Brand power helping fashion NFTs weather the crypto storm…but ‘MetaBirkins’ highlight IP risk

Co-authored by Kathryn Dodds and James Burnie.

Despite high profile turmoil in other areas of crypto, Non-Fungible Tokens (NFTs) in the fashion industry look set to continue their growth and journey towards the mainstream.

Unlike crypto currency and more esoteric NFTs, these digital assets provide fashion-focused consumers with a unique link to their favourite brands and often include real world experiences and perks that augment the value of the NFT asset.

The fashion NFT market has had some of the legal complexities highlighted during the recent high-profile case involving ‘MetaBirkins’.

The past few years have seen a boom in fashion businesses using NFTs to provide consumers with deeper brand experiences. This trend is accelerating.

Fashion is closely aligned to art and design, so entering the NFT world is a natural progression.

We’ve seen luxury brands such as Gucci, Louis Vuitton and Burberry entering the space over the past couple of years. NFTs are now a key part of marking major events. For example, Moncler celebrated its 70^th anniversary with 500 limited edition NFT jackets.

It’s often an opportunity for consumers to own a physical item of clothing or product but also an accompanying digital asset that is unique.

In many instances the NFT can also be worn in the Metaverse by the owner’s avatar or digital character, an innovative way to express their identity to those who they meet there.

NFTs are especially appealing to younger consumers, brand enthusiasts and those keen to be early adopters of anything on trend.

Of course, they can be expensive, and we’ve seen NFTs sell for tens of thousands of pounds. The cost is typically tied to the value of the brand, the nature of the marketing and the extent to which the NFTs are limited in number and availability.

NFT purchases are not as straight-forward as a typical transaction as they are purchased in cryptocurrency, but buyers are drawn to having the chance to own something that is fun and may turn out to be a decent long-term investment.

It’s also a complex space from a legal standpoint. Whilst consumers purchase what they believe are unique products, they can misunderstand what it is that they are buying (namely a digital receipt to prove ownership of a work rather than the copyright in the work itself).

Given the lack of regulation and the fact that general consumer knowledge of NFTs remains low, there is a high risk of fraud.

Digital fashion creations can be imitated at speed thanks to bots scraping sites where original products are listed. So, as much as there is opportunity for fashion brands, these new digital technologies can also pose a threat to them, their creative IP rights and reputation.

We’ve just seen a test case in the US which indicates how trademark law may apply to NFTs. A jury ruled that an image collection created by artist Mason Rothschild which used unauthorised likenesses of Hermès’s Birkin bags was trademark infringement.

Any consumer who purchases an unauthorised copy NFT may well lose confidence in the NFT market. If this happens at scale, there is a risk that it will impact growth in this still emerging area.

To better protect consumers and brands, detailed terms and conditions should be created for transfer of ownership of an NFT which provides clarity on the nature and extent of any copyright licence.

There have been various open source projects, such as A16z’s Can’t Be Evil licences which aim to provide more consistency to NFT transactions.

Whilst they are still fairly limited and very focused on US law, they are a helpful starting point.

Once an NFT project reaches scale, it is always wise to use more tailored legal advice to ensure that the licence wording fits the more bespoke needs.

You can contact Kathryn here and James here.