The global fashion marketplace is experiencing unprecedented digital transformation with the emergence of the metaverse and NFTs. Given implementation is still in its early stages, fashion brands have closely watched the Hermès vs. Rothschild “MetaBirkins” dispute as a case that has the power to help define the future boundaries for what constitutes trademark infringement in the metaverse.

On Wednesday February 8, 2023, a Manhattan federal jury found that Los Angeles designer Mason Rothschild’s “MetaBirkin” NFTs infringe and dilute the Hermès trademarks for its globally renowned Birkin bags, and that Rothschild cybersquatted on the domain name. Rothschild must now pay $110,000 of net profits for trademark infringement and dilution, and $23,000 in statutory damages for cybersquatting.

This verdict shows that trademark infringement in the virtual world has consequences just as it would in the real world. In the initial stages of the lawsuit, Rothschild argued the MetaBirkin NFTs do not infringe Hermès’ trademarks on the basis that the digital images of the Birkin bags are “art” and, therefore, receive First Amendment protection.

Judge Rakoff found Rothschild’s work to have potential artistic value and left it to the jury to weigh whether the NFTs were created for a profit under the guise of artistry. The jurors found that the NFTs were not protected speech, as they were more similar to commodities subject to trademark protection than to artwork where appropriation may be protected.

While the verdict provides some guidance for brand owners as to the line between commercial commodities and works of artistic expression, the particular facts of the case may not impact the NFT creator community fully. During trial, Hermès produced evidence that Rothschild texted investors he was “sitting on a gold mine” and that he was a “Luxury Product Luxury Tax Baby,” given his receipt of 7.5% commission every time a MetaBirkin is resold. The facts may not be so clear in a future case.

This verdict is promising for brand owners who are navigating and deciphering the early stages of the metaverse with their brands. And for now, this is a significant victory for Hermès as the verdict sends a signal that the unauthorized use of intellectual property in the metaverse may have real world consequences.