The handbag that could make up the metaverse

With help from Derek Robertson

The future of NFT art and metaverse commerce, can be determined by a virtual handbag.

In November 2021, digital artist Mason Rothschild released a line from MetaBirkins: fuzzy, virtual handbags with a tiny padlock that mimic Hermès’ popular luxury Birkin bags. The visuals on the MetaBirkins are inspired by artists such as van Gogh, Rothko and Kusama. They were rare, they were chic, and they were extremely lucrative. The first sold for $42,000.

But they weren’t made by Hermès, and barely a month later, Rothschild revealed on Instagram that he had received a cease and desist letter from Birkin’s real-world manufacturer. In his defense, Rothschild cited the First Amendment, saying it gave him “all rights to create art based on my interpretations of the world around me” and equated the sale of his MetaBirkins as NFTs to that of physical art prints.

If the metaverse changes to the trillion dollar economy that some envision, questions like this will be hugely important to sort out. When an NFT copy of a real-world object can be created with a few keystrokes – and, crucially, assigned real-world value as digital property – which qualifies as protected artistic expression, and what are just virtual illegal goods?

In January 2022 Hermès Rothschild sued in the U.S. District Court for the Southern District of New York for, among others, trademark infringement and dilution, false designation of origin and cybersquatting. It’s a case that the Web3 world is watching closely and has already been cited in others Web3 lawsuits that confusion with the question of how to balance the freedom of digital artists with the claims of copyright holders.

Mauricio Uribehead of the software and IT practice at the Knobbe Martens intellectual property and technology law firm, described the case as a “test” for me to see “how well our existing laws apply” to the digital frontier.

If Hermès wins the day, he says, not much will likely change. But if Rothschild wins, it would indicate that there is “something unique about NFTs” that, according to the law, makes room for “a new paradigm that deserves slightly different treatment.”

The key to all of this is something called the Rogers test: a double test from 1989 that attempts to strike a balance between artistic expression protected by the First Amendment and the rights of the trademark holder.

The first part of the test simply asks if the use of the trademark has minimal artistic relevance to the item being rated. The handbags have already passed this test: they’re cute and a little tongue-in-cheek, and New York District Court Judge Jed Rakoff discovered that digital images of handbags could be a form of artistic expression. The NFT factor, he said, doesn’t change that: Using an NFT to authenticate that digital image and track its subsequent resale and transfer “didn’t make the image a commodity without First Amendment protection.” In short, NFTs created from digital art can still enjoy First Amendment protection as long as they pass the rest of the Rogers test.

The second part of the Rogers test is whether the use of the trademark is “explicitly misleading as to the source or content of the work.” So the question becomes, did Rothschild’s use of the name “Birkin” confuse consumers into thinking they were buying a Hermès luxury item? That question goes to the heart of what really creates value in the digital world: the artist or the brand.

Rothchild did himself a disservice by suggesting that the MetaBirkins were meant to be an “experiment” to see if he could create “the same sort of illusion it has in real life as a digital commodity,” when speaking to Alexis Christoforous on Yahoo Finance back in December 2021. Rothschild noted in the interview that the craze surrounding his virtual handbags was not much different from the desire to own a Birkin handbag in real life. (We have contacted Rothschild several ways for this article, with no response.)

The Hermès complaint cites Rothschild’s statements as evidence of consumer confusion. Whether it’s enough to stop him from selling his MetaBirkins will have to be determined by a jury at trial scheduled for January 30, 2023 for Judge Rakoff.

For Uribe, whose company tends to represent corporate clients, it could be argued that as artists transition from making digital art to selling it in the metaverse, the underlying good “is no longer purely artistic expression,” as Uribe told me, but instead “has a function and is part of commerce.” That’s the tipping point where “you’ve tipped the balance between First Amendment and trademark laws,” Uribe said.

If Hermès can prove that Rothschild’s use of the Birkin name caused enough consumer confusion about the genuine item, then they will be able to stop the trade of these virtual luxury handbags dead on the rails just like genuine counterfeits. If they lose, the metaverse gets to keep its MetaBirkins – and space could open up for people to launch their own versions of Web3 Big Macs, Formula 1 racing teams and Nike sneakers, preparing the virtual landscape for a new series of trademark battles.

Congress has finally released the text of the bill for year-end expenses early this morning, and a few highly anticipated pieces of potentially important legislation for the metaverse are out.

As POLITICO’s Brendan Bordelon reported in today’s Morning Tech newsletter in a heroic feat of sleep deprivation benefiting Pro subscribers, Children’s Online Safety Act (KOSA) and the Children’s and Teenagers’ Online Privacy Protection Act (COPPA) were both omnibus omnibus. A source requesting anonymity told Brendan that Democrats pushed for their inclusion but were turned down by Republicans.

Privacy and security considerations for children and teens are especially important to the development of the metaverse, given how central gaming platforms like Roblox and Minecraft are in its burgeoning development. Earlier this year Senator Ed Markey (D-Mass.) and a group of Representatives begged Congress to pass COPPAand the FTC to use its regulatory authority to stop companies from algorithmically manipulating young gamers — the latter of which is, for now, the government’s primary tool for controlling virtual worlds, as evidenced by the huge settlement reached yesterday between Fortnite developer Epic Games and the FTC. — Dirk Robertson

What Does Ethereum Founder Vitalik Buterin Do? one of the most progressive players of the crypto world, think about the state of the technology after a brutal year?

In a blog post Earlier this month, Buterin, in his words, talked about his enthusiasm for “a few specific categories of applications that are already proving themselves and only getting stronger” – and a few where he feels the exact opposite. Some highlights:

About the “currency” part of “cryptocurrency”: “Cryptocurrency is the only one currently being developed that can realistically combine the benefits of digitization with respect for personal privacy, similar to cash. But… cryptocurrency is far from perfect. Even with all the technical, user experience, and account security issues resolved, the fact remains that cryptocurrency is volatile, and the volatility can make it difficult to use for savings and business.
On stablecoins: “…stablecoins are very popular among those users who nowadays use cryptocurrency pragmatically. That said, there is a reality that is not sympathetic cypherpunk values today: The stablecoins most successful today are the centralized coins, mostly USDC, USDT and BUSD.”
On DAOs: “Many applications of “decentralization for efficiency” could also probably be done on a central bank-led chain run by a stable big country; I suspect that both decentralized approaches and centralized approaches are good enough, and it is the path-dependent question of which becomes viable first that will determine which approach dominates.” — Dirk Robertson