A surprising, unannounced collaboration between Drake and The Weeknd—a song called “Heart on My Sleeve”—went viral on social media a few weeks ago. It generated millions of streams across music and social media platforms, but it wasn’t Drake and The Weeknd singing on the track; rather, it was an AI-generated simulation of the two.

Here’s what happened: “Heart on My Sleeve” was written and produced by TikTok user ghostwriter977, who released the track on Spotify, YouTube, and several other platforms on April 4, 2023. The track really took off after a one-minute snippet of the song was shared on TikTok on April 15, where it would go on to receive over 15 million views. ghostwriter977 reported creating the track by using AI to replace their voice on the track with vocals that sounded like Drake and The Weeknd.

Universal Music Group (UMG), the record company with whom both Drake and The Weeknd are associated, soon rushed in to have the track taken down. UMG’s takedown request was reportedly based not on the simulated voices of the two UMG-affiliated artists, but rather on a two-second audio tag owned by UMG that had been incorporated into the song’s opening.

But what if the track had not incorporated the UMG-owned sample? Would UMG still have been able to have the song removed from the platforms on which it appeared?

Under the Digital Millennium Copyright Act (DMCA), online platforms are shielded from copyright liability for hosting infringing user-generated content so long as they expeditiously remove such content following receipt of a DMCA-compliant takedown notice from the applicable rightsholder. However, this protection for online platforms is limited to copyright infringement claims; if the online platform is hosting user-generated content that violates other rights, such as the right of publicity, the DMCA does not shield the platform from liability as to such other rights.

While the UMG-owned sample incorporated into “Heart on My Sleeve” constitutes copyrightable subject matter and can serve as the basis of a DMCA notice, the sound of Drake and The Weeknd’s voices are not protected by copyright; rather, their voices are protected under the right of publicity, and, as noted, the DMCA’s notice-and-takedown requirements do not apply to publicity rights.   

Accordingly, if ghostwriter977 had omitted the problematic sample, objections to “Heart on My Sleeve” would need to focus on whether the track’s unauthorized commercial use of Drake’s and The Weeknd’s voices (or at least uncanny reproductions of the same) violated the two artists’ respective rights of publicity in the sound of their voices.  

Although there may be a technical legal issue as to whether UMG could enforce publicity rights on the artists’ behalf, certainly Drake and The Weeknd could have directly demanded that the platforms hosting “Heart on My Sleeve” remove the song on right of publicity grounds, right? It turns out that it’s not that simple due to a different safe harbor for online platforms, Section 230 of the Communications Decency Act.

Section 230 generally shields online companies from liability as the speaker or publisher of content posted to their platforms by consumers and other third parties. While a platform can lose its DMCA copyright safe harbor related to hosting user content if the platform fails to remove content after receiving a rightsholder request, the platform’s immunity under Section 230 is not conditioned on removing user content in response to takedown requests. In other words, if Section 230 is applicable, it protects a platform from liability even if the user content at issue is never removed from the platform.

Section 230 does not, however, shield platforms from intellectual property (IP) infringement claims—so an online platform presumably would not be shielded by Section 230 from right of publicity claims, right? Well, it’s complicated.

The U.S. Court of Appeals for the Ninth Circuit—in Perfect 10 v. CCBill—interpreted Section 230’s IP infringement carve-out as only applying to federal IP claims. Right of publicity claims are state law claims; as a result, in the Ninth Circuit, platforms would be immune from right of publicity claims based on AI-generated voices incorporated into musical works, such as “Heart on My Sleeve,” created and uploaded by platform users.

Platforms may also be shielded from right of publicity claims under Section 230 to the extent such claims do not constitute IP claims. Earlier this year, in Ratermann v. Pierre Fabre, the U.S. District Court for the Southern District of New York reached such a conclusion, finding that claims under New York’s Right of Publicity Law (NY Civil Rights Law §§ 50 and 51) are privacy claims and not IP claims. As a result, in the Southern District of New York, as in the Ninth Circuit (albeit for a different reason), Section 230 immunizes online platforms from right of publicity claims, and such platforms have no obligation to remove user content alleged to violate publicity rights. 

Not all jurisdictions shield platforms from right of publicity claims under Section 230, however. The U.S. Court of Appeals for the Third Circuit, in Hepp v. Facebook, interpreted Section 230’s IP infringement carveout as applying to both federal and state IP claims. Moreover, unlike New York’s right of publicity, the Third Circuit held that the right of publicity under Pennsylvania law is an IP right (and not, as in New York, a privacy right). As a result, the court concluded that the plaintiff’s publicity rights claims against several online platforms were not barred by Section 230.

Many online platforms may have license agreements in place with record companies that would require such platforms to remove content that violates artists’ rights of publicity even when the platforms may not otherwise be legally obligated to do so. But there will always be artists and platforms not covered by such agreements. Given how many artists and celebrities reside in California (within the Ninth Circuit) or New York City (within the Southern District of New York) and the fact that publicity rights are typically tied to one’s place of residence, CCBill and Ratermann are likely to create significant hurdles for rights holders in their efforts to force platforms to remove generative AI-created works that make unauthorized commercial use of a person’s name, image, voice, or likeness but that do not actually incorporate any infringing materials—at least until the U.S. Supreme Court gets around to resolving the split that has emerged among the circuits on this subject.

Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. For more on IP issues raised by generative AI, check out part one and part two of our three-part series on the subject. We invite you to learn more about our Digital Media & Entertainment, Gaming & Sports industry group and check out our podcast: Innovation Unlocked: The Future of Entertainment.

As digital media continues to supplant physical media, e-commerce sites offering digital content have experienced unprecedented growth. These sites offer consumers access to video games, music, movies, e-books, and many other types of digital media at the click of a button. Although purchasing digital media—as opposed to physical media—has become commonplace for consumers, a recent case, McTyere et al v. Apple, Inc., suggests that consumers’ understanding of terms like “sell,” “buy,” and “purchase” have not fully caught up to our new digital reality. When a consumer buys a book in a physical bookstore, they own indefinitely the physical copy of the book that they purchased. However, when consumers click a “Buy” button on an e-book platform, they almost always receive a license to a copy of the e-book, a license that typically can be terminated by the e-book platform or the book’s publisher under certain circumstances. McTyere has highlighted this important legal distinction between buying physical and digital media and raises the question of whether it is deceptive to describe the licensing of rights to digital media using the same terminology as has traditionally been used to describe the sale of books, CDs, DVDs, and other physical goods.

In 2021, a putative class of iTunes Store users sued Apple in the U.S. District Court for the Western District of New York over Apple’s operation of the iTunes Store. The plaintiffs alleged that Apple’s use of a “Buy” button for digital content in its iTunes Store and Apple’s description of such content as having been “purchased” by users constituted false representations because Apple reserves the right to later remove such content from a user’s device or iCloud storage.

The plaintiffs asserted claims against Apple under Sections 349 and 350 of the New York General Business Law (GBL) as well as common law claims for unjust enrichment. The GBL prohibits “deceptive acts or practices in the conduct of any business, trade, or commerce” and “false advertising in the conduct of any business, trade, or commerce.” To state a claim under either Section 349 or 350, a plaintiff must allege that the defendant engaged in (1) consumer-oriented conduct that is (2) materially misleading, and that (3) the plaintiff suffered injury because of the defendant’s allegedly deceptive act or practice.

In moving to dismiss the lawsuit, Apple challenged factors 2 and 3 of the plaintiffs’ GBL claim and argued that their unjust enrichment claim was merely duplicative of the GBL claim. Apple’s motion was denied, with the court holding that the plaintiffs’ claims raised issues that could not be resolved on a motion to dismiss.

Whether Apple’s Use of the Term “Buy” Was Materially Misleading

Apple moved to dismiss the plaintiffs’ complaint on the grounds that Apple’s use of the term “buy” in connection with digital content available through the iTunes Store was not materially misleading. Apple argued that the dictionary definition of “buy” supported its position, for example, Apple noted that Merriam-Webster provides the following “buy” definition: “[T]o acquire possession, ownership, or rights to the use or services of by payment especially of money.”

Because plaintiffs received the right to the use of the applicable digital content after completing a transaction, Apple claimed that the plaintiffs did indeed buy a license to the purchased content. The fact that the content may have been later removed from the iTunes Store (and plaintiffs’ accounts) is immaterial, according to Apple, on the question of whether its use of the word “buy” was materially misleading.

The court, however, found that Apple’s preferred definition of “buy” does not resolve the question of whether Apple’s use was misleading. According to the court, Apple’s right to useargument does not get to the heart of the matter because “[t]he right to use something may last but a moment or forever”; the court provided the following hypothetical in support of its view:

Take, for example, two consumers who each pay $19.99 to “buy” two different movies on the iTunes Store, each planning to watch the movie the next night. The following night, the first streams his movie purchase without a hitch. But when the second sits down on the couch and opens the iTunes Store, she finds that the movie has disappeared from her “purchased” folder. As it turns out, Apple lost the rights to that movie minutes before. Both consumers had the “right to the use of” their movie purchases for the twenty-some hours between the time they purchased them and the time they sat down to watch them. But the second would-be movie watcher understandably might feel a little miffed if she were told that she received exactly what she paid for.

The court also observed that taking Apple’s argument at face value dissolves the difference between buying and renting: “[B]oth a consumer who paid $4.99 to rent a movie and a consumer who paid $19.99 to buy it received the ‘right to use of’ that digital movie.”

Ultimately, the court concluded that “reasonable consumers might have believed that their purchasing digital content [using a “Buy” button] from the iTunes Store gave them the ability to use that digital content indefinitely.” Accordingly, plaintiffs were found to have sufficiently alleged that the iTunes Store contained statements that were materially misleading.

Whether Apple’s Legal Terms Address Its Allegedly Misleading Statements

Under certain circumstances, the presence of a disclaimer or similar clarifying language may defeat a claim of deception. Accordingly, claims alleging deceptive acts or false advertising under the GBL may fail when a defendant has fully disclosed the terms and conditions of an allegedly deceptive transaction. Apple moved to dismiss on the grounds that the applicable terms and conditions fully disclosed to consumers that purchased content may later become unavailable, thus curing any allegedly misleading statements in the iTunes Store interface about “buying” or “purchasing” content.

The court, however, identified several factual questions related to Apple’s argument that cannot be resolved on a motion to dismiss (as the court must accept all factual allegations as true and draw all reasonable inferences in favor of the plaintiff in evaluating a defendant’s motion to dismiss).

First, a factual dispute exists as to whether the plaintiffs were “sufficiently informed of any restrictions in the terms and conditions.” Whether or not the plaintiffs were aware of and agreed to Apple’s legal terms is the “sort of factual dispute [that] is not ordinarily amenable to resolution on a motion to dismiss.”

Second, there is a factual dispute regarding whether the language in the iTunes legal terms addressing post-purchase removal of content was added to such legal terms before or after plaintiffs made their purchases because the record is silent on when plaintiffs made their purchases. Although the court noted that the language in Apple’s current legal terms “might well bar the plaintiffs’ claims here,” that language does not appear in earlier versions of Apple’s legal terms. Instead, earlier versions of the legal terms only contain more general language about Apple reserving “the right to change, suspend, remove, or disable access to any iTunes products, content, or other materials comprising a part of the iTunes service at any time without notice.”

Finally, the court opined on the earlier language used by Apple in its iTunes legal terms, holding that a reasonable consumer might read it and “believe that once he or she has ‘purchased’ digital content and that content is saved to his or her ‘purchased’ folder, Apple cannot at that point suspend or terminate access to it, notwithstanding whether it otherwise could do so to other material in the iTunes Store before purchase.” Such ambiguity prevented the court, at least at the motion to dismiss stage, from holding that Apple’s legal terms cure the allegedly misleading statements about consumers “buying” iTunes content.

Whether the Plaintiffs Were Harmed by Apple’s Allegedly Misleading Statements

Apple also moved to dismiss the complaint on the grounds that the plaintiffs were not harmed by any allegedly misleading statements by Apple. To satisfy the injury element of GBL deceptive practices and false advertising claims, the plaintiffs must allege that, due to a materially misleading practice, they purchased a product and did not receive the full value of their purchase. The plaintiffs can satisfy this requirement by alleging that they would either not have purchased the product in question or not paid as much as they did for the product had they known the true facts.

Although the plaintiffs’ complaint failed to provide any details about what content was purchased or how long the plaintiffs had access to it, the complaint did allege that the plaintiffs would not have bought the digital content or would only have been willing to pay substantially less for it had they known about the possibility that they might lose access to the content later.

Although the court notes that the thinness of the plaintiffs’ allegations of harm and the lack of specific information about plaintiffs’ purchases “might ultimately prove fatal to their claims,” the claims are “comparable” to what “numerous other judges in the circuit have deemed adequate to survive a motion to dismiss.” As a result, the court found that the plaintiffs’ allegations of harm, thin as they may be, were sufficient to survive a motion to dismiss.

Whether Unjust Enrichment Claims Are Duplicative of GBL Claims

Finally, Apple moved to dismiss the plaintiffs’ unjust enrichment claim, alleging that the claim is duplicative of the plaintiffs’ GBL claims. Noting that the U.S. Court of Appeals for the Second Circuit’s position on whether an unjust enrichment claim must be dismissed if it appears to be duplicative of other theories of recovery appears to be in flux, the court declined to dismiss the plaintiff’s unjust enrichment claims at this point absent further guidance from the Second Circuit on the question.

Takeaways to Date From the McTyere Case

Although the McTyere decision deals only with a motion to dismiss, and has yet to address the substantive merits of the plaintiffs’ claims and Apple’s defenses, the court’s opinion does suggest some actionable insights on how e-commerce sites offering digital content may be able to avoid similar claims:

  • An e-commerce site operator offering digital content for sale should clearly inform consumers, ideally in both the site’s legal terms and as part of the transactional flow process, that consumers are in fact purchasing a license to make certain uses of a copy of the digital content in question—and not buying a copy of the content itself—when they click the site’s “Buy” button.
    • Such notice might highlight for consumers that all digital items are licensed, not sold, and that references to “sale” or “purchase” in connection with a digital item relate solely to acquiring a license to access and use such item pursuant to the terms of such license.
  • In offering licenses to digital content (as will typically be the case), e-commerce sites ideally will want to provide consumers with an opportunity to review the applicable license terms prior to completing a transaction involving such content.
  • An e-commerce site operator ideally should consider, where possible, obtaining rights from its upstream content licensors permitting site customers to continue to access and redownload their purchased digital content even after the site operator’s right to offer the content for sale to new customers has expired or terminated.
  • Note that the McTyere court’s logic may also apply to non-fungible tokens (NFTs); similar to digital content consumers, NFT consumers, in “buying” an NFT, typically receive only a license to access and use the digital content associated with the NFT (even if they obtain ownership of the specific “token” associated with such digital content).
  • Finally, as our society rapidly transitions to an era where most, if not all, media and entertainment content is available only in digital formats, e-commerce companies and content creators will want to consider to what extent sales terminology that emerged from the analog age may need to be updated, modified, caveated, or even retired in the digital age.     

Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. We invite you to learn more about our Digital Media & Entertainment, Gaming & Sports industry group and check out our podcast: Innovation Unlocked: The Future of Entertainment

Welcome to Today’s Most Disruptive Technologies! We kick things off with a Spotlight on Quantum Computing. Artificial intelligence (AI) may be all the buzz today, but the seismic impact that quantum computing could have on the future of technology far exceeds what any of today’s classical computers could accomplish within our lifetimes.

Continue Reading Today’s Most Disruptive Technologies: Spotlight on Quantum Computing

We’re happy to make available to Age of Disruption readers part two of our three-part series on key legal issues surrounding generative artificial intelligence (AI).     

As the quality of generative AI tools has soared, copyright and other intellectual property issues raised by such tools have attracted increased attention. Some artists, creators, and performers, fearing an existential threat to their livelihood, have objected to the use of their content or identity in connection with generative AI tools. Developers and users of these tools, however, point to their benefits and the value of innovation, and highlight the need for access to broad data resources to facilitate that innovation.

In our new post, we take a look at the first wave of lawsuits challenging content-generating AI technologies. Now that these lawsuits have commenced, courts will be wrestling with the complex copyright and other intellectual property (IP) issues raised by such technologies—and any decisions emerging from these cases could dramatically affect the creation and use of AI tools going forward.

Read the full Update here.

Accessibility, artificial intelligence (AI), and hybrid-casual games were among the noteworthy topics at the March 2023 Game Developers Conference (GDC) in San Francisco. Here is Part 1 of our Notes From the Field with a few highlights from the sessions we attended.

Accessibility for Gamers

Accessibility was an issue that featured heavily at GDC this year. According to some estimates, nearly one in five people on the planet lives with some form of physical or mental disability.

These individuals include casual and hardcore gamers who play games and engage in other forms of interactive entertainment on a variety of console, mobile, and extended reality (XR) platforms. To provide great customer experiences more broadly, game developers and publishers are paying increased attention to the needs and desires of gamers with disabilities.

At GDC, speakers offered a number of potential solutions for improving gaming accessibility, including:

  • Encouraging game studios to hire full-time staff dedicated to accessibility issues.
  • Conducting robust user testing to identify accessibility barriers in games.
  • Leveraging middleware-based accessibility solutions.
  • Addressing hardware-related accessibility considerations at the beginning of the development life cycle.

Framework for Responsible AI

Although AI tools, like ChatGPT and DALL-E, have been front and center in the news recently, AI has long been a fixture in gaming. That said, the release of new and sophisticated deep learning models has attracted the attention of those who seek to incorporate those models into game development, including by creating more dynamic gameplay and more intelligent nonplayer characters.

However, AI technology poses potential ethical and safety challenges that require careful consideration by businesses and regulators alike. To this end, several speakers shared their views on how best to develop a framework for “responsible AI,” which included increasing product testing and establishing guardrails to facilitate safe player communities.

Popularity of Hybrid-Casual Games

There was buzz at the conference on the continued rising popularity of hybrid-casual games. This trend seems to be a natural progression as the hyper-casual market matures and in light of global economic pressures.

Hybrid-casual games offer deeper gameplay experience than hyper-casual games, while maintaining the easy gameplay loops that made hyper-casual games so popular. Hybrid-casual games are a mix of hyper-casual, casual, and mid-core (but not hard-core) games.

  • Hyper-casual or “tap to play” games require no more than one or two swipes or taps to play.
  • Casual games are a step up in gameplay but still require little effort to learn and play.
  • Mid-core games are a level up from casual games in gameplay and require skill and strategy to play.
  • On the furthest end of the spectrum are hard-core games, which involve detailed, intensive gameplay that require practice and mastery.

Hybrid-casual games often incorporate elements which make them more engaging for players.

With this increased user engagement, hybrid-casual games also offer a multichannel monetization strategy for developers. While hyper-casual games often rely on ad revenue, hybrid-casual games offer a mix of in-app purchases and ads. Hybrid-casual games are well positioned to continue the growth trajectory despite current economic headwinds.

Stay tuned for Notes from the Field: Game Developers Conference—Part 2!

Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. Learn more about our Digital Media & Entertainment, Gaming & Sports industry group here, and check out our podcast: Innovation Unlocked: The Future of Entertainment.”

We recently attended the fourth annual Seton Hall Law School Gaming Law, Compliance & Integrity Bootcamp. This in-person conference, which provides compliance and ethics education to professionals working in the regulated gaming space, included attendees and panelists drawn from the entire industry, including regulators, gaming operators and vendors.

The conference addressed the many regulatory changes resulting from the U.S. Supreme Court’s 2018 ruling which allowed states to legalize online sports gambling. Many states with long histories of legalized gambling, such as Nevada and New Jersey, had existing schemes in place to help aid the transition of legalizing sports gambling. However, other states with more prohibitive gambling regimes, such as Tennessee and Kansas, are instituting new laws and regulations without much prior experience.

As more states legalize online sports betting and online interactive gaming, regulators and businesses must address complex, evolving licensing and registration regimes, which vary significantly state-by-state. 

Here are a few key insights captured from the conference related to vendor and gaming supplier licensing issues:

  • Open Conversation Among Regulators and Industry Players: In an industry where the regulations are constantly evolving, the barriers between the various gaming industry players (i.e., regulators, gaming operators, and vendors) are quite amorphous. Gambling rules are often complicated and vague, particularly when it comes to the scope of licensing obligations. Regulators not only reach out to other regulators for help regarding the interpretation of their own rules, but they also learn from conversations with gaming operators and vendors. These discussions are integral to a regulator’s decision to rewrite the rules so that they are easier to understand. As a result, advocacy from vendors regarding the interpretation of the licensing regulations (and similarities in the statutory or regulatory regime in other states) can influence and shape the regulators’ view.
  • What Gaming Operators Are Looking For: A vendor’s understanding and experience with the licensing process may aid in selection from gaming operators. There are several factors that a gaming operator may assess when determining whether to work with a vendor: (1) if the vendor is a publicly traded company; (2) if the vendor is licensed in other jurisdictions; and (3) if the vendor contracts with companies in other highly regulated industries, such as healthcare and cannabis. These factors provide evidence that the vendor is aware of the requirements and oversight needed to obtain licensing in the gambling industry. Additionally, it is important to the gaming operator that the vendor has its own outside counsel to discuss questions related to its own licensing process.
  • Come Prepared: Regulators are faced with many tensions when interpreting and processing licensing applications. They have a responsibility to conduct thorough reviews and to ensure they comply with statutory and regulatory mandates, while understanding the need to be responsive, as businesses often need to license people or companies on a timely basis. As a result, when communicating with regulators regarding any licensing questions, it is important to come prepared and understand the regulatory scheme prior to any contact. Significant delays are caused when licensing applicants do not properly understand the regulatory requirements and do not provide the requisite information.
  • Communication With Gaming Operator Is Key: Vendors frequently ask regulators about the status of a gaming operator’s licensing application. Statutorily, regulators cannot speak about the status of or comment on the licensing process for any other applicant. Instead, regulators recommend vendors communicate regularly with their operators throughout the licensing process. Additionally, regulators recommend that vendors and operators use the same outside counsel to streamline the licensing process for all parties involved. 

If any of our readers wish to share insights from the Gaming Law, Compliance & Integrity Bootcamp, we would love to hear them! Follow us on social media @PerkinsCoieLLP, and contact us with questions or comments. We also invite you to learn more about our Digital Media & Entertainment, Gaming & Sports industry group and check out our podcast: Innovation Unlocked: The Future of Entertainment.”

There have been two important developments in recent weeks regarding the U.S. Copyright Office’s position on registering works created by the use of artificial intelligence technology. First, on February 21, the Copyright Office issued its much-anticipated decision regarding the registration of a graphic novel by artist Kristina Kashtanova that included images generated using the AI tool Midjourney. Then, on March 15, the Copyright Office issued a policy statement providing its first guidance on the subject of copyright registration for works generated by AI.

This Update will discuss in detail the Copyright Office’s rejection of Kashtanova’s registration and its subsequent guidance on registration of AI-generated work and will provide important takeaways for creators who are using generative AI tools.

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Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. Learn more about our Digital Media & Entertainment, Gaming & Sports industry group here, and check out our podcast: Innovation Unlocked: The Future of Entertainment.”

In early February, following a six-day trial, a jury in the U.S. District Court for the Southern District of New York found in favor of Hermès in its claims of trademark infringement, trademark dilution, and cybersquatting against artist Mason Rothschild, the creator of the “MetaBirkins” non-fungible tokens (NFTs). Even with the First Amendment-like deference afforded to artistic works under trademark law, the jury held Rothschild liable because his “MetaBirkins” NFTs were “intentionally designed to mislead potential consumers.” As a result, the jury awarded the luxury fashion brand a total of $133,000, consisting of $110,000 for Rothschild’s net profits and $23,000 in statutory damages for cybersquatting.

The fashion industry has closely watched this landmark case (see our previous Update), which has real-world implications for all brands seeking to protect their intellectual property (IP) against unauthorized use as NFTs or in the metaverse.

“METABIRKINS” NFTS

In November 2021, Mason Rothschild, a Los Angeles-based “interdisciplinary artist and designer” whose real name is Sonny Estival, created and sold 100 NFTs tied to a digital image depicting a Hermès Birkin bag covered in colorful and hyperrealistic faux fur. Rothschild marketed the NFTs as “MetaBirkins,” registered and used the domain name, www.metabirkins.com, and promoted the NFTs through social media handles such as @metabirkins. Rothschild priced each NFT at $450 and received a 7.5% royalty on downstream sales. Hermès’ complaint claimed that MetaBirkins reached about $1.1 million in total sales, while Rothschild estimated that he made about $125,000, including both initial sales and royalties.

Hermès sued Rothschild in the Southern District of New York in January 2022, asserting that the Birkin-like images and associated NFTs infringed and diluted Hermès’s Birkin trademark, falsely designated the origin of the NFTs, and injured and diluted Hermès’s business reputation. Hermès also asserted a claim for cybersquatting based on Rothschild’s use of the domain name www.metabirkins.com. In contrast, Rothschild claimed that the NFTs were an artistic commentary on animal cruelty and fashion companies’ efforts to “go fur-free,” thus meriting a level of First Amendment-like protection reserved for works with “artistic relevance.”

CRITICAL RULINGS

Judge Jed S. Rakoff made three critical rulings in this case.

First, in originally denying Rothschild’s motion to dismiss, Judge Rakoff held that the “MetaBirkins” NFT met the minimum threshold to be an “artistic work” under the Rogers test (and thus entitled to heightened protection against trademark infringement claims) and that “MetaBirkins” should be understood to refer to both the NFTs and the associated digital images underlying the NFT. Judge Rakoff reasoned that the mere fact that NFTs are code pointing to a digital image’s location and authenticating the image “does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings would make the paintings commodities.”

Second, in denying the parties’ cross-motions for summary judgment, Judge Rakoff reaffirmed his position that the “MetaBirkins” NFTs could be a form of artistic expression and that the NFTs should be evaluated under the speech-protective Rogers test for artistic expression.

Judge Rakoff explained that summary judgment was inappropriate in this case because there were factual disputes centered around two issues. The first was Rothschild’s purpose behind designing his work around the Hermès Birkin bag; in other words, was Rothchild’s intent behind the “MetaBirkins” NFTs a genuine artistic expression or an unlawful effort to “cash in on a highly exclusive and uniquely valuable brand name”? The second was whether, after considering eight highly fact-specific factors, the “MetaBirkins” NFTs were explicitly misleading. The following factors carried over to the trial for consideration:

  • The degree to which Rothschild’s use of the Birkin mark is similar to Hermès’ use of the Birkin mark.
  • The strength of the Birkin mark.
  • The degree to which the Birkin mark is widely recognized.
  • Whether Rothschild intended to create an association with the Birkin mark.
  • Any actual association by consumers of the “MetaBirkins” NFTs with the Birkin mark.

The third critical ruling by Judge Rakoff was his exclusion of art critic and Warhol expert Blake Gopnik as an expert witness for Rothschild. Gopnik would have testified that “MetaBirkins” NFTs are like Andy Warhol’s “business art,” centering the NFTs at the intersection of art and commerce. As a result of this ruling, the jury did not hear the comparison between “MetaBirkins” and Warhol’s Campbell’s Soup cans, which could have affected its decision.

AFTERMATH

Rothschild’s attorney, Rhett Millsaps, has bitterly criticized the jury’s verdict, stating to a reporter that “Hermès had incredibly weak evidence of confusion” and noting that, while Hermès “can stop someone from selling NFTs that compete with their actual products in the metaverse . . . they cannot stop artists from selling artwork that depicts their products, just like they couldn’t in the real world.”

Hermès, on the other hand, issued a post-verdict statement noting that it felt compelled to act to protect consumers and the integrity of its brand, and observing that, as a creative enterprise itself, Hermès has “supported artists and freedom of expression” throughout the company’s history. Rothschild has announced that he plans to appeal to the U.S. Court of Appeals for the Second Circuit.

CONCLUDING THOUGHTS

Where to draw the line between art and commerce has always been a challenge and may be particularly difficult when it comes to NFTs, which represent a convergence of the creative community with the fintech community. But the tension between art and commerce inherent in NFTs is likely to be heightened in the metaverse, where there is a need to develop endlessly explorable, content-rich virtual worlds that mirror the real world; the sheer volume of in-world content and virtual objects that will be needed to populate multiple metaverses will require that content creators be allowed to monetize their creative works within such metaverses, resulting in the same blurring of art and commerce that gave rise to the Metabirkins dispute. We await to see if the Second Circuit will bring greater clarity to this murky area of the law.  

Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. Learn more about our Digital Media & Entertainment, Gaming & Sports industry group here, and check out our podcast: Innovation Unlocked: The Future of Entertainment.”

The Illinois Supreme Court recently opened the floodgates for class actions under the Illinois Biometric Information Privacy Act and created potentially massive and catastrophic exposure for Illinois businesses. In a close 4-3 ruling, the landmark decision in Latrina Cothron v. White Castle System Inc. holds that every individual scan or transmission of biometric data made without the proper disclosures amounts to a separate violation of BIPA.

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Data security will undoubtedly remain an enforcement priority for the Federal Trade Commission in 2023. A presentation on the FTC’s approach to data security by Deputy Chief Technologist Alex Gaynor at a Commission open meeting on December 14, 2022, highlighted four provisions found in one or more recent FTC consent orders as particularly important, though not reflecting the full array of safeguards the FTC expects organizations to employ.

Read more.

Follow us on social media @PerkinsCoieLLP, and if you have any questions or comments, contact us here. Learn more about our Digital Media & Entertainment, Gaming & Sports industry group here, and check out our podcast: Innovation Unlocked: The Future of Entertainment.”