The fashion industry is in perpetual change and evolution. Always balancing tradition and innovation, craftsmanship and new technologies, the industry is now pushing new boundaries to break through into the world of digital collectables. Innovation and new technologies have shaped new ways to express creativity and have strongly impacted the new opportunities that fashion houses can nurture to increase customer experience, providing new entry points to luxury and new creative digital offerings. When talking about innovation, especially with the increasing popularity of the metaverse, much of the excitement right now is directed towards non-fungible tokens (NFTs). It is possible to define an NFT as a unit of data that is exclusive, scarce or has limited availability, and can be traded, owned, and tracked through a decentralized, public blockchain system that keeps a record of its ownership history. Non-fungible tokens are funded on blockchain technology, introduced by Satoshi Nakamoto in 2008, making it possible to securely store information, guaranteeing authenticity and reliability. Basing their foundation on this technology, NFTs are therefore valuable digital goods which represent a unique item, ranging from artworks to haute couture. The process that brings the creation of a non-fungible token is done through the use of a digital copy of a good which is recorded as an NFT, to be traded in exchange for cryptocurrencies.
Non-fungible tokens (NFTs) have captured the attention of a wider audience and sparked a surge of interest in blockchain technology, with a remarkable weekly trading volume of $8.2 million. This can be considered as a fad and or just a temporary trend, but the interest shown by different industries makes it possible to believe that NFTs will instead have a strong impact. The relevance of NFTs can be clearly seen in the fashion industry, which uses these tokens as a new way to express creativity, engage customers in new ways and at the same time target tech-savvy people and new generations, slowly reshaping business portfolios of brands in creative economies and throwing the basis to define digital ownership. Virtual fashion and virtual garments give brands the possibility to offer loyal customers a new level of exclusivity, generating an alternative source of revenue. Being collectable pieces, the holder of the digital assets is granted a unique and original copy of the digital collection or garment, which can be subsequently sold on e-commerce platforms. NFTs uniqueness and authenticity create value and determine their price, making them economically exchangeable items, proving to be profitable for the fashion house.
The owner of the token displays it in their personal digital wallet. Buying such digital assets grants ownership over them but does not make the buyer gain any exclusive access to the digital goods. When a digital fashion collection is sold through NFTs, the buyer of the digital asset does not own the collection, as would be the case in a traditional physical exchange. Therefore, no right is gained over the original pieces. Instead, the holder just has the right over the NFT. There could be plenty of NFTs representing the same digital goods, also because whoever uploads the NFT does not necessarily need to be the original creator of the artwork or the copyright holder, leading to unauthorized NFTs being placed on auction markets.
Related to this, one recent and explicative intellectual property lawsuit over the use of NFTs involves one of the most important and renowned French fashion houses: Hermès. The case dates to June 2021 when Hermès started a legal procedure against Mason Rothschild for infringement upon intellectual property rights and trademark rights in the Southern District of New York. What sprung the reaction of the French fashion house was the artwork created by Rothschild. The latter, in collaboration with Eric Ramirez, created a collection called MetaBirkins of digital designs representing fuzzy Hermès Birkin bags and minted them as NFTs.
The brand position is that the artist has violated the intellectual property and trademark rights owned by Hermès and has inappropriately used the name of one of the most iconic bags of the House. Moreover, the plaintiff has furthermore argued that the NFTs created a high likelihood of confusion among customers, especially now that a lot of fashion houses have launched their own digital collections, offering fake Hermès-like products in the metaverse.
Mason Rothschild in response asserted that the NFTs created by him are a creative artwork and are thereafter protected by the First Amendment. The defendant recalled, proving his right to create the MetaBirkins, the case of Rogers v. Grimaldi (1989) which legitimizes the lawfulness of the exercise of artistic expression. The work of the artist is to be seen as an artistic take and rendering of an iconic image, just like as many other artists have done in the past.
The court’s final decision on the plaintiff’s claim on trademark infringement was that the artistic and creative element was clear and prevalent, agreeing with the artist’s position. NFTs are digital assets attached to a digital artwork (in this case the image of the MetaBirkin). Consequently, the First Amendment protection is valid and protects the rendering of the defendant as an artistic expression. On the second prong, regarding the likelihood of confusion, the court acknowledged that Rothschild’s use of the Birkin marks could cause confusion among consumers. Rothschild created social media channels called MetaBirkins and even advertised them in order to sell them. Customers could be potentially confused as to whether Hermès was associated with the NFTs or not, creating misleading behaviors harmful to the brand’s reputation. The legal battle between the French Fashion house and Mason Rothschild is far from having reached a final verdict. Further developments are expected in the following months.
There are plenty of open issues that have not been solved regarding blockchain technologies and non-fungible tokens. There is some ambiguity behind them, especially when it comes to assessing and understanding their value on the market and within IP law boundaries. Proof of ownership is one of the most important features of digital assets. However, as it was mentioned above, anyone can generate an NFT of a piece of art or collection or design, with or without the owner’s permission and there could be multiple NFTs associated with the same work. Moreover, the originality of the underlying work is not guaranteed on most platforms. Therefore, the actual value of the token remains controversial. Despite this, in the fashion industry, if checks and controls are efficiently performed and new regulations are implemented NFTs offer a distinctive chance to elevate digital creations and collections to the level of extremely exclusive and highly desirable unique collectibles.