6 of 6

5 December 2022

Brands Update - December 2022 – 6 of 6 Insights

The future of trade marks in the metaverse

Louise Popple, Timothy Pinto and Kachenka Pribanova look at upcoming trade mark issues in the metaverse.

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Authors

Louise Popple

Senior Counsel – Knowledge

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Timothy Pinto

Senior Counsel

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Kachenka Pribanova

Trainee Solicitor

While there are questions on what the metaverse will look like and if and how we will become immersed in it, what is for sure is that the internet, and virtual worlds, will continue to develop in 2023 and beyond. This will give rise to new questions about trade mark law or old questions in a new context. This article covers some of those questions from a UK/EU perspective.

There will be more trade mark filings for virtual goods and services

Trade marks are registered for specific goods/services. While many businesses will have trade mark registrations, most will only cover 'real world' goods/services. Some are already extending their trade mark portfolios by registering key brands for virtual goods and services. There are good reasons for doing so, in particular:

  • To bolster enforcement. It's not yet clear the extent to which the courts/tribunals will consider real world goods (such as clothing) identical or similar to their virtual world equivalents (such as virtual clothing, effectively comprising software code sold via NFTs) – a necessary requirement for showing infringement unless your brand is famous. While it's arguable that they should be deemed, at least, similar, it is advisable to cover virtual world goods/services anyway. This will potentially allow the brand owner to bring a "double identity" infringement claim – the most straight-forward type of claim (that does not require a likelihood of confusion).
  • To aid licensing. Many opportunities will be exploited by way of licensing or tie ups with third parties. This may be easier if registrations for virtual goods/services are already in place.
  • To signal to the market. Those who have already applied to register key brands for virtual goods and services have received much publicity.

Budgetary constraints will usually prevent registration of every brand in every jurisdiction. Factors such as whether the brand is key, whether it lends itself to exploitation virtually, how likely that exploitation is and whether others might do so will all be relevant. As regards where to register, factors such as where users and infringers are likely to be based will be relevant. Consideration of where those who operate the metaverse (and relevant servers) might be based is also relevant since brand owners may need to take action against them to stop infringements. In general, brands which are in or plan to enter the metaverse are more likely to apply for a metaverse specification than those which are waiting to see what will happen.

There will be disputes about what types of mark are registrable

Some signs can only be registered with proof that relevant consumers have been educated to view the sign as a "trade mark" ie as distinctive of a particular organisation (so-called acquired distinctiveness through use). The sorts of signs that fall into this category are generally descriptive signs and non-traditional signs (such as colours, shapes and sounds).

Many marks have been successfully registered with evidence of acquired distinctiveness. However, it is unclear whether such evidence – if it relates to real world goods/services – would be taken into account for showing that the same mark has acquired distinctiveness for virtual world goods/services. While it would seem likely to be sufficient in most cases, there might be disputes on the point. Since distinctiveness is assessed through the eyes of the average consumer of the goods/services concerned, there will also need to be consideration of whether this person is the same in the virtual world as in the real world. If users of virtual worlds (at least initially) represent a particular age group or demographic, the average consumer may arguably not be the same across both situations.

Another question is how 3D shape marks registered for virtual goods/services will be dealt with. It is not yet clear whether such marks are properly registrable and/or whether they can satisfy the "use it or lose it" rule for registered trade marks (see more on that below). For example, is a 2D depiction on a screen of a 3D shape mark use of that 3D shape mark? Or is only a 3D VR headset/hologram use identical use of a 3D mark?

The precise goods/services to be covered will become clearer

As previously explored here, the EU IP Office has already issued guidance to brand owners on how to describe metaverse and NFT-related goods/services and the relevant NICE classes to use. The EUIPO is also currently considering comments on its draft Guidelines for 2023, which covers this and related issues. These make clear that class 9 and potentially also classes 35, 41 and 42 (and, for virtual services, the relevant established class) are appropriate. They also make clear that it is not permissible simply to cover "virtual goods" or "non-fungible tokens" since these terms lack clarity and precision. They must be further specified eg "downloadable virtual goods, namely, virtual clothing" or "downloadable digital files authenticated by non-fungible tokens". We expect the UK IP Office to follow suit with similar guidance.

A further issue is what should happen to those goods/services that don’t translate into a virtual product, as such. An example is medicines. A medicine can be used in a virtual environment in many ways eg to advertise to, or interact with, users of a real world medicine. That use all relates back to a real world product (and the standard class 3 specification should provide protection). What if a brand owner wants to use a medicine as an actual virtual world product eg to give an avatar a health boost? Is that permissible? Would such an application be accepted and – if so – how would the owner satisfy the "use it or lose it" rule (see more on that below)? Is giving an avatar a health boost use for a medicine (likely not) or use for software maintenance/repair or a video game or something else?

What is clear is that new types of mark and new uses (some of which we will not have thought of yet) are likely to emerge in virtual environments and trade mark law and practice will need to adapt.

There will be a rise in infringement actions

Brand owners have already brought actions to try to prevent the use of their marks on virtual goods/services such as digital content authenticated by NFTs, including in the US (eg in the Yuga Labs and the MetaBirkin cases - see articles here and here) and Italy (eg the recent granting of an injunction to Juventus). We await a case in the UK.

While decisions overseas will be relevant to the UK, they won't always translate directly here. For example, the UK does not have the same protection in trade mark law for artistic works under the US First Amendment (right of free speech). In the MetaBirkin case, the defendant tried to rely on a First Amendment defence for use of the mark in relation to artistic works as the basis of his motion to dismiss; however, that was not successful because, for example, there was evidence of actual confusion and so the motion to dismiss was denied.  

There will be many infringement issues to work out, including whether the mere reproduction of a trade mark in the metaverse will constitute an infringement. Trade mark infringement occurs where there is use of the mark in the course of trade in relation to goods/services. A mere reproduction of a mark in the metaverse by an avatar won't necessarily satisfy those criteria (just as wearing a T-shirt with a third-party logo on it wouldn’t constitute infringement in the real world). Conversely, it would most likely constitute infringement to offer an avatar design or accessory service whereby users can obtain a third-party trade mark for or on their avatar. The same is true where a third party trade mark is used for a virtual store front that sells goods/services.

Another pertinent issue is whether the exhaustion of rights regime will apply to goods in the virtual world. This provides that, once a branded product has been put on the market in the EEA by the trade mark owner or with its consent, the owner cannot rely on its trade mark rights to prevent that particular product from freely circulating within the EEA – the trade mark owner's rights are said to be exhausted. Will the same regime apply to virtual products put on the market in the metaverse? If so, how will it be determined whether a product has been put on the market in the EEA in the non-geographical world of the metaverse?  

It will become harder to trace infringers

Tracing the person behind an infringement in a virtual environment may not be easy. Some platforms require no ID verification for e-commerce or avatars, resulting in the operation of anonymous accounts. This is something trade mark owners have already had to tackle with the development of the internet. Current tools relied upon include:

  • conducting a private investigation and/or making a test purchase to try to identify the infringer.
  • making a Norwich Pharmacal/third party disclosure court application against the relevant platform or other third parties for disclosure of the alleged infringer's identity
  • putting the relevant platform on notice of the infringement (since platforms could potentially be liable for infringements if they have actual knowledge of them or do not act expeditiously to remove or disable access to them on obtaining such knowledge)
  • obtaining judgment in default.

While metaverses and NFT platforms are currently operated centrally by established companies, the above options may give trade mark owners what they need to tackle many infringements (assuming the same liability rules apply to platforms/ISPs in a metaverse context). However, as the number of metaverses and platforms expands and they become increasingly decentralised, anonymous and/or operated out of less established jurisdictions, the scope for persistent infringers to escape liability or simply move to another virtual environment will increase, making life more difficult for trade mark owners. And if the metaverse, infringer and/or infringement is AI-generated (with no human author), the issues will only become more difficult or complex.

Some platforms are already taking first steps to combat this. It is likely that, over time, we will see more of these policies as platforms are incentivised to assist brand owners. However, it will take co-ordination between governments and stake holders on an international basis to fully tackle the issue.

Virtual service could become a thing

If the person behind the infringement cannot be identified, trade mark owners will have to consider alternative ways to serve their claims forms and court orders on infringers. There are already ways under English law to serve proceedings on persons unknown via 'alternative' means, based on cases relating to real but unidentified drivers, squatters or protestors in buildings or on land, blackmailers, and anonymous defendants committing torts on the internet. Alternative service could perhaps include getting the metaverse operator to serve the court document on the infringer or – potentially – arranging service of the document in the virtual environment itself. That could include getting one avatar to 'serve' the document on another avatar or leaving it inside the virtual store operated by the infringer!

Jurisdictional issues will start to be worked out

Trade marks are territorial rights. To take action in a particular jurisdiction, there must be infringement in that jurisdiction. Again, this is an issue that trade mark owners have already faced with the internet. In that context, the UK/EU courts have held that the mere accessibility in the jurisdiction (eg of a particular website) is not sufficient for there to be infringement – there must be "use" of the infringing sign in the jurisdiction. This is largely assessed by whether the website in question "targets" the UK/EU, bearing in mind factors such as the language and currency used, whether delivery to the UK/EU is offered and whether there is active solicitation of customers in the UK/EU.

However, most of these factors won't have much relevance in the metaverse. A new test for jurisdiction will therefore be needed, possibly based on factors such as whether the metaverse and/or infringer's use is marketed to users in the jurisdiction in question, or whether the metaverse is used by a significant number of people in that jurisdiction.

There are already steps towards considering these issues at government level. For example, the UK Law Commission recently launched a government-commissioned review to ensure the rules of applicable law and jurisdiction can accommodate an increasingly digitalised world. This follows a consultation on the possible introduction of a third new category of personal property for data objects (including most crypto-tokens).

We'll have to wait for revocation for non-use decisions

We have already touched on the "use it or lose it" rule for registered trade marks. This provides that a trade mark registration can be revoked if it is not put to genuine use in the UK on the goods/services concerned for any continuous period of five years after registration, and there are no proper reasons for such non-use.

There will be many ways to use trade marks in the metaverse, including the sale of virtual goods and provision of virtual services (eg McDonald's trade mark applications to operate virtual restaurant services), product demos (eg Chipotle's Burrito Builder), customer support, customer events (eg Jose Cuervo distillery tour), or real estate (eg Gucci's acquisition of the vault in The Sandbox to represent the brand and sell collectibles).

In many cases, the metaverse can be seen as another medium (along with websites, TV and print publications) and so the use in the metaverse may be in relation to real world goods/services (eg advertising use). In other cases, the use will be in relation to virtual world goods/services. Sometimes, it won't be clear and the use will arguably relate to both real world and virtual world goods/services.

In time, trade mark owners who have pre-emptively registered marks without plans or capability to use them might find themselves defending revocation proceedings. We’ll find out what kinds of use counts and whether issues such as delays in developing the metaverse constitute proper reasons for non-use. See more on this here.

This won't all happen in 2023

There is much to be worked out, just as there was with the development of the internet. While all the answers might not yet be clear, at least we have the re-assurance that we have largely solved many of the same sorts of questions which some had thought might be intractable at the start of the internet age.  Of course, not all metaverse trade mark issues will be resolved in 2023 as the metaverse itself is only in its infancy, but we do expect to see progress.

For more insights on the metaverse and how it will affect your brand, see our Interface insights here.

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