After the already successful relationship between fashion brands and the gaming community, NFTs open up the fashion system to new digital channels. In fact, the possibility for users to not only buy digital items in the fashion space but to also have unique pieces adds a level of exclusivity that has always be key when it comes to fashion.

It is thus no surprise that many fashion companies are entering the NFTs world, in some cases auctioning the NFTs alongside some actual couture pieces for prices much higher of those usually paid for the real creations.

In this scenario, NFTs and the new fashion metaverse might offer new opportunities and tools but also raise some risks for undertakings which have been operating in the real world up to now.

One one side, NFTs might be a powerful tool against piracy by helping brand owners in their anti-counterfeiting activities. In fact, besides the traceability of the garment over its life-cycle provided by the blockchain technology per se, NFTs takes the fight against counterfeits to the next level by offering the possibility to embed an NFT in physical products to be scanned in order to confirm they are authentic.

On this ground, some brands have already patented a system for minting, exchanging, and intermingling cryptographic digital assets in the form of digital items, which can each be linked to a real-world physical products. For example, the purchaser receives an NFT tied to a sneaker that he can transfer with the shoe, thereby verifying the authenticity of the product.

When they do not come from the fashion brand itself, however NFTs cannot fully guarantee the authenticity of a product because, although they can authenticate the fashion item and its ownership, if the information originally entered is false or in error from the start, the NFTs will confirm and perpetuate that falsehood in all its future sales.

As a possible solution to overcome this risk, platforms selling NFTs might consider to verify creators, in the same way that Twitter or Instagram verify their users.

Another problem that fashion brands might face with third-party created NFTs displaying their trademark is given by the actual scope of their trademark rights. The issue arose for example in relation to the “Baby Birkin” NFT, an animation of a baby growing inside the famous Birkin bag created by Los Angeles-based artists Mason Rothschild and Eric Ramirez, which was recently sold in a Basic.Space auction for the equivalent of $23,500, without however the luxury fashion house having any affiliation with nor being awarded any royalty for the sale of such NFT. In fact, the company registered the “Birkin” trademark for leather goods and leather handbags but not for digital artworks, so the creator of the NFT could argue that the NFT is not covered by its trademark rights.

Interestingly, in this case the French maison decided not to take action, whereas more recently it filed a lawsuit in the U.S. against the same artist for offering the collection of 100 “MetaBirkins” NFTs including images depicting furry renderings of its famous bag. In fact, this time the brand claimed trademark infringement and dilution for using famous “Birkin” word mark and trade dress without its permission and simply adding the generic prefix ʻmeta’, which refers to the virtual world where digital assets such as NFTs are traded.

This is one the first cases focused on fashion-related NFTs and it raises important questions as to the scope of trademark rights in the metaverse. In particular, how far companies’ existing trademark rights extend to new technologies, especially if such companies are not yet operating in the metaverse?

In this scenario, famous brands like Hermès might probably rely on the stronger protection granted to trademarks that enjoy reputation – which extends also to goods and services in different classes from those where the sign has been registered – whereas emerging designers and smaller fashion houses might face serious difficulties in enforcing their rights if they registered their marks only for the physical goods and not also for virtual goods/services.

However, given the popularity of NFTs among generations Z and Alpha, some small brands might look at the phenomenon as an opportunity to create relevance and buzz within new potential customers and accept the unauthorized use of their trademarks. Should thus NFTs be considered as underground marketing or counterfeits? Only time will tell, but the decision in the MetaBirkin case will certainly give us a first answer!

If you would like to know more about this topic, NFTs and fashion law in general, please contact valentina.mazza@dlapiper.com.