The Metaverse – legal challenges and opportunities for IP rights holders

As companies prepare for a future with and in the Metaverse, there’s an increasing focus on the legal challenges especially for trade mark, copyright or patent owners. Not having an understanding of intellectual property rights in a virtual environment can increase risk for IP rights holders as well as sellers or buyers. So what can (or should) IP rights holders do? This article gives an insight into the challenges relating to trade marks, copyrights and patents in the Metaverse.

What is the Metaverse?

The Metaverse is gradually becoming a new reality. For some, it is primarily a collection of online virtual worlds. Others, however, focus on the role that specific technologies such as the blockchain, virtual reality (VR) or augmented reality (AR) might play in accessing these worlds.

The Metaverse can best be described as the three-dimensional successor to the internet as we know it today. Based on current predictions, the Metaverse is expected to consist of a multitude of interconnected and synchronous virtual platforms that are operated continuously and can be experienced by consumers through their avatars. The boundaries between the digital and the physical space will likely be blurred as virtual content will be displayed in real-life and consumers will be able to access the Metaverse easily through different devices. Some believe that we are already experiencing one or several Metaverses today.  However, it seems that a transition to the Metaverse as described above is still some years in the future and the concept of the Metaverse is still evolving. This makes it difficult to determine what changes and challenges will arise, especially in terms of legal issues, but there are signs of what lies ahead.

Brand protection

There is no doubt that brands will need to ensure their trade marks are adequately protected in both the virtual and real world.

The past year has seen a surge in the number of trade mark applications for virtual goods and services. According to a report from May 2022, the increase in popularity of the Metaverse and NFTs raised Class 9 of the Nice Classification (including computer hardware and software) to second place by the end of 2021.

There has, however, been significant disagreement in legal circles about the possible classification of virtual goods and services intended to be used in the Metaverse. On 23 June 2022, the EUIPO released guidance indicating that such virtual goods should be considered as Class 9 (computers and scientific devices). The Office also said that NFTs (non-fungible tokens) are to be “treated as unique digital certificates registered in a blockchain, which authenticate digital items but are distinct from those digital items”. As such they should be incorporated into Class 9; however, they must also specify the “type of digital item authenticated by the NFT”. Many brand owners with trade marks for their 'real life' products are now considering whether additional protection for virtual goods is necessary.

When it comes to trade marks, there are several areas where conflicts can arise in the virtual space. Without specific protection of 'virtual goods', one of the biggest questions in this context will be whether and, if so, under what circumstances there is a likelihood of confusion between a trade mark protected for physical goods and a sign used/applied for the virtual versions of those goods (or of comparable virtual goods). In other words, the offices and courts will have to decide whether virtual and physical goods share a degree of similarity and, in addition, whether consumers will expect that both these types of items are likely to have the same commercial origin where they are branded with the same (or similar) marks.

Copyright in the Metaverse

From a copyright law perspective, NFTs are at the centre of current discussions. Harnessing the advantages of blockchain technology, NFTs are unique digital assets that can be traded easily and securely (e.g. works of art or other collectibles).

NFTs serving both as title of ownership and certificate of authenticity, have created a huge market for digital content (which, as such, can easily be copied). NFTs include a variety of metadata making them unique and not interchangeable. If the digital asset underlying the NFT is, for example, a digital artwork, such metadata could include: the name of the digital artist, the title of the work, the number of copies, and its size. Furthermore, NFTs are governed by (smart) contracts defining how the buyer of the digital asset may use them, ie the specific copy of the digital asset that is represented by the NFT. These licence agreements, as always, have to be carefully drafted to make sure both parties – seller and buyer – know which rights they have sold or acquired. The seller might want to grant a non-exclusive licence and/or restrict the right of use to certain use-cases, while the buyer is often interested in getting an exclusive license in the digital artwork represented by the NFT. Consequently, NFTs will be fundamental in the Metaverse where users buy and sell digital assets, including digital content (e.g. artwork) which they want to enjoy and present in their virtual home and, potentially, resell to another user, ideally while making a profit.

Patenting the Metaverse

Meta, Apple and Microsoft are among the big tech businesses which have announced that they will invest immense sums in building a Metaverse. Filing patents seems to be an essential part of cashing in on this virtual world. According to the Financial Times, US companies have already filed several hundred patent applications for multiple technologies that employ user biometric data for powering what they see and ensuring their digital avatars are animated realistically in the Metaverse.

Looking a bit deeper into the published patent filings, they range from eye and face tracking technology to body pose tracking and avatar personalisation engines that even use a so-called skin replicator. They point to a virtual world future, in which a natural person in the real world can be effectively cloned in the virtual world, including every skin pore and distinctive body, eye and face movement a person has.

Recently granted patents include "modifying an interface displaying video content received from users participating in a video exchange session based on input from a participating user", "augmented reality collaboration system with physical device", "augmented reality collaboration system" and the list goes on and on. While not all patents are used yet, the goal seems evident – building a networked and commercialised Metaverse.

When it comes to the question of which potential patents will be applied for and when they will be granted, a rough distinction can be made between software and hardware-related patents. Depending on whether the patent concerns a computer-implemented method or a hardware component, different prerequisites are required.

When it comes to hardware patents for the Metaverse, they often relate to screens or gear for entering the Metaverse such as VR glasses, sensors, processors or storage mediums. While there are already many existing patents for VR and AR hardware, many more have already been filed. The major criteria for the patent to be granted will still be the need for novelty and inventiveness, but even subtle technological changes can lead to the invention being patentable.

In contrast, the approval for software-related patents is more complex. As most software for the Metaverse will be used for creating the virtual world, inventions for simulation programmes are difficult to obtain for the EPO countries.  However, these restrictions do not apply globally. Inventions for software are much easier to obtain in the U.S., for example, where applications for pure software patents for the Metaverse have already been filed. This possible lack of protection for “simulation inventions” could lead to issues regarding licence requirements or infringement issues in e.g. EPO countries further down the road, given the Metaverse is accessible globally.

With everything happening so quickly in the Metaverse, it is hard to predict the challenges and opportunities for businesses. Those wanting to enter the Metaverse, need to act promptly if they want to save their spot in the virtual world, whether this is by acquiring licences or filing patents themselves.

Getting ahead

The Metaverse is going to be a profitable place for companies willing to understand it. It has potential to reshape businesses – particularly marketing and sales – as we know it. It will be exciting to see how the virtual world of the Metaverse and the analogous world will fit together.