How do you see the case?
Its a bit tricky. On one hand I believe if H&M had filmed a property they own that was vandalized, I think they would be entitled to sue the artist for vandalism in court. You can't tag a building without possibly paying the price. However, in this case the retailer is saying they can appropriate any street art copyright free.
What is the danger of vandalism being copyright free?
Well, basically say in the image above (if done illegally) and the court settles in H&M favor, what is to stop the retailer or other advertisers from appropriating the rest of his images? They could easily skim the internet gathering all the images used (even the ones never illegally posted), print these images out as posters, illegally post the art, take pictures that prove its illegal and then they basically can make 1000s of t-shirts of his legal images without his permission or profit. The real danger is that an artist will not be free to limit the edition of these copies. The basis of the art on paper gallery system is based on the fact that most editions are limited in printing, which drives scarcity and price increases. If a starting artist has the market flooded with his image, he likely will never be able to print and make money off his own imagery or he can print, but because of the mass quantity in the market, he wouldn't have any profit in the image.
Now isn't the danger of copyright infringement limited to street artists only?
Not really. A retailer, say H&M or Target, could just download art from an artist that doesn't do any street art, but his art looks "street". Then they pay people to illegally to post in several cities these same images. Again, we get to the same scenario, where huge advertisers are able to steal artwork for free and damage the career of an artist. If artists are limited to only making money on their paintings say vs. the ability to do prints, this could significantly limit the number of artists that work full-time professionally and even eliminated the desire of amateurs trying to go professional to cross the chasm. In the end, I believe a lot less art may get made.
Additionally, (likely not to happen due to money power) a retailer could steal an image from another retailer and reprint as their own. In this case, the retailers would lose out and prices would drop. If you look to China, it is very common to find classes of counterfeit goods: A, B, C, etc. So the A class is almost imperceptible in the difference. In this case, you end of minimizing innovation as it can be stolen. China itself is holding back its own artists by massive copyright theft. They actually have factories in China simply duplicating other artists work to resell, sometimes on online sites in the US. Again theft of artist copyrights.
Is there a case of going too far in the other direction?
Yes, possibly. I think in the US much of street art is temporary and usually doesn't survive more than a decade. However in Italy, due to the historical graffiti of the Romans, the country has decided to protect vandalism until it can be proven not to be of historical value. How valuable is "I love Caesar" or "Brutus was right" in Latin on a wall?
Have we seen state sponsored art destruction before?
A more dangerous turn would be state sponsored art destruction. In the US and Europe, goverments and business destroy illegal street art all the time. Or the destruction of the confederate statues recently (which I agree with). Sadly, this is the most common outcome in any type of revolution.
Who is to say, but if we look at other parts of the world, where art is taken lightly, say Saudi Arabia. Art is limited strictly to Islamic tenets of plant life and lettering with minimal animal and definitely no human figure. Here artists are punished for doing the human figure. Imagine if this was banned worldwide? We could lose the ability to learn how to do master painter works. Another issue in KSA is that they have actively wiped out previous historical buildings of other Empires. Basically, all the Turkish empire mosques and even grave sites were wiped clean by the Saudis so they could have a clean slate to start with and claim only they were able to unite Arabia into its current form. Another result of the KSA policy has been destruction of other religion's art, first in KSA and later like in inspiring their Taliban (KSA supported previously) to destroy the world's largest 1000 year old Buddha statues in Afghanistan. More recently, this led to the destruction of the historical Mosul Museum of Artifacts by ISIS (again KSA supported).