November 15, 2022
Over the past few years, NFTs have emerged from nowhere to become a big deal — even if a lot of people are fuzzy on the details of what an NFT is. And, as with any new creation, especially one that reaches across art, entertainment, finance and culture, conflicts over NFTs raise new legal issues. On this, I’m especially fascinated by Hermès International vs. Rothschild, 22 Civ. 384 (S.D.N.Y.). It raises so many questions: What is art? Who is an artist? What is an NFT? How do art and commerce interact and where does the First Amendment fit into all this?
This is a very “meta” case (in more ways than one).
It’s a simple story. In 2021, Mason Rothschild, a Los Angeles-based digital artist, launched his “MetaBirkin” project. The project involved the sale of 100 NFTs, each linked to a digital image created by Rothschild. The images are of imaginary, Birkin-style bags covered in distinctively colored fur. (Birkin bags are very expensive handbags made by Hermès, the French luxury fashion brand. They are often made from leather or exotic animal skins and can cost more than $100,000.)
Rothschild promoted MetaBirkins on social media with hashtags like #NotYourMothersBirkin and #MetaBirkin and created a Discord group for followers. His stated intention was to use the NFTs to raise awareness of the fashion world’s “fur-free” initiatives and promote the use of ethical textiles. Sales of these NFTs quickly took off.
Hermès was not amused and sent Rothschild a cease and desist letter. A few weeks later, it filed suit, claiming, among other things, trademark infringement, unfair competition and cybersquatting stemming from the use of “MetaBirkin” and hashtags containing the word “Birkin.” OpenSea, the world’s largest NFT marketplace, removed the MetaBirkins from its site and resale prices, which had reached as high as $46,000 for a single NFT, plummeted.
Hermès makes several arguments, but its central claim is that Rothschild is misleading consumers into thinking Hermès authorized the NFTs and otherwise trading on Hermès’ goodwill. Here, the company points to posts on Rothschild’s social media accounts and in the news indicating confusion over Hermès’ relationship to MetaBirkins.
It also vehemently argues that the Court should ignore Rothschild’s images of fanciful, fake fur covered Birkin-style bags because “[t]he MetaBirkin NFTs are data recorded on the Ethereum blockchain,” which Rothschild could swap out for something completely different and unrelated. In other words, Hermès argues Rothschild’s work is just bits of code that can be disassociated from the images. Thus, according to Hermès, his work is not art and, therefore, outside the scope of the First Amendment. In support of this claim, Hermès notes that when the MetaBirkins were first minted, the image was covered in a shroud and didn’t show the actual picture being sold. It also repeatedly claims that Rothschild is a marketer and not an artist.
In response, Rothschild asserts the First Amendment allows him to make and sell art that depicts Birkin bags. In his words: “I am not creating or selling fake Birkin bags. I’ve made works of art that depict imaginary, fur-covered Birkin bags. I have the right also to use the term ‘MetaBirkins’ to describe truthfully what that art depicts, and to comment artistically on those bags and the Birkin brand.” What’s more, he goes on, “[t]he fact that I sell the art using NFTs doesn’t change the fact that it’s art.”
Mason Rothschild also claims his use of “Meta” is an indication that the images are part of a commentary and argues that Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) requires the Court to dismiss Hermès’ case.
As a refresher, the dancer Ginger Rogers sued the makers of a movie called “Ginger and Fred,” claiming that the movie’s use of her name impermissibly implied that she sponsored the movie, which was about fictional cabaret performers named Ginger and Fred. The Second Circuit rejected her claims. It held that the First Amendment requires courts to dismiss trademark claims involving artistic works unless the public’s interest in avoiding consumer confusion outweighs the public interest’s in free expression. With celebrity names in titles, the court held that a trademark claim must be dismissed unless “the title has no artistic relevance to the work whatsoever, or if it has some artistic relevance, unless the title explicitly misleads as to the source or content of the work.”
Based on this, Rothschild argues that the images associated with his NFTs have sufficient artistic content to bring this case within the ambit of Rogers and he has not explicitly misled anyone about the source of the NFTs. Specifically, he notes that it is not in his interest to have consumers think the NFTs were created by Hermès because he wants to be credited as the artist.
It’s hard to say where the court is going to come out on this, but it doesn’t seem terribly likely that Hermès will prevail here. Courts don’t want to be in the business of deciding what is and isn’t art and are likely to err on finding something is art. Moreover, the lengths to which Hermès goes to try to disassociate the images from the NFTs would seem to support a conclusion that the images are, in fact, art.
And, while it’s true that Rothschild could substitute the images linked to the NFTs, that’s pure speculation and doesn’t bear any relationship to the actual facts here. If anything, the fact that in the minting process the NFTs were associated with images on a pedestal covered with a shroud make it seem even more like these digital images are, in fact, art because that specifically calls to mind the unveiling of a statue or other artwork.
Thus, for Hermès to prevail, it’s going to have to show the NFTs explicitly misled people about their source. It’s hard to see that happening.
This will be fascinating to see where the court comes out and watch for this case’s impact on the new, evolving world of NFTs, the market for them, and how they further develop.
October 27, 2022
A lot of people strive to make decisions with cool, clear, rational minds. However, it’s really hard to avoid that most primal force: emotion. This is especially true in stressful situations — and few situations are more stressful than litigation. At times, this means that even the most rational people want an outcome that is not only just: they may also want one that provides them with a sense of victory or revenge or they just want the whole thing to go away.
This means that a big part of our role in advising people in disputes is helping them manage the emotional turmoil and stress of a dispute or litigation. We do this by, among other things, having clients identify their primary goals so they can focus on what is most important, while, perhaps, shining a light on how their emotions and fears may push them away from these goals. Doing this work at the start often helps clients position themselves to best resolve disputes to their satisfaction and can make the entire process more efficient.
We also try to help clients think through the decision-making process and recognize the emotions raised by a particular situation. This helps clients avoid rushing to a conclusion just to get the stress over with, which can have big ramifications, especially when it comes to deciding when and whether to settle.
In practice, this means that we help clients understand not just the law, but what they’re going through and what they’re feeling. In other words, a big part of our job is making sure clients don’t get in their own way. We do this by helping clients dissect their emotions and how that fuels their decision-making process. Is it fear? What exactly are you afraid of? Is it anger? Is that anger clouding your judgment, impelling you not to settle when that’s the best call? Is it the anticipation of potential relief, of just getting this all behind you as quickly as possible, that might cause you to make a rash decision? Looking into the future, how will you feel one year, two years from now if you do X? What could cause you to regret that or feel good about that? We’ll talk about what you’re experiencing, try to identify the dominant emotions and what’s causing them, and use the knowledge to make decisions that will quell fears, satisfy desires and help achieve the best resolution.
Given that most disputes settle, a key aspect of this decision-making process is also figuring out the value of settling. Are you worried that the costs of continued litigation outweighs the potentially greater financial result of not settling now? How did you make that determination? At the beginning, we approach this by assessing the case. We work backwards from the client’s goal, examine the possible rewards and costs — and, again, the emotions associated with both. Together, we establish the basis for the entire process going forward that enables us to stay firm, focused and on track.
October 7, 2022
When she gives her employer broad rights to use her name even after her employment ends.
Of course, of course.
This may sound like a bad (or completely nonsensical) Mr. Ed joke, but allow me to explain. Here is the story of renowned wedding dress designer Hayley Paige Gutman, who recently announced she will henceforth be known as Cheval (aka “horse” in French). Why? Because, as a result of an agreement with her former employer, she no longer owns the Instagram account she created and which bears her name.
This case is particularly interesting to me because (1) it shows how existing laws — here, contract and the work-for-hire doctrine — are applied to new platforms and novel situations, and (2) the Court went to great lengths in an attempt at resolution, but ultimately, simply went back to existing laws to reach a decision.
Let’s begin with the facts: In 2011, Gutman entered into an employment agreement with a company named JLM Couture, which designs and manufactures luxury bridal gowns. The agreement stated Gutman would neither compete with her employer nor use her name in connection with wedding dresses and bridal items during its term and for two years after its termination. Gutman also agreed that JLM would own everything she created in connection with her employment and could trademark her name — some pretty broad rights. In exchange, JLM promised to invest money into the “Hayley Paige” brand and pay Gutman a salary and royalties. Of course, this being the modern age, a vital marketing element for the venture was the Instagram account @misshayleypage that Gutman created shortly after entering into the contract and which was used to promote the dresses she designed for JLM.
Everything was fine — at least, from a legal standpoint — until 2019 or 2020, when negotiations over a new contract broke down. Gutman locked JLM out of the Instagram account and began using it to promote non-JLM products. JLM sued Gutman for, among other things, breaching her agreement by taking over the account; JLM also sought to prevent Gutman from using the @misshayleypage Instagram unless approved by JLM. The lower court agreed with JLM.
Gutman appealed and the Appellate Court found the lower Court wrong to restrain Gutman without first deciding whether JLM could show it owned the social media accounts and sent the case back to the lower Court to figure that out.
Once there, Gutman argued this question was answered by the fact that she created the Instagram account as a personal account. The lower Court was not convinced. It said that the issue needed to be resolved by looking at: (1) how the Instagram account was described to the public; (2) how it was used; and (3) if JLM employees accessed it. Based on this, the Court held that JLM was likely to succeed on its claim that it owns the Instagram account or, at least, show it had superior rights to the account because it linked to JLM websites and was regularly used to promote JLM’s business and communicate with its customers.
The Court also noted that, under her contract with JLM, Gutman agreed that anything she developed in connection with her employment belonged to JLM. To me, it seems like the Court could have saved itself a lot of time by starting there. In my view, there was no need to dissect the use of the Instagram account in order to determine ownership just as there would have been no need to debate ownership of, say, a printed JLM catalog featuring a dress designed by Gutman. The employment agreement covered all materials related to the Hayley Paige brand regardless of media type or who initiated its creation.
As a result, the “Hayley Paige” brand and Instagram account continue to be owned by JLM, and Gutman is operating as Cheval. I’m really curious to see whether the @misshayleypaige followers will follow her Cheval Instagram and whether she will be able to monetize this new persona. Will the answer be yay or… neigh?
Sorry, it had to happen.
August 11, 2022
The Southern District of Florida recently issued a decision in a case that brands using social media influencers should note. While the decision was not an all out loss for the brand, it did conclude that the brand could be liable if the copyright owner was able to show the brand profited from its social media influencers’ use of copyrighted materials.
By way of background, Universal Music is suing Vital Pharmaceuticals, Inc., which makes an energy drink called Bang, and its owner, Jack Owoc, for copyright infringement. The lawsuit alleges that Bang and Owoc directly infringed on Universal Music’s copyrights with TikTok posts that included Universal Music’s copyrighted music. Universal Music further claims Bang was contributorily and/or vicariously liable for videos posted by social media influencers featuring Bang. In response, Bang and Owoc claimed that the TikTok videos were covered by TikTok’s music licenses and that Bang could not control what its influencers posted to TikTok.
As an introduction (or refresher), direct infringement is where someone uses copyrighted materials that belong to someone else. In contrast, contributory infringement is where someone encourages another to use copyrighted material belonging to a third-party, and vicarious infringement is where a party profits from another’s direct infringement and does not stop that direct infringement.
In support of its claims, Universal Music introduced evidence that Bang encouraged influencers to create and post TikTok videos promoting Bang’s products with Universal Music’s copyrighted works. Universal Music claimed that, because Bang had the power to withhold payment to its influencers, it could control whether influencers used Universal Music’s copyrighted works.
On Universal Music’s motion for summary judgment, the court held that Universal Music established that Bang and Owac directly infringed on its copyrights. Specifically, the court found that Bang and Owac directly copied Universal Music’s copyrighted works.
The court went on to find that Universal Music was not entitled to summary judgment on its claim of contributory infringement as it had not shown that Bang had any input into the music used by its influencers.
The court further concluded that Universal Music established that Bang had sufficient control over its influencers to prevail on a claim of vicarious infringement. Despite this finding, the court denied Universal Music’s motion for summary judgment because Universal Music had not shown that Bang received any financial benefit as a result of its influencers’ posts. As a result, this issue will have to await trial when Universal Music can introduce evidence as to whether Bang benefited.
Despite the fact that this decision was not an all out loss for Bang, brands should definitely keep it in mind when working with influencers.
July 14, 2022
On June 9, 2022, Senators Patrick Leahy (D-VT) and Thom Tillis (R-NC), the Chair and Ranking Member of the Senates Judiciary Committee’s Subcommittee on Intellectual Property, sent a letter to the Director of the United States Patent and Trademark Office (PTO) and the Director of the United States Copyright Office (Copyright Office) asking them to complete a study on various issues related to non-fungible tokens (NFTs). The non-exhaustive list of topics in this letter includes:
- What are the current and future intellectual property and intellectual property-related challenges stemming from NFTs?
- Can NFTs be used to manage IP rights?
- Do current statutory protections for copyright, for example, the Digital Millennium Copyright Act, apply to NFT marketplaces, and are they adequate to address infringement concerns?
On July 8, 2022, the PTO and Copyright Office responded to the Senators. In their response, they stated that they would consult with relevant stakeholders and complete the requested study.
While the list provided by the Senators is a good starting place, the fact that they gave the PTO and Copyright Office until June 2023 to complete the study, means that it’s going to be a while until we have any additional information from the PTO and Copyright Office. Moreover, while the PTO and Copyright Office certainly have a role to play here, the legal framework will continue to develop as Courts rule on cases involving NFTs.
March 8, 2022
A good part of my practice involves disputes between company co-founders or co-owners. Although people seem to think I’m crazy when I say this, it’s a type of work I find particularly satisfying because it requires a combination of legal knowledge, problem-solving, and empathy.
As a result, I’m frequently asked for advice about what to do in this type of situation. While there’s no perfect answer, here are my top five tips:
One: If you have documents governing the company, you need to review them. Ideally, there’s a written document that says how the company and its owners are supposed to operate and that document addresses your circumstances.
If that’s not the case for you, don’t panic! This is very common. A lot of people never get around to documenting how a company is going to operate.
In the absence of a formal agreement signed by all of the company’s owners, there are some other sources that may clarify things. For starters, the law of the state where the company was formed may provide some guidance. In addition, emails, texts, and other communications between co-owners, as well as past practices, can also help fill in gaps.
Two: Recognize that even if you have straightforward and clear documents, there’s almost always a significant human element involved in resolving this kind of dispute. This means it’s important to be clear about what you want and what you’re willing to give up. For example, is your prime goal ousting a co-founder or co-owner? Or, are you more interested in reframing your relationship and setting up new lines of communication? Do you simply want to exit the business and move on from a relationship that has become toxic?
Three: Think about what you want to do if you can’t get your preferred outcome and develop a list of priorities.
Four: Consider the possible roadblocks to a resolution. Some are obvious — having enough money to buy out a co-founder or an operating agreement provision that requires unanimity. Others are less obvious. For example, are you concerned about letting go and moving on to the next thing? Is your co-owner someone who enjoys fighting?
Once you’ve identified these roadblocks, think about what you can do to remove them or lessen their impact.
Five: Work with a skilled professional or professionals. This can be a lawyer, but it can also be a mediator or a coach. The important point is that you have an outsider who can serve as a sounding board and suggest options and different strategies.
Please reach out if you have any questions.
May 15, 2019
Chances are you or your company use multiple software as a service or “SaaS” applications. They’re ubiquitous. This blog post was written using one — Google Docs. My firm uses one to keep its books and another to issue invoices.
One long running issue with these applications is what happens to the data in a SaaS platform.
Data, of course, is a hot commodity and most SaaS services want rights to as much of their customers’ data as possible. This allows them to use it to refine their offerings, repurpose it or, in some cases, monetize the data themselves.
In contrast, a SaaS user probably wants to retain as much control as possible over any data. There are many reasons for this. For example, to avoid privacy and compliance problems (especially in light of the GDPR, California’s Consumer Privacy Act, and similar laws that may be enacted in other states) and to protect the hard work and goodwill involved in gathering the data.
Thus, in negotiating SaaS contracts, one big sticking point is frequently who owns the data on a SaaS platform — the company who provided the data in the first place, or the SaaS vendor with the platform that analyzes, aggregates and/or alters it? While consumers might not have a lot of room for negotiation, where two companies are involved, there’s likely to be a lot of back and forth on this topic.
Generally speaking, these discussions are shaped by well-established principles governing the protection of trade secrets and, to a lesser extent, copyright law. The former focuses on what a database owner has done to protect its data from the outside world. The latter applies where the work to be protected is, to some degree, original. Because of this, copyright law is generally less important here because a database that is merely a collection of facts lacks the originality required for copyright protection.
The incorporation of data published on a public blockchain to any SaaS platform adds another wrinkle to any discussion about data ownership and protection. By way of background, a public blockchain is a blockchain network that is open to anyone. Bitcoin is one of the largest and best-known public blockchains. In contrast, as the name suggests, a private blockchain requires permission to publish information to it and, thus, limits who can publish and see information on the blockchain.
Obviously, publishing previously private information on a public blockchain changes the nature of the information when it makes the information public to the network. Probably the best example of this is cryptocurrency transactions. While it’s generally difficult to connect a transaction to a particular individual, the public blockchain for a cryptocurrency is a huge, publicly available collection of information that is open to anyone who wants to participate. This makes it difficult, if not impossible, to claim trade secret protection because publication of information on a public leger such as blockchain negates any claim that the information is secret.
Because of this there are limits to the degree to which anyone can claim ownership and — as a result — the right to control data on a public blockchain — there are still some issues that a user and SaaS vendor in this situation should discuss:
- Particularly in light of the GDPR, California’s Consumer Privacy Act and other similar laws, does the data contain any personally identifying information? If so, who is responsible under those laws for protecting it?
- What happens if there’s a data breach?
- Who owns the data that is altered/aggregated by the SaaS platform? How about the output from the SaaS platform?
- What can the SaaS vendor do (or not do) with the data it receives? Can the owner of the data license its use by the vendor?
January 15, 2019
In 1995, 9% of American workers said that they telecommuted at least some of the time. By 2016, that number had shot up to 43% (Gallup). The law is trying to keep up with this shift.
Specifically, as more people telecommute from more varied locations, the law needs to decide where disputes between employees and employers should be resolved. Can a remote employee in Vermont who violates a non-compete clause be sued in New York because her former employer is there? How should small businesses deal with disputes with far-flung employees?
The most straightforward answer is that companies should have employees (and independent contractors) sign an agreement with a clause (called a forum selection clause) specifying where disputes will be resolved. With that said, courts have reached conflicting conclusions about whether such a clause is enough.
A court in Florida recently held that a forum selection clause alone doesn’t mean an employee can be sued in the state set forth in his or her employment agreement. That ruling conflicts with a 2016 case that recommended a forum selection clause as the preferred method of dispelling ambiguity about jurisdiction. In that case, decided by a court in Pennsylvania, the employee agreements in question did not include a forum selection clause. The court, however, concluded that the remote employees’ ongoing relationship with headquarters were enough to establish jurisdiction over breach of contract claims. The court further noted that the benefits of remote work meant that it was not unreasonable for an employee to appear in a distant court for a limited period of time.
It remains to be seen whether that logic holds as full-time, remote work continues to grow. But one thing will likely remain unchanged: when an out-of-state employee objects to personal jurisdiction, the burden is on the employer to establish jurisdiction. As the most recent ruling has shown, this applies even if the employee’s contract contains a forum selection clause. So, if contractual provisions are not enough, what can companies do to solidify in-state jurisdiction for their out-of-state employees?
Documented, routine contact is important — frequent calls, meetings, and trainings with headquarters, whether virtual or in person, help build the case for the out-of-state employee’s connection to a specific location. Managing payroll, benefits, and IT servers in a central headquarters that matches the location stipulated in a forum selection clause may be helpful as well.
Of course, this is a developing area, so it’s always a good idea to speak with a lawyer.
April 30, 2018
Restrictive covenants — the general term for non-solicitation and non-competition agreements — are supposed to protect a business when an employee leaves. But how do these work with platforms like LinkedIn, Facebook, and Instagram that have lengthened the reach of networking, blurred the line between business and personal communications, and made it possible for individuals to update their entire social circle on life events in an instant? In this landscape, what activities are a violation of an employee’s restrictive covenant? Does a former employee “friending” a former client on Facebook count as solicitation or competition? What about that employee “friending” a current employee at your company? What should you tell new hires to avoid a lawsuit or a nasty letter from their former employers?
In the past few years, there have been a handful of cases dealing with the implication of social media in this area but, as usual, technology is developing more quickly than the law. The bottom line from these cases is this: direct messages can cause legal issues, but status updates, profile posts and even blog posts are unlikely to cause legal problems. In other words, a new employee’s announcement that he or she has made a career change should not pose a problem. However, if that person directly targets specific people, the risk is much greater.
This makes sense. If an employee called former clients to let them know he or she had started a new company, this would likely be a violation of a restrictive covenant. Likewise, it would be a violation for an employee to direct message a former coworker a job posting at their new company. But an employee posting a job on his or her LinkedIn profile, where a former coworker may — or may not — see it is unlikely to cause problems.
Though targeted to a specific person, friend or connection requests follow the same principle. As long as the accompanying message doesn’t specifically solicit that person to take action beyond accepting the request to connect, it should not create problems. The recipient can choose whether to accept and develop the relationship further. In short, connections to former clients and coworkers through generally available information like the kind found in a LinkedIn profile are hard to limit.
So, how can you protect your business? If you have employees sign restrictive covenants, it’s a good practice to remind them of their obligations in an exit interview and to remind them that these agreements extend to what they do and say on social media. When hiring new employees, be sure to review their agreements with former employers and instruct them that social media updates should be limited to a general announcement of their new position and avoid any commentary about their former employer.
Obviously, because the law is developing and situations can vary a lot, it is a good idea to also speak to a lawyer.
June 19, 2017
Until today, the United States Patent and Trademark Office (“USPTO”) could refuse to register trademarks (or cancel trademarks) on grounds that they were potentially disparaging or offensive. In 2014, the USPTO used this provision to cancel trademarks for the Washington Redskins find they were offensive to Native Americans. It also relied on this provision to deny a trademark to a band called the Slants, a term the USPTO concluded was offensive to Asian-Americans, but which the Slants said was an effort to reclaim a previously derogatory term. The Supreme Court today concluded: “Speech may not be banned on the ground that it expresses ideas that offend.”
If you’re curious, the decision is available here.
