NFT Infringement: No Free Taking or New Fair Transformations?

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Earlier this month sports apparel giant Nike sued StockX LLC, a Michigan-based sneaker and streetwear resale marketplace, for offering to its customers non-fungible tokens (NFTs) depicting Nike’s sneakers.  The claims asserted in the February 3 complaint filed in federal court in the Southern District of New York include trademark infringement, trademark dilution and unfair competition, all stemming from inclusion of Nike’s trademarks (e.g. Nike, Air Jordan, Jumpman, the “Swoosh” Design) in the shoe images depicted in the NFTs provided by StockX.

This is not the first case of its kind.  In January, Hermes sued a digital artist for unauthorized reproductions of its well-known Birkin bag in a line of NFTs released by the artist called “Metabirkins.”  And before that, in November 2021, Miramax – the studio that produced the 1994 cult movie classic Pulp Fiction filed suit to enjoin Quentin Tarantino from releasing NFTs based off of his original handwritten script of the movie, including scenes from an early script that were cut from the final version.

More cases will come, and they will come quickly, as NFTs are Hollywood’s new shiny objects.  ViacomCBS, Miramax’s controlling shareholder, recently announced a deal with Recur to sell NFTs based on its content library.  Warner Bros. and Nifty have partnered to sell 100,000 digital NFT avatars based on the Matrix franchise, which holders can “transform” into resistance fighters by taking a “red pill.”

Where profit opportunity exists (and it certainly does for NFTs, where a single image can fetch upwards of $20M), enforcement inevitably follows.  And as usual, where the technology involved is both novel and complex, plaintiffs and defendants struggle to apply existing legal theories to the facts.  Trademark-related theories of liability are especially difficult to parse in these cases.

The touchstone of trademark infringement claims is source confusion: would consumers likely believe that the defendant’s NFTs originate with, are sponsored by, or are otherwise affiliated with the plaintiff?  Plaintiffs already in the NFT game may have a leg up on this question, but others might argue that NFTs are an area of natural expansion for their businesses.  To that end, it would surprise me very little to see a surge of new “intent to use” trademark applications filed in the USPTO in the coming months covering NFT-related goods and services.

By contrast, owners of famous marks can plead claims of trademark dilution, which do not require allegations of consumer confusion.  Rather, famous mark owners can simply allege that a defendant’s unauthorized use of their mark dilutes the brand in the minds of consumers.  And in some cases, plaintiffs may even be able to bring claims for copyright infringement, based on unauthorized reproduction of a copyrighted work.  (Miramax claims that Tarantino’s NFTs are derivative works of the copyrighted Pulp Fiction film.)

Even if trademark claims do apply in these cases, to what extent does the First Amendment protect a defendant’s conduct?  NFTs live in the digital world, but many would argue they are works of art considered “expressive” under First Amendment tests like the one adopted by the Second Circuit in Rogers v. Grimaldi.  Meaning, if the included trademark use has some artistic relevance to the image and is not “explicitly misleading” (perhaps a more difficult question), it may be entitled to First Amendment protection.

Rothschild, the defendant in the Metabirkins case, has asked – somewhat rhetorically – what differences exist between his NFTs and Andy Warhol’s famous painting of the Campbell’s soup can, which of course depicts a Campbell’s product complete with CAMPBELL’S branding.  The first and perhaps most relevant difference is that Campbell’s opted not to litigate the Warhol painting.  As for other differences, when Rothschild’s case is decided (he has vowed to vigorously defend against Hermes’s claims), we may receive an answer.  Until then, many trademark and copyright scholars will look on with bated breath.

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About the Author: Tore T. DeBella

Tore Thomas DeBella is an associate in the firm's Intellectual Property Practice Group. Tore’s practice focuses on trademark clearance, portfolio management and enforcement, as well as information technology and data privacy/security strategy and compliance. Tore’s unique blended practice offers significant value to his clients, as he is able to counsel on both the “brand value” and “data” implications of various cutting-edge technological issues like social media, website policies and terms, keyword advertising and domain names.