Birkin Bags Make The Case For Tokenizing IP

In a piece that ran last week, I examined how companies could benefit from the tokenization of one of their most valuable real-world assets (RWA). The study of how musicians monetized their art (their IP) shed light on how companies could do the same. Shortly after publication, a landmark case highlighted the importance of IP and how digital assets could factor into companies’ Web3 and metaverse strategies.

Hermes International SA v. Rothschild, settled a dispute between Mason Rothschild, creator of MetaBirkins NFTs, and Hermès. The case focused on whether Rothschild’s work was an infringement of Hermès “Birkin” trademark rights or an expression of free speech protected by the First Amendment.

Decided by a nine-person jury in a Manhattan Federal court, the monetary damages were a rounding error for a company that booked €8.98 billion in revenue in 2021, but for companies that derive their market value from their IP, the decision was significant. In a broad-ranging conversation on the tokenization of IP, Leann Pinto, President of IPwe (an IP valuation FinTech currently focusing on tokenizing patent information) said, “Although Hermes’ victory is largely pyrrhic, it is a huge win for those of us championing the tokenization of RWA, especially intellectual property assets.”

History Of NFTs

The origin of NFTs can be traced back to 2014, when Kevin McCoy minted an NFT of Quantum, a generative work of art created by him and his wife, Jennifer. It wasn’t until 2017, however, that NFTs began to rise in popularity. With the launch of the first NFT collections on the Ethereum
ETH
network, the process of minting, trading, and transferring ownership of the pieces was simplified to allow adoption outside of the crypto-native community. It wasn’t until 2021, however, that the world took notice of these previously niche tokens.

As the rising tide lifted cryptocurrency valuations, NFTs rose along with them. Beeple’s $69 million sale of the NFT, “Everydays: the First 5000 Days,” sparked the imagination of creators and companies alike. As consumers marveled at Yuga Labs’ Bored Apes Yacht Club, traditional companies like Topps explored NFTs in response to changing consumer demands.

When Real Meets Meta

Founded by French harness maker Thierry Hermès in 1837, Hermès has become a brand synonymous with haute couture. The Birkin bag was introduced by the iconic fashion house in 1984. Named after English-French actress and singer Jane Birkin, the handmade bag has become an aspirational goal for fashionistas and a status symbol among the wealthy.

While new bags can range from $7,000-$20,000, the waiting list —estimated by some to be as long as 6 years— can drive buyers to the secondary market where prices can reach $550,000 for the rarest of editions. According to Mason Howell, handbags and accessories consultant at Sotheby’s and former senior handbag and fashion valuation manager at The RealReal, “The high retail value and resale value is because these are pieces of artwork.”

Hermès products are often categorized as Veblen goods, products for which demand, contradictorily, increases with price. This phenomenon underscores the company’s wish to protect their IP.

As NFTs gained in popularity, Mason Rothschild tested the market with a “Baby Birkin” NFT that sold and resold for 13 Ethereum (approximately $50,000 at May 2021 local highs) on Basic.Space, a social and shopping platform. Later in the year, Rothschild launched 100 MetaBirkins on OpenSea, which prompted Hermès to issue a cease and desist letter. At the time, Hermès had no digital assets or metaverse presence in place. While a social media debate on whether the NFT content was free speech or trademark infringement unfolded, Hermès filed suit in early 2022.

Takeaways For Creators And Companies

Last week’s decision affirmed Hermès’ contention that MetaBirkins infringed on their trademark Birkin bag. It is estimated that Rothschild earned roughly $125,000 in sales for the MetaBirkins series. Hermès was awarded monetary damages of $133,000—of which, $100,000 was for IP infringement and $23,000 for cybersquatting. What’s lost in these numbers, however, are the resources spent from the time the suit was filed in January 2022 until the resolution of the case over a year later. As both sides crafted their arguments, countless billable hours were surely spent in the months leading up to the day the case was resolved.

Perhaps the most concrete takeaway was the establishment of precedent with respect to the application of IP law to properties in the metaverse. While critics may point to the decision as an impediment to creators’ artistic expression, it also clearly set the boundaries by which they could access and create upon others’ IP.

As their landmark case loomed, Hermès filed a trademark application with the US Patent Office for “retail store services featuring virtual goods,” in August 2022. The application also included provisions covering online and virtual fashion shows and markets for virtual goods. The company’s entry into the metaverse, however, is not unique as it follows the lead of more mainstream brands like Nike
NKE
, Coca-Cola, and JP Morgan Chase. Ms. Pinto added, “I am encouraged to see companies of Hermes’ stature becoming more comfortable with NFTs, web3 and the metaverse, actually utilizing their IP assets in these new-world domains intelligently, and furthermore, proactively seeking greater IP rights.”

With the understanding that IP ownership extends to the metaverse, tokenization enables companies to license their assets to a new generation of creators without the friction in the existing process to transfer and license IP. While it is clear that the largest brands in the space will devote resources to building their digital assets and presence in the metaverse, tokenization may also offer smaller companies without comparable resources the ability to work with creators like Mason Rothschild in a mutually beneficial way. Ms. Pinto continued, “Getting enterprise at all levels and in all sectors—from consumer goods to high-tech and luxury brands—comfortable with these technologies and managing their tokenized RWA on chain is critical for creation of more commercial opportunities and stronger IP rights for the owners.”