The metaverse provides businesses with new opportunities to commercialise and promote their brands. As explained in our previous article, “NFTs in the metaverse”, a number of well-known brands are embracing the metaverse as a means of promoting their products, particularly through the use of NFTs. At the same time, this virtual environment will also throw up challenging legal issues and could provide fertile ground for IP infringement.

In this fourth article of our metaverse series, we consider some of the key legal issues and challenges brands may face in relation to trade mark protection.

Use in the course of trade

Trade mark infringement in the UK and EU requires use of a sign in the “course of trade”. Metaverse economies will centre around the creation and exchange of virtual assets through NFTs, but it is unclear when dealing in virtual assets will amount to “use in the course of trade”. Brands will need to look closely at the nature of the use in order to ascertain whether certain types of use could give rise to actionable infringement.

For example, if a user mints an NFT of a pair of Nike trainers for their avatar to wear in the metaverse, is that “use in the course of trade”? What about if two private individuals trade an NFT, does that amount to “use in the course of trade”? Arguably not. Therefore brands may find it difficult to take action against individuals replicating branded digital assets or creating virtual equivalents of real life products. On the other hand, if a third party brand were to develop a line of Nike branded virtual trainers to sell for use in the metaverse (or even via a virtual marketplace within the metaverse) then Nike might have stronger grounds to argue trade mark infringement.

Location of use and jurisdiction

Trade marks are territorial rights, so infringement of a UK trade mark requires use in the UK; likewise infringement in the EU requires use within the EU. This raises the question of how the territorial nature of trade marks will operate in borderless virtual worlds. The established “targeting” principles, used to determine if online use is connected to a particular location, derive from case law concerning traditional e-commerce platforms. The courts have focused on factors such as:

• use of top-level country domains (e.g. .co.uk);
• currency of the website;
• shipping of goods to particular countries;
• language of the website;
• telephone numbers with international codes; and
• location of user traffic; and
• references to customers in a certain market.

Applying the factors above may prove problematic in virtual worlds. For example, Decentraland, operates a browser-based metaverse platform using a .org domain, and allows users to trade in virtual land using MANA cryptocurrency, which uses the Ethereum blockchain. Using the targeting principles set out above it is difficult to see any connection to a particular market.

Unless, or until, the courts consider “targeting” in the context of virtual worlds, brands may struggle to establish that use in the metaverse, such as Decentraland, has sufficient connection to the UK or EU. The issue is not novel in the context of online infringement, but the borderless nature of the metaverse is likely to make it even more difficult for brands to demonstrate connections to the UK or EU.

Nature of the goods/service protected by registered marks

At the moment it is unclear if an existing trade mark registration for “real word” goods and services will afford protection in a virtual context. For example, will a registration for “trainers” cover “virtual trainers”. This is another question the courts have yet to consider, but it certainly seems possible that physical trainers will not be considered identical to virtual trainers. If this is the case, it will be difficult for brands to argue use of an identical sign in relation to identical goods, meaning the brand may be forced to establish a likelihood of confusion in order to establish infringement.

Existing trade mark rights may provide some protection in the metaverse, but brand owners might consider obtaining new trade marks designed to apply specifically in a virtual environment. Additional protection will be particularly important for brands intending to commercialise their brands and assets in the metaverse.

A related question is whether brands can leverage their real world reputation to claim a reputation or goodwill in respect of virtual goods and services. Using the trainer analogy again, can Nike claim a reputation or goodwill for virtual trainers based on the use of its marks in connection with physical trainers? There are arguments either way (and this is another question the courts have yet to consider), but for the moment brands should be mindful that it may prove difficult to argue that use of a trade mark in the metaverse takes unfair advantage of the reputation attached to real world goods.

Detecting infringement and identifying infringers

The metaverse will see individuals living through avatars in the digital world, potentially without any obvious ties back to a real world identity. The anonymity provided by avatars may make it difficult to identity infringers. Likewise, as many metaverse ecosystems revolve around the use and trade of NFTs, the underlying blockchain technology may make it difficult for brands to police NFT trading and protect their rights. Brands can use metadata and blockchain ledgers to verify the author and owner of an NFT, but the metadata may not point to a real-world individual or third party. This may further complicate a brand’s ability to to identify who is responsible for creating infringing content.

Brands can still take steps to monitor and enforce their IP rights, including monitoring marketplaces through watch notices to identify unauthorised NFTs, sellers and minters. Brands may increasingly rely on intermediaries taking action against users through take down notices, rather than looking to enforce their rights directly through the courts.

Opportunity vs. enforcement

We have already seen brands such as Nike and Hermès take legal action in the US to protect their brands against digital content creators; however, given the potential difficulties of enforcing IP rights in the metaverse, an alternative to legal action might be to consider a commercial approach, such as collaborating or using cross-promotional branding to reach new audiences and demographics. For example, if a digital artist were to develop a hugely popular range of unauthorised branded NFTs, there might be more to gain for that brand owner by harnessing user engagement, perhaps by verifying or authorising certain NFTs or digital assets, rather than by using traditional enforcement methods.

There are many ways that brands can harness the commercial opportunities the metaverse can offer, but the key will be for brands to develop a strategy on what types of use to oppose, which uses can be tolerated, and which uses can be commercialised.

Still have questions? Be sure to read our metaverse articles below:

• Welcome to the metaverse: part one (definitions for a digital world)
• Welcome to the metaverse: part two (the metaverse’s past, present and future)
• NFTs in the metaverse
• Advertising in the metaverse
• Copyright in the metaverse
• Taxation in the metaverse
• Competition/antitrust in the metaverse
• Jurisdiction and torts in the metaverse
• Reputation in the metaverse
• Online harms and safety in the metaverse
• Data protection in the metaverse
• Working in the metaverse – what employers need to know