A Handbag?! The Battle over a Birkin (Trademark Rights in the Metaverse)

Ivan Fredric Yun, Elisha Tan Kai Xuan, Maryam Khalisa and Loh Heng Yeong

Introduction

In today’s interconnected world, where virtual reality is ever-encroaching into actual reality, legal rights of individuals have also become increasingly complex. As a matter of fact, the expansion of the Metaverse have presented new and unique challenges to the protection of intellectual property rights.

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Understanding the Metaverse

The Oxford Dictionary defined Metaverse as a virtual reality environment where users engage with each other’s avatars and surroundings, potentially serving as an extension or even a successor to the internet, World Wide Web, and social media platforms.[1]

 

The Evolution of Trademarks in Conjunction with the Metaverse

Trademark, a tool that has been used by business owners to establish their brand identity and to distinguish themselves from their competitors, is drawing significant attention on the legal issues faced in the Metaverse. Once confined to physical goods and services, the Metaverse has expanded their importance into the digital sphere.

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This article sets out to examine what are the available avenues of protection that has been accorded to trademarks in the Metaverse as companies navigate to ensure their brands are protected even in the virtual environment where virtual representations, transactions, and interactions had redefined traditional commercial paradigms.

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Trademark Registration  

In order to facilitate trademark protection in virtual space, the World Intellectual Property Organisation (WIPO) has issued the 12th Edition of Nice Classification which included virtual goods such as non-fungible tokens (NFTs) or presentation of virtual art. This proves the international community’s recognition on the need to protect the IP rights of proprietors even in the Metaverse.

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While it may be difficult to navigate the classes of goods or services to be registered for the trademark, IP Offices in various jurisdictions have issued guidelines to assist in identifying the right class of goods and services on technologies in the Metaverse.

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For example, IP Australia’s guideline has provided that all digital objects used in online virtual environments should be classified in Class 9 as they consist essentially of data and not a physical good per se. Moving forward, it would be ideal if the Intellectual Property Corporation of Malaysia (MyIPO) would issue similar guidelines for a clear view on classification of virtual goods or services in Malaysia.

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Trademark Infringement

The legal landscape surrounding trademark infringement within the Metaverse experienced a seismic shift in a recent case involving a French luxurious fashion brand and an individual who created the ‘MetaBirkin’ non-fungible token (NFT). This decision has sparked discussions on trademark enforcement in the virtual realm.

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We will compare the decision of the case with the existing trademark regime in Malaysia to better understand what is the legal standing in Malaysia concerning trademark infringement in the Metaverse.

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Hermes International vs. Mason Rothschild

Rothschild curated a collection of NFTs, labelled ‘MetaBirkins’, which showcases digital renditions of the Hermes’ iconic Birkin handbag. Hermes garnered attention in January 2022 by initiating a trade mark infringement suit against Rothschild for the utilisation of the “MetaBirkin” in relation to the NFTs. Similar to many brand proprietors, Hermes secured the registration of the mark ‘BIRKIN’ with the U.S Trademark Office. However, the registration, primarily intended for tangible handbags, notably omitted downloadable digital renditions of these prised handbags (e.g., software).

Hermes’ Claims

Hermes claims, amongst others, trademark infringement, cyber-squatting and brand dilution. The key points of their contention include:

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1. Potential consumer confusion leading to reputational damage for Hermes due to the belief that the NFTs were linked to the brand.
2. Usage of digital images resembling the iconic ‘BIRKIN’ bag shape, coupled with the replication of Hermes’ trade dress in the MetaBirkins.
3. Registration of domain names and social media handles incorporating the MetaBirkin mark, which exacerbates confusion among consumers.
4. Impeding Hermes’ pre-existing plans to extend into the Metaverse since 2019, disrupted by Rothchild’s actions.
5. Emphasising the distinctiveness and extensive reputation of the ‘BIRKIN’ mark over the years, attributing it to generating substantial sales exceeding $1 billion.

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Rothchild’s Defence

In his defence, Rothchild argued that the MetaBirkins qualify as “artistic expression” protected under the First Amendment of the US Constitution. To further support his defence, it was argued that he had explicitly disclaimed any association with Hermes on his website, thus contending that consumers were aware of this before purchasing the NFTs.

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Verdict

In finding whether there was trademark infringement by Rothchild, the pivotal issue in this case was whether there is likelihood of confusion on the consumers between MetaBirkin and Hermes’ Birkin trademark. The jury were instructed to consider, amongst others, the following factors in determining whether there is infringement:

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(a)  Strength of the “Birkin” trademark;

(b)  Degree of similarity between the “Birkin” mark and the MetaBirkins NFT’s name and visual appearance;

(c)  Whether the MetaBirkins NFTs and Hermes’ products compete for the same consumer;

(d)  Whether or not there is evidence that consumers are actually confused about whether Hermes offers or is associated with the MetaBirkins NFTs;

(e)  Degree of care and attention that an ordinary consumer would use when encountering Hermes’ Birkin mark and the MetaBirkins NFTs;

(f)  Whether Rothschild acted in bad faith;

(g)  Likelihood that Hermes had concrete and realistic plans to produce and sell its own NFTs using the Birkin mark;

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It is to be noted that the considerations above form part of the Polaroid factors that was set out in the case of Polaroid Corp. v Polarad Elects[2].

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The jury concluded that Rothchild’s ‘MetaBirkins’ were likely to cause confusion among consumers, misleading them about the product’s origin. The US District Court dismissed Rothchild’s claims that his MetaBirkin were protected artistic works. Consequently, Rothchild was ordered to reimburse Hermes with $110,000 representing estimated profits from the NFT sales.

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Trademark Infringement in Malaysia

In Malaysia, the law on trademark infringement is provided under the Trademarks Act 2019 (‘TMA’). Section 54[3] provides for 3 situations which would amount to trademark infringement:

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(a)  If a person uses a sign, without the consent of the registered proprietor, that is identical with a registered trademark and in relation to goods or services which are identical to the registered trademarks;

(b)  If a person uses a sign, without the consent of the registered proprietor, that is identical with a registered trademark and in relation to goods or services that are similar to the registered trademark, resulting in likelihood of confusion to the public; or

(c)  If a person uses a sign, without consent of the registered proprietor, that is similar to the registered trademark in relation to goods or services that are identical or similar with the registered trademark, resulting in likelihood of confusion to the public.

 

Thus, the elements of trademark infringement can be summarised into four stages:

(a)  Use of a sign that is identical or similar to the registered trademark;

(b)  Use of the sign that is in relation to identical or similar goods and/or services;

(c)  Use of the sign in the course of trade; and

(d)  Use of the sign without consent of the registered proprietor.

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The requirement to prove likelihood of confusion is only applicable to the second and third situations. Read together with section 9 of the TMA[4], the question of likelihood of confusion should be determined by “taking into account all factors relevant in the circumstances, including whether the use is likely to be associated with a registered trademark”.

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In Malaysia, the Courts have accepted the Pianotist test[5] to be the applicable test determining whether there would be “likelihood of confusion”. The Pianotist test was recently endorsed by the Federal Court case of Ortus Expert White Sdn Bhd v Nor Yanni bt Adom & Anor[6].

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Under the Pianotist test, it was accepted by the Courts[7] that there are “extraneous factors” which would mean “all surrounding circumstances” that was decided in Pianotist. Such position is also consistent with s. 9 of the TMA.

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Applicability in Malaysia

Would the Malaysian Courts have decided the same as the District Court if Hermes is to bring an action for trademark infringement in Malaysia?

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In consideration of the facts of the case and based on the legal landscape in Malaysia concerning trademark law, the following factors may be considered on the probability of success if the same action is to be brought in Malaysia:

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(a)  Considering “MetaBirkin” as a whole, the mark is not identical to Hermes’ trademark of “BIRKIN”. However, “MetaBirkin” does contain the feature of “BIRKIN” which would be similar to Hermes’ trademark;

(b)  The goods offered under the mark of “MetaBirkin” while Hermes uses the “BIRKIN” trademark through its Birkin handbags.

i.  It is arguable that the use of “MetaBirkin” in offering for sale NFTs is not identical and/or similar to the goods offered by Hermes in relation to the “BIRKIN” trademark.

ii.  On the other hand, Hermes may contend that although NFTs are a collection of digital data, the images presented from the NFTs are renditions of the Birkin handbags

(c)  Assuming that the above are sufficiently satisfied by Hermes, there is a likelihood of confusion from the use of “MetaBirkin”, the Polaroid factors considered by the American Courts would be relevant in considering the “extraneous factors”:

i.  The “BIRKIN” trademark has been used for an extensive period of time and is generally known for its use in relation to Hermes’ Birkin handbags;

ii.  “MetaBirkin” contains similar feature of the trademark “BIRKIN”;

iii.  Arguable that the degree of care and attention that an ordinary consumer who would be encountering Hermes’ “BIRKIN” mark would have sufficient capability to identify the origin of the NFTs;

iv.  It is also arguable that Rothschild had acted in bad faith by using the term “Birkin” with intention to garner attention from the public for the sale of his NFTs;

v.  With the increased exposure to the Metaverse, it is arguable that Hermes would be interested to launch their own renditions of Birkin NFTs.

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We are of the opinion that the challenge in establishing infringement lies in proving that the goods offered under the “MetaBirkin” mark is similar to the goods offered by Hermes under its “BIRKIN” mark.

 

In any event, Hermes has an option to bring an action under s. 76 of the TMA 2019 by enforcing its “BIRKIN” trademark as a well-known trademark. Under s. 76(2) of the TMA 2019, Hermes may seek for an injunction to stop Rothschild from further utilising “MetaBirkin” for the sale of his NFTs.

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Conclusion

This legal dispute poses numerous critical inquiries for brand proprietors. The pervasive presence of NFTs has promoted brands to venture into the metaverse, incorporating NFTs into their brand strategies and marketing. While there exists an argument asserting that additional trademark registrations may be unnecessary as a brand naturally extends its protection to these realms, many brands are opting against this gamble. The outcome of this decision underscores the potential wisdom in proactively filing trademarks to safeguard goods and services within this expansive digital landscape, suggesting more brand owners recognise the importance of safeguarding their trademarks concerning NFTs and virtual commodities.