Brand owners should get TM versed in the metaverse

7 minute read

A visitor is pictured in front of an immersive art installation titled "Machine Hallucinations — Space: Metaverse" by media artist Refik Anadol, which will be converted into NFT and auctioned online at Sotheby's, at the Digital Art Fair, in Hong Kong, China September 30, 2021. REUTERS/Tyrone Siu

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May 18, 2022 - By now, we have all heard the term "metaverse," but what does it actually mean? In a nutshell, the metaverse is the next generation internet: a 3-D version that users can "step inside" and experience via virtual reality, augmented reality, or mixed reality, among others.

The metaverse is not one virtual world, but a network of many, including, for example, Sandbox, Roblox, and Meta's Horizon Worlds. As the metaverse matures, users will be able to travel between these virtual environments and interact as they would in the real world. Imagine the following day:

In the morning, you put on a virtual reality headset and get transported to a universe where you start your day by purchasing a virtual Chanel suit in your favorite virtual clothing store, complete with a virtual salesperson to help you find the right suit for your avatar's morning meeting in your virtual office space, like the Meta's Horizon Workrooms. At lunch, you pop over to the virtual Walmart store to pick up some virtual toys for the kids to play with in their own virtual environments. That evening, you round out the day by attending a live virtual concert by Justin Bieber.

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That opportunity is arriving, and brand owners need to be prepared.

Why should brand owners care about the metaverse?

Much like the rise of the modern internet, the metaverse will be overflowing with opportunities for businesses to reach new consumers and grow their brands in the process. It will encourage and enable new product lines and will allow companies to host pop-up showcases and immersive consumer experiences in entirely branded landscapes at a moment's notice. It will also expand the realm of possibilities for limited edition, sometimes fantastical and otherworldly, offerings.

However, this new digital frontier will also present unique and unchartered risks to trademark rights holders. In fact, several companies are already facing infringement issues related to the metaverse.

Gucci and Prada are each grappling with unaffiliated parties filing trademark applications for their house marks in connection with "downloadable virtual goods" (U.S. Application Ser. Nos. 97/112,038 and 97/112,054).

Meanwhile, Nike filed a lawsuit in the Southern District of New York against the online shoe resale platform StockX over its use of Nike's trademarks in connection with non-fungible tokens (NFTs) — the digital asset that will inevitably play an important role in commerce in the metaverse. StockX claims that its NFTs are not virtual products or digital sneakers; rather, they are a means for authenticating and tracking ownership of the physical products stored in its facilities. (Nike Inc. v. StockX LLC, No. 22-cv-983, 2022 WL 340664 (S.D.N.Y. Feb. 3, 2022)).

Luxury fashion house Hermès is fighting infringement of its Birkin brand by digital artist, Mason Rothschild, whose MetaBirkin NFTs have sometimes sold for more than the real Birkin bags themselves. Rothschild claims that his NFTs are pictures of fanciful, fur-covered Birkin bags, not physical handbags themselves, and are protected by the First Amendment because they provide artistic commentary on consumerism and luxury brands. (Hermes Int'l v. Rothschild, No. 22-cv-384, (S.D.N.Y. Jan. 14, 2022)).

Additional exploitation and infringement of trademarks in the metaverse will only become more prevalent in the months and years ahead as these virtual worlds evolve.

In the metaverse, inattentive or simply unlucky brand owners risk reputational damage and losing control over the association consumers make with their marks. Even the most diligent will still have to be quick to adapt.

In the early days of the internet, we experienced an ever-increasing volume of websites and social media pages containing some form of undesirable or unauthorized use of third-party trademarks. That new medium forced brand owners to adjust protection strategies, implement new enforcement mechanisms, and consciously balance free speech rights against brand harm.

With the metaverse, we will again encounter novel instances of trademark abuse requiring creativity in response and flexibility on the part of brand owners. In fact, these challenges are likely to be even more prevalent in the currently deregulated metaverse, with its immersive environment and roots in gaming culture, which is historically provocative and at times scandalous. As a result, traditionally modest or family-oriented companies may encounter less-than-wholesome experiences for their customers due in large part to the limited control over the virtual environment surrounding their storefronts.

The uncertainty surrounding the "reality" of the metaverse is expected to shift with time, as additional prominent and influential companies dive into the virtual realm and drive some stability into the process.

How should brand owners be responding to the metaverse?

Given the potential impact that the metaverse will have on the way consumers view and react to particular marks, it is imperative that brand owners immediately consider how to best protect their rights moving forward.

At a high level, at least for claims brought in the U.S., it is expected that trademark infringement arising from virtual activities in the metaverse will be actionable just as the corresponding activities in the real world give rise to liability. The consumer confusion standard for infringement should not be eliminated or mitigated by the mere fact that a product or service exists in a virtual state, but the application of typical affirmative defenses might need to evolve. The results of the lawsuits brought by Nike and Hermès will be telling on these points.

It remains unclear if first-to-file jurisdictions outside of the U.S. that rigidly adhere to product classifications in evaluating scope of protection will conduct a similar analysis.

To maximize protection and streamline potential claims, rights holders should conduct a thorough trademark portfolio assessment to determine whether current coverage provides sufficient protection for the initial unknowns of the metaverse. As a benchmark, registrations for key brands should have coverage of relevant goods and services in a virtual setting. Fresh applications should be considered to fill any gaps.

For example, prominent brand owners have already begun filing new applications for goods and services that implicitly reference the metaverse through terms such as "downloadable virtual [goods]," "virtual communities," and "virtual environments." Businesses that traditionally sell physical goods, especially clothing and accessories, will benefit the most from pursuing a gap-filing strategy. On the other hand, businesses that typically deal in software and services may own existing coverage that already translates well into the metaverse.

Whether or not particular brand owners intend on entering this new domain, they must keep a watchful eye on third parties exploiting their respective marks in the metaverse.

Monitoring and policing services will be an important tool to identify infringement. Once identified, there will be questions as to the effectiveness of traditional enforcement measures and as to the specific procedures and processes available to rights holders. Enforcement mechanisms will vary by metaverse provider and will evolve as new issues and considerations arise.

A few providers (such as Horizon Worlds) are already implementing traditional takedown options to provide a mechanism for brand owners to combat infringing activities. In contrast, Sandbox is taking a hands-off approach by disclaiming infringement liability and suggesting that the user exhaust self-help options before contacting Sandbox. Due to the networked nature of the metaverse and it being composed of numerous platforms with different providers from various jurisdictions, rights holders will have to consider the different mechanisms of enforcement and the varying degrees of effectiveness for each.

From a practical vantage point, just as in the real world, brand owners will need to conduct cost-benefit analyses and consider PR risks of enforcement in determining which offending parties to act on: the individual user who made a knock-off Gucci belt for their avatar, or the creator of a virtual Gucci storefront selling downloadable, branded products to the entire metaverse? While there may be an innate desire to stop all unauthorized activities in these virtual worlds, brand owners will need to determine which ones are truly consumer or reputational harming and which are simply unwanted with low impact.

As an alternative to traditional enforcement, brand owners might consider collaborations or partnerships with third-party creators to maintain control over the licensing of their trademarks, particularly when dealing with good-faith actors.

The metaverse is here, and the time is now for brand owners to develop and implement their metastrategy — complete with trademark gap filings, virtual policing and enforcement procedures, practical consideration metrics, and perhaps even a little bit of something as creative and out-of-this-world as the metaverse itself.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Mike McArthur is a senior associate in the Trademark Practice Group in the Dallas office of Haynes Boone. His practice focuses on all aspects of trademark law, including global portfolio management, clearance, prosecution, and enforcement of trademark rights on online marketplaces, on social media platforms, and before administrative bodies like the Trademark Trial and Appeal Board. He can be reached at mike.mcarthur@haynesboone.com.

Ellie Sowanick is a senior associate in the Intellectual Property Group in the Dallas office of Haynes Boone. Her practice focuses on a variety of trademark, copyright, design patent, and social media matters. In trademark, she specializes in international and domestic brand management and strategy, including brand selection and clearance, prosecution and expansion, and enforcement matters such as domain name proceedings and Trademark Trial and Appeal Board disputes. She can be reached at ellie.sowanick@haynesboone.com.

Lyric Stephenson is an associate in the Intellectual Property Practice Group in the Dallas office of Haynes Boone. Her practice focuses on trademark and utility and design patent prosecution matters. With respect to her trademark practice, she assists clients with portfolio management from adoption to rights acquisition and enforcement. She has experience on matters related to a variety of technologies, including biotechnology, medical devices, mechanical devices, computer software, artificial intelligence and deep learning. She can be reached at lyric.stephenson@haynesboone.com.