Remedies in the digital world: Burn Baby Burn

21st June 2022

The recent Hermès v Rothschild case is one of the most prominent examples of an established luxury brand bringing legal proceedings for the use of a registered trade mark in creating and selling NFTs.

This case has raised many questions, including whether orders for the delivery up and destruction of infringing goods is an adequate remedy for trade mark infringement in a digital goods context.  It may also result in brands adjusting their respective litigation strategies in relation to damages.

Background

Mason Rothschild, a Californian artist, created a series of 100 NFTs mimicking Hermès’ Birkin bag, which he dubbed METABIRKINS. They were initially sold on OpenSea for approximately $700,000. Hermès is suing Rothschild in New York and allege that he is misusing its IP in creating this series and that the NFTs are akin to counterfeit products. Hermès argue that Rothschild has used the BIRKIN trade mark to inflate the value of the METABIRKINS series.

Orders for delivery up and destruction of infringing goods

Hermès have demanded that Rothschild deliver up the METABIRKIN NFTs for destruction. OpenSea have already removed them from their website; however, at the time of writing they are still for sale on Looks Rare, another NFT marketplace.

In November 2019, the UK Jurisdiction Taskforce issued a legal statement confirming that English law treats cryptoassets as property. This statement has been supported by comments in the subsequent case law [1].

The difficulty with Hermès’ demand is that NFTs exist on the blockchain and therefore, technically speaking, cannot be amended or destroyed. In a straightforward case of trade mark infringement via the creation and sale of physical counterfeit goods, infringers have to deliver up the infringing goods for destruction. However, given that NFTs cannot be destroyed, courts will have to get creative in order to provide claimants with an adequate remedy.

An alternative and arguably more appropriate remedy is a process known as “burning”. This is a public, irreversible, and permanent transaction that is recorded on the blockchain ledger and essentially consigns the infringing NFT to the ‘digital dustbin’. The primary method of burning is to send the NFT to a null web address that no one owns where it is rendered inaccessible and, therefore, devoid of value. Burning involves a payment of gas fees as normally required in order to register a transaction on the blockchain.

Alternatively, if the infringing NFT is linked to digital content, one could break the link by removing the digital asset from the relevant URL. This may not work in future iterations where the underlying asset may be hosted on distributed peer-to-peer networks like the InterPlanetary File System rather than on an identifiable web server, but this could also be an option.

Damages

In traditional counterfeit cases, brands are generally more concerned with identifying the operations responsible for the mass production of counterfeits, targeting their supply chains and tracing these back to the manufacturer in order to permanently shut them down. Therefore, damages tend to less frequently be the primary remedy sought by brands in such instances.

However, NFTs are different in that there are generally fewer transactions, but these transactions can be of very high value, as in the Hermès v Rothschild case. In cases where the high value of the infringing NFTs is attributable to the unauthorised use of a proprietor’s trade mark, the relevant brand may seek damages more aggressively.

Conclusion

The courts and legislators are being asked important questions, not just about liability but also about the remedies available in respect of digital trade mark infringement. It will only be a matter of time before the English court has to weigh in.

1. AA v Person Unknown, re Bitcoin [2019] EWHC 3556