The term “metaverse” refers to the combination of aspects of social media, gaming, augmented and virtual reality, and the web that form “an immersive digital world.” Taking the digital element of our lives one step further from the present-day internet (i.e., Web2), and combining existing uses of the internet (gaming, shopping, social media) with elements of virtual reality and digital second life, the metaverse is an extension of Web3 that users experience by way of personalized avatars.

Fashion’s role in the metaverse

Since the early aughts, fashion brands such as Armani, American Apparel, Hublot, Nike, Reebok and Adidas were already seeing the potential of selling digital wares in digital worlds. Specifically on the platform Second Life, which in 2006 already had a population of a million users, and where each of these brands set up digital shops between 2006 and 2007. In 2019, fashion gained a second wind of prominence in the metaverse when designers such as Moschino and Louis Vuitton began launching products on gaming platforms such as Sims and League of Legends, respectively. Many games derive revenue from non-essential in-app purchases including skins and digital wearables, sales of which are evidence that users are willing to pay real money for goods in the digital world. In July 2017, just over one year since its debut, Fortnite generated over $1 billion dollars in revenue exclusively from nonessential in-app purchases, including skins and digital wearables.

The booming growth of the gaming industry was accelerated by the Covid-19 pandemic. The rise in interest in virtual reality and gaming since the pandemic has brands and investors betting that people will “spend money there, too, on outfits and objects for our digital avatars,” according to the New York Times. This falls in line with the digital habits of Gen Z and Millennials, who largely believe that “how you present yourself online is more important than how you present yourself in person.”

Brands have also begun creating virtual fashion outside of gaming platforms. These exist in the form of digitally generated outfits that can be used as filters on an image, for users to don in online photos or digitally try on clothes. In March 2022, the first Metaverse Fashion week (MVFW) took place on 3D virtual-world platform Decentraland, featuring top brands such as Dolce & Gabbana, Paco Rabanne, Elie Saab, and Tommy Hilfiger, among others.

Branded NFTs and digital releases

Luxury fashion brands have been looking to engage with consumers in the digital space by way of collaborations with existing gaming franchises and/ or metaverse platforms. In May 2021, Gucci collaborated with Roblox for their Gucci Garden event where Gucci offered up digital goods for sale. In August 2021, Burberry announced a partnership with Mythical Games, accompanied by a collection of non-fungible tokens (“NFTs”) to be released in the game, Blankos Block Party. The collection includes an NFT of a game character named Sharky B adorned with the Burberry TB Summer Monogram, as well as “branded in-game NFT accessories, including a jetpack, armbands and pool shoes.” In September 2021, Balenciaga followed suit, announcing that it would be designing four virtual outfits, or skins, that players can purchase and wear in Epic Games’ Fortnite.

Real Estate

Some brands are reaching beyond digital fashion in their metaverse endeavors, and into digital real estate. “Land” in the metaverse is offered through different platforms and exists exclusively in that platform. Brands’ intended purposes and concepts for land in the metaverse vary. For example …

Sotheby’s/Decentraland — In June 2021, Sotheby’s opened a virtual art gallery in the Voltaire Art district of Decentraland in a replica of Sotheby’s New Bond Street Gallery in London

Adidas/Sandbox — In late 2021, Adidas bought virtual real estate in The Sandbox, where it intends to release and create exclusive content and experiences.

Gucci/Sandbox — In early 2022, Gucci purchased a plot of land in The Sandbox where it plans to expand on the concept created in its previous online concept store, Vault, described as a “conceptual space and meeting place inspired by childhood memories of the search for beauty.

Philipp Plein/Decentraland — In February 2022, German designer, Philipp Plein purchased 65 Decentraland parcels (equal to 176,528 square feet) for $1.4 million to create Plein Plaza. The Plaza will be used for “stores, entertainment, an art museum, a hotel, and luxury residences.

Nike/Roblox — On the heels of filing a number of trademark applications, Nike also launched its Nikeland experience on Roblox. Nikeland, whose goal is to “turn sport and play into a lifestyle,” is a place where users can adorn their own personal avatar with virtual Nike clothing, activate superpowers in games, and shop. Nike’s CEO, John Donahoe, stated that “a total of 6.7 million players from 224 countries” have engaged in the experience since March 2022.

Legal Issues and Litigation

The advent of the metaverse gives rise to various legal questions on the intellectual property front, as well as other issues. Against that background, cases have been filed directly related to NFTs and use of IP in the metaverse. Some of the most noteworthy cases to date are as follows:

In re EthereumMax Investor Litigation, 2:22-cv-00163 (C.D. Cal. Jan 07, 2022). Investors who purchased a new form of cryptocurrency token, filed suit against the tokens’ founders and creators, as well as several influential names who were enlisted to promote the coin online when the coin’s value dramatically increased then decreased within a short period of time. Plaintiffs allege claims of unfair competition, aiding and abetting, and unjust enrichment/ restitution.

Free Holdings, Inc. v. McCoy et al, 1:22-cv-00881 (S.D.N.Y Feb 01, 2022). Free Holdings, Inc. filed suit against luxury auction house, Sotheby’s for the marketing and sale of Quantum, the first-ever NFT. Free Holdings alleges to be the rightful owner of Quantum and filed a complaint against Sotheby’s for counts of slander of title, deceptive and unlawful trade practices, and commercial disparagement.

Halston Thayer v. Matt Furie, et al, 2:22-cv-01640 (C.D. Cal. Mar 12, 2022). An aggrieved NFT buyer filed suit against cryptoartist Matt Furie, for allegedly misrepresenting the number of NFTs that would ultimately be offered up in furtherance of a “scheme to artificially inflate the value” of Furie’s FEELSGOOODMAN Rare Pepe Card NFT. Thayer’s complaint alleges claims of fraudulent inducement, intentional misrepresentation, negligent misrepresentation, violation of unfair competition law, violation of the Consumer Legal Remedies Act, mistake of fact, breach of contract, breach of good faith and fair dealing, unjust enrichment.

Hermès International, et al. v. Rothschild, 1:22-cv-00384 (S.D.N.Y. Jan 14, 2022). Hermès filed a lawsuit against the individual behind the collection of 100 MetaBirkins non-fungible tokens (“NFTs”) that include images depicting furry renderings of its famous Birkin Bag. Hermès sets out claims of trademark infringement, federal trademark dilution, false designations of origin, false descriptions and representations, cybersquatting, injury to business reputation, misappropriation, and unfair competition.

Miramax, LLC v. Quentin Tarantino et al, 2:21-cv-08979 (C.D. Cal. Nov 16, 2021). Miramax filed suit against Quentin Tarantino seeking to enjoin the director from auctioning off ‘exclusive’ memorabilia from the film in the form of NFTs. In its complaint, Miramax alleges claims of breach of contract, copyright infringement, trademark infringement, and unfair competition.

Nike, Inc. v. Stockx LLC, 1:22-cv-00983 (S.D.N.Y. Feb 03, 2022). Nike filed suit against StockX, alleging the Detroit-based marketplace is “minting” NFTs that make use Nike’s trademarks and goodwill of reputable brands to create confusion in the marketplace. In its complaint, Nike makes claims of trademark infringement, false designation of origin/ unfair competition, trademark dilution, and injury to business reputation.

Armijo v. Ozone Networks, Inc. et al, 3:22-cv-00112 (D. Nev. Feb 28, 2022). An NFT-owning plaintiff named NFT marketplace, OpenSea, in a lawsuit claiming that the marketplace and fellow NFT platform LooksRare have both failed to implement “common sense and reasonable security measures” to protect users from fraud and from the sale of stolen NFTs. In his complaint, Armijo sets out claims of negligence.

Roc-A-Fella Records, Inc. v. Dash, 1:21-cv-05411 (S.D.N.Y. Jun 18, 2021). Roc-A-Fella named Damon Dash in a copyright lawsuit (one of the first copyright cases over an NFT) in a bid to stop him from auctioning off the copyright to Jay-Z’s debut album “Reasonable Doubt” as an NFT. The complaint alleges claims of breach of fiduciary duty, conversion, replevin, and unjust enrichment.

McKimmy v. OpenSea, 4:22-cv-00545 (S.D. Tex. Feb 18, 2022). Plaintiff, Timothy McKimmy, filed a complaint against NFT marketplace, OpenSea, after one of his Bored Ape NFTs was stolen when OpenSea was hacked. McKimmy’s complaint sets out claims of negligence and breach of fiduciary duty, trust, contract, and implied contract.

USA v. Nguyen, et al, 1:22-mj-02478 (S.D.N.Y. Mar 15, 2022). A criminal complaint that was filed by the U.S. government aims to charge Ethan Nguyen and Andre Llacuna – the 20-year-old creators of the “Frosties” NFTs – with conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with what is being touted as the first U.S. federal criminal case involving the class of digital assets whose popularity exploded in 2021.