Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.

Reading online? Subscribe to get this in your inbox whenever it's published.

Whose IP is it, anyway?

Hermès makes bags. A lot of bags. Mostly of the leather variety. But they don’t currently make any out of pixels. That’s why the French fashion house is un petit peu upset with someone for beating them to it.

At 2021’s Art Basel in Miami, artist Mason Rothschild released a set of NFTs called “Metabirkins.” The colorful handbags usually wouldn’t raise an eyebrow except that “Birkin” is the name of Hermès’s most famous bag line. And the Metabirkins bags are the same shape and style as the Hermès creation.

You don’t have to be an intellectual property lawyer to see why Hermès would raise an eyebrow.

(I would know. Because I am certainly not an IP lawyer, and I raised an eyebrow. Which makes this a great time to remind you that what follows is not legal advice.)

It’s a sticky issue for sure. There’s the possible trademark infringement on one side, thanks to the use of the name “Birkin” and the shape of Rothschild’s bags. Hermès says that this has confused consumers into thinking that these Metabirkins are official releases, which drove Rothschild’s sales. Doubly so, since the company hasn’t yet released their own NFTs. A search for “Birkin” on the likes of OpenSea would not have turned up any official products.

So that’s a “maybe” in favor of Hermès.

Then there’s the issue of creative expression on the other side:

Rothschild will counter that the MetaBirkin NFTs are artworks, no different from Andy Warhol’s silkscreen prints of Campbell’s soup cans, and are therefore protected by the First Amendment. The MetaBirkins show the Birkin handbag, which in real life can cost tens of thousands of dollars, covered in cartoonish, colorful fur instead of leather.

So that’s a “maybe” in favor of Rothschild.

And then, there’s the question of how technology plays into this. Would Rothschild’s Warhol claim be stronger if Metabirkins were paintings hanging in a gallery somewhere, where it’s clear they’re the work of some individual artist? Consider how many other fashion brands have released digital goods in the last couple of years. The Hermès legal team could make the case that a consumer would find something called “Metabirkin” on a public NFT auction site, note the distinct shape and style of the handbag, and reasonably conclude that it was the real deal. Or does the auction site double as a form of art gallery, in which case people should know that most of what’s there is unofficial?

So that’s a “maybe” in favor of … both?

Where does this ultimately lead us? Is Metabirkins an homage to the leather handbag, or a derivative work? A nod to Hermès, or an unauthorized use of their intellectual property?

The answer is, simply: TBD.

This kind of NFT issue has come up before but the Hermès/Rothschild case is the first one to reach formal court proceedings. And since rulings often rely on how similar matters have been handled in the past – that is, case law – how this will turn out is a big question mark.

Longtime readers will recognize this as one behind my catchphrase: you never want to be a case law pioneer. (See newsletters #2, #5, #19, and #37.) You want to go into that courtroom knowing, roughly, where you stand.

The other reason to avoid this situation is that your trial’s outcome won’t affect just you. It will contribute to case law itself, and thereby impact many similar cases that follow yours. You certainly don’t want to go down in history as The One Who Ruined It For Everyone Else. I suspect both Hermès and Rothschild are aware of this, and will pull out all the stops to support their side of the argument.

So if you’ve been wondering why a case about NFT bags has gotten so much news coverage, now you know.

This landmark trial officially kicked off last week, when the judge ruled that Rothschild’s star expert witness – the one who would drive home the Andy Warhol / Campbell’s Soup connection – would not be allowed to present his testimony. This isn’t the best start for the artist, but there’s still quite a ways to go before this is over.

Drivetrain + blockchain = Drivechain?

A blockchain is a tamper-resistant record of transactions, and NFTs are unique items stored on a blockchain. When you pair a real-world item with an NFT – when you create its digital twin – you have a way to trace its movement.

Supply chains are a blockchain use case based on this idea. Here, “transactions” represent transfers of an item’s custody from warehouse to truck, from truck to boat, and so on. Because it’s so difficult (though, technically, not impossible) to fake a blockchain entry, this is one of those rare cases in which introducing technology can simultaneously reduce paperwork and limit opportunity for fraud.

What works for shipping goods also works for transfer of ownership. Like, say, cars:

Together, [California’s DMV, the Tezos blockchain, Oxhead Alpha] are building a DMV-run blockchain that will not only digitize car titles for California drivers, but also seek to streamline title transfers between owners.

Ajay Gupta, the chief digital officer at the California DMV, said that the agency hopes to finalize its “shadow ledger,” or a full replication of the state’s title database on the blockchain, within the next three months before building consumer-facing applications, including digital wallets that hold car title NFTs.

Government offices have a reputation for mountainous paperwork, so I see how putting vehicle titles on a blockchain would help. And as far as preventing fraud, the linked article mentions a way for consumers to dodge “lemon laws” by shuffling a car between states. A blockchain-based title transfer should narrow the scope of that loophole.

Keep an eye on this project. As California addresses the inevitable problems of a new tech rollout, they’ll serve as a guide for other groups to follow. That includes other DMVs, mortgage title firms, and any other group that needs to verify transfer of ownership between entities.

(My question: which will be the first DMV to give up selling drivers’ personal information?)

That’s quite a chess move, there

It’s hardly a secret that Mark Zuckerberg is excited about web3. He went as far as to rename his company from “Facebook” to “Meta,” before sinking about $36 billion into exploring metaverse technologies.

Three years later, and with little to show for it beyond adding legs to the avatars in Horizon Worlds, Zuckerberg has caught some heat from his investors. And so he’s pulling back:

The Reality Labs division, tasked with building the metaverse, lost $13.7 billion this year, according to Wednesday’s disclosure. Meta will focus on “efficiency” going forward, Zuckerberg said on a call with Wall Street analysts discussing its fourth-quarter financial results. He added that last year’s layoffs and an ongoing reorganization “surprised” him as they not only cut costs, but also improved communication and progress on future products.

Susan Li, Meta’s new chief financial officer, said on the call that losses from Reality Labs will “continue” in 2023 because it is a “long-duration investment.” Still, Reality Labs would be subject to the same push for efficiency as other parts of the company, Zuckerberg said. The company is cutting at least $1 billion out of its planned capital expenses for the year, too, saying $30 to $33 billion would be spent, down from a prior range of $34 to $37 billion.

This may sound like a loss for the guy. I think he’s actually positioned himself for a win:

Thus far, Meta’s seen little return on its multi-billion dollar metaverse investment. Zuckerberg can now scale back on those plans while making it look like it was all the investors’ idea. If his metaverse dream continues to slide, he can always point back at his investors and say “hey you told me to spend less.” Followed by, “now can I turn the money taps back on? We might just have a chance of catching up. Maybe.”

And if Horizon Worlds doesn’t do gangbusters after that, he can always remind everyone of that time in 2023 when he shaved three to four billion off of his budget. “I mean, that extra cash could have pushed us over the finish line. I did the best I could with what I had. But my hands were tied.”

I would hardly claim that he’s playing four-dimensional chess here, but it’s a pretty sharp move nonetheless.

One sign that it’ll probably work out

Bitcoin versus Ethereum:

• The former is the first major blockchain.
• The latter is known as the original home of NFTs and recently became environmentally friendly. Oh, and, people actually know who the founder is.

Bitcoin: 1. Ethereum: 3.

More like 1.5 to 2.5, really. Bitcoin kinda supports NFTs. Sort of.

A few groups have tried over the years but nothing’s really gotten traction. A system called Ordinals is the latest attempt at making Bitcoin NFTs happen:

Designed by Casey Rodarmor, a former Bitcoin Core contributor, Ordinals enables users to explore, transfer, and receive individual satoshis (the smallest unit of Bitcoin, or 1/100,000,000 of a BTC), which may include data such as videos and images. Adding assets to individual satoshis is called inscription, which is stored in a Bitcoin transaction’s signature.

Will this be The One? The approach that turns Bitcoin’s 1.5 score to a full 2? Perhaps. Here’s one sign in its favor:

The idea of filling Bitcoin blocks with JPEGs and videos—or even playable video games—isn’t sitting well with some in the Bitcoin community who have voiced concerns that putting NFTs directly on the Bitcoin network will drive up transaction costs.

Generally speaking: if the purists are this angry about something, then it probably has pretty strong commercial appeal.

The wrap-up

This was an issue of Block & Mortar.

Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.

Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.

Reading this online? Or as a forward? Why not sign up? Get Block & Mortar news in your inbox, whenever it's published.

Privacy statement: I don’t share/rent/sell your personal info. Seriously.