Many predict that the metaverse will be the next big thing in the internet’s evolution. Large tech companies, including Meta (formerly Facebook), Microsoft, and Amazon are investing massive resources into building it. Among other opportunities, it’s expected to be a robust environment for selling digital goods. One of the big challenges facing brands who hope to profit from the metaverse is protecting their intellectual property. Right now, when infringement occurs in the form of digital goods, brands have little recourse but to turn to the courts. As the metaverse grows, platforms may benefit from putting in place non-judicial protocols, as described below, that help brands enforce their IP rights.
The term “metaverse” is not new – it was first coined in Neal Stephenson’s 1992 novel Snow Crash. Today’s metaverse is in its nascent stage. However, it is envisioned as an immersive digital world where people will use virtual reality and augmented reality hardware devices to socialize, work, and play, in furtherance of what Mark Zuckerberg has referred to as the “successor to the mobile internet.”
The metaverse will also give rise to a digital economy, enabled by digital currencies and non-fungible tokens (“NFTs”), in which users can create, buy, and sell digital goods. And the potential is significant, with market research firm Gartner predicting that by 2026, 25 percent of people will spend at least one hour a day in the metaverse for work, shopping, education, social and/or entertainment, and 30 percent of organizations worldwide will have products, such as apparel, automobiles, artwork, and other goods in the form of NFTs, available in the metaverse. It is not surprising that analysts, such as those from investment bank Jeffries, project that the NFT market will reach $35 billion for 2022, and over $80 billion for 2025.
Intellectual Property Challenges in the Metaverse
Against this background, the metaverse presents significant opportunities for companies to expand into the sale of digital goods, as opposed to purely dealing in physical goods. At the same time, however, it poses legal risks, particularly in the area of intellectual property. A plethora of intellectual property issues, including patent and trademark infringement, will likely come about in connection with the rise of the metaverse. For instance, just as in the physical world, brands will be forced to deal with counterfeiting and piracy by infringers, especially those looking to profit from the decentralized nature of the metaverse.
We are already seeing alleged infringement occurring, and brands taking steps to protect their intellectual property. One of the most high-profile examples to date is the lawsuit filed by luxury brand Hermès against Mason Rothschild. Hermès alleges that the digital artist created images of the Hermès Birkin bag, minted them as NFTs, and then sold the NFTs for as much as $23,000. Hermès argues that using the MetaBirkins name, Rothchild’s NFTs “infringed upon the intellectual property and trademark rights of Hermès and are an example of fake Hermès products in the metaverse.”
One of the biggest challenges brands will face in the metaverse stems from the fact that it so easy to create and sell digital products, such as an image of a Birkin bag, relative to the cost and complexity of creating and selling a physical counterfeit product. As a result, brands will likely be forced to pursue aggressive enforcement actions in the metaverse.
A Non-Judicial Alternative to Enforcement in the Metaverse
The metaverse is emerging alongside what is referred to as Web 3.0 – often heralded as the next phase of the internet. Web 3.0 runs on the blockchain, thereby, allowing it to function as a decentralized environment, while Web 2.0, on the other hand, is the internet as we know it today, dominated by a few huge companies in areas such as search, social networking, and online commerce. If Web 3.0 is about who controls the internet of tomorrow, the metaverse is about how we will experience it. And part of that experience will almost certainly involve aspects of commerce, with brands advertising and selling digital goods on metaverse platforms. That means new intellectual property challenges will arise for brands, and if the decentralized ethos of Web 3.0 flourishes in the metaverse, then enforcing intellectual property rights will become a difficult, expensive undertaking.
While Web 2.0 may seem archaic in the not-too-distant future, we may look back and realize that its dominant players helped pave the way for metaverse platforms to enable robust economic activity while guarding against rampant intellectual property infringement. As e-commerce has grown significantly on Web 2.0 platforms, such as Amazon and Etsy, over the past decade, infringement became a big problem. For many years, brands had no choice but to run to court to seek a surefire remedy when they copyrights, patents and/or trademarks were infringed, as the platforms on which the infringement occurred were ill-equipped to deal with the problem of intellectual property infringement by sellers.
The solution that emerged on Web 2.0 platforms was the establishment of non-judicial alternatives to resolve intellectual property disputes, such as Amazon’s Neutral Patent Evaluation system, which is meant to streamline dispute resolution for patent infringement claims. Pursuant to the Neutral Patent Evaluation system, a party can lodge a complaint alleging infringement, and if an accused party responds, then Amazon will select a qualified patent attorney to serve as the neutral evaluator to assess the claims. If an accused party either (1) fails to respond to a complaint or (2) loses the evaluation, the relevant product listing(s) will be removed by Amazon. The entire process can take only a few months, and the expenses tend to be significantly lower than they would be if a patent infringement claim was litigated through the judicial system.
Amazon has other procedures in place for sellers on the platform to identify and address other forms of intellectual property infringement, such as trademark and copyright infringement. And other e-commerce platforms that allow third parties to sell goods, such as eBay and Etsy, also have similar policies and procedures in place.
In short, as Web 2.0 platforms matured, they took it upon themselves to enable brands to seek recourse for infringement without necessarily having to resort to the judicial system, and while we currently are in the “Wild West” phase of the metaverse, platforms hoping to monetize by enabling third-party commerce (e.g., sales of digital goods in the form of NFTs) may want to consider, sooner rather than later, creating similar protocols to help guard against IP infringement.
To the extent that a metaverse platform has no means of curbing intellectual property infringement, then it stands to reason that brands selling digital goods will be less likely to utilize such a platform, instead opting for ones that put an emphasis on intellectual property protection. In an infinite metaverse made of bits, intellectual property enforcement and resolution protocols that enable brands to avoid costly lawsuits may create a notable competitive advantage.
Ben Stasa is a shareholder at Brooks Kushman, where he guides the development of clients’ patent portfolios with his extensive knowledge and passion for new and innovative technologies.