Intellectual Property in the Metaverse
Stites & Harbison Client Alert, May 31, 2022
The Metaverse, often characterized as the next level in the evolution of the Internet, is intended to be a virtual-reality, three-dimensional environment where users are able to interact meaningfully with not only other users but with the virtual environment itself. Mark Zuckerberg, the founder of Facebook (re-branded as Meta) has characterized the Metaverse as “an embodied internet where you’re in the experience, not just looking at it.” Users will by way of avatars and other mechanisms be able to interact in a parallel universe to access three-dimensional environments for gaming and other activities, decentralized commerce, social media, authenticated digital assets such as non-fungible tokens (NFTs) and cryptocurrency, and others. So, participants can engage in any number of virtual reality activities and transactions with others at any conceivable virtual location, whether based in reality or in fantasy.
These activities could include virtual tourism, dining, shopping, gaming, and others. Retailers, advertisers, game platform creators, and similar enterprises have already realized the enormous potential of the Metaverse as a commercial space. Similar to the broad reach of the modern Internet, the Metaverse offers the opportunity to reach a global customer base in real or near-real time. However, the Metaverse holds the promise of reaching that global base in a virtual, three-dimensional environment analogous to real world face-to-face interactions.
Virtual commercial enterprises in the Metaverse may include virtual retail spaces offering virtual products such as branded clothing and shoes for avatars, virtual “real estate” concerns, virtual restaurants offering virtual food and beverages as well as real foods/beverages for home delivery, advertising, etc. Indeed, a broad swathe of major retailers and social media entities such as Meta, Nike, Victoria’s Secret, Pumpernickel Associates (Panera), McDonalds, Ralph Lauren, Alibaba, Visa, American Express, and others, recognizing the commercial potential of the Metaverse, have already taken steps to establish a Metaverse presence. Virtual items such as NFTs have sold for extraordinary prices.
As in the early days of the Internet the nascent Metaverse is in some respects a legal “Wild West” where issues of data security, privacy, censorship, regulatory enforcement, taxation, and cyber fraud/crime remain unsettled. Equally, specifics of treatment of certain Intellectual Property (IP) rights in the Metaverse are unsettled. IP protection and associated considerations of enforcement and licensing become even more complex when one considers the likely ease with which consumers, virtual retailers, and infringers will be able to transition across different platforms in this virtual universe. However, there are various mechanisms for IP protection of which rights owners may avail themselves to protect their IP in the Metaverse.
Trademark law broadly protects against unauthorized third-party use of a mark in a manner that would cause the reasonable consumer to be confused as to the source of the goods/services, i.e., to erroneously conclude that the trademark owner is the source of the third-party’s potentially inferior goods/services or that the trademark owner has endorsed or sponsored the third-party’s potentially inferior goods/services. Trademark law further provides protection of famous marks against dilution of the goodwill associated with those marks. As brand owners establish and expand their presence in the Metaverse, considerations of trademark law will loom large in promoting and protecting those brands.
Even though the Nice Classification system for classification of goods and services has not yet been updated to categorize such virtual goods/services, many well-known brand owners have filed trademark/service mark registration applications for a variety of goods and services in the U.S., EU, China, and other jurisdictions. Such filings include descriptions of various virtual goods, for example virtual/augmented/mixed reality software; virtual and digital assets such as NFTs, cryptocurrency, artwork, collectibles, etc.; software and interfaces allowing users to display, buy, sell, and trade such virtual and digital assets; and even virtual goods branded with well-known marks.
As in the real world, sellers considering trademark/service mark protection in the Metaverse must consider all protectable elements of the marks, including words, designs, shape, packaging, color, and even possibly sound, motion, smell, taste, pattern, and other potentially protectable elements of unconventional marks.
Copyright law protects “original works of authorship fixed in any tangible medium of expression.” Thus, software code used to create virtual environments, virtually displayed pictorial and graphical works, virtually displayed text, sound recordings, and other such works used/displayed/performed within the Metaverse are subject to substantially conventional copyright protection. However, the licensing and enforcement issues likely to be encountered in the Metaverse present new challenges to copyright protection. Given the likely ease of transitioning between virtual platforms in the Metaverse, territoriality of copyright is a concern. This ease of transitioning between platforms also presents challenges in tracking unauthorized use for damage calculation purposes, or in tracking authorized use for licensing royalty purposes. Equally, enforcement/takedown mechanisms will likely require new technology and/or new or modified enforcement/takedown strategies adapted to the challenges of a virtual environment.
The primary consideration for patent protection associated with the Metaverse is likely to be, at least initially, the hardware and software used to create the various virtual environments and the avatars that will populate this virtual universe. Improvements in augmented and virtual reality technology are inevitable and protection of IP rights in that technology is essential. This may include display technology (headsets, goggles, etc.) providing video and audio, and applications for recording and tracking eye, hand, and body movement for interaction with the virtual environment and avatars of other users. Further, protection will be needed for IP in hardware and software for simulating touch and potentially even taste and smell in virtual environments.
Commercially, protection for novel ornamental features of products by way of design patents will likely also figure into protection of IP in the virtual world of the Metaverse.
The issue of enforcement of legal rights including IP rights in the Metaverse is highly uncertain. Will the various virtual platform owners be responsible for policing/enforcement similar to current non-judicial means for resolving IP disputes such as those implemented by Amazon, Google, and others? Will one or more existing or newly developed government agencies be tasked with enforcement? If the latter, how will national jurisdictional issues be resolved related to IP in the Metaverse? These are all questions that will have to be answered as the commercial potential of the Metaverse evolves.
Because of these uncertainties, a proactive approach to establishing a Metaverse presence will be essential to success. As is always the case, an ounce of prevention is worth a pound of cure and may even save on legal expenses. Not unlike the analysis typically undertaken when launching a product or business enterprise in the real world, sellers will be well-advised to carefully consider the particular virtual environment(s) in which they propose to market goods and services. Inevitably the virtual universe will attract infringers looking to misappropriate IP of others for commercial gain, and so it is essential for this analysis to include proactive considerations of protection of IP. Indeed, even sellers who elect not to implement a Metaverse retail presence should consider the possibility that third parties may take actions in the Metaverse that infringe valid seller intellectual property rights in a manner that may have adverse consequences for the rights-owner in the real world. Consider as an example the ease of creating infringing digital representations of a product in comparison to manufacturing counterfeit versions of the actual product in the real world. Reliance on existing “real world” IP protection automatically translating into the Metaverse, while potentially a viable option for protection, is fraught with risk.
According to the company’s business model and/or product(s), IP protection strategies may include implementing new and/or updating existing brand protection schemes to include registration applications for important marks that include descriptions for “virtual” classes of goods and services associating the marks with virtual goods/services offered for sale in the virtual marketplace of the Metaverse. Sellers marketing products having distinctive design elements that can potentially be digitally counterfeited in the Metaverse should consider protecting those elements in the Metaverse, including by implementing protections for the design elements by way of trade dress, trademark where appropriate, copyright, and potentially design patent. Creators of software and hardware designed to create or access virtual platforms that will contribute to the virtual world that is the Metaverse should of course consider traditional patent protection for such software/hardware as well as copyright protection for software features.