Intellectual Property Protection in the Metaverse

The U.S. Trademark and Patent Office (USPTO) has experienced a significant rise in the number of trademark applications to protect goods and/or services in a virtual sphere. These primarily include applications related to non-fungible tokens (NFTs) and in relation to virtual goods and services available in what is now being referred to as "the metaverse."

In the past two decades, the dramatic rise in e-commerce saw brand owners scrambling to protect their assets in cyberspace, beginning with domain names, and then social media handles. Now, with the growth of interconnectivity plus digital experience creating virtual reality and augmented reality, technology experts and marketers refer to these new spheres of human interaction as the metaverse. This new market offers – and will likely expand upon – new ways for various industries to increase scalability, including new business opportunities and new ways to promote products and services at an even faster pace.

Interoperability is an important feature of this latest development in the digital economy; consumers have the ability to move virtual items such as clothes or cars from one platform to another. In the real world, a consumer can buy a sports team jersey at the mall or online and then wear it to a sporting event, a restaurant or at home. In the virtual landscape, an outfit could be purchased and worn by an avatar in more than one platform. Purchases of virtual goods and services could be used in numerous virtual worlds.

In light of such new scenarios, brand owners must consider intellectual property (IP) strategies for leveraging business models and innovation. Protectable IP assets in the metaverse vary from copyrighted content to all manner of trademarks, including logos, brands, slogans and trade dress in the form of packaging and design, and possibly even design patent protection for unique configurations. Companies should conduct a thorough analysis of the virtual landscape where they hope to market and promote goods and services in order to determine whether they even want to do business in the metaverse.

A New Frontier?

Globalization and collateral global market developments in all spheres, such as the evolution of banking systems and payments, will continue to challenge well established legal precedents. Changes in intellectual property law are inevitable due to the new virtual landscape. Many legal questions must be resolved. For instance:

• Could a trademark be deemed famous in the metaverse and not in the physical world?
• What will future trademark licensing deals look like in the metaverse?
• How will trademark franchising and other business collaboration models be implemented in the metaverse?
• What will be the approach for protection under trademark, patent and copyright law when virtual worlds are combined as holograms with real world visual appearances?

Next Steps and Considerations

Enterprises should consider protecting and registering their trademark in the field of interconnected virtual reality for the following legal and commercial reasons:

• Brand Protection and Enforcement: Depending on an entity's business model and future product/strategy, companies should consider a proactive approach and update their trademark protection and IP contingency prevention plan. As more businesses move to operate in the metaverse, brand monitoring expenditures for detecting invalid or fraudulent use of trademarks is likely to keep increasing. At this point, it is too early to determine how brand protection and enforcement will unfold in the metaverse. Inevitably, however, commerce in the metaverse/virtual world will involve the fraudulent use of trademarks by third parties in a confusingly similar or identical way. Companies already operating in the virtual world or planning to do so, should anticipate such potential risks by registering their trademarks for use in a virtual marketplace. Doing so will give companies a better and more efficient way to enforce trademark rights if the prospect of litigation arises.
• A Holistic Approach to IP Rights: Linked to brand enforcement, the onset of the metaverse underlines the importance of considering IP rights holistically. Business models and core products and services offered in the metaverse emphasize the interconnectivity of IP rights like never before. A virtual business may have – as a primary core asset – a virtual product design, aspects of which that may need protection as trade dress under trademark law, through a design patent and under copyright law. In order to obtain unquestionable ownership of such a virtual product, especially in a legal action, IP protection must be carefully considered and addressed in a more diligent manner.
• Market Presence: From a marketing side and sales strategy, once enterprises decide to operate in the metaverse and proceed to protect their assets in the virtual world they will have to come to grips with the fact that such marketing could reach new classes of worldwide consumers at an unprecedented pace. Because of these new platforms, enterprises will have a new instrument for their brand to become globally recognizable and potentially famous. Brand awareness tools that monitor and protect trademark rights worldwide will be essential.

For more information and additional IP guidance in the metaverse, contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.