschild found that the MetaBirkins constituted some form of artistic expression and that the MetaBirkins were intentionally designed to mislead consumers as to the source of the work.¹²

Yuga Labs, Inc. v. Ripps

Although the judge in Hermes Int'l v. Rothschild found some artistic expression in NFTs, the US District for Central District of California in Yuga Labs, Inc. v. Ripps, et. al did not. Yuga Labs is the creator of one of the world's most well-known and successful NFT collections, the Bored Ape Yacht Club ("BAYC").¹³ Ryder Ripps is a visual artist and creative designer who asserted that Yuga Labs had deliberately embedded racist, neo-Nazi, and alt-right dog whistles in the BAYC NFTs and around May 2022, Ripps created their own NFT collection, the Ryder Ripps Bored Ape Yacht Club ("RR/BAYC").¹⁴ According to Ripps, the RR/BAYC NFT collection "points to the same online digital images as the BAYC collection but use verifiably unique entries on the Ethereum blockchain."¹⁵ Ripps stated that the use of pointers to the same images was a form of appropriation art that served to (1) bring attention to Yuga Labs' use of racist, neo-Nazi, and alt-right messages and imagery; (2) expose Plaintiff's use of unwitting celebrities and popular brands to disseminate offensive material; (3) create social pressure demanding that Yuga Labs take responsibility for its actions; and (4) educate the public about the technical nature and utility of NFTs.¹⁶ Yuga Labs filed a complaint claiming false designation of origin, false advertising, cybersquatting, trademark infringement, unfair competition, unjust enrichment, conversion and tortious interference against Ripps.¹⁷

The court found that the Rogers test did not apply in the case because the RR/BAYC, specifically it's sale, did not constitute an expressive artistic work protected by the First Amendment.¹⁸ The court concluded that the RR/BAYC NFTs did not express an idea or point of view, but, instead, merely "point to the same online digital images associated with the BAYC collection."¹⁹ The court also noted that even if the Rogers test did apply, Ripps' use of the BAYC Marks was not artistically relevant to his art and the usage of the BAYC Marks were explicitly misleading.²⁰

The Hermès and Yuga Labs decisions likely indicate that traditional intellectual property laws will still apply in the NFT world and NFT creators should take careful consideration into existing intellectual property law concepts such as First Amendment protection and fair use when creating their NFTs.

Fair Use

Speaking of fair use, the fair use doctrine mediates between the property rights established in creative works, and the ability of authors, artists, and the rest of us to express them-or ourselves by reference to the works of others, both deserving of protection to some degree.²¹ Simply put, the fair use doctrine is a defense to the rights granted to a copyright owner and therefore allows limited use of copyrighted material without obtaining permission from the copyright owner. There are four factors used to determine whether a use is fair use:

17 U.S.C. § 107.

These factors are non-exclusive, meaning that courts will consider and weigh the importance of these and other factors in determining whether, in the particular circumstances of a case, the use is a fair use.²² While analyzing the first factor, courts have also considered whether the use is transformative. In the 1994 Supreme Court case Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994), the U.S. Supreme Court analyzed the purpose and character of the use in large part by examining whether the use "merely superseded the objects of the original creation," or whether and to what extent it was "transformative" altering the original with new expression, meaning, or message.

Andy Warhol Foundation v. Goldsmith

The role of transformative use in the four factor analysis took center stage in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith. In 1984, Lynn Goldsmith licensed a 1981 photograph of the musical artist Prince ("Goldsmith Photograph") to Vanity Fair magazine to be used as a reference by Andy Warhol for a cover illustration.²³ Unbeknownst to Goldsmith until 2016, Warhol used her Prince photograph to create additional works, which together because known as the Prince Series.²⁴ Soon after Prince's death, Goldsmith notified The Andy Warhol Foundation for the Visual Arts, Inc. ("AWF") of the perceived violation of her copyright in the photo.²⁵ In 2017, AWF sued Goldsmith for a declaratory judgment that the Prince Series works were non-infringing or, in the alternative, that they made fair use of Goldsmith's photograph and Goldsmith countersued for infringement.²⁶

The district court granted summary judgment for AWF on its fair use claim.²⁷ Upon evaluating the four statutory fair use factors, the court concluded that: (1) the Prince Series was "transformative" because the Prince Series portrays Prince as an "iconic, larger-than-life figure" while the Goldsmith Photograph portrays Prince as "not a comfortable person" and a "vulnerable human being"; (2) although the Goldsmith Photograph is both creative and unpublished, it was "of limited importance because the Prince Series works are transformative works"; (3) Warhol "removed nearly all of the Goldsmith Photograph's protectible elements"; and (4) the Prince Series works "are not market substitutes that have harmed or have the potential to harm Goldsmith."²⁸

The Second Circuit disagreed with the district court and on appeal found no fair use.²⁹ In evaluating the fair use factors, the court concluded that: (1) the Prince Series is not transformative because it retains the essential elements of the Goldsmith Photograph without significantly adding to or altering those elements; (2) the Goldsmith Photograph is creative and unpublished irrespective of whether the Prince Series works are transformative; (3) the Prince Series borrows significantly from the Goldsmith Photograph, both quantitatively and qualitatively; and (4) although the primary market for the Goldsmith Photograph and the Prince Series may differ, the Prince Series works pose recognizable harm to Goldsmith's market to license the Goldsmith Photograph to publications for editorial purposes and to other artists to create derivative works based on the Goldsmith Photograph and similar works.³⁰

On October 12, 2022, the Supreme Court heard oral arguments on this case. AWF argued that the Prince Series was transformative because it created a significant new meaning/message different from the Goldsmith Photograph. While Goldsmith argued that having a new meaning or message can't be enough and there has to be a justification for the copying. Goldsmith argued that Warhol had no justification for using the Goldsmith Photograph as a reference for the Prince Series. Lastly, the Assistant to the Solicitor General argued that AWF never tried to show that copying the Goldsmith Photograph's creative elements was essential to accomplish a distinct purpose.

Assuming the Prince Series were NFTs, the four statutory fair use factors analysis would still likely apply. Transformative use would likely play a significant role in the fair use analysis. What does, transformative, i.e., altering the original with new expression, meaning, or message, mean or look like in an NFT world? Would an NFT be considered transformative if it only has a new meaning or message, or does there need to be a distinct purpose/justification of the copying as well? The Supreme Court's decision could provide a clear guidance on the transformative use analysis, and how significant a role it plays compared to the other fair use factors.

Conclusion

As we enter into a new digital era, brand owners can take comfort in that they can still enforce and protect their trademarks and copyrights. NFTs creators need to think about existing intellectual property law because courts will likely apply them to digital assets, like NFTs.

Footnotes

¹ Hermes et al. v. Rothschild, case number 1:22-cv-00384, in the U.S. District Court for the Southern District of New York.
² Wikipedia, https://en.wikipedia.org/wiki/Non-fungible_token (last visited February 14, 2023).
³ Jazmin Godwin, What is NFT? Non-fungible tokens explained, CNN Business (November 10, 2021, 3:03PM), https://www.cnn.com/2021/03/17/business/what-is-nft-meaning-fe-series/index.html.
⁴ Hermès Int'l v. Rothschild, No. 22-cv-384 (JSR), 2022 U.S. Dist. LEXIS 89799 (S.D.N.Y. May 18, 2022).
⁵ Id.
⁶ Id
⁷ Id.
⁸ Id.
⁹ 875 F.2d 994 (2d Cir. 1989).
¹⁰ Id.
¹¹ Id.
¹² Hermes et al. v. Rothschild, case number 1:22-cv-00384, in the U.S. District Court for the Southern District of New York.
¹³ Yuga Labs, Inc. v. Ripps, No. CV 22-4355-JFW(JEMx), 2022 U.S. Dist. LEXIS 234124 (C.D. Cal. Dec. 16, 2022).
¹⁴ Id.
¹⁵ Id.
¹⁶ Id.
¹⁷ Id.
¹⁸ Id.
¹⁹ Id.
²⁰ Id.
²¹ Cariou v. Prince, 714 F.3d 694, 705 (2d Cir. 2013) quoting Blanch v. Koons, 467 F.3d 244, 250 (2d Cir. 2006) (brackets omitted) (quoting Pierre N. Level, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1109 (1990)).
²² Paul J. Reilly & Julie Albert, A Tale of Two Seusses and Argued Fair Uses: The Fact-Specific Nature of Copyright Fair Use, 31 Intel. Prop. & Tech. L. J. 1 (2019).
²³ Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, 11 F.4th 26 (2d Cir. 2021).
²⁴ Id.
²⁵ Id.
²⁶ Id.
²⁷ Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, 382 F. Supp. 3d 312, 316 (S.D.N.Y. 2019).
²⁸ Id.
²⁹ Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, 11 F.4th 26 (2d Cir. 2021).
³⁰ Id.

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