Remedies for IP infringement by NFTs – the MetaBirkins case continues

The US District Judge has now handed down its opinion and order (23 June 2023) on a number of post-trial motions sought by the parties in the "MetaBirkin" case and these provide some interesting insights into how courts may approach the question of remedies in non-fungible tokens (NFT) related cases.

The motions for additional remedies (including the transfer of social media accounts and domain names, as well as the transfer of the NFTs and accounting for further income received via the NFTs) followed the Manhattan jury's decision in February 2023 (see our blog post here), after a nine day trail, to award Hermès US$133,000 in damages against 'Mason Rothschild' (not his real name), the creator of the NFTs, in relation to the infringing use of Hermès' trade marks in a collection of NFTs depicting fur-covered Birkin handbags called the "MetaBirkins".   Hermès, is the luxury brand that makes the Birkin handbag. The case also involved allegations of cyber-squatting via the domain name metabirkins.com.

Post-trial motions

Following the jury decision in February, the parties applied for a number of post-trial motions, including the request for additional remedies by Hermès.  Meanwhile, Rothschild, in turn, asked for the decision to be overturned and the finding of a judgment of law in his favour or for a new trial.

On 23 June 2023, US District Judge Jed S. Rakoff issued his 37 page opinion and order on the motions.  The tenor of the judgment is well summarised in the opening paragraph, where the Court surmised that "In effect, the jury found that Rothschild was simply a swindler."

Additional remedies

In addition to the monetary damages already awarded by the jury, Hermès sought a permanent injunction against Rothschild to require him to do seven particularised things including:

• discontinuing his use of the Birkin marks;
• transferring the com domain name and related social media accounts to Hermès;
• transferring any MetaBirkins NFTs (including the associated smart contracts) in his possession to Hermès (on this, the Court observed that the smart contract, which refers to the computer code that governs the dealings with the NFT, is distinct from the digital file associated with the NFT and can therefore be owned by unrelated entities);
• accounting to Hermès for any further income received from the MetaBirkins NFTs; and
• notifying purchasers of the MetaBirkins NFTs of the relief described in the injunction.

The Court agreed with Hermès on a number of their requests above (but not all of them), and awarded a permanent injunction against Rothschild which encompassed the following:

1. Rothschild and any other persons in active participation with the sale of MetaBirkins, such as associates or business partners, are prohibited from using the Birkin marks or engaging in any other activities that would mislead the public on any association Hermès has with MetaBirkins.
2. Rothschild is to transfer the MetaBirkins domain name to Hermès based on the jury's finding that Rothschild was liable for cyber-squatting.  The Court did not order that Rothschild transfer any social media accounts, observing that any continued use of these accounts would be prohibited by the first order above.
3. Rothschild is to disgorge any profits made from the sale of MetaBirkins NFTs since the beginning of the trial to present day, which includes any royalties, transfer income and any other financial benefits.  This reflects the fact that some NFT smart contracts can direct that royalties are payable to the initial creator of the NFT upon the reselling of the NFT for value.

Interestingly, in addition to declining the transfer of the social media accounts, the Court also refused to order that Rothschild transfer any MetaBirkins NFTs (and associated smart contracts) in his possession to Hermès to be destroyed.  This was deemed to be unnecessary given the other measures in place forming the core of the injunction.  Additionally, the Court considered that there was nothing to suggest that Rothschild would violate the injunction now that it had been granted, so a narrower injunctive approach was adopted.

Rothschild's requests

There are two circumstances in which a new judgment, and hence a new trial, can be sought.  The first is where there is little to no evidence supporting the verdict made such that no reasonable person would come to the same conclusion.  The second, is where the jury came to a 'seriously erroneous result' amounting to a 'miscarriage of justice' considering the evidence brought.

The Court strongly disagreed with Rothschild that such circumstances were made out here, essentially on the basis that Rothschild's actions were perceived as intentionally deceitful due to the use of Hermès branding in the NFTs and falsely implying an association with the Hermès brand.

What does this decision mean for IP owners?

The opinion and orders in this case provide an insight into the approach that courts in the US may adopt in the event of trade mark infringement by NFTs.

First, it is important to note that the destruction of infringing material may not always be necessary in these cases and reflects the somewhat cautious approach taken by courts generally when awarding injunctive relief.  The Court looked at the balance between protecting the rights of IP owners in prohibiting unlawful conduct, on the one hand, and respecting the creative expression of NFT artists on the other hand as protected by the First Amendment of the Constitution – here, the Court stated that "because the MetaBirkins NFTs are at least in some respects works of art, the Court, out of an abundance of caution, chooses to enter a narrower injunction that would remedy continued consumer confusion while avoiding any potential constitutional problems".

As an injunction is an inherently equitable remedy, the conduct of the parties is fundamental in determining whether one is granted.  When evaluating which equitable principles should determine the Court's decision, it was stated that there is no need to prove 'wilful' deception on the part of the defendant, but, if found, this would strongly support the case for the party seeking the injunction.

Additionally, there is an emphasis placed on whether other remedies would suffice, such as the award of monetary damages, without the need for an injunction, as well as on the degree to which the defendant had gained benefit from the use of the trade mark that had been found to be infringed.

In this case, even though the jury found that Rothschild had profited significantly from the sale of MetaBirkins, this was still not enough to order a transfer of the infringing NFTs in his possession to Hermès, on the assumption that Rothschild would not breach the injunction now that it had been granted.  For IP owners, this means that there may be cases where they are unable to demand the destruction or transfer of all infringing goods, even in the event of an overt infringement.

For further discussion of intellectual property issues surrounding NFTs and the various cases there have already been around the world on these issues (eg the cases involving Juventus and the Bored Ape Yacht Club) see our series The IP in NFTs.