Breach of Intellectual Property claims on NFTs: goldmine!
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Update 9 Feb 2023
Following the publication of our original article below, Hermes has now succeeded in its lawsuit against Mason Rothschild. Read the reports here. The New York Court has decided that Rothschild is to pay $110,000 for intellectual property infringement and another $23,000 for squatting on the Birkin domain name.
Interestingly, by the time the Birkin NFT collection’s listing on digital marketplace OpenSea was taken down, it had already made over $1 million in sales, according to a report from Reuters. In court documents, Hermes claimed the project reached about $1.1 million in sales, whilst Rothschild said he only made $125,000 from the NFTs.
The decision could set a precedent for the other cases that are being brought against NFT creators who incorporated trademarked brand images into their work.
Our original article from 19 May 2022 is below.
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Just when you’ve gotten your head around bitcoin, your news feed is suddenly filled with mentions of another new asset class, this time in the form of NFTs or non-fungible tokens. At Dexterity Law we have startup lawyers that can help you navigate the legal issues associated with NFTs.
NFTs are a non-interchangeable unit of data (stored on a blockchain) which can be sold, sometimes for eye-watering prices. For example, Pak’s “The Merge” sold in December 2021 for $91.8 million. CryptoPunks, a series of NFTs launched in June 2017, are a collection of 10,000 individual tokens, many of which have sold in the millions of dollars.
While the same image may be duplicated to create two NFTs of identical appearance, the underlying data on the blockchain cannot be duplicated. Meaning the owner has a secure method to prove their ownership interest in the original NFT.
The most popular NFTs have taken the form of visual artworks, but NFTs can also be created in respect of songs, videos or other digital creations.
However, the relative explosion in the NFT market, may be followed by another boom – breach of IP claims from the owners of the artwork on which the token is created.
The purchase of an NFT in and of itself does not convey copyright or a licence to use a trademark to the purchaser. Where the seller does in fact hold the relevant IP rights, such rights can be sold along with the token. However, if the seller does not hold the underlying IP rights, then the sale of the token will likely be in breach of such rights, exposing both parties to claims from the IP rights holder.
For example, under Australian Law, the Copyright Act 1968 (Cth) enables copyright holders to, among other things, claim an account of profits from a party who breaches copyright (i.e. a claim for the profit made from the breach). Given the explosion in value of NFTs, some copyright holders may now be sitting on very valuable assets of their own: claims for breach of copyright on NFTs.
The fashion giant Hermès is one of the first movers in this space, bringing a claim in the New York courts against an artist Mason Rothschild for selling the “MetaBirkin NFT” for allegedly breaching its rights in the trademark on Hermès’ Birkin bags. The lawsuit, according to Reuters, says Rothschild began offering the NFTs at the Art Basel art fair last December in Miami, without the permission of Hermès and had sold over $1 million worth of them by early January. This case is being closely watched in the US due to its potential to clarify how copyright law will be applied to NFTs. Further details of the claim can be accessed here.
Given the recent volatility of cryptocurrency and NFT markets, this will be an interesting space to watch as these claims may remain valuable long after the underlying assets have lost their value.
If you require any legal assistance regarding intellectual property you can contact our commercial lawyers here.
