Intellectual Property in the Metaverse

March 23, 2022

Goods and Services in the Metaverse

Recent news articles are replete with references to the proliferation of trademark applications filed with the USPTO by various enterprises and high-profile personalities to register trademarks relevant to the sale of goods and services in the metaverse. A simple search at the USPTO reveals an astounding number of applications for registration of marks in association with virtual clothing and accessories, downloadable virtual goods and virtual currency, as well as in relation to services to be provided in the virtual worlds. Applicants include celebrities and A-list brands like the Brooks Brothers, Lebron James, Canada Goose, Taylor Made Golf Co., Martini & Rossi and Red Bull. However, this list isn’t exclusive to the rich and famous. In this digital age, many applicant submissions come from those who seek to monetize and protect their brand in the metaverse.

Recognizing the abundant opportunities that the metaverse presents for branding goods and services in this new and ever-expanding virtual marketplace, users are seeking new means to monetize and further extend the reach of their brands, as well as protect them from unauthorized uses by third-parties also populating the metaverse. Various intellectual property rights are impacted in this new medium, including trademark, trade dress, copyright and patents.

The metaverse generally refers to a variety of integrated alternate and virtual immersive environments where users can generate their own content in a digitalized world. Metaverses are created through platforms generated by independent owners and while Facebook may be the most publicized, numerous others exist. Users create their virtual persona through an avatar which often is clothed with attire and amenities to reflect the user or how the user wishes to be perceived. This expression often entails bestowing one’s avatar with known commodities, especially luxury items such as Gucci purses and Ferraris which in the real world are protected brands. All of this dolling-up of avatars and building virtual personalities has led to a profusion of intentional knockoffs and passing-off mishaps made by other users.

When it Comes to the Virtual World: What Laws Apply and Who Is the Lawman?

As nascent as the law may be, it is possible to draw some parallels between virtual reality and the reality that we know. Looking at trademark laws specifically, infringement claims have been raised since the early formation of the gaming world and the social virtual spaces, such as the infringement claim against the virtual platform, Second Life, over a decade ago. Many of us may remember Second Life, a well-invested virtual platform launched by Linden Lab in 2003 that even has its own virtual (non-crypto) current token ($L).  Second Life was an early foray into a virtual world that many attempted to monetize through the sale of virtual real estate, online performances and purchasable avatar accessories (e.g., fashion elements that clearly foreshadow the nexus between the metaverse and manufacturers selling NFT accessories).

While Second Life had many analogs to the metaverse, it had many important differences, including its isolation, lack of true immersion and, ultimately, its failure to realize significant buy-in to the platform as a virtual alternative to the physical world. Beyond the numerous allegations of copyright theft and trademark infringement between users in Second Life (some against Linden Labs as a facilitator and beneficial participant), few meaningful durable legal norms emerged from the disputes brought by and between the platform’s users (and, yes, Second Life still has lots of users), other than a few indications that the host of a virtual platform might be able to rely on real-world protection under the DMCA.

Generally, efforts to enforce digital infringement cases in the virtual world have not met with significant success. In E.S.S.  Entm’t 200, Inc. v. Rock Star Videos, Inc.., the purveyor of the Grand Theft Auto game was smacked with a trademark and trade dress infringement lawsuit for using an allegedly confusing logo and depiction of strip club located in California. E.S.S. owned a strip club known as The Play Pen featuring nude dancers. Rock Star, having seen The Play Pen, admitted to making a play on the name and using it as a feature in its game’s depiction of a grimy and debaucherously fictitious city. However, Rock Star called its strip club The Pig Pen and did not feature an exact version of The Play Pen’s logo. Since Rock Star had not used an identical logo or any architectural features specific to The Play Pen, the court concluded that Rock Star had no intent to communicate a source identifier but to mimic the look and feel of a real life business in its cartoon city. Therefore – as an artistic design – it had artistic relevance and fell with the rights to free speech in the First Amendment. Notably, there was no economic taint to the use.

To the contrary, the metaverse is infused with elements of commerce. Trademark rights are inherently based on a brand’s “use in commerce.” For trademark registration and enforcement purposes, “use in commerce” comprises interstate, territorial and commerce between the United States and a foreign country. A brand must be used in commerce as a prerequisite to obtain registration of a trademark and, whether or not it is registered, to enforce the rights to curtail infringement and seek damages. In the current iteration, virtual worlds allow users to create businesses, develop products and services, and offer them for sale to other users, often in exchange for real-world currency or in-world coinage often provided in consideration for real-world dollars. Despite the virtuality of the sale, users are experiencing real-world profits. No longer a simulation of commerce, such transactions of business are likely to be found to constitute commerce, thus invoking rights under trademark laws.

Trademark Protection: Questions Remain

The protection of trademarks is generally developed for dual purposes:

  1. To protect consumers against deception that could result from marks misappropriated by others.
  2. To protect goodwill and promote fair competition. Goodwill is typically based on notions of quality in the products or services.

In the virtual world, is the basic premise behind trademark law present? Can a virtual user experience a failure of quality from a good that is not real and that has no chance of malfunctioning or wearing out earlier than expected? Is there a fundamental element missing to warrant trademark protection?

Not only can users in the metaverse buy and sell goods branded with real world trademarks, but users may also develop their own goods in the virtual world that, given sufficient time and use, acquire their own distinctiveness. Is that sufficient to warrant a trademark registration? Would such use meet the commerce test? Will the use of a brand relegated to the metaverse qualify a brand for registration in the real world without more? Does the location of the platform owner or the servers hosting the platform qualify as the requisite “state” to supply the necessary “interstate commerce” element? What if the servers are not located in the United States but in another country? Which country’s trademark laws apply?

The First Circuit addressed the reach of the Lanham Act in Cecil McBee v. Delica Co. (2005) in reviewing whether visibility of a Japanese corporation’s website in the United States could confer subject matter and personal jurisdiction. The court held that it could not absent some evidence that the website had a substantial effect on commerce of the United States, for example, if it had interactive features. Jurisdiction and governing law may also be established in the platform’s posted terms and conditions.

Not only is there a vast potential for trademark-related claims, but other intellectual property, like copyright and design patents, are also equally at risk. Additionally, such activity may spawn a variety of state law claims. In Amaretto Ranch Breedables, LLC v. Ozimals, Inc. the parties sparred over which one had priority rights to competing “breedable animals” for purchase and use in Second Life, an online virtual world. Ozimals posted on its log a summary of the status of the lawsuit and the antics of Amaretto which responded with claims for defamation, trade libel, intentional interference with prospective business advantage and unfair competition in violation of California law.

Brand Owners Need To Be Proactive

While we have decades of jurisdictional and conflict of laws analysis to rely on for traditional web-based commerce, the law is clearly developing in ways that will be important in building product and service value in the metaverse. Meanwhile, brand owners should not forsake undertaking the traditional means of protecting and enforcing their brands. They need to be proactive and not allow themselves to be in the position of playing catch-up and should consider the following:

  1. The calculus for what makes for a strong and defensible branding and protection strategy is still a key starting point. A fundamentally weak mark or patent in the real world is not likely to be stronger in the metaverse.
  2. Auditing your current intellectual property to assure it is adequately protected – register your trademarks, copyrights, design patents and other intellectual property in every jurisdiction that may be appropriate and applicable to your use.
  3. File independent trademark applications to update your goods and services to include virtual world applications so your rights are not limited to only real-world goods and services.
  4. Develop a presence in both the real and virtual world, whether that be by purchasing “land” or establishing a business to sell your goods and services.
  5. Vigilantly enforce your rights in both realities; monitor the use of your marks in the virtual world as well as the real world.
  6. Check if the platform owner has a brand registry in which you can file your brand and do so, making sure you understand the host’s terms and conditions related to posting or including your intellectual property in that environment.
  7. Enforce your intellectual property rights through cease-and-desist letters and actions for infringement.
  8. Notify the platform owner if you experience unauthorized use by others of your mark.
  9. Review current licensing agreements to assure that licensing rights include or exclude, as the case may be, rights to use of the licensed intellectual property in the metaverse.

For further information or assistance on this issue, or if you have questions about how to protect your intellectual property, please contact Maribeth Meluch (MM@kjk.com; 614.427.5747) or Ted Theofrastous (TCT@kjk.com; 216. 736.7290) or another member of KJK’s Intellectual Property practice group.