NFTs: New Frontiers for Trademarks

Intellectual property owners need to add the metaverse to places to watch for possible infringement, specifically, trademark or copyright infringement in the form of NFTs or non-fungible tokens. This is highlighted in the case of Hermès International v. Mason Rothschild, currently pending in federal district court in New York. In this case, Hermès claims that NFTs called METABIRKINS—which allude to the Hermès iconic (and trademarked) BIRKIN® handbag—infringe and dilute Hermès trademarks.

NFTs are unique tokens based on blockchain technology and used as digital assets. Unlike cryptocurrency tokens such as Bitcoin, which are fungible, NFTs are digitally unique—no two NFTs are alike. NFTs can be based on three-dimensional items or artwork, or can be purely digital creations—for example, a collectable digital sneaker or a token used in a videogame. Most NFTs are protected under US Copyright Law as creative works and/or may be derivative works based on pre-existing copyright-protected works. NFTs also may embody or use trademarks. For a succinct background on NFTs, see Your NFT Playbook, by our colleagues Kyle Fath, Alan Friel, and Carlton Daniel, posted in Consumer Privacy World.

As artists, commentators, and parodists flock to this new medium, the headaches for intellectual property owners have multiplied. This is demonstrated by the Hermès case, which involves NFTs created by digital artist Mason Rothschild. The NFTs, which Rothschild dubbed METABIRKINS, are based on the Hermès BIRKIN® handbags—but sport furry surfaces rather than polished leather. Rothschild began selling his METABIRKINS NFTs in December 2021. His NFT sales have reportedly surpassed $1.1 million, with the most expensive METABIRKINS NFT selling for $45,100.

On January 14, 2022, Hermès filed a Complaint in the Southern District of New York alleging trademark and trade dress infringement, trademark dilution, false designation of origin, cybersquatting, injury to business reputation, and misappropriation, under the federal Lanham Act and New York state law. In addition to alleging trademark infringement due to Rothschild’s use of BIRKIN in METABIRKINS as the name for his NFT collection, Hermès complained that Rothschild infringed by using METABIRKINS as a domain name, as a handle on Twitter and other social media platforms, as a brand name on NFT sales platforms, and as a hashtag. Hermès also alleged infringement based on Rothschild’s posts and ads proclaiming “Not Your Mother’s Birkin” as well as the hashtag #notyourmothersbirkin.

On February 9, 2022, Rothschild filed a Motion to Dismiss the Hermès Complaint on the grounds that the METABIRKINS NFTs are artistic expression and commentary protected by the First Amendment, and that no one would be confused or think that Hermès sponsored or approved his hirsute images. His brief argued that the Hermès handbags and trademarks are not infringed because the NFTs are “depicted as fur covered …[which] comments on the animal cruelty inherent in Hermès manufacture of its ultra-expensive leather handbags.” The brief further argued that the term METABIRKINS refers both “to the context in which he makes the art available (i.e., the online, virtual environment popularly dubbed the ‘Metaverse’) and alludes to his artwork’s ‘meta’ commentary on the Birkin bag and the fashion industry more generally.”

Rather than oppose the Motion to Dismiss, Hermès opted to amend its complaint. The Amended Complaint, filed on March 2, 2022, provides additional background and context for Hermès’ claims. The Amended Complaint has 51 exhibits, many attesting to the fame and renown of the BIRKINS mark and trade dress. The Amended Complaint also adds detail about Rothschild’s sales plans and commercial endeavors, no doubt in order to undermine his defense of artistic commentary. The Amended Complaint emphasizes the growing importance of NFTs in the fashion and brand markets, and accuses Rothschild of usurping opportunities that rightfully belong to the brand owner, Hermès.

While the Hermès case is in its early stages, it highlights several critical points. First, NFT’s have enormous significance in the IP world. Although NFTs have been around since 2014, their far-reaching, multi-layered legal implications are just now being recognized. As evidenced by the METABIRKINS imbroglio, businesses and brand owners should be on high alert for use of their intellectual property, now that digital currency, blockchain, and NFTs are becoming more mainstream. Once again, technology has outstripped normal legal strictures, and the lawyers need to catch up.

Brand owners have already begun to catch up. As of March 12, 2022, the USPTO TESS Database contained 2551 trademark applications or registrations using NFT in the goods/services descriptions. Of those, only a handful have registered, but over 1400 of the applications had been filed since January 1, 2022. Those statistics show increasing awareness of the NFT market and likely some FOMO (or “Fear of Missing Out”) on the part of brand owners.

One thing is clear: NFTs are hot items in the branding world, with an enormous potential for infringement (or commentary) as well as brand extension. The news is replete with reports of brand owners—including McDonald’s, Crocs, and CVS—launching promotional NFT Drops or filing trademark applications covering NFTs.

Other brand owners have been fighting back infringers, commentators and/or parodists as in the METABIRKINS saga. For example, Darden Restaurants, owner of the OLIVE GARDEN brand, has reportedly been battling “Non-Fungible Olive Gardens”—NFTs which depict real-world Olive Garden restaurants with digital tokens called Breadsticks.

And in February 2022, Nike, Inc. filed a lawsuit in federal court in New York against online retailer StockX. The complaint asserts trademark infringement, misrepresentation and unfair competition due to StockX’s minting of sneaker-related NFT’s using NIKE trademarks without Nike’s authorization. StockX responded that its NFTs are permissible trademark “fair use” as part of its retail sales and advertising of authentic NIKE sneakers. These challenges show that brand owners face new and multi-dimensional legal issues in the metaverse frontier.

For now, here are some thoughts for addressing these IP issues in the ever-expanding metaverse:

  • Consider whether the metaverse should be on your company’s horizon. If yes, and plans are in the works, consider filing US trademark applications on an intent-to-use basis to stake out your claim and prevent surprises.
  • The USPTO trademark review process currently takes one to three years after an application is filed, so companies should have plenty of time to solidify their launch plans. After a successful  review, a notice of allowance is issued for trademark applications based on intent to use (rather than actual use). At that point, US trademark applicants have an additional 3 years to begin using the mark in US commerce.
  • Also consider international markets. While NFT-related marks are clearly protected under US law, the laws of other countries might differ. So map out your company’s potential markets around the globe and develop a protection plan for other markets.
  • Do your due diligence of the metaverse before entering it: Determine what rights buyers/licensees will have in the NFTs, compare marketplace platforms and the underlying contracts and rights – including “smart contracts” providing for re-sale royalties for artists and other NFT creators.
  • Make sure all intellectual property rights are protected before releasing your NFTs into the metaverse.
  • Market leaders cannot protect themselves from all knock-offs or commentary. However, taking protective measures and planning now for new markets as well as enforcement programs can give brand owners an advantage and help to protect trademarks from being hijacked when new markets develop.

The metaverse is here to stay, and brand owners need to pay attention to this new frontier. So from our perspective, NFTs stands not only for “non-fungible tokens” but also “New Frontiers for Trademarks.”

Russia Suspends Compulsory License Payments for Some Non-Russians

Patent Pending Sign In the latest example of the escalation of tensions between Russia and the West, Russian Prime Minister Mikhail Mishustin last week issued a decree that owners of Russian patents from countries that Russia considers to be unfriendly are no longer entitled to any compensation for compulsory licensing of their patents. In particular, the decree (translated from Russian) states: Continue Reading

New Procedural Developments in the Field Of Industrial Law in Spain

The Spanish government has approved a draft bill to reform the three main industrial property laws: the Trademark Law, the Industrial Design Law and the Patent Law. The purpose of the changes are to order to solve various problems that industrial property right holders face today in Spain. Continue Reading

Yes, You Can Bargain Away Your Right to File IPR Petitions

For the second time in four months, the U.S. Court of Appeals for the Federal Circuit has issued a precedential opinion about forum selection clauses (FSC) in confidentiality agreements. On October 7, 2021, the Federal Circuit issued a precedential opinion in Kannuu Pty Ltd. v. Samsung Electronics Ltd. et al., holding that, in a non-disclosure agreement (NDA) that expressly excludes a license grant, a FSC does not prohibit a patent infringement defendant from filing inter partes review (IPR) petitions. On February 8, 2022, the Federal Circuit issued a precedential opinion in Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc., holding on different facts that a party can bargain away its IPR rights. Here, we contrast the facts in Kannuu with those in Nippon Shinyaku, and offer practice tips for structuring FSCs to prohibit or permit IPR petitions.

Forum Selection Clause Impact on Filing IPRs

In the first case, Kannuu and Samsung entered into an NDA “to further a business relationship between the parties” and to protect confidential information. The NDA included a FSC limiting the institution of any “legal action, suit, or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby” to courts in New York City, and nowhere else. The NDA had a two-year duration and stated, among other things, “Nothing in this Agreement shall be deemed to grant to either party a license under the other party’s copyrights, patents, trade secrets, trademarks or other intellectual property rights.” The discussions ended without Samsung and Kannuu doing business. Six years later, Kannuu sued Samsung in the Southern District of New York, alleging patent infringement and breach of the NDA. Samsung filed IPR petitions against the asserted patents. Kannuu filed a preliminary injunction motion to compel Samsung to dismiss the IPR proceedings. The district court denied the motion. The Federal Circuit affirmed, holding that the NDA was directed to maintaining the confidentiality of certain disclosed information, and not related to patent rights. Consequently, the NDA did not prohibit Samsung from filing the IPR petitions.

In the second case, Nippon Shinyaku and Sarepta Therapeutics, Inc. entered into a Mutual Confidentiality Agreement (“MCA”) whose purpose was for the parties to enter into discussions concerning “a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy”. Section 6 of the MCA included a mutual covenant not to file suit “concerning intellectual property in the field of Duchenne Muscular Dystrophy” for a period of time (a “Covenant Term”). MCA Section 6 went on to specify that the covenant not to sue included, among other things, patent validity challenges before the U.S. Patent and Trademark Office. MCA Section 10 included a FSC which stated that any patent or other intellectual property dispute (other than ongoing proceedings in Europe and Japan), filed with a court or administrative agency within two years of the expiration of the Covenant Term, and relating to Duchenne Muscular Dystrophy, shall be filed in the U.S. District Court for the District of Delaware. The same day that the Covenant Term ended, Sarepta filed seven IPR petitions. Nippon Shinyaku then sued in U.S. District Court in Delaware for, among other things, breach of the MCA, and moved for a preliminary injunction to enjoin Sarepta from proceeding with its IPR petitions. The district court denied the motion. The Federal Circuit (interpreting the MCA under Delaware law), held that the plain language of Section 10 clearly stated that all disputes relating to patent infringement or invalidity — including the subject matter of Sarepta’s IPR petitions — had to be filed in the District of Delaware. The Federal Circuit referred to its precedent, recognizing that “parties are entitled to bargain away their rights to file IPR petitions, including through the use of forum selection clauses. The Federal Circuit said that its decision in Kannuu was based on the specific language of the FSC at issue there, stating further, “[i]nherent in our holding in Kannuu was an understanding that a differently worded forum selection clause would preclude the filing of IPR petitions.”

Takeaways

Kannuu and Nippon Shinyaku appear to be polar opposites in terms of their fact patterns. The NDA in Kannuu was silent regarding intellectual property, other than expressly stating that the NDA did not grant any license rights under any intellectual property. There was no mention of where intellectual property suits could be filed. In contrast, the MCA in Nippon Shinyaku specifically referred to intellectual property disputes; contained a covenant not to sue on intellectual property for a period of time; and specifically limited where intellectual property suits could be filed for two years after the MCA expired. The MCA specifically referred to civil and administrative proceedings (an IPR being an administrative proceeding).

Going forward, patent holders will want to avoid Kannuu type language. Potential patent infringement defendants will want to avoid Nippon Shinyaku type language. We can expect future NDAs and MSCs to fall somewhere in the middle. It will be interesting to see how the Federal Circuit will address those situations. Also, while the issue did not arise in either of these cases, it will be interesting to see if a party will try to argue lack of bargaining power as part of its attempt to interpret a FSC in a particular way.

 

Consumer Law Focus: Subscription Auto-Renewals, New CMA Guidance

Subscription-based contracts are common. They provide certain benefits to businesses, such as offering predictable revenue. These types of agreement often contain ‘auto-renewal clauses’, whereby the agreement will auto-renew unless the consumer cancels. Continue Reading

Changes to Improve Chinese Patents

In a blog post published in February 2021 (here), we addressed regulatory initiatives from the Chinese government aimed at moving China from a country dependent on “imported” patents (i.e., patents filed by foreign entities) to a country with great autochthone creativity. The initiatives were intended to reduce or eliminate fraudulent and low-quality patent applications and patent subsidies, while enhancing the quality of the patent filings.

Last week, I was cited together with other China IP specialists by Sukanya Sarkar of Managing IP in an article reporting on these reforms and China’s pledge to eliminate patent subsidies and crack down on low quality patents (See here). I praised the reform and the apparent results, but also pointed out that the reform should be completed by addressing the parallel and related issue of patent squatting.

Please contact me should you be interested in seeing a full copy of the Managing IP article.

ALJ Cheney Orders First Interim ID Proceeding under the ITC’s Pilot Program

As I wrote last May (here), the U.S. International Trade Commission (ITC) has begun a pilot program that will allow Administrative Law Judges (ALJs) to issue interim Initial Determinations (IDs) on fewer than all issues in a Section 337 investigation. On January 25, 2022, ALJ Cheney became the first ALJ to utilize the interim ID pilot program in two related investigations – Certain Replacement Automotive Lamps, Inv. No. 337-TA-1291 and Certain Replacement Automotive Lamps, Inv. Nos. 337-TA-1292. Continue Reading

Light Administrative Injunctions for Designs in China: Status-check on the 2021 Shenzhen AMR Reform

 

In June 2021 the Shenzhen Administration for Market Regulation (Shenzhen AMR) issued the first ever provisions on administrative injunctions against the infringement of a design patents, including online infringements. It was a revolutionary provision. Without need to prove irreparable damage, a right holder could seek quick relief by filing a simple administrative complaint. Now eight months later, I went back to check on the state of this reform. Continue Reading

Yes, A Secret Process Can (Still) Create an On-Sale Bar

In its 2018 decision in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court held that an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential can create an on-sale bar under AIA §102(a). Relying on Helsinn, the ITC’s ALJ Cheney has held, in In re Certain High-Potency Sweeteners (Inv. No. 337-TA-1264) — as a matter of first impression — that a patentee’s sale of an unpatented product made with a secret process can create an on-sale bar to the patentability of the process. Continue Reading

China Accedes to the Hague Convention and Now Allows for International Design Filings

Chinese flag on China mapOn February 5, 2022, China acceded to Hague System for the International Registration of Industrial Designs. The Hague provisions will become effective in China on May 5, 2022. China has been negotiating such accession for a few years, and it was partly anticipated by certain measures of harmonization introduced with the latest amendment to the patent law in 2019, for example, the extension of a design patent duration from 10 to 15 years. Continue Reading

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