Protecting – and growing – your business in the brave new market 10 min read
The emergence of the metaverse as the next platform for internet engagement will see the development of a whole new economy, which is centred around transactions of virtual goods such as NFTs, using cryptocurrencies like Bitcoin.
In this Insight, we focus on businesses looking to build or expand their brands in the metaverse, and consider some of the issues they may need to grapple with when it comes to protecting their brand rights in this brave new world.
- The metaverse presents significant opportunities for businesses to expand their brands into the virtual world and reap the commercial benefits that ensue. However, before making the leap, they should take stock of their existing brand rights, and consider whether additional protection may be required to accommodate such expansion.
- For example, businesses may consider seeking new trade mark registrations to cover goods and services that specifically relate to the metaverse (as existing registrations for real world goods and services will not necessarily cover their virtual counterparts), or in additional jurisdictions.
- Enforcement in the metaverse is also likely to bring particular challenges, from identifying what unauthorised conduct can be characterised as infringement, to determining who within the metaverse ecosystem should be liable.
The 'metaverse' (literally meaning beyond the universe) is a term coined by Neal Stephenson in his 1992 novel Snow Crash to describe a virtual reality-based successor to the internet. As currently envisioned, it is a shared, immersive and persistent virtual 3-D universe, which users can access via any number of interfaces (whether PCs, smart phones, gaming consoles or VR headsets), and where they can virtually interact with each other, in real time.
Ideally, the metaverse would comprise many interoperable virtual worlds and would not be dependent on any single operator. For now, however, it is a tight race between a handful of large players in the market, from Meta (formerly Facebook) and Microsoft, to Epic Games, Roblox, Decentraland and The Sandbox, to build and expand their own version of the metaverse.
There's nothing new about people interacting in virtual reality via avatars – they have been able to do so for many years, including on the social platform Second Life, or in massively multiplayer online role-playing games like World of Warcraft. However, what's different now is that, thanks to new technologies, it's possible to have more realistic virtual experiences and more efficient online transactions. Further, the general public has also become much more accustomed to having a digital identity and living a digital life. The use cases for the metaverse are therefore evolving beyond just gaming, to include work, retail, media and entertainment, tourism, banking and healthcare etc., and it is foreseeable that the metaverse will simply become a new way of life.
It's common to hear non-fungible tokens (NFTs) and the metaverse mentioned in the same breath. This is because NFTs have been increasingly adopted in metaverse economies to represent virtual assets that can be bought and sold by users. NFTs are unique digital tokens stored on a blockchain, which means they can't be modified and can be traced back to their origin using the blockchain ledger. These qualities make NFTs a useful tool for validating the authenticity and uniqueness of virtual assets within the context of a metaverse.
So eg when a user purchases an NFT of a virtual artwork, what they are really purchasing is a bit of code that represents that unique copy of the virtual artwork and then becomes secure proof of their ownership. Depending on the terms of the purchase (which can be customised by the creator of the NFT), ownership of the NFT, without more, does not give the purchaser any claim to any IP rights that subsist in the artwork. In other words, the owner of the copyright in the artwork, and not the purchaser of the NFT, would be entitled to create new copies, and new NFTs, of the same artwork.
The metaverse will also likely further accelerate the growth of cryptocurrencies. Currently, a significant hurdle for cryptocurrencies is that they are not yet widely accepted as a form of payment in the real world. In contrast, transactions involving virtual assets, which are likely to comprise high-volume, cross-border transactions between undisclosed parties, can particularly benefit from the anonymity, speed of transfer and low fees of cryptocurrencies, which would therefore make them the obvious choice of payment in the metaverse.
Businesses seeking to establish a metaverse presence should first consider reviewing the scope of their existing trade mark registrations, and assessing whether and to what extent additional protection may be required.
While there is no settled position as yet on whether an existing trade mark registration that covers real-world goods and services would also cover their virtual counterparts, the approach we are seeing in filing strategies in the market is that separate protection should be sought for virtual counterparts. For instance, a number of businesses that have traditionally dealt primarily in physical goods, across various industries, have recently sought additional protection in Australia in Class 9 for downloadable virtual goods, including for brands such as Penfolds, Monster Energy, Acer, Charlotte Tilbury, Tommy Hilfiger, Rexona and Hyundai Pony. A common practice is also to name the type of physical goods to which the downloadable virtual goods correspond – eg using the formulation 'downloadable virtual goods, name virtual [clothing / cars / homewares etc.]'.
Even if an existing trade mark registration is arguably sufficiently broad (eg it already covers computer software generally, which could therefore extend to virtual goods, or software platforms that enable the supply of virtual goods or services or the exchange of cryptocurrencies in the metaverse), there may nevertheless be merit in filing additional registrations that specifically relate to the metaverse, for the purposes of signalling to the market a strategic intention to enter the field. Specific registrations would also be necessary in jurisdictions like the US, where broad, general coverage is not permitted.
Other questions businesses should ask themselves in determining their filing strategies include:
- whether they wish to use their existing brands in the metaverse, or develop new, metaverse-specific brands or sub-brands;
- when do they intend to use their brands in the metaverse – applications that are made prematurely may be vulnerable to third party challenges for non-use;
- which particular aspects of the metaverse or related technologies do they wish to cover in any new registrations – eg NFTs, virtual goods and related retail services, development of software for the metaverse, or hosting virtual entertainment events; and
- in which jurisdictions do they wish to seek or prioritise protection – this may not be the same as where they currently have a physical footprint, but may be influenced by factors such as where their chosen metaverse platform is based, where they wish to trade in relevant NFTs, or where the risk of trade mark squatting is high (eg where the applicant who's the first to file is entitled to the trade mark).
Enforcement of brand rights can be challenging in the metaverse, including for the reasons set out below.
First, in order to effectively detect and stem any potential infringements, businesses would need to actively monitor the relevant metaverse platforms and promptly initiate takedown processes in accordance with the platforms' policies. This can be a time-consuming and costly exercise. Having appropriate metaverse-specific trade mark registrations should help, as it may be necessary to rely on them as the basis for takedowns. Businesses may also wish to pre-emptively establish their brands in the metaverse, such as by releasing their own official branded NFTs, before unapproved versions have the chance to flood the market.
Second, it may not be straightforward to characterise all unauthorised conduct as infringement. For example, let's assume that a software developer, without authorisation from the brand owners, creates a digital replica of a real street in the metaverse, which displays the branding of shops that exist on that street in the real world. In these circumstances, it is arguable that the use of such branding isn't 'use as a trade mark' by the developer – they are not used to denote the origin of the developer's goods and services, but used descriptively for the purposes of creating a true reproduction of the real place.
Third, infringement may take place before there is an opportunity to obtain metaverse-specific trade mark registrations and, therefore, businesses may have to get creative in how they enforce their rights.
For example, if the only trade mark registrations that can be asserted are those covering real-world goods or services:
- One option would be to rely on section 9(1)(b)(ii) of the Trade Marks Act 1995 (Cth). This provides that a trade mark is taken to be applied in relation to goods or services if it's used in a manner likely to lead persons to believe that it refers to, describes or designates the goods or services. This could support an argument that use of a trade mark in relation to the virtual counterparts of such real-world goods or services, by an unauthorised third party, in a manner likely to lead persons to believe that it refers to, describes or designates the real-world goods or services of the registered trade mark owner, would constitute infringement. However, it's not yet clear how a court would apply s9(1)(b)(ii).
- Another option is to bring infringement proceedings under s120(3) of the Trade Marks Act, which would require the registered trade mark owner to prove that their registered trade mark is well known in Australia, and that an unauthorised third party's use of a substantially identical or deceptively similar mark in the metaverse was likely to indicate a connection between the virtual goods or services and the registered owner, and likely to adversely affect the registered owner's interests. However, these elements are usually challenging to prove.
Given these uncertainties and difficulties in an emerging area of the law, the better option would still be for businesses to seek metaverse-specific trade mark registrations.
In addition to trade mark actions, businesses may also look to enforce their rights through claims for misleading or deceptive conduct under the Australian Consumer Law, or the tort of passing off, or, where applicable, copyright infringement (eg if their copyright works are used in advertising campaigns to promote the sale of unauthorised virtual goods).
Fourth, there may be complexities in determining who within the metaverse ecosystem should be liable for the infringing conduct. This could be eg
- a user of a metaverse platform (who may be anonymous and only identifiable by an online moniker);
- a services provider that creates and/or sells NFTs (who could be acting on the instructions of a user, or on its own accord); or
- the operator of a metaverse platform (whose liability will likely depend on the steps they have taken to mitigate the risk of infringement).
A further complication is that some metaverse platforms are, or proposed to be, operated in a decentralised model, making it even less clear who can be responsible, or even contacted, in the event of an infringement. Decentraland, for instance, is governed by a Decentralised Autonomous Organisation (DAO), which, according to Ethereum, is a member-owned community without centralised leadership. It's unclear what the legal status of a DAO is, but the Decentraland DAO purportedly owns the most important smart contracts and assets that make up Decentraland, and decision-making by the DAO is conducted by way of voting by the community of Decentraland users.
Ready or not, the metaverse has arrived and will fundamentally transform the way we experience the internet. Now is the time for businesses to get on the front foot and implement strategies that will see their brands continue to flourish in this new market.