NFT-based Trademark Infringements: Trends & Risk Mitigation Strategies


      1.   NFTs and Trademarks: General Overview

    Interest in blockchain technologies, cryptocurrencies, and particularly non-fungible tokens (NFTs) is steadily increasing. According to Eric Anziani, COO of Crypto.com, “NFTs really started initially with the digital art side. But it’s going to be a lot more powerful. It will be the tool that represents any digital type of assets in virtual worlds going forward. So the applications are tremendous1.”

     

    Basically, an NFT is a (i) cryptographic on the blockchain; (ii) representing an asset; (iii) that is unique and non-interchangeable. For instance, Finzer D. describes NFTs as: “unique, digital items with blockchain-managed ownership2.” Indeed, NFTs, powered by blockchain, have unique qualities which can be applied in different industries and businesses including fine arts, gaming, digital identity, certification, licensing, etc. In this respect, the sudden economic growth of the NFT market is understandable. Businesses also tend to use NFTs as marketing tools and as a creative way for building the brand’s image.

     

    In the meantime, the rise of the NFT market poses new legal challenges, including those in the realm of intellectual property and especially trademark law. Two main trends are worth highlighting. First, there is a significant increase of trademark filing activity around NFT brands. Second, the number of new NFT-related enforcement cases is constantly increasing, including a number of high-profile litigation cases.

     

      1.   Prosecution: How to Trademark your NFT and Avoid Infringing Third-Parties Trademarks

    With increased media coverage and popularity, U.S. NFT trademark applications skyrocketed during the past year.

     

    According to open sources, there was a 552% increase in NFT trademark applications with the U.S. patent agency between August 2021 and January 20223. In January alone, about 450 filings for NFT-related trademarks were received4. [Graphical representation of the data is below.]

     

    NFT Trademark Infringements: Trends and Risk Mitigation Strategies | Best Corporate Law Firm in New York City

     

    [Source: https://finbold.com/u-s-nft-trademarks-applications-skyrocketed-400x-in-2021-with-15-registrations-daily-in-2022/]

     

    Some of the latest examples of NFT-related trademark applications include:

     

    NUMBER
    DESIGNATION
    APPLICANT
    FILING DATE
    GOODS/SERVICES
    97273630
    MONSTER
    Monster Energy Company
    February 18, 2022
    IC 009 (e.g., virtual goods, software enabling users to experience virtual reality and augmented reality visualization, manipulation, and immersion…) IC 035 (e.g., retail store and online retail store services) IC 041 (entertainment services) IC 042 (providing on-line non-downloadable software; platform as a service (PaaS) and software as a service (SaaS))
    97261560
    NYSE
    New York Stock Exchange (NYSE Group, Inc.)
    February 10, 2022
    IC 009 (e.g., virtual goods, software enabling users to experience virtual reality and augmented reality visualization, manipulation, and immersion) IC 035 (e.g., provision of an online marketplace) IC 036 (e.g., financial exchange of virtual currency in the field of digital currency) IC 042 (e.g., computer services, electronic storage of cryptocurrency)
    97226848
    NETAVERSE
    Brooklyn Nets, LLC
    January 19, 2022
    IC 025 (Clothing)
    97244783
    NFT Starter
    NFT Starter Inc.
    January 28, 2022
    IC 009 (Downloadable image files containing artwork, video clips, writings, and multimedia authenticated by non-fungible tokens (NFTs))
    97251874
    NFT BEER
    Columbia Craft, LLC.
    February 3, 2022
    IC 032 (Beer) IC 036 (Financial exchange of crypto assets; Financial services) IC 041 (Entertainment services)
    97253179
    NFT Trademark Infringements: Trends and Risk Mitigation Strategies | Best Corporate Law Firm in New York City
    McDonald’s Corporation
    February 04, 2022
    IC 043 (operating a virtual restaurant)
    97257474
    NFT Trademark Infringements: Trends and Risk Mitigation Strategies | Best Corporate Law Firm in New York City
    Victoria’s Secret Stores Brand Management, LLC
    February 14, 2022
    IC 009 (e.g., downloadable virtual goods) IC 035 (e.g., retail store services featuring virtual goods) IC 041 (entertainment services)
    97206583
    L’ORÉAL
    L’ORÉAL
    Jan. 06, 2022
    IC 009 (Downloadable virtual goods) IC 035 (e.g., retail store and online retail store services) IC 041 (Providing an interactive website for virtual reality game services; Entertainment services)
    97096366
    NFT Trademark Infringements: Trends and Risk Mitigation Strategies | Best Corporate Law Firm in New York City
    Nike, Inc.
    October 27, 2021
    IC 009 (downloadable virtual goods) IC 035 (retail store services featuring virtual goods) IC 041 (entertainment services)
    90602664
    ANDY WARHOL
    The Andy Warhol Foundation for the Visual Arts, Inc.
    March 25, 2021(Published on February 22, 2022)
    IC 009 (downloadable image and multimedia files containing artwork, text, audio, video, games relating to art, collectables, and Non-Fungible Tokens) IC 041 (providing on-line digital publications in the nature of blogs, articles, e-books, podcasts, and videos in the fields of art, artwork, and NFTs (non-fungible tokens) via the Internet (not downloadable)) IC 042 (e.g., providing temporary use of online non-downloadable simulation software for trading non-fungible tokens used with blockchain technology)

     

    Considering this increased focus on obtaining trademark protection for NFTs, it is essential to note that all general trademark registration requirements apply to NFT-related trademarks. In particular, trademarks are always registered for specific classes of goods and services (their intended use). In most cases, NFT-related trademarks are registered for the following classes:

     

        • International Class 009 (downloadable virtual goods)
        • International Class 035 (online retail store, business services)
        • International Class 036 (financial, banking services)
        • International Class 041 (entertainment services)

     

    Trademarkers must make a preliminary assessment of what classes and services to specify, form an accurate description of services/goods involved, and analyze descriptiveness and potential consumer confusion. According to the USPTO, registering a trademark usually takes about 12-18 months.

     

      1.   Enforcement: Unauthorized Use of Trademarks in the NFT-based Projects

    Obtaining a trademark registration can be essential to prohibit third parties from unauthorized use of the trademarked designations in their NFT-based projects. However, since NFTs are so new, most brands have not established comprehensive trademark protections specifically for NFT-related goods and services.

     

    In the meantime, many NFT-based projects started to use famous trademarked brands without any consent from their owners. For example, a collection of 100 virtual versions of Hermès handbags appeared as NFTs created by Mason Rothschild at his metabirkin.com website. The name “METABIRKIN” was used for the project. This project inevitably implicated trademark rights and triggered a trademark lawsuit. On January 14, 2022, the rights holder of BIRKIN trademarks, Hermès, filed a trademark infringement and dilution lawsuit against Mason Rothschild.

     

    According to the complaint, Hermès alleges that Rothschild is trying to “get rich quick by appropriating the brand MetaBirkins for use in creating, marketing, selling, and facilitating the exchange of digital assets known as non-fungible tokens” and “make his fortune” by swapping out Hermès’ “real life” rights for “virtual rights5.” Hermès specifically asserts the following causes of action:

     

        1. Trademark Infringement (unauthorized use of the BIRKIN Mark resulted in Rothschild unfairly benefiting from Hermès’ advertising and promotion and profiting from Hermès’ reputation and the BIRKIN Mark).

        2. False Designations of Origin (falsely or misleadingly describe and/or represent the METABIRKINS NFTs as those of Hermès)

        3. Trademark Dilution (Rothschild intentionally and willfully utilized the BIRKIN Mark to trade on Hermès’ reputation and goodwill)

        4. Cybersquatting (registration and use of the Infringing Domain cause consumers to falsely believe that the METABIRKINS Website and the infringing METABIRKINS NFTs are affiliated with, endorsed or approved by Hermès)

        5. Injury to Business Reputation and Dilution (New York General Business Law)

        6. Common Law Trademark Infringement

        7. Misappropriation and Unfair Competitionunder New York Common Law

     

    In particular, according to Hermès, the “METABIRKINS brand simply rips off Hermès’ famous BIRKIN trademark by adding the generic prefix ‘meta’ to the famous trademark BIRKIN.” At the same time, Rothschild claimed, “I’m not creating or selling fake Birkin bags. I’ve made artworks that depict imaginary, fur-covered Birkin bags6.” Rothschild appealed to First Amendment rights and the prevalent “Rogers test” which helps to determine the balance between protecting artistic expression and avoiding potential confusion with a famous mark.

     

    Currently, multiple versions of the test exist, but a decision in this case could make applications more uniform and create a new standard for use of trademarks in expressive work. On such a possibility, Susan Scafidi, the director of Fordham University’s Fashion Law Institute, opined that “[this case] has the potential to provide guidance on how art and fashion will coexist in the digital world.”

     

    Another relevant high-profile case is Nike, Inc. v. StockX7. Nike filed a complaint against StockX, the operator of an online resale platform for various brands of sneakers, apparel, luxury handbags, electronics, and other collectible goods that purports to provide authentication services to its customers. According to Nike, “without Nike’s authorization or approval, StockX is “minting” NFTs that prominently use Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those “investible digital assets” (as StockX calls them) are, in fact, authorized by Nike when they are not8.”

     

    Nike asserts the following causes of action:

     

        1. Trademark Infringement (StockX’s unauthorized use of Nike’s Asserted Marks constitutes trademark infringement of Nike’s federally registered trademarks, which has caused damage to Nike and the substantial business and goodwill embodied in Nike’s trademarks in violation of Section 32 of the Lanham Act)

        2. False Designations of Origin / Unfair Competition (StockX’s unauthorized use of Nike’s Asserted Marks and/or confusingly similar marks constitutes a false designation of origin that is likely to cause consumer confusion, mistake, or deception as to the origin, sponsorship, or approval of

        3. Trademark Dilution (Nike’s Asserted Marks have become distinctive and “famous”… StockX’s use of Nike’s Asserted Marks and/or confusingly similar marks has been intentional and willful)

        4. Injury to Business Reputation (New York General Business Law)

        5. Common Law Trademark Infringement and Unfair Competition (that StockX acted knowingly, willfully, wantonly, oppressively, fraudulently, maliciously, and in conscious disregard of Nike’s rights).

     

    The overlap between this lawsuit and the MetaBirkin case is apparent and StockX will likely also claim fair use and First Amendment protection.

     

    In this respect, these cases may be landmarks which will influence future cases involving allegations of trademark infringements by NFT-based projects.

     

      1.   Enforcement: NFTs and Cybersquatting

    As a related but separate issue, the recent increase in NFT-related domain name disputes has given rise to a new wave of arbitral litigation using the Uniform Domain-Name Dispute-Resolution Policy (UDRP). This is in no small part due to “cybersquatters” registering NFT-related domain names using well-known trademarks.

     

    For instance, an UDRP dispute arose involving the domain name “nftmorganstanley.com” unrelated to the actual Morgan Stanley financial services firm9. Upon the complaint of Morgan Stanley, the UDPR panel considered the registered domain name confusingly similar to the trademark owned by the firm.

     

    The UDRP panel found that the registrant of the nftmorganstanley.com domain name had no rights or legitimate interests in it and that the domain name was registered and used in bad faith. The panel in part determined that the use of competing pay-per-click links indicated bad faith. Due to this, the panel ordered the domain name transferred to Morgan Stanley.

     

    WhatsApp also faces unauthorized registration of several NFT-related domain names (nftwhatsapp.click, nftwhatsapp.com, nftwhatsapp.net, whatsappnft.click, whatsappnft.com and whatsappnft.net). Such domain names were registered on the name of Turkish individuals and organizations. WhatsApp filed the respective complaint with the WIPO Arbitration and Mediation Center. The Panel considered the complaint and stated the following: “The incorporation of a well-known trademark into a domain name by a registrant having no plausible explanation for doing so may be, in and of itself, an indication of bad faith10” The Panel ordered that the disputed domain names be transferred to the complainant.

     

    From these examples, the addition of the descriptive NFT acronym does not prevent a finding of confusing similarity and subsequent transfer of a domain name to the actual trademark holder. As in all cybersquatting cases, demonstration of a lack of the registrant’s rights or legitimate interests in the disputed domain names and evidence of bad faith registration can be informative in decision-making processes.

     

    Overall, the UDRP is a valuable instrument that can be used against “crypto-squatters” trying to capitalize on the registration of NFT-related domain names.

     

      1.   Conclusions and Further Implications

    The growth of the NFT market has spurred the increase of NFT-related trademark applications as well as new trademark infringements including those brought under UDPR litigation and fair use / first amendment protections.

     

    It seems reasonable to expect more high profile NFT-related trademark cases in the future. In addition to analyzing infringement and cybersquatting cases, we can expect NFT-related disputes in the Trademark Trial and Appeal Board (TTAB) as well as contracts arising from trademark licensing and assignment.

     

    In the meantime, both right-holders and owners of NFT-based projects can mitigate their legal risks associated with the possible trademark infringements in a variety of ways. In particular, right-holders and owners can:

     

        1. Register trademarks specifically for NFT-related goods and services

        2. Register domain names with the acronym “nft.”

        3. For trademark holders, monitor the use of trademarks in NFT-based projects and registration of relevant trademarks and domain names in the name of third parties. In case of potential violations, immediately take appropriate action (e.g., sending cease-and-desist letters)

        4. For NFT-based projects, make a risk assessment with regards to the used designations/logos used as part of their projects

        5. Carefully form and articulate enforcement/litigation strategy and respective argumentation.

 

1 NFTs: The metaverse economy. Financial Times (2022). Available at: URL: https://www.ft.com/partnercontent/crypto-com

 

2 Finzer D. (2021) The Non-Fungible Token Bible: Everything you need to know about NFTs. Available at: URL: https://blog.opensea.io/guides/non-fungible-tokens/

 

3 Sujha Sundararajan. U.S. NFT Trademark Filings Soared 400X Since 2021. Available at: https://www.fxempire.com/news/article/u-s-nft-trademark-filings-soared-400x-since-2021-902155

 

4 Justinas Baltrusaitis. U.S. NFT trademarks applications skyrocketed 400x in 2021 with 15 registrations daily in 2022. Available at: https://finbold.com/-s-nft-trademarks-applications-skyrocketed-400x-in-2021-with-15-registrations-daily-in-2022/

 

5 Hermes Complaint, 1. Available at: URL:

https://www.ledgerinsights.com/wp-content/uploads/2022/01/MetaBirkins-Hermes-v-Rothschild.pdf

 

6Agence France-Presse, Hermès suing American artist over NFTs inspired by its Birkin bags. Jan 22, 2022. Available at: URL: https://www.theguardian.com/technology/2022/jan/22/hermes-suing-american-artist-over-nfts-of-its-birkin-bags#:~:text=French%20luxury%20group%20Herm%C3%A8s%20has,but%20ownership%20cannot%20be%20forged.

 

7Nike, Inc. v. StockX. Available at: URL: https://dockets.justia.com/docket/new-york/nysdce/1:2022cv00983/574411

 

8Nike Complaint, 2. Available at: https://heitnerlegal.com/wp-content/uploads/Nike-v-StockX.pdf

StockX’s Vault NFTs by creating the false and misleading impression StockX’s Vault NFTs are produced by, authorized by, or otherwise associated with Nike)

 

9 Morgan Stanley v. Joseph Masci. Available at: https://www.adrforum.com/domaindecisions/1940938.htm

10 WhatsApp, LLC v. Domain Admin, Isimtescil.net / Whoisprotection.biz / Mohammed Alkurdy, Evan Digital Technology Group. Available at: https://www.wipo.int/amc/en/domains/search/text.jsp?case=D2021-2329

 



PepsiCo: Serial Trademark Infringer or Coincidence?


On June 15, 2021, a food startup named Rise Brewing filed suit against PepsiCo in the U.S. District Court for the Northern District of Illinois. The startup has begun to make a name for itself by selling canned cold-brew coffee. Rise Brewing has alleged that the well-known company PepsiCo has infringed on their trademark with their recent launch of a Mountain Dew-branded energy drink called Rise.1

 

History of Infringement

According to Forbes, the notorious food, snack, and soda company, PepsiCo, is valued at an astounding $18.2 billion.2 PepsiCo has had its fair share of trademark infringement cases in the past, where they have been sued by brands such as VitaminWater, Polar seltzer, and Simply Orange Juice.

 

A more recent lawsuit was filed in the United States District Court for the Southern District of Texas, where a temporary nationwide restraining order had halted PepsiCo’s release of a Gatorade product called Gatorlyte. The order had been issued due to a sports beverage named Electrolit made by a Mexican company.

 

According to Laboratorios Pisa S.A. de C.V. v. PepsiCo, Inc., PepsiCo allegedly copied the Mexican companies’ product packaging. Before the issuance of the restraining order, PepsiCo shipped roughly $1.7 million worth of Gatorlyte after spending $1.3 million on media and $18 million of product development. 3 The Court considered three facts in determining whether recall of the product, which was already rolled out nationwide, was justified. These three factors were “(1) the willful or intentional infringement by the defendant; (2) whether the risk of confusion to the public and injury to the trademark owner is greater than the burden of the recall to the defendant; and (3) substantial risk of danger to the public due to the defendant’s infringing activity.”4

 

The Court reasoned that “recall is an extreme remedy” and “therefore they did not find sufficient indicia of willful infringement, confusion to the public that outweighs the onerousness of a recall, or a sufficient risk of danger to the public to justify a full recall of GATORLYTE” at the time of the case.5

 

The Court then turned to the balancing of the parties’ hardships. The Court stated that although PepsiCo’s investments were significant, the Court did not find that a temporary restraining order would affect the investments to such a degree that would be problematic. Additionally, PepsiCo decided to release their product line despite the initial issuance of a Temporary Restraining Order and the then-pending hearing on another Temporary Restraining Order. The Court turned to the Mexican companies’ argument that PepsiCo was aware of the rights in the Electrolit trade dress, so PepsiCo, therefore, accepted all risks of infringement. Trade dress is the look or feel of the product, in this case, Electrolit’s trade dress was their companies protected product packaging.

 

The two companies reached a confidential settlement earlier this spring, ending the case permanently and, therefore, lifting the temporary restraining order.

 

U.S. District Court for the Northern District of Illinois

 

On June 15, 2021, Rise Brewing Company (hereinafter “Rise Brewing”) filed a trademark infringement lawsuit against PepsiCo, alleging that PepsiCo has infringed on their trademark with their recent launch of a Mountain Dew-branded energy drink called Rise.6 The issue in the complaint arose out of the energy drinks use of the word “Rise,” written horizontally across the top of the can, in a fashion almost identical to Rise Brewing.

 

Rise Brewing created a canned caffeine drink that lacks the chemicals, dairy, fat, and sugar commonly associated with traditional energy and coffee drinks. The brand features the words RISE horizontally across the can, with Brewing Co. located just underneath. Shortly before the complaint was filed, PepsiCo released its own RISE-branded caffeine drink. Rise Brewing alleged the PepsiCo brand marketed itself as a morning caffeinated beverage to replace ready-to-drink coffee drinks such as RISE.

 

Rise Brewing alleges that PepsiCo’s actions are causing “reverse confusion” in violation of the Lanham Act. Traditionally, in a trademark infringement case, the defendant is the “junior user” of the mark, and the plaintiff is the “senior user.” This type of trademark infringement causes consumers to believe the defendant or its products are associated with the plaintiff or its products. Here, Rise Brewing alleges that it is the opposite. In a reverse confusion case, the consumer confusion for association goes the other way. Meaning, due to PepsiCo’s size, reputation, and power, consumers are confused into thinking that Rise Brewing’s RISE drinks are associated with PepsiCo.

 

The concept of reverse confusion was established in Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co.7 In that case, the Court stated that it was essential to recognize something other than traditional confusion to prevent “anyone with adequate size and resources [from] adopt[ing] any trademark and develop[ing] a new meaning for that trademark as identification of the second user’s products.”8 Rise Brewing alleges this case is a classic case of reverse confusion, demonstrating what the Big O court was trying to prevent.

 

Rise Brewing owns multiple valid registered trademarks with the United States Patent and Trademark Office (“USPTO”), as shown below.

 

 PepsiCo: Serial Trademark Infringer or Coincidence? | Law Firm of Dayrel  Sewell PepsiCo: Serial Trademark Infringer or Coincidence? | Law Firm of Dayrel  Sewell pepsiCo case full case

 

Chart demonstrating Rise Brewing’s registered trademarks

 

Rise Brewing’s trademark registrations are valid and in full force and effect. It claims to use its RISE Marks through extensive advertising, marketing, and sale of goods bearing the marks. Because of this, Rise Brewing claims that the RISE Marks have become invaluable assets of the Rise Brewing Company, serving as a symbol of their high-quality product.

 

Rise Brewing would like the court to enter preliminary and permanent injunctions restraining PepsiCo and all of its affiliates from the continued use of its trademark, to recover its costs and reasonable attorneys’ fees, in an amount to be determined, and various amounts of awards for damages and profits.

 

Following the guidance of previous cases involving PepsiCo’s trademark infringement, Rise Brewing will likely be granted a preliminary injunction and/or grant damages sought. Rise Brewing has built its company from the ground up, creating and protecting their ideas through the use of registered trademarks. PepsiCo’s power in the market is far greater than Rise Brewing’s. The ability for large companies to prey on the hard work of smaller companies should be carefully monitored and regulated by the courts. This fact pattern is remarkably similar to previous cases filed by smaller companies, like Gatorlyte, against PepsiCo, where the smaller company has almost regularly been granted an injunction. The timing of this case makes it quite difficult for Rise Brewing because of the sheer amount of money that was put into the launch by PepsiCo. Because of this, it is more likely that the court will grant damages from this case, or in the chance PepsiCo would like to settle, Rise Brewing could possibility recover at least a small portion of the money PepsiCo will have made from their product launch. In the event of a settlement, like previous cases, the terms will likely remain confidential. If PepsiCo would like to continue to use the word Rise, Rise Brewing could also offer license to PepsiCo. This case is another example that reverse confusion is still present, despite the Big O court’s precedent.

 

Conclusion

As the case continues, it is essential to remember how valuable intellectual property (patents, trademarks, copyrights, trade secrets) is. Intellectual property, and its protections, foster growth and discovery, allowing for expanding new technology and resources worldwide.

 

1 See RiseandShine Corp. v. PepsiCo Inc., Case No. 1:21-cv-03198.

 

2 FORBES (Jun. 29, 2021), https://www.forbes.com/companies/pepsi/?sh=24c9d6a2bc31.

 

3 CASETEXT (Jun. 29, 2021), https://casetext.com/case/laboratorios-pisa-sa-de-cv-v-pepsico-inc/?PHONE_NUMBER_GROUP=C.

 

4 Id.

 

5 Id.

 

6 See RiseandShine Corp. v. PepsiCo Inc., Case No. 1:21-cv-03198.

 

7 Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir. 1977).

 

8 Id. at 1372.