NFTs and Birkin Bags You Kind of Just Look At (Virtually)

By Alan Behr, Phillips Nizer Partner

In their short history of being the greatest advance in art since cave painting, NFTs have raised new questions of esthetics (which sometimes interest lawyers), new questions about the art market (which interests them now and then) as well as new questions of law (which interest them compulsively). As a member of the Copyright Society, the International Trademarks Association and the Association Internationale des Critiques d’Art, I periodically wade across all those streams. I will not, in my capacity as an art critic, go into my analysis of the artistic merit of the images associated with the NFTs that have become prominent so far—other than to share that I have no intention of buying any of them. As a lawyer, what has my interest now are new legal issues arising from the unique technical aspects of NFTs.

As is often reported, NFTs are part of the blockchain—which, like most lawyers, I understand somewhat less than I do the non-volatile memory of a BIOS chip, which I understand not at all. More particularly, the technology that powers NFTs was created as an add-on to the Ethereum cryptocurrency blockchain. A common misconception is that NFT technology is a new medium—as oil on canvas and fingerpaint on construction paper are artistic media. An NFT is actually an electronic certificate of ownership of, typically, a work of digital art that is available in any common format, such as a JPG, TIFF, or MP4. The certificate has been likened to a property deed: The NFT is not property as in the house you own but recognition of holding title to the house found in the document that certifies that you are the one and only owner. More narrowly for art, it is rather like a certificate of authenticity issued by the artist when selling physical art: you pass it along with the art to verify that the art is neither a forgery nor a duplicate.

The technical problem the NFT technology surmounts is that its certification function gives the buyer a mechanism to resolve a core problem plaguing digital art: as with just about any digital file, digital art can be copied with one hundred percent fidelity. A copy of an oil painting is a just copy, not the original; a sculpture chiseled to look like another is not the same sculpture but a variation of it, and so on. To build verifiable uniqueness and thereby identify the “original” of a digital work, something like the NFT had to come along. Anyone can still make a perfect copy of the underlying image for little or no cost, but the art market will see the NFT as the sole, true original.

And so, all manner of NFTs are being attempted as entrepreneurs and even a few artists properly definable as such try to make large sums of money from selling them. The art market being of far greater interest to the American public these days than art itself, you can see the reason for the buzz: contemporary art (the criticism of which is my core mission as an art critic) is an esthetic muddle, but nearly everyone loves to know when and how big money is made.

With that as a predicate, it had to happen that the NFT market would slide willingly into the market for fashion, and as every commercial lawyer knows, when new money enters an old market, litigation will follow. A lawsuit involving fashion and NFTs that is now in its early stages may help clarify what the law will consider an NFT to be. The case, Hermès v. Mason Rothschild, 22 cv 983 (S.D.N.Y.), was recently filed by Hermès International and an affiliate to halt the marketing and sale of NFTs of images of the brand’s signature Birkin handbag. Each of the defendant’s NFT images is unique but all of them depict bags recognizably in the shape of Birkins clad in virtual fur. To stop their sale, Hermès, which owns United States trademark registrations for both the word mark BIRKIN and the famous shape of the bag (that is, its trade dress), has sued for trademark infringement, trademark dilution and associated wrongs.

The defendant filed a motion to dismiss, claiming to be an artist whose “MetaBirkins” “comment on the fashion industry’s animal cruelty and the movement to find leather alternatives.” When you look at the marketing the defendant has done for his creations, that response appears cheeky rather than contemplative—but because anything can be art these days, it is hard to predict how that might resonate with the court.

The defendant’s motion says, as such motions must, that there is nothing to litigate because the facts as pleaded, even if taken as true, do not support a finding in favor of the plaintiffs. To my reading, however, the memorandum in support of the motion appears to raise more triable facts than the complaint itself, making me wonder what the defendant’s strategy might be at this point. The defendant’s legal argument is further complicated by an overreliance on an important case regarding the right of publicity, Rogers v. Grimaldi, 695 F. Supp. 112 (S.D.N.Y. 1988). That case concerned Ginger Rogers, who was a real actress and dancer, not an imaginary handbag that will not hold your hairbrush or car keys. What is possibly more interesting here is the defendant’s statement about what an NFT actually does from a technical point of view:

Nor does the fact that [defendant] is using a new technological mechanism to authenticate his art change the fact that he’s selling art. An NFT is merely code that points to a digital asset…. [T]he NFT is not the digital artwork; it is code that points to a place where the associated digital image can be found, and that authenticates the image.

An important implication of that argument would be that an NFT is not a copy as that term is understood under United States copyright law. There is indeed a line of cases in which courts tried to unravel whether a type of digital technology created an infringing copy of a work protected by copyright. A relatively early such case was Micro Star v.FormGen 154 F.3d 1107 (9th Cir. 1998), for which I served as head of the legal department for the parent company of the party made the defendant in a complaint for declaratory judgement. The plaintiff, Micro Star, argued that its disc incorporating user-made unique levels (i.e., battles) for play with the videogame DukeNukem 3D and sold in violation of the license, did not actually copy the artwork of the game. The argument was that the code in the level discs only contained digital instructions (in what were known as MAP files) for what pieces from the game’s art library were to be accessed to create the combat challenge played by a user. That argument did not prevail, and the disc was found to be infringing. Similar questions of whether actual, fixed expression had been copied and, if so, if the result was infringing, were central in a later Supreme Court copyright case. In American Broadcasting Cos., Inc. v. Aereo, Inc., 573 U.S. 431 (2014), the Supreme Court found that the use of individual, miniature antennas, each dedicated to a single program seen by a single subscriber (as opposed, for example, to a single large server streaming to many) did not overcome the fact that that a broadcast service was illegally performing “publicly” the works held under copyright by others. Although the defendant in Hermès may have raised the issue of the electronic function of NFTs in support of its trademark defense, it is worth considering where that position might lead should copyright become a core issue in the next NFT case.

When that technical issue is tucked for now into its appropriate conceptual corner, the trademark question in the Hermès case remains traditional whether the marketplace would be confused into believing that the NFT of a MetaBirkin originated with Hermès or if the presence on the market of the NFT or the underlying image would dilute the value of the BIRKIN word mark and Birkin handbag trade dress. Looking at it strictly from that point of view, it appears that the plaintiffs have made a compelling case in their complaint.

It is hard to conceive what might happen if the court allows the defendant to keep selling his virtual Birkins (or MetaBirkins, if that is really a distinction). Luxury brands have probably never played such a starring role in popular culture as they do today. They can only do so through the enjoyment of a legal monopoly over their brands—including the trademarks that identify them and the stories that they tell. At The RealReal store in downtown Manhattan, for instance, aspiring luxury consumers troll for secondhand, affordable examples of major luxury products. In the bathrooms, recorded voices coach enthroned shoppers on the correct pronunciation of names of major luxury brands. Through that kind of retailing, social media and all the other instruments of pop culture, luxury has morphed from a reference point for rarified prosperity to a locus of collective aspiration. To allow NFTs to pop up randomly with cagey digital versions of the products of those brands would appear to allow others to control, in part, the messaging of those brands. That would surely cause consumers to confuse the source of the brand’s products with the sources of those NFTs.

Just asking intuitively: if you saw an NFT of a Birkin bag, even a fuzzy one, would you not assume that Hermès was involved? If you did not, the only interest you might have in the image certified by the NFT would have to be for its esthetic value—that is, as proper art. If the artist really had confidence that he could make the artistic power of furry handbags into the driving force behind the commercialization of his vision, why would he bother snipping recognition (and profits) from a famous luxury brand? Would not any handbag, real or fictional, not do quite as well? The point should therefore not be whether MetaBirkins are represent real purses or not or whether they have artistic value or not; the point should be whether the market for the source of all this—real Birkin handbags—would be damaged.


Retailing with Foam and A Good Swing

Photograph Copyright © 2019 by Alan Behr

Two cappuccinos worthy of a caffè in Milano started my last visit, with a fashionable friend, to the Brooks Brothers store on Madison Avenue, here in New York. The chain’s mother ship had recently opened a bright and hospitable Red Fleece Café, and so my friend and I met right on the ground floor, within handshake distance of displays of shirts and ties, had a refreshment and then, coupons in hand, went shopping, women’s first, men’s second. On our way, we passed a golf simulator, where a pro patiently guided a customer on improving his swing—with a real club toward a virtual green. Retailers have always offered something besides what are now universally called “items.” From lunch counters to hairdressing and beyond, stores have been attracting generations of visitors with more than just merchandise.

What has changed, however, is both the breadth and the layered complexity of it all. Even the décor matters as it never has before. The luminescent, open-plan renovation of the Saks Fifth Avenue store is a veritable invitation to come on in and have a look. As for services: soon after our visit to Brooks Brothers, this note arrived by email: “Your trousers are ready… We can pull nice coordinating pieces for you.” Personal shopping used to be a benefit given to the best customers of a retailer, but with physical (“bricks-and-mortar”) retailing challenged so completely now by online competition, all shopping has become personal, and stores must engage and entertain customers as they never have done before.

When a business expands, however tangentially and however much in pursuit of the raison d’ê·tre for a store—selling goods—the store should be aware of the likely importance of protecting its brand for the other activities. That means reexamining the retailer’s portfolio of registered trademarks. There should already be a registration for retail store services and there is likely one for online sales, but if a café or coffee bar has just been added, the next application should be for restaurant services (if not already there as a legacy from the days when even modest-sized retailers had soda fountains). But that virtual driving range? Entertainment services. I was recently invited to a delightful event at Saks, hosted by Switzerland Tourism. Two of my favorite things converged within a roped-off area of the sales floor: great retailing and Swiss chocolate. From a trademark point of view, however, that would be providing catering services and event location services. And so on.

Insurance policies need to be examined to be sure that the new range of activities is covered. The cappuccino is foaming, the Champagne is popping and the golf clubs are swinging—check with your carrier to be sure your coverage is current and sufficiently comprehensive.

Finally, be sure your employment policies are up to date. A dress code that applies to salesmen in men’s suits doesn’t necessarily apply to a golf pro, after all, to say nothing of a barista.

Credit: Alan Behr

See posts:Brooks Brothers at 200


A tale of red soles

Much has been said and written about Christian Louboutin’s iconic red sole brand. It has sparked endless debates about trademark law in various courts around the world, including in the U.S., France, Switzerland, and most recently at the EU Court of Justice.

Christian Louboutin began selling his high-heeled red-soled women’s shoes in the early nineties. The red soles gradually became a signature brand, somewhat comparable to the famous Burberry check pattern. The creator’s idea starts as a mere decorative design, just like any fashion design. But over the years, it gradually becomes a brand in itself because the public begins to perceive it as a source identifier even without any concurrent word mark on the product. Burberry registered its design as a two-dimensional trademark around the world; it recently sued Target in the U.S. for selling scarves with a similar design. As has been the practice of Burberry over the years, that is a trademark claim, not a copyright claim—which would present greater challenges to Burberry under U.S. law.

Back to Louboutin’s red soles: The United States Court of Appeals for the Second Circuit ruled in 2012 that Louboutin owns a valid trademark for his red sole shoe design. Louboutin had taken Yves Saint Laurent to court for trademark infringement. The red sole trademark was deemed inherently distinctive, Louboutin having given ample evidence that the trademark had acquired secondary meaning. Those words sound like music for the fashion brand owner and its lawyers because it means that the court rewards years of investments in sales, advertising and free publicity. (As the court duly noted, Louboutin shoes are popular items to wear when walking red carpet events in the entertainment industry.) Louboutin’s victory was unfortunately limited to the court having confirmed the validity of the trademark; the court also ruled that the same trademark registration could not be invoked against shoes – such as those sold by YSL – that are monochrome red, covering the insole, outsole, heel and upper part.

The U.S. thereby paved the way for Louboutin, which is, after all, a French brand. A long-awaited judgment in the European Union was recently rendered by the EU Court of Justice. This time, it was the Dutch discounter Van Haren that was selling red-soled women’s shoes. The court held, after a long debate, that a red sole applied on the sole of a shoe can be a valid trademark in the EU. Under pre-2018 EU law, the shape of an object that “gives substantial value” to the product itself could not be registered as a trademark. (An example would be the distinctive shape of the Perrier bottle.) The court that the color red, as applied to a shoe, was not as a “shape,” as Van Haren had asserted; after all, Louboutin had not sought to register a shoe but merely a color applied at a certain location on shoes. Following the EU court’s guidance, the District Court in the Netherlands that had referred the issue will now ban the sale of Van Haren’s shoes throughout the European Union.

The Louboutin trademark registration

A crucial takeaway from this case is the reward given for the smart way in which the trademark had been registered. In many trademark systems, the registrant is allowed to specify its two- or three-dimensional object with a brief description. Louboutin’s lawyers had wisely specified the filing as follows: “The mark consists of the color red (Pantone 18‑1663TP) applied to the sole of a shoe as shown (the contour of the shoe is not part of the trade mark but is intended to show the positioning of the mark).”

That victory may not last very long, however. EU trademark law was recently amended, with the effect that not only “shapes” but also “other characteristics” giving substantial value to the product may be barred from trademark registration. This change in the law opens a new can of worms: in particular, it remains to be seen whether pre-2018 trademarks, such as the one owned by Louboutin, can be invalidated on the basis of the new law.

Credit:  Diederik Stols | Guest Post

Phillips Nizer would like to thank Diederik Stols for the contribution of this post to the Fashion Industry Law Blog.  Diederik is a partner at the law firm BOEKX Advocaten in The Netherlands where he specializes in intellectual property, media and entertainment and e-business. (http://www.boekx.nl/en/)


How to Lose a Trademark

When one speaks about trademarks, the familiar adage “use it or lose it” comes to mind. But there is another important principal that can equally endanger your trademark rights: You must police the market, monitor the trademark register and take action to stop infringements, or you may find yourself without a trademark to enforce. Two recent cases demonstrate the importance of this latter principle.

LUSH is the trademark for a global brand of “hand made” cosmetic, fragrance and bath products sold by Cosmetic Warriors Limited (“CWL”), a company founded in England in the mid-1990’s. CWL opened its first Canadian retail store in 1996 and expanded to the United States in 2002. It now operates in excess of 940 stores in 49 countries, including 250 stores in North America, 200 of which are located in the United States. In 2002, it registered the LUSH trademark for use on t-shirts in Canada, but never filed a US registration for apparel. Pinkette Clothing Co. is a California company that, since 2003, has sold women’s clothing under the LUSH mark to retailers in the US and Canada, principally Nordstrom. Pinkette secured a US registration for the LUSH trademark for apparel in 2010. CWL did not oppose the issuance of registration for the mark, although its outside counsel apparently was notified through a trademark watch service of the application’s publication for opposition. In December 2014, CWL applied to register the trademark LUSH in the United States for clothing. When its application was rejected due to Pinkette’s pre-existing registration, it filed an application to cancel Pinkette’s mark. Instead of defending in the cancellation proceeding before the Trademark Trial and Appeal Board, Pinkette commenced a court action seeking a declaration that it did not infringe CWL’s trademark or, alternatively, that CWL’s failure to oppose Pinkette’s application in 2010 and its subsequent delay in seeking to cancel Pinkette’s registration barred CWL from enforcing its trademark rights against Pinkette. CWL counterclaimed for trademark infringement and to cancel Pinkette’s LUSH trademark registration. After trial, a jury found that Pinkette had infringed CWL’s LUSH trademark and that Pinkette’s registration should be canceled, but it also found that CWL had unreasonably delayed in asserting its claims. The court held that the delay barred CWL’s action and dismissed its claims. On appeal by CWL from the dismissal of its claims, the U.S. Court of Appeals for the Ninth Circuit held that CWL should have known of Pinkette’s usage as early as 2010, when Pinkette’s application for registration was published for opposition, that CWL had not been diligent in asserting its rights, and that Pinkette had been harmed by the delay because, in the interim, it had expended time and resources to develop its LUSH business. As a matter of equity, therefore, CWL would not be permitted to assert its claim either for trademark infringement or for cancellation of the Pinkette mark.

The second case demonstrates what can happen when many uses of a trademark for competitive goods are tolerated by the trademark owner for an extended period. The essential function of a trademark is to identify the source of the goods to which it is applied. Trade dress in the form of the design of a product or its packaging can also serve to identify a source and can serve as a trademark when it does. But if the design does not have a source-identifying function, referred to as “secondary meaning,” the design is not registrable for trade dress protection. When other third parties are permitted to use the design in the market for similar goods, the design cannot achieve the required secondary meaning.

Converse learned that lesson the hard way. In 2013, Converse registered a trademark for the “midsole” design of its Chuck Taylor All Star sneakers, consisting of the toe cap, textured toe bumper and two thin stripes along the side of the sole of the shoe. It claimed common-law trademark rights in the design based upon decades of its use prior to securing its registration. It subsequently filed a complaint with the International Trade Commission against Walmart, Skechers, Highline and New Balance seeking to bar the importation of sneakers it claimed infringed its registered midsole trademark and its common law trademark rights in the design. The International Trade Commission found that there was a likelihood of confusion between the Converse sneakers and the competitors’ sneakers. But the Commission also found that there had been a proliferation of competitors using the same design, on the same goods, sold to the same class of consumers over many years. As a result, the Commission concluded that the design could not be said to identify Converse as the source of the goods and, therefore, its trademark registration was invalid.

The lesson of these cases is clear. Adopting and registering a trademark is only the beginning of your work. To preserve and protect the trademark, you must police the market and assert your rights on a timely basis when you discover infringement by others. If you fail to do so, you may find that your investment in the trademark has been lost.

Credit:  Helene M. Freeman


Brooks Brothers at 200 – Part 3: Lessons

Earlier in this series of posts (here and here), I reported on my interview with Arthur Wayne, the vice president, global public relations of Brooks Brothers. We discussed how the brand maintains continuity throughout hundreds of points of sale (wholesale and retail). In business and legal terms, here is the short and simple version:

  1. Stylistic consistency creates trademark consistency. Brooks Brothers maintains uniformity of cut, pattern, SKUs and style names worldwide. I own suits and jackets in the 1818 line, which is the company’s standard, positioned between its premium Gold Fleece line and Red Fleece bridge line. My pieces are of Italian fabric, sewn, variously, in Italy, Thailand and the company-owned workrooms in Haverhill, Massachusetts. All bear the trademark 1818, all are in the slimmest of the company’s fits, which is branded Milano. As a customer, I know that, wherever I find Brooks Brothers in the world, I can put on an 1818 Milano jacket made in any of three continents and know it will fit just as do the ones in my suitcase. In legal terms: The more consistent the message, generally speaking, and the more clearly a trademark represents just one source of origin, the stronger will be that trademark.
  2. Control the message, but respect regional differences. Japanese customers much prefer the company’s products made in its US factories—which they view as a mark of authenticity. French customers, in contrast, want to experience the brand, but they care relatively little where items they buy are sourced. (Interestingly, offered Mr. Wayne in an aside, when foreign buyers visit, it is the Japanese men who typically have the best interpretation of “American traditional style.”) United States trademark law does not permit the registration of geographically descriptive marks, so from a legal point of view, where it is made is of no matter: if customers get that the brand is about the American experience (reinterpreted and, to my taste, noticeably improved, by Italian ownership), that is what matters most.
  3. As in the movies, story is everything to a brand. Marketers and lawyers do not always see eye-to-eye. Every business day, in multiple places around the world, marketing teams are presenting to their lawyers exciting new trademarks, only to hear the lawyers say that they are unavailable for use. On the importance of story for a fashion or luxury brand, however, there should be no disagreement. Just as the mere mention of Veuve Cliquot brings to mind the story of the taste and luxury of Champagne and the mention of Leica brings to mind the story of precise German optics, so does a reference to Brooks Brothers open a page on a story about the American experience—in style of dress and in style of living. When Ralph Waldo Emerson said, “A foolish consistency is the hobgoblin of little minds,” he omitted any reference to wise consistency. That is the path taken by Brooks Brothers and by other international brands that know that, from consistency comes the strength to endure and prosper in multiple territories, among multiple customer bases.
  4. Newness is the best tradition. “People think of us as a traditional brand,” said Mr. Wayne, “but our founder, Henry Sands Brooks, was a fashion guy—a dandy. Look at what followed: collars with buttons; readymade suits; pink shirts on men. All of these things were innovative in their time—probably even shocking to many.” Tradition, in other words, is what happens when innovation meets inheritable acceptance. And that is the best way a marketer, together with his or her lawyer, can build, expand and ultimately preserve a fashion brand.

Credit:  Alan Behr

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Video: Brooks Brothers | Made in America: Makers and Merchants


What’s In A Letter?

Recently, the New Balance footwear company won a landmark $1.5 million trademark decision in the Suzhou Intermediate People’s Court, near Shanghai, China. Daniel McKinnon, the New Balance senior counsel for intellectual property, told the New York Times: “If the China marketplace can be thought of as a schoolyard, New Balance wants to make it abundantly clear we are the wrong kid to pick on.”

The schoolyard brawl all started when New Balance alleged that three Chinese brands infringed upon its well-known New Balance “N” trademark. The three Chinese shoemakers, New Boom, New Barlun, and New Bunren, saw fit not only to use similar brand names, but also to trade off of New Balance’s international acclaim by mimicking its slanted “N” design on their shoes. A Suzhou Court cited the defendants’ free-riding, consumer confusion, and market harm as the basis for its ruling in favor of New Balance.

What makes this case important is not only that New Balance was prepared to fight for its rights in China—often a challenging thing to do—but also that it was willing to do so over a single-letter trademark.

A trademark is a source indicator that can convey a range of messages about your brand such as quality, price, taste and reputation—the sometimes obvious and sometimes mysterious factors that, in total, are the goodwill of the brand.
Brand owners often reflect upon the value and protectability of words, names, logotypes, slogans and even colors as trademarks. The victory by New Balance in a famously tough territory tells us that a lot can ride on who is found to own and have the rights to exploit a single letter.

Minimalism is as much a factor in trademark recognition as anywhere else in the broad field of visual expression. Mercedes Benz has made a simple three-pointed star one of the most recognizable marks on earth. In the USA, Louboutin owns the color red for the soles of shoes, and Federal Express owns the truncated version of its mark popularized by the public: FedEx. Take it down even further, and you get marks with one or two letters: PayPal is recognized by two cerulean stylized “P’s” and Facebook by a solitary but consequential byzantine blue lower-case “f”. Uber upgraded its former “U” mark to a modernized “U” enclosed by emerald green.

In fashion, designers have been using single-letter marks for decades. Hermès uses its elegant “H”; and of course, New Balance is using its slanted “N”. A few logos have doubled letters: Gucci has made the twin “G” into a brand; as with the seemingly reflective Tory Burch “T”, the mirrored Fendi “F”, and the interlocking “Cs” of Chanel.

Single-letter marks can be significant in fashion because a single letter can serve not only as a logo, but also as a design that can be emblazoned on clothing, handbags, shoes, etc. Meanwhile, the boom in online retail—where a mark may be only barely visible—has been the basis for the further simplification of marks. The large British online retailer Asos recently abbreviated its trademark to the letter “a,” the better to identify the brand on its mobile app.

 

Credit: Candace R. Arrington

Candace Arrington provides research support as a law clerk to our corporate and business law, intellectual property law and entertainment law practices.