Louisa Chambers, Author at The Fashion Law

PART II – In October 2021, Facebook made headlines when it rebranded as Meta with the aspiration “to be seen as a metaverse company,” as opposed to merely a social media brand. Since then, there has been significant buzz about the metaverse – which is the “next chapter of the internet,” according to Facebook founder Mark Zuckerberg. While some commentators suggest that the metaverse is over-hyped, the pandemic (and the switch to remote working and virtual social events) has undoubtedly accelerated peoples’ reliance on – and appetite for – digital experiences. Eager to tap into that demand (and fearing being left behind), there has been a movement by platforms and brands to embrace the metaverse, along with non-fungible token (“NFT”) technologies and other facets of web3.

There is no universally accepted definition of the metaverse. To put it most simply, it is a 3D version of the internet, accessed through the use of a virtual reality headset or glasses. But it ranges from a fully immersive, virtual reality world to a layering of digital content over the real world, where people will socialize, shop, do business, buy real estate, and learn. In such a digital environment, businesses can replicate the products and services that exist in the “real” world to create exciting, interactive virtual products and services, and boost revenues in the process. And it is worth noting that as it currently stands, “the” metaverse may be a misnomer; as there is not a single metaverse, but instead, multiple metaverses operated by distinct entities.

The advent – and enduring rise – of the metaverse raises a host of legal issues for brands and will likely test boundaries and force the law to adapt to keep up with this new technology. With this in mind, here is Part 2 of a look at ten of the top issues that brand owners that are venturing into the metaverse should consider (Part I can be found here) …

6. Identifying infringers will be challenging

With user generated content and potential anonymity of users, identifying infringers will be a challenge. Brand owners will rely heavily on metaverse platforms as intermediaries to prevent and identify infringements via notification and take down procedures. The operators of those platforms may require a trademark registration for the specific goods or services before they will intervene to implement your enforcement request as they are unlikely to explore grey areas and evaluate whether there is a likelihood of confusion etc.

But some are taking on the challenge in the U.S., alleging unauthorized use of NFTs. Nike, for example, is suing online marketplace StockX for trademark infringement in connection with StockX’s launch of an NFT collection linked to (physical) Nike footwear. The key question in the case is whether StockX’s NFTs are mere digital receipts to facilitate trading of those sneakers (in which Nike’s trademark rights likely have been exhausted) or whether the NFTs are digital products in and of themselves. Nike argues that the NFTs are more than just digital receipts because they are bundled with additional Stock benefits and are sold for more than the price of the sneakers, themselves.

At the same time, Hermès is suing Mason Rothschild – who has minted (and sold for large sums) “MetaBirkins” NFTs depicting images of Hermès’ Birkin handbags covered in colorful fur – for infringing its registered trademarks for the BIRKIN name and the configuration of its iconic BIRKIN handbag. Rothschild claims that “MetaBirkins” is the title of his artworks (and that the artworks are “a commentary on fashion’s history of cruelty to animals…”) rather than identifying the source of the allegedly infringing NFTs. Rothschild sought (unsuccessfully) for Hermès’ trademarks claims to be dismissed, pleading First Amendment free speech rights. In accordance with U.S. law (and the Rogers test, in particular), free speech rights would normally defeat a trademark infringement claim in relation to titles of artistic works, unless the use of the mark bears no relevance to the work or is explicitly misleading as to the source of the work.

Brands should be clear about which issues they do (and do not) want to tackle in connection with the metaverse: There is a balance to be struck (as there is in relation to enforcement of IP on social media platforms) between preventing infringement and/or dilution of your trademark and the risk of negative PR arising from enforcement action, which can also be harmful to a brand and its reputation.

7. Is there use in commerce?

Trademark infringement requires use in commerce/the course of trade (e.g. a trademark applied to an NFT and offered for sale). It is unclear whether a private individual, minting an NFT of Nike trainers to be worn by her avatar in the metaverse, amounts to trademark infringement, although it is likely to qualify as a type of passing off (similar to fraudulent registration of domain names for famous brands). While this briefing focuses on trademarks, there are, of course, other intellectual property rights that may be relevant, which may not present the same hurdles to proving infringement. Digital copies, particularly in the fashion world, are likely to copy the design of the products that will bring design rights and copyright into play.

8. Monitoring in the metaverse

Given the number of platforms within the metaverse and the difficulty in identifying infringers, companies will likely need to implement a trademark monitoring and watch service to identify potential infringements and bad faith applications in the virtual world. Customer engagement is another way through which brand owners can learn of misuse of their trademarks.

9. Licensing terms should address use in the metaverse

Many trademark licenses permit use on the internet, but it is untested as to whether this would include use in the metaverse. It would be advisable that companies address the metaverse and use in digital assets, such as NFTs explicitly in robust, clear licenses. Where access to the metaverse is permitted, brand owners would be wise to consider whether it is limited to specific platforms, what controls are needed to guard against rogue use or use alongside content that may be reputationally damaging to a brand and ensure – as far as possible – that you future-proof the scope of the license to allow for developments in technologies.

10. Watch out for Metaverse platform Ts & Cs

It will be important to review the terms and conditions of a metaverse platform prior to use to guard against any unexpected terms (e.g. in relation to ownership of IP and breadth of licenses granted to the platform owner). It is also important to assess what steps the platform owner will take to prevent infringement and control content that may be damaging to your brand.

The metaverse is an evolving concept, reliant on nascent technology. No one knows for certain what form(s) it will take and no one can predict all of the risks and opportunities that will emerge for those who embrace it. Whether you plan to dive in – virtual feet first, dip in a tentative virtual toe to see if it “takes off,” or shun the metaverse and prevent others from exploiting your brands within it, there is groundwork that brand owners can lay to ready themselves, including by working out the extent of their existing trademark rights and registrations, employing a robust policing and enforcement strategy, and exploring appropriate licenses and terms of use.

You can find Part I of Protecting Brands in the Metaverse: Issues for Companies to Consider here.

Louisa Chambers is a partner in Travers Smith’s Commercial, IP & Technology Department and specializes in the fields of IP/technology and data protection.

James Longster is a partner in Travers Smith’s Commercial, IP & Technology Department, specializing in technology, data protection and intellectual property.

Dan Reavill is the Head of Travers Smith’s Commercial, IP & Technology Department.

Helen Reddish is a knowledge counsel in Travers Smith’s Commercial, IP & Technology Department.

PART I – In October 2021, Facebook made headlines when it rebranded as Meta with the aspiration “to be seen as a metaverse company,” as opposed to merely a social media brand. Since then, there has been significant buzz about the metaverse – which is the “next chapter of the internet,” according to Facebook founder Mark Zuckerberg. While some commentators suggest that the metaverse is over-hyped, the pandemic (and the switch to remote working and virtual social events) has undoubtedly accelerated peoples’ reliance on – and appetite for – digital experiences. Eager to tap into that demand (and fearing being left behind), there has been a movement by platforms and brands to embrace the metaverse, along with non-fungible token (“NFT”) technologies and other facets of web3.

The advent – and enduring rise – of the metaverse raises a host of legal issues for brands and will likely test boundaries and force the law to adapt to keep up with this new technology. With this in mind, here is Part 1 of a look at ten of the top issues that brand owners that are venturing into the metaverse should consider …

1. For many businesses, a strong brand portfolio in the real world is likely to be valuable in the virtual one

Consider carrying out an audit to assess what rights you can enforce and whether there are any obvious gaps and vulnerabilities. Check that your protection matches your expansion plans and that you have protected figurative marks (that may appeal to digital artists), as well as word marks and logos.

2. Registered trademarks will be easier to enforce in the metaverse than unregistered rights

Unregistered rights are less readily understood by potential infringers than registered rights, less certain (requiring proof of the elements of a passing off action under English law), and the protection they confer differs widely between jurisdictions. In some countries, such as China, rights are based entirely on registration and not on the fact or nature of use in that country. Get in there first … In most jurisdictions, the first to file owns the rights in the trade mark. Bad faith applications are on the rise for digital goods (e.g. “Prada” and “Gucci” word marks have been subject to applications for registration by unaffiliated third parties for metaverse-related goods and services).

3. The extent to which brands’ “real” world goods/services offer protection in the metaverse is largely untested

A Perspective from the United Kingdom: Under the Trade Marks Act 1994 in the United Kingdom, it is more straightforward to demonstrate that your mark has been infringed when you can point to identical goods/services, as opposed to merely similar good/services. For similar goods/services, there must be a likelihood of confusion (as to the source of the goods/services) in order to prove infringement. The degree of similarity of goods and services in the “real” world to their digital counterparts will be a question of fact. Advisory services, whether provided in a virtual meeting room or in a physical office are arguably the same, regardless of the delivery mechanism. In contrast, the pair of branded sneakers you wear in the physical world is arguably an entirely different product (footwear) from the digital representation of those branded sneakers that you purchase for your avatar (data and software). In the case of dissimilar products or services, only brands with reputation will be protected.

Trademark offices have seen a wave of applications covering virtual classes of goods and services – for example for downloadable virtual goods (class 9); retail store services featuring virtual goods (class 35); entertainment services (class 35); online non-downloadable virtual goods and NFTs (class 42); and financial services, including digital tokens (class 36). However, as the metaverse is still readily evolving and most early adopters have not fully decided how they will operate within it, specifications are likely to become outdated and require amendment (or risk revocation). Some brands have already implemented broad metaverse filing programs: Nike, for example, has applied to register some of its marks in the U.S. (and other countries) for various digital goods, including shoes.

4. Trademarks are territorial in nature & yet, the metaverse is a borderless world, accessible globally

This begs the question: Where should companies file metaverse-centric trademark applications for their brands? In this regard, considerations that already apply with respect to the internet and real-word products (i.e., where does the brand owner actively want to do business and what is the risk of infringement in certain countries?) will likely also apply in respect of the metaverse and digital products.

It is less obvious if – and how – principles regarding “targeting” (currently used to determine jurisdiction where there is a dispute over online use of a trademark) apply to use of a trademark in the metaverse. Factors that the courts take into account when assessing whether a website targets UK consumers (offering goods or services for delivery to the UK, accepting pounds sterling, the use of country code top level domain names, the language of the website, etc.) may be more complex in the metaverse. After all, there is no shipping of virtual assets, and metaverse platforms may have their own cryptocurrencies and be hosted in a decentralized way, with real-time translation of content.

We will have to see how this area develops. Perhaps in the future we will see a shift from the territorial approach to a separate intellectual property registry and a cross-jurisdictional mechanism for mediating intellectual property disputes that arise in relation to the metaverse.

5. Use it or lose it …

A party’s use of its trademark will need to match its registrations: Just as in the “real” world, companies and their marks are likely to be vulnerable to challenge if there is a prolonged period of non-use for the goods/services in relation to which a trademark has been registered. This is a risk where a filing-party has submitted catch-all virtual world applications before they have decided how they are actually going to operate in the metaverse.

You can find Part II of Protecting Brands in the Metaverse: Issues for Companies to Consider here.