IP-IT-Media

The NFT trend impacts the luxury industry

20/04/2022

The NFT (non-fungible tokens) phenomenon is both an emerging trend and a source of potential wealth, and is of great interest to luxury brands, which are increasingly circulating their products in the metaverse^[1]. However, this virtual world is not immune to real-world threats such as illegal reproductions of luxury goods in the form of NFTs, thus circumventing intellectual property law.

Our team has already had the opportunity to regularly examine the legal issues of NFTs^[2], whether it be their legal, fiscal, technological, or contractual status through licensing or commissioning agreements, or by analyzing copyrights in the process from creation to marketing.

NFTs are already very prominent in the arts sector^[3]. Numerous paintings transformed into NFT sold for colossal amounts have often been at the heart of the media^[4]. For luxury brands, exploring the world of NFTs is also particularly attractive. Indeed, some luxury houses are interested in web 3.0 technologies to develop experimental and innovative projects, thus highlighting the avant-garde character of their company. Some of them are turning more to artistic collaboration or the creation of special collections in the form of NFT. Some focus their long-term strategy on the concept of NFTs, blockchain and new technologies more broadly^[5], such as the beautiful creations and avant-garde initiatives of Gucci, or Dolce & Gabanna which has just completed its first NFT sale for 5.8 million euros, or the Decentraland platform which is preparing to host its first virtual Fashion Week in March 2022^[6]. This strategic choice is part of a logic of loyalty, in a context of emergence of a new clientele “with high purchasing power in cryptocurrencies”^[7].

Despite the many advantages, NFTs are also used to commit acts of crypto-counterfeiting, reproducing works and luxury goods in digital form. These acts have both intellectual property and tax law consequences.

In this regard, the luxury house Hermès has sent to the American digital artist Mason Rothschild, author of the revivals of the iconic Birkin model under the prism of NFT, a letter of formal notice by which it requests the cessation of all creation and marketing around its iconic product, believing that it is an infringement of its brand and its intellectual property rights.

Le The MetaBirkins project, considered a tribute to the iconic Birkin bag by its author, was not welcomed by the Hermès company. The British daily “Financial Times” reports that the luxury house sees these creations as an attack on the image of its brand and its intellectual property rights^[8], because Hermes has not given its agreement to this artist authorizing the creation and marketing of products derived from his brand in the Metaverse.

The luxury house thus pointed the finger at an approach considered misleading for consumers, especially since a hundred virtual bags sold on OpenSea, a marketplace dedicated to NFT auctions, brought in nearly $800,000 for the artist (the first NFT MetaBirkins would have been sold for $40,000, the price of some Birkin bags on resale sites.^[9]).

The American artist sent a first open letter to OpenSea, in which he confirmed that the MetaBirkins had been removed from the NFT platform. In a second letter, addressed to Hermes, he invokes the First Amendment of the U.S. Constitution, the basis of freedom of expression, which “gives him the right to create art based on his interpretation of the world around him” and that, as a result, the NFT MetaBirkins would not, in his opinion, infringe on the rights of the luxury house.

This conflict, which for the moment has not gone beyond these exchanges, raises numerous issues concerning trademark law in the Metaverse, particularly with respect to trademark protection. Indeed, if Hermès claims its rights to the name and configuration of the Birkin bag, under trademark and copyright law, how can this claim be evaluated with respect to virtual handbags or in the form of NFT^[10]which are not covered by the same product classes. The question then arises as to which rights and products and services extend to Metavers. If the Dutch Supreme Court has already considered that virtual objects can be goods that can be stolen^[11], There is still a legal vacuum regarding the articulation between infringements of real works and digital objects, and the Metaverse remains unexplored legal territory. However, cases of NFT infringement are not isolated, as indicated by the OpenSea platform, where a significant percentage of works are reportedly under suspicion^[12]. The challenge for these marketplaces then lies in the need to implement mechanisms for reporting counterfeits, in particular to maintain the trust of their users^[13]as Amazon had been so insistently requested to do. In this respect, OpenSea’s terms and conditions mention the double commitment, on the one hand of the users, not to infringe any intellectual property right by using the platform, and on the other hand of the platform itself, to remove the works that are reported as being infringing^[14]via a form provided for this intention^[15].

In the event of a claim, the risk of confusion must be analyzed and the selling price taken into account. Hermès can also rely on other arguments such as the strength of the brands, its reputation and fame, the artist’s intention, and the risk of believing in a collaboration between the digital artist and the luxury house in the minds of consumers, associations that are becoming more and more common, favoring the entry of luxury and high fashion houses in the Metaverse. However, the growing number of artists who, like Mason Rothschild, present and sell their creations in the Metavers make the physical/digital divide disappear^[16]. A rightful owner can also claim the reputation of his trademark and invoke the denigration or dilution of its distinctive character^[17]. In this case, the consistent use of the Birkin bag name and design by Hermès since the 1980s, sales figures, advertising and relevant unsolicited media, make it easy to claim the reputation of the Hermès Birkin bag.

This conflict also raises the question of whether the reproduction of Birkin bags under the NFT prism can be protected by fair use or an exception, or more generally by the First Amendment invoked by Maison Rothschild^[18]. Note that the U.S. federal dilution law does not apply to non-commercial uses of a famous mark, such as criticism, commentary or parody^[19]. In this case, Rothschild had described the MetaBirkins NFTs as a tribute to the Birkin bags but also as “a commentary on fashion’s history of animal cruelty, and its current embrace of fur-free initiatives and alternative textiles”^[20].However, it is rather complicated to see a direct link with the house of Hermès by this comment since it has never made the Birkin bag with fur, nor with fake fur and other alternative textiles^[21]. Moreover, if Rothschild claims parody, it should be noted that the defense of parody does not apply if the parody is used as a trademark by its author. On this point, MetaBirkins may well be a source designation for Rothschild’s NFT collection^[22]. Finally, if the allegedly infringing mark is used in such a way as to create a likelihood of confusion, First Amendment protection will not apply, and if only the apparent characteristics of the mark are readily apparent on the allegedly infringing product, the trademark owner will be in a better position to prove the existence of a likelihood of confusion and that the infringer is taking advantage of the reputation of the original mark^[23].

In addition, we learn that Nike has filed a complaint against the platform StockX (selling NFT of sneakers).

Future trademark and copyright conflicts similar to this one are to be expected, due to the technological evolutions and the development of the NFT and Metavers market, which the law has not yet caught up with. The question of the liability of these new platforms will be particularly crucial.

By Corinne Khayat and Anne-Marie Pecoraro, partners at UGGC Avocats.

UGGC - Ck ape doublevisuel 2022 — Corinne Khayat et Anne-Marie Pecoraro

discover our interview on the NFT regime here: https://www.youtube.com/watch?v=AJLu0JYx6fY [AMP1]

Sur le mêOn the same topic, see also : « Crypto-actifs dans la Loi de finances 2022, Véhicules autonomes et Sécurité de l’Information » : découvrez toutes les réponses d’Anne-Marie Pecoraro

Resources:

https://ancre-magazine.com/metavers-c-est-quoi-explication-simple/

https://ancre-magazine.com/hermes-sac-birkin-metabirkin-contrefacon/

https://ancre-magazine.com/fashion-week-metavers-virtuel-decentraland-defiles-mode/

https://journalduluxe.fr/fr/mode/hermes-nft-metabirkins

https://journalduluxe.fr/fr/business/hermes-plainte-nft-metabirkins

https://www.lemonde.fr/m-le-mag/article/2022/01/04/la-crypto-contrefacon-crispe-le-monde-de-l-art_6108105_4500055.html

https://licensinginternational.org/news/as-branded-nfts-expand-counterfeits-emerge/?utm_source=Licensing+International+Database&utm_campaign=c601e0fbb7-EMAIL_CAMPAIGN_2019_12_18_01_57_COPY_01&utm_medium=email&utm_term=0_ec0e484a60-c601e0fbb7-397690425&mc_cid=c601e0fbb7&mc_eid=ed0daa6470

Keywords: NFT, blockchain, fashion, luxury, counterfeit, confusion, reputable brand, economy, new technologies, metavers, digital

^[1]The metavers, or metavers, are « nouveaux lieux immersifs d’interactions sociales et de transactions marchandes rendues possibles grâce à la blockchain », https://journalduluxe.fr/fr/business/interview-stephane-galienni-balistikart-nft-metavers

^[2]See especially : https://www.uggc.com/publication/lusine-digitale-nft-le-casse-tete-de-la-fiscalite-decouvrez-toutes-les-reponses-de-corinne-khayat-et-anne-marie-pecoraro/

^[3] https://www.conseildesventes.fr/sites/default/files/pdf_editorial/note_nft_barthalois_20_01_2022_def.pdf. See also: https://www.conseildesventes.fr/sites/default/files/pdf_editorial/communique_de_presse_cvv_200122_a_diffuser.pdf

^[4]See the numerous articles on the artists Beeple, Bansky, and on Picasso’s paintings transformed into NFT.

^[5] https://journalduluxe.fr/fr/business/interview-stephane-galienni-balistikart-nft-metavers

^[7] https://journalduluxe.fr/fr/business/interview-stephane-galienni-balistikart-nft-metavers, op. cit.

^[8] https://journalduluxe.fr/fr/mode/hermes-nft-metabirkins

^[9] https://www.thefashionlaw.com/metabirkins-creator-says-he-received-a-cease-desist-from-hermes/?utm_source=TFL_News&utm_campaign=dc509089b7-main-dec-31&utm_medium=email&utm_term=0_b1b7e4ed04-dc509089b7-184225765&ct=t(main-dec-31)

^[10] https://www.thefashionlaw.com/metabirkins-creator-says-he-received-a-cease-desist-from-hermes/?utm_source=TFL_News&utm_campaign=dc509089b7-main-dec-31&utm_medium=email&utm_term=0_b1b7e4ed04-dc509089b7-184225765&ct=t(main-dec-31)

^[11]Dutch Supreme Court, J. 10/00101, Criminal Chamber, January 31st, 2012

^[12] https://twitter.com/opensea/status/1486843201352716289

^[13] https://licensinginternational.org/news/as-branded-nfts-expand-counterfeits-emerge/?utm_source=Licensing+International+Database&utm_campaign=c601e0fbb7-EMAIL_CAMPAIGN_2019_12_18_01_57_COPY_01&utm_medium=email&utm_term=0_ec0e484a60-c601e0fbb7-397690425&mc_cid=c601e0fbb7&mc_eid=ed0daa6470

^[14] https://opensea.io/tos