By: Trent M.C. McBride
It is no surprise that the legal system trails behind technological advancements. Lawyers, judges, and policymakers necessarily must wait for technology to mature before attempting to regulate it. Due to this maturity period, it is estimated that the law is consistently around 5 years behind technological developments. This lag in the law creates scenarios where new technologies are generally unregulated for several years before the legal system ever gets involved.
An example of this lag in the law is the technology of Non-Fungible Tokens, or NFTs. In very general terms, NFTs, in conjunction with Blockchain technology, allow for digital or real-world assets to be given unique digital identifiers that certify ownership of that asset. These certified assets can then be bought and sold on the open market.
While NFTs have been around since 2014, gaining more popularity around 2018, they have been largely unregulated with little to no oversight. However, the law is finally catching up to this technology and the case Hermès International v. Mason Rothschild (Hermès v. Rothschild) is gaining significant attention.
Hermès v. Rothschild
Currently, in active litigation, Hermès v. Rothschild, is a case out of the Southern District of New York. The case centers on the legality of online creators and artists replicating tangible, real-world, legally protected, assets and turning them into unique digital assets that are being marketed as NFTs without permission.
The defendant, Mason Rothschild, is an entrepreneur who has found success creating digital replicas of the popular Birkin Bag from Hermès. In May 2021, Rothschild created his first Birkin Bag inspired NFT—the Baby Birkin. This NFT went on the market and within 8 months sold for $47,000.
On the heels of this success, Rothschild went on to create the currently disputed project— “MetaBirkins.” This project consists of 100 unique MetaBirkins that are covered in a wide range of colored faux fur. These NFTs are currently sold at varying prices with a floor price of 2.5 ETH or roughly $3,750 USD. So far, this project has generated between $450,000 – $800,000.
Once Hermès caught wind of this project, they sought legal action to protect their brand. In their Complaint, Hermès alleged seven causes of action: misappropriation and unfair competition under New York common law; common law trademark infringement; injury to business reputation and dilution; cybersquatting; federal trademark dilution; false descriptions and representations; and trademark infringement. The central theme throughout each cause of action is that the MetaBirkins brand is profiting from the well-known and highly successful Hermès brand without permission and that MetaBirkins’ use is harming the Hermès reputation and brand.
Rothschild immediately moved to dismiss these claims arguing his actions were protected under the First Amendment. The court was not convinced by this line of reasoning and denied Rothschild’s motion to dismiss. The court held that the Hermès complaint provided sufficient factual allegations to bring a claim.
This does not mean that Hermès has won this case. It simply means that the case will continue, and the two parties will resume litigation. As this case plays out, we may finally gain some clarity as to the legality of NFT creation and distribution of already existing real-world assets.
Are there other examples?
The Hermès litigation is just one example of technology outpacing the legal system. In the grand scheme of things, this dispute will have a relatively small impact on the broader public. As it stands, NFT technology is a niche area of the law that will likely go unnoticed by most people. However, if this lag in legal intervention extends to other areas of technology that have a broader reach, there could be serious consequences.
Take a moment to consider the implications of medical care and the adoption of virtual doctor’s visits or Mental Health Apps that supplement care. We will all need medical care at some point in our lives and these technologies will undoubtedly impact that interaction.
Or consider Financial Technology (FinTech) in which these companies are changing the way we all use and handle currency. Money is the foundation of the modern world and allowing for unregulated manipulation of this sector could have a global reach.
Technologies in a wide range of areas are advancing rapidly and changing the world in drastic ways. It is important that we closely monitor these advancements to prevent extended lags in the law and be diligent in our regulations.