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30 November 2022

Evolution or revolution? IP in the Metaverse

We all know that we live in a rapidly changing world and that since the worldwide web arrived on the scene just 31 years ago, computer technology has developed exponentially. The latest development in that evolution is the metaverse.

Definitions

It is probably helpful to provide some definitions for the various terms that this article will use.

The Metaverse:

If the internet is a way of connecting with others as well as obtaining and providing information, the metaverse can be considered to be a more interactive three-dimensional approach to the internet and the virtual world it opens up. The metaverse enables users to have virtual experiences either simulating the real world or enabling interaction with worlds which cannot exist in “real space,” often using virtual and/or augmented reality. At present, various companies are competing to provide metaverse platforms.

Blockchain:

A blockchain is essentially a digital ledger and provides a way of recording transactions carried out in respect of a particular asset. It can be used for cryptocurrency transactions as well as dealing (transactions) in non-fungible tokens (NFTs).

Non-Fungible Tokens (NFTs):

NFTs are, in their most basic form, a piece of data demonstrating the transactional record of a virtual asset held within a digital file. NFTs record this information on a blockchain. NFTs can be sold and traded but they are not of themselves the asset; they are merely a record of the asset. The asset itself, which could be a virtual product such as a pair of sunglasses, a watch, or a piece of clothing, does not exist in the conventional sense and so the NFT is a way of enabling the virtual asset to be purchased, sold, traded, or in other ways moved around the metaverse. An NFT provides a public Certificate of Authenticity or proof of ownership but as the ownership is defined by the blockchain, and that blockchain has no record of the ultimate real world owner, dealings in the NFT are still somewhat complex and uncertain in this rapidly developing area.

What does this mean for IP?

So how does IP work in both virtual and real world spaces, now that assets such as consumer goods, which have traditionally been thought of only in tangible terms, can also have a value in the metaverse? Let’s look at an example.

The English company Sunnies manufactures high quality sunglasses for sale globally. Its target market is Generation Z and it recognises that this target market will be highly interested in the metaverse. Sunnies therefore decides to partner with a company specialising in high quality digital graphics to introduce a range of sunglasses in the metaverse alongside its real world sunglasses, both to promote its real world sunglasses and to license use of its metaverse versions. The metaverse sunglasses will be limited in number and each of the individual pairs of sunglasses, to retain the exclusivity cachet Sunnies wishes to promote. Each metaverse pair will be embedded in an individual NFT and its record can be viewed via blockchain. The virtual sunglasses can be seen in the metaverse and picked up and worn using virtual reality equipment, but their real value is as a collectible asset.

Sunnies’ sunglasses are a premium product and each pair is sold with a Certificate of Authenticity in the real world. For the metaverse sunglasses, this is not necessary because the NFT provides a Certificate of Authenticity through blockchain transactions.

Making sure that your IPR is being protected properly

Trade Marks

Sunnies sells its limited edition metaverse sunglasses under specific names. Each of the names should be protected with a trade mark registration. It is an interesting question as to whether a virtual world or metaverse version of a product should be protected in the same category (class) of goods as the real world equivalent or in the class covering downloadable goods. In our example, the class is the same and so this becomes a moot point as it makes sense to cover both the real and virtual product in your specification. There have been calls for regulation of the metaverse, which some argue is something of a digital Wild West, and this may well prompt a revision to the current practice on protection of virtual assets in the metaverse. For now, given the uncertainty and lack of case law on this subject, we suggest protecting the downloadable goods as well as the real world goods, and for older registrations which pre-date the metaverse, filing for downloadable goods to ensure protection is in place. We are seeing more and more businesses adopting this strategy.

Designs

Each of the Sunnies’ sunglasses designs across the range has an attractive shape and configuration and these aesthetic qualities of both the real world and virtual products should be protected by registered designs. For the physical sunglasses, registered design protection is straightforward using established registered design regimes. However, the question arises as to the extent of protection afforded by these regimes for the equivalent virtual sunglasses.

For some time now, registered design protection has been available for various different forms of digital designs such as digital icons, graphical user interfaces (including animated GUIs), display screen layouts, video games, animated characters, virtual environments, and other visible elements of a computer program. Furthermore, registered design classification systems (i.e. indications of product category required upon filing a registered design application) are mostly required only for formality purposes, such as categorising and searching within a designs registry, and do not restrict the scope of protection afforded by the design registration.

In view of the above, and that current design legislation does not give exhaustive lists of infringing activities of a registered design, the latest commentary is that a registered design for a product, such as Sunnies’ sunglasses, should provide protection against third parties using such designs in the metaverse as well as in the real world. Furthermore, petitions have been submitted by various professional bodies for forthcoming legislative amendments to clarify that registered design protection extends to “any physical or virtual…item…” to avoid doubt in this area. Until the situation is confirmed through legislation or case law, and following guidance at least from the European Union Intellectual Property Office, our current advice for clients seeking protection for their designs, regardless of whether the intended use is only in a virtual environment or in both the real and the virtual world, is to indicate both the physical and virtual product indication on the design application.

Unregistered design rights will also be relevant in the metaverse but this is a complex subject worthy of its own article and is not covered here.

Copyright

As well as adverts on television and online, Sunnies also advertises in the metaverse itself, both for its digital and real world sunglasses. For these adverts, Sunnies commissioned a catchy jingle. The composer of the jingle assigned the copyright in the jingle to Sunnies. This would be an example of copyright works from outside the real world being uploaded to, and used in, the metaverse.

People can also use software to create copyrighted works within the metaverse. An example of this is Sunnies’ digital sunglasses. These are built inside the metaverse and are considered an artistic work (just as drawing/animation of such sunglasses outside the metaverse would be).

Copyright arises automatically on the creation of the work, without the need for registration. On this basis, copyright subsists in works created in, or uploaded to, the metaverse in the same way that it would in the real world.

Patents

It is hard to envisage patent protection for the NFTs themselves as they are files containing digital information, but as this is a fast-moving area of technology, we will be keeping a keen eye on the possibilities for patent protection. In the same way that, for years now, patent regimes around the world have been tackling the thorny issue of how and whether to grant patent protection for software-related technology, similar challenges are envisaged for new technology invented around NFTs and the metaverse.

Enforcing IPR in the metaverse

Using our example, Sunnies discovers that a German gaming company, Spiele, is offering a digital version of Sunnies’ best-selling sunglasses, protected with trade marks for sunglasses and design registrations, in a popular online and downloadable game and wishes to prevent that unauthorised use. Let’s look at Sunnies’ options.

Enforcing IP rights in the metaverse is not much different to enforcing them anywhere else online. In many cases it can be difficult to tell who the infringing party actually is (although this is potentially easier with blockchain maintaining a record of transfers of ownership of metaverse products). However, in this case, Sunnies knows that Spiele is the suspected infringer. If Sunnies did not know, it would have to attempt to find out, perhaps by contacting the metaverse platform holder directly.

When dealing with enforcement online, there has been a rise in private enforcement processes. For example, Facebook Marketplace has a complaints procedure that allows rights owners to have infringing products removed. It may well be that the metaverse will have a similar process that Sunnies could potentially use.

Another option in dealing with unauthorised use is, counterintuitively, to authorise the use. A significant amount of originally unauthorised material on YouTube is allowed to remain available in exchange for the rights holder taking a cut of the profits. In this case, Sunnies could license Spiele to sell the digital sunglasses, either for a cut of each sale or for a fixed sum. Licences in the real world tend to be territorial (for example, for a specific country or worldwide). We will have to wait and see whether metaverse specific licences will materialise or whether the metaverse will be segmented to allow country-specific licences to still function.

If neither of these approaches achieves a satisfactory outcome, then Sunnies could potentially bring a court claim against Spiele. However, as with other claims with regard to online infringement, this could lead to some arduous and complex jurisdiction arguments.

Summary

  • When considering protecting your IP rights, it is now worth considering protecting all tangible assets as both tangible assets and as their digital equivalents. Although at the present time this will apply to consumer goods, it is likely to begin to apply to many more products as virtual reality and augmented reality become more and more engrained into our everyday lives.
  • In terms of enforcement, not enough is yet known about the terms and conditions of the metaverse. However, if it is similar to enforcement on the internet more generally, then best options are likely to be either negotiating with the infringer or through the metaverse platform holder’s private enforcement mechanisms.
  • The metaverse is at the cutting edge of technology and so the position with regard to IP rights could change very suddenly as technology evolves. Companies in the retail business (especially designer products) should keep a close eye on what is happening to ensure that their brands continue to be well protected.