What Hermès Really Thinks About NFTs

Hermès’ battle against the MetaBirkins NFTs isn’t just about protecting its brand in the physical world, it turns out.

The French luxury house sees web3 and virtual worlds as part of the future and has been investigating releasing its own NFTs, the company’s global general counsel, Nicolas Martin, testified Tuesday in a high-stakes trial pitting Hermès against Mason Rothschild, creator of the colourful digital interpretations of its iconic Birkin.

Hermès, unlike a number of peers in the luxury world, has so far abstained from jumping into the blockchain-based digital assets, suggesting perhaps it saw NFTs and other virtual goods as incompatible with its brand, known above all for its exquisite materials and meticulous craftsmanship. But the company has been actively researching a variety of virtual opportunities, according to Martin. (Hermès has also applied for trademarks on various virtual assets, though sometimes brands use the tactic just to keep others from grabbing them.)

Martin shared the behind-the-scenes details while taking questions from Hermès’ attorneys in the case, which is taking place in a Southern District of New York courtroom in lower Manhattan. For a year now, Hermès has been in a legal battle with Rothschild, who it accuses of infringing and diluting its trademarks on the Birkin’s name and design. Rothschild contends his MetaBirkins NFTs are artistic expression and therefore protected as free speech in the US. The two sides were unable to reach a settlement or win a summary judgment, so a jury trial has now commenced.

Of course, it serves Hermès’ case to say the company was planning its own NFTs. It wouldn’t just be physical goods then but also any forthcoming digital items it could claim are affected by Rothschild’s MetaBirkins. Martin said in his testimony the company suffered by having lost the opportunity to be first into the digital market with a Birkin product.

He also described a number of other virtual products Hermès is considering.

One he mentioned was an NFT-based digital twin of a physical good. In an example, Martin said you might buy a scarf from Hermès and receive access to a digital file — presumably the NFT-linked asset — that shows the scarf moving and gives you the story behind the product.

Hermès has also looked into offering NFTs to attendees of events. He didn’t specify what type of event but one could imagine guests of one of the brand’s runway shows might receive one.

Not least of all, he noted that the communications department is working on what he described as a small metaverse where individuals could interact.

The ideas aren’t entirely novel. Digital twins are one of the more widely explored roles for NFTs in luxury, with proponents including the Aura Blockchain Consortium — founded by LVMH, Prada and Cartier — touting them as a means to provide an item with a public and tamper-proof certificate of authenticity. And NFTs given out as proof of attending an event are common in the web3 world. They’re called proof of attendance protocols, or POAPs.

There’s also no guarantee any of these products will ever be released to the public. Hermès — and other luxury companies in a similar position — could ultimately decide they aren’t a fit for the brand and abandon them in the research phase. But they show Hermès isn’t simply sitting by watching others dive into virtual goods without considering the opportunities.

Whether the existence of Rothschild’s MetaBirkins would have any impact on Hermès’ success in these spaces is debatable. They’re effectively collectables without any utility; they can’t be used in any virtual environments, for instance. It doesn’t seem as if Hermès planned to release NFTs of this sort.

But that’s far from the only issue that will determine the outcome of the case. Some other vital matters involved include whether the MetaBirkins confused consumers into thinking the project was somehow sanctioned by Hermés; whether their artistic value is trivial compared to how much they infringed on Hermès trademarks for financial profit; and not least of all, whether the technical underpinnings of an NFT matter here.

We commonly talk about NFTs as whatever image they show, whether a digital Birkin or mutant ape. But an NFT is just a bit of code on a blockchain. To keep the file size smaller — and thus processing workloads and transaction fees lower — many collectable NFTs, including the MetaBirkins, use a workaround where the image isn’t on the blockchain itself. It exists in a separate repository and the NFT just points to it. In theory, whoever controls that repository could change that image, though the NFT code would stay the same. So is the NFT just the code or is the image included?

Already the trial has delved into these technical issues, leaving the judge, Jed Rakoff — who also happened to preside over Adidas’ losing trademark dispute with Thom Browne — frustrated at the lack of clarity. He seemed inclined to say an NFT and the image are one and the same. It’s too early to say whether if or how any of these technical distinctions will factor into the jury’s decision.

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