Securing Judgments with NFT Collateral: A Game-Changing Solution for the Legal System

Judge Jed Rakoff (S.D.N.Y.), in today’s ever_hyperlinked, isn’t having it. First, the backstory from an earlier (May 2022) decision in the case:

Around December 2021, defendant Mason Rothschild created digital images of faux-fur-covered versions of the luxury Birkin handbags of plaintiffs Hermes International and Hermès of Paris, Inc. Rothschild titled these images “MetaBirkins” and sold them using so-called “NFTs” (non-fungible tokens).

NFTs, or “non-fungible tokens,” are units of data stored on a blockchain that are created to transfer ownership of either physical things or digital media. When NFTs are created, or “minted,” they are listed on an NFT marketplace where NFTs can be sold, traded, etc., in accordance with “smart contracts” that govern the transfers.

Fashion brands are beginning to create and offer digital replicas of their real-life products to put in digital fashion shows or otherwise use in the metaverse.

Defendant Mason Rothschild, “a marketing strategist” and “Entrepreneur,” created digital images entitled “Baby Birkin,” sold the NFT for $23,500, and created a collection of digital images titled “MetaBirkins,” each of which depicted an image of a blurry faux-fur-covered Birkin handbag. Rothschild used NFTs to sell these “MetaBirkins” digital images. When Rothschild initially sold the NFTs of the “MetaBirkins” digital images, Rothschild described them as “a tribute to Herm[è]s’ most famous handbag, the Birkin.”

Rothschild has sold his “MetaBirkins” NFTs on four different NFT platforms. He has created social media and marketing channels: @METABIRKINS on Twitter and Instagram, MetaBirkins.com, and a “MetaBirkins” community on the Discord social platform. Rothschild’s advertising for the “MetaBirkins” NFTs has included slogans such as “NOT YOUR MOTHER’S Birkin” and the hashtags “#MetaBirkins GONNA MAKE IT” and “#MINT A METABIRKIN HOLD A METABIRKIN.”

Consumers posting on the “MetaBirkins” Instagram page have expressed actual confusion, believing that there is an Hermès affiliation with Rothschild’s “MetaBirkins” collection. Similar confusion exists in the media.

Now today’s decision rejecting NFTs as security:

After a nine-day trial, a jury returned a unanimous verdict against the defendant, “Mason Rothschild” (real name: Sonny Estival), finding him liable for trademark infringement, trademark dilution, and cybersquatting, and awarding the plaintiffs—Hermes International and Hermes of Paris, Inc. (collectively, “Hermes”) $133,000 in damages.

Rothschild has appealed the adverse judgment, and briefing is underway before the Second Circuit. On December 12, 2023, Rothschild filed, with leave of Court, a letter motion asking this Court to stay collection of the money judgment against him, and waive the requirement to post a bond, during the pendency of the appeal

Rothschild has not provided “an acceptable alternative means of securing the judgment” that would justify a stay of collection of the damages award. He proposes placing “in escrow both the MetaBirkins smart contract and the MetaBirkins NFT artwork owned by Mr. Rothschild as collateral to secure the judgment in lieu of a bond.” But, in virtually the same breath, Rothschild concedes that he “is unaware of a way to place a monetary value on the MetaBirkins smart contract” and that “the NFT art market is virtually non-existent at the moment.” Setting aside the irony that the MetaBirkins products are the very items that Rothschild used to infringe and dilute Hermes’s trademark, there is no conceivable basis for concluding that valueless items are “an acceptable alternative means of securing” a $133,000 judgment.

The post Want Collateral to Ensure a Judgment Can Be Collected, Your Honor? No Problem—Use My NFT! appeared first on Reason.com.