Trademark Law Developments In The Metaverse – Trademark

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Trademark Law Developments In The Metaverse - Trademark

The Metaverse (or “Web 3.0”) provides varying levels
of access to three-dimensional environments for various
decentralized activities such as gaming, commerce, social media,
dissemination of authenticated digital assets such as non-fungible
tokens (NFTs) and cryptocurrency, and others. Participants can
engage in any number of virtual reality activities and transactions
with others at any conceivable virtual location, whether based in
reality or in fantasy. Not surprisingly, trademark law has now
reached the Metaverse.


Blockchain and NFTS

As background, NFTs are grounded in blockchain technology.
Blockchain is a shared database or “ledger” that
facilitates the process of recording transactions and tracking
assets in a business network. Transactions are expedited by storing
a set of rules (termed a smart contract) on the blockchain that is
executed automatically. Blockchain is ideal for this functionality
because, while all network participants have access to the shared
ledger and its record of transactions, no participant can tamper
with or alter a transaction after it is recorded to the shared
ledger. As each transaction occurs, it is recorded as a
“block” of data showing the movement of an asset, be it
tangible (product) or intangible (intellectual property). The data
block records any information desired regarding the transaction and
any underlying tangible or intangible asset. Each block in the
blockchain is connected to the blocks preceding and following it,
forming a chain of data results recording information such as exact
time and sequence of a transaction. The blocks are securely linked
to prevent alteration of a block or insertion of a block between
two existing blocks in the blockchain. Each subsequent block
strengthens the verification of the prior block, rendering the
blockchain tamper-evident. Data trustworthiness, security, and
sharing efficiency are therefore in theory greatly improved
compared to conventional record-keeping and validation methods.

NFTs are blocks of data composed of unique software code linked
to an underlying asset. The NFT code smart contract gives specific
details regarding the NFT, the asset, and any associated
intellectual property rights. NFTs are unique in that they are not
interchangeable or replaceable. While NFTs can be used to verify
ownership and authenticity of “real-world” goods, a
common use of NFTs is to verify ownership/authenticity of digital
goods. In effect, NFTs can function as a digital “certificate
of authenticity” for the asset and a record of ownership.

Often, the asset represented by the NFT is artwork. In the
“real-world,” you can own a physical piece of artwork
with or without also owning the right to copy (i.e., copyright) the
artwork. Analogous to copyright, the NFT is indicative of ownership
of a representation of a particular work of art that has been
“tokenized,” but not of ownership of the actual artwork
itself unless specifically granted by the seller. Thus, proving
valid ownership of artwork that could otherwise be untraceably
copied is established by the NFT time-stamping and tamper-evident
functions. Ownership transfers are likewise easily traceable and
verifiable, reducing the risk of fraud.

The enormous commercial market already realized for NFTs raises
significant concerns relating to enforcement of intellectual
property rights by rights holders, including trademark rights.
Unlike copyright, which secures an owner’s right to reproduce,
distribute, and display a work, trademarks are founded on the
principle of providing to the public a trustworthy identification
of the source of goods and/or services. Wise brand owners are
turning their attention to policing infringement of their trademark
rights not only in the real world but also in the digital world,
particularly in view of the potential disconnect between
application of trademark law to trademark rights in “real
world” goods versus digital images bearing third-party
trademarks in the digital world. The case law relating to
enforcement of IP rights of rights-holders in the Metaverse is
nascent and unfolding. However, certain recent cases pertaining to
NFTs may provide some insight into the position the courts will
take on trademark rights enforcement in the digital universe in the
future. In that regard, as of the January 1, 2023, revisions to the
Nice classification1, International Class 9 expressly
refers to NFTs.

Case Law

Juventus F.C. v. Blockeras s.r.l.

In Italy, the Rome Court of First Instance heard the first
decision on trademark infringement involving NFTs in November of
2022. Blockeras operated a blockchain-based fan token called The
Coin of Champions whose popularity and value was based in part on
endorsement by popular footballers (styled
“Ambassadors”), one of whom (Christian Vieri) was a
former Juventus player. Along with the token, Blockeras issued an
NFT collection of “Action Cards” intended for use in a
fantasy “NFT Game.” One of the Action Cards depicted
Christian Vieri in a Juventus uniform.

Juventus Football Club sued Blockeras S.R.S. for minting and
selling NFT player cards bearing the club’s registered
trademark, specifically a figurative trademark depicting the
club’s black and white vertical striped shirt with two stars on
the chest. In its defense Blockeras argued, among other things,
that Juventus’ registrations did not extend to downloadable
virtual products. The court was unconvinced, noting that, despite
the fact that the Nice Classification system (an international
trade mark classification of goods and services established by the
Nice Agreement of 1957) did not at the time expressly cover NFTs,
the registration of the Juventus mark in question expressly
indicated that it also concerned products not included in the Nice
Classification, as well as the fact that Juventus had entered the
fan token market at least as early as 2018. The court further found
that Juventus’ registration included downloadable publications
in International Class 9, which would arguably be considered
related to downloadable digital files authenticated by NFTs. The
court granted Juventus’ request for an injunction against use
of Juventus’ mark for commercial purposes.

At least here, the court was willing to expand traditional
trademark protection to encompass related digital products not
expressly recited in a registration.

Hermès v. Rothschild

In the first U.S. lawsuit to consider application of trademark
rights associated with physical products to digital assets,
Hermès International/Hermès of Paris, Inc. sued
artist Mason Rothschild for trademark infringement, dilution, and
cybersquatting in connection with a series of
“MetaBirkins” NFTs linked to digital faux-fur versions of
the well-known Hermès Birkin handbag and associated BIRKIN
trademark registration. The NFTs were sold to individual buyers for
up to thousands of dollars each.

In pre-trial pleadings, Rothschild argued that
Hermès’ claims should be dismissed based on case law
holding that art receives protection under the First Amendment to
the U.S. Constitution. Hermès responded that the use of the
trademark and sale of the NFTs was purely commercial and not
entitled to First Amendment protection. In May of 2022, the U.S.
District Court for the Southern District of New York
held2 that the METABIRKIN NFTs were digital images
capable of constituting artistic expression and therefore entitled
to First Amendment protection. However, the court allowed the case
to go forward, holding that Hermès had sufficiently pled
that Rothschild’s use of METABIRKIN either had no artistic
relevance to the underlying work or alternatively explicitly misled
the consumer as to the source or content of the work. The court
subsequently denied both parties’ motions for summary judgment,
reaffirming that the Rogers test for evaluating trademark
infringement in artistic works is applicable to the digital images
relevant to Hermès’ claims. The Rogers test

(1) Does the work have some artistic relevance to the underlying

(2) Is the work explicitly misleading as to the source of the
content of the work?

Based on this analysis, the court found that
“MetaBirkins” should be understood to refer to both the
NFTs and the associated digital images, and that genuine issues of
fact precluded summary judgment.3

At trial, the jury found Rothschild liable for trademark
infringement, dilution, and cybersquatting and awarded damages to
Hermès in the amount of $133,000, $110,000 for trademark
infringement, and $23,000 for cybersquatting4
(significantly less than the damages requested by Hermès).
It is anticipated that Rothschild will appeal. Hermès has
also filed a motion for a permanent injunction against Rothschild
which has yet to be acted on. One takeaway here is that the court
was willing to apply traditional trademark principals to digital
images including third-party trademarks.

Nike v. StockX

In February of 2022, Nike sued StockX5 for trademark
infringement relating to the resale of Nike sneakers. StockX is a
streetwear reseller that also provides authentication services to
customers including a collection of NFTs linked to allegedly
authenticated physical goods. Many of the StockX minted NFTs
include images of Nike sneakers, which Nike alleges are virtual
products constituting trademark infringement, false designation of
origin, and trademark dilution among other causes of action.

StockX responded that the NFTs are merely a method to track
ownership and authenticity of physical Nike products sold on the
StockX marketplace and not virtual “products” in
themselves, noting that the NFTs may be redeemed by the owner at
any time in exchange for delivery of the actual physical shoes.
StockX further analogized its business to other e-commerce
retailers and marketplaces who use images and descriptions of
products to resell goods. StockX further asserted affirmative
defenses of the first sale doctrine (generally limiting the right
of an IP owner to assert claims of infringement in connection with
products already sold to a consumer) and fair use (generally
allowing third parties to use trademarks of others without
liability in certain limited circumstances).

Nike disputed this argument, noting that while the shoes to
which the NFTs were tied remained in StockX’s “Vault”
until claimed, the NFTs could be resold at will. Nike further noted
that the Vault NFT terms expressly stated that the NFT holders
could be granted the right to “obtain certain additional
products, or benefits to engage in certain experiences, such as
unlocking a reward or access to exclusive sales.”

Nike has since amended its complaint to include counterfeiting
and false advertising. Nike alleged that certain of the NFTs are or
were tied to counterfeit shoes despite StockX’s guarantees of
authenticity, thereby further undermining StockX’s argument
that the NFTs are not virtual products but instead merely confirm
authenticity/ownership of the underlying physical products.

The outcome remains to be determined, and barring a settlement
may hinge on whether the court accepts Nike’s position that the
StockX NFTs are virtual products or alternatively StockX’s
position that the NFTs are merely digital “receipts” for
physical products.

Yuga Labs, Inc. v. Ripps

This case involves issues of trademark rights associated with
NFTs and digital images. Yuga Labs is the creator of the Bored Apes
Yacht Club (BAYC) collection of NFTs. The Bored Ape NFT collection
depicts comical images of anthropomorphic “bored” apes
which have become status symbols, with many owned by well-known
celebrities. The Bored Ape NFTs can sell for millions of dollars.
Estimated sales of Bored Ape Yacht Club NFTs exceed one billion
dollars. In July of 2022, Yuga Labs filed a lawsuit against Los
Angeles-based artist Ryder Ripps and others,6 claiming
false designation of origin, false advertising, cybersquatting,
trademark infringement, trademark dilution, unfair competition, and
others. Lacking any registrations for the trademarks in question at
the time the lawsuit was filed, Yuga relied on common law trademark
rights. Interestingly Yuga did not bring arguably the most logical
cause of action, copyright infringement, potentially because those
rights may have been licensed to the owners of the individual Bored
Apes at the time of sale.

The trigger for the lawsuit was a web site created by Ripps and
others allowing users to reserve an NFT to be minted by Ripps under
the brand “Ryder Ripps Bored Ape Yacht Club” (RR/BAYC).
The RR/BAYC NFTs point to the same digital artwork files as the
BAYC NFTs, with the ownership of both collections recorded on the
Ethereum blockchain. Yuga alleged that Ripps made more than $5
million in sales of the RR/BAYC.

Ripps responded that the case should be dismissed because his
works were parodies and protests against the Bored Ape Yacht Club
protectable under the First Amendment, alleging that the RR/BAYC
project was created as a “protest against and parody of”
the Bored Ape Yacht Club collection’s alleged use of
“racist,” “neo-Nazi,” and “alt-right”
imagery. Ripps further argued that his use of the BAYC marks was
nominative fair use. Ripps also filed a motion under
California’s anti-SLAPP (Strategic Lawsuits Against Public
Participation) statute alleging that Yuga Labs’ lawsuit was
intended to deter him from exercising legitimate political or legal
rights or to punish him for having done so.

The court refused to grant summary judgment dismissing the case,
holding that the Rogers test did not apply because the
sale of RR/BAYC did not constitute an expressive artistic work
protected by the First Amendment. According to the court the
RR/BAYC NFTs did not express an idea or point of view but instead
merely “point to the same online digital images…” The
court further found that even if the Rogers test had
applied, Ripps’ use of the BAYC images was not artistically
relevant to his art and that the usage of the BAYC images was
misleading. In turn, the court found that Ripps’ use of the
BAYC marks was not nominative fair use because Ripps was not using
the marks to sell Yuga Labs’ BAYC NFTs, but instead used them
to sell his own competing RR/BAYC NFTs. Finally, the court denied
the anti-SLAPP motion, holding that Ripps failed to demonstrate
that Yuga’s claims arose from Ripps’ protected speech but
instead that the only conduct at issue was the sale of RR/BAYC NFTs
pointing to Yuga’s digital artwork, not any commentary by
Ripps. Therefore, the anti-SLAPP statute did not apply.

In February of 2023, Yuga Labs settled a co-pending lawsuit
against Thomas Lehmann,7 the creator of the website and
smart contracts associated with the RR/BAYC NFTs. The suit against
Ripps remains pending. A co-defendant in the case (Cahen) has filed
an opposition8 to registration of a number of the BAYC
marks on numerous grounds, which has been suspended pending
resolution of the district court case. In addition to certain
counts asserted in the district court case, Cahen alleges that the
marks are deceptively misdescriptive for failure to provide yacht

Certain holdings of the court are notable. The court in Yuga
followed the court’s lead in Hermès in holding
that NFTs are goods for purposes of the Lanham Act rather than
merely digital images. The court further found that Yuga had not
transferred or abandoned its trademark rights in the BAYC marks by
selling the BAYC NFTs despite the transfer of copyright as part of
the sale. Thus, the NFT transfer of rights was not held to be an
unrestricted license. Defendant’s use of the BAYC marks was not
held to be nominative fair use because the Defendant’s marks
were used to refer to and sell their own competing goods (RR BAYC
NFTs) rather than to the BAYC marks.


To date, the specific details of enforcement of trademark rights
in the Metaverse remain unsettled and there is little case law
specific to the Metaverse to look to. The Hermès case
suggests that courts may be willing to apply traditional trademark
law and principles to enforcement of trademark rights in the
digital world, at least in the context of well-known brands and
trademarks. Indeed, the Hermès court expressly stated that
even for allegedly artistic works incorporating third-party
trademarks, the First Amendment protects the “right to speak
out against a mark holder, but it does not permit (you) to suggest
that the mark holder is the one speaking.”9
Artistic works are not entitled to First Amendment protection if
the mark owner can show that use of its trademark in an expressive
work is not “artistically relevant” to the work or if the
use of the mark explicitly misleads the public as to the source or
content of the underlying work.10 A work is
“explicitly misleading” if it causes the public to
believe that the trademark rights holder created or otherwise
endorses the work.11 The Hermès and
Yuga courts further held that NFTs could be goods for
purposes of the Lanham Act.

However, the Hermès court also expressly held that
digital versions of physical products “could
constitute a form of artistic expression” under the
Rogers test, and it has been hypothesized that
Hermès failure to register its trademark in digitally
relevant international classes may have influenced the damages
awarded by the jury. It will be interesting to see if the upcoming
Supreme Court decision in the Jack Daniels case, which has
the potential of modifying the Rogers test, will impact
application of trademark law to NFTs in the future.

As ever, an ounce of prevention is worth a pound of cure and can
potentially reduce legal expenses. Reliance on existing “real
world” IP protection automatically translating into the
digital world has been shown by the cases above to potentially be a
viable option for protection, but is not without risk. Therefore,
brand owners would be wise to adopt brand protection strategies
that include registration applications for important marks that
include descriptions for “virtual” classes of goods and
services associating the marks with digital goods/services, or at
least in international classes that encompass digital



2. Hermès Int’l v. Rothschild, 603 F.
Supp. 3d 98 (S.D.N.Y. 2022), citing Rogers v. Grimaldi,
875 F.3d 994 (2d Cir. 1989) (Use of Ginger Rogers’ name in a
film and film title did not violate the Lanham Act because the use
was an exercise in artistic expression ant the title contained no
explicit indication that Rogers endorsed the film).

3. Hermès Int’l v. Rothschild, Case
No.1:22-cv-00384 (S.D.N.Y. Feb. 2, 2023).

9. Hermès Int’l v. Rothschild, Case
No.1:22-cv-00384 (S.D.N.Y. Feb. 2, 2023).

10. Id.

11. Id.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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