Creating and protecting IP in the metaverse – an Australian perspective

by Jane Owen, Rohit Dighe and Meggie Zhang

As technology, media and entertainment companies continue to invest billions of dollars into the development of the metaverse – still in its infancy – businesses from all sectors are flocking to the platform to ensure they can partake in its prospective commercial opportunities. When the metaverse is fully established, it will provide users with various immersive experiences, such as social networking and attending events like virtual meetings and concerts, online interactive gaming, and a new market place for virtual goods and services, such as clothing for avatars and immersive group physical training. Given this rapidly growing potential, Bloomberg forecasts that the metaverse market will reach US$783.3 billion in value in 2024.[1]

However, the recent lawsuit filed by luxury fashion house, Hermès, in the US against the artist of the “MetaBirkins” series of non-fungible tokens (NFTs) signals that the blurred line between virtual/digital goods/services and the real-world versions of those goods/services is stretching corporate brand protection strategy.

In the past two decades, enterprises have shifted their operation from bricks and mortar trading to embrace the online world. However, the metaverse is another dimension for operational issues, regarding corporate rethinking of the way in which businesses are achieving “metaverse-ready” status with their brands.

IP Australia, the United States Patent and Trademark Office (USPTO), the European Union Intellectual Property Office (EUIPO), and the Intellectual Property Office of the United Kingdom (UKIPO) are among the IP offices which have experienced a surge in the number of trade mark applications for goods and services to ensure that brand protection is afforded to those goods and services in the metaverse. As a result, the EUIPO published its policy regarding the classification of virtual goods, NFTs and other claims regarding the metaverse in its 2023 draft Guidelines on which a range of stakeholders have until 3 October 2022 this year to comment.

What is the metaverse?

The metaverse refers to shared virtual worlds in which participants can engage in various experiences in virtual reality (VR), augmented reality (AR), and mixed reality (MR), such as social networking using virtual avatars, attending virtual events such as exhibitions, gaming competitions and concerts, and buying and selling virtual assets such as land and clothing. At present, “the metaverse” comprises multiple separate virtual worlds, such as Decentraland and The Sandbox. The metaverse can be accessed using VR, AR, MR, and virtual world technologies, such as the Meta Quest 2 and Microsoft HoloLens 2, as well as general-purpose computers and smartphones.

In his keynote at Connect 2021, Mark Zuckerberg described the metaverse as “the next platform and medium, even more immersive [than today’s version of the internet]… an embodied internet where you are in the experience, not just looking at it… you’re going to be able to do anything you can imagine – get together with friends and family, work, learn, play, shop, create, as well as [engage in] entirely new categories that don’t really fit how we think about computers or phones today”.[2] Zuckerberg stated that “the feeling of presence” is the most defining feature of the metaverse.[3]

How is the metaverse being used and how will it be used?

Social networking

The metaverse has been said to herald the next era of social networking and using technology to socialise with friends and family. As stated by Zuckerberg, Meta’s vision is to expand social media from text-based and video-based communication to interaction in a three-dimensional space that focuses on the feeling of presence.[4]

Media and entertainment, including e-sports

Through the metaverse, gamers are able to elevate their gaming experiences by being physically embodied in the virtual world rather than controlling a character on a monitor or TV using a joystick. As reflected by the $68.7 billion acquisition of Activision Blizzard by Microsoft (which, according to Microsoft’s CEO, will “provide building blocks for the metaverse”)[5] and $1 billion round of funding to Epic Games (the aim of which is to “support Epic’s long-term vision for the metaverse”),[6] major players in the gaming sector have already begun working towards staking their claim in the metaverse.

The metaverse experience can also be harnessed in other ways to provide immersive entertainment, such as attending virtual concerts in the metaverse, riding roller coasters at a virtual theme park, and placing bets at a virtual casino.

Fitness

In the fitness sphere, companies such as Fit XR and Supernatural offer customers the ability to exercise and play sports with and against real and AI players in VR, AR or MR.

Work

The metaverse will enable the ability to work remotely but be together with colleagues in virtual reality and mixed reality – this is essentially a step up from using videoconferencing technologies to communicate with colleagues. Thus, the metaverse brings together the benefits of working in the office (e.g. the shared physical space and chance interactions with colleagues) with those of working from home (e.g. no commute to the workplace).

Education

For students, the metaverse will offer unparalleled learning opportunities by allowing the user to ‘teleport’ into any space or time. For example, a medical student would be able to learn surgery in a virtual operating theatre, and a class of history students could be teleported into an artificially created Ancient Rome setting where they can interact with a lived-in environment to learn how the Romans lived.

Commerce

The metaverse will offer consumers a more engaging online shopping experience, and retailers the opportunity to expand their offerings to include virtual goods, including NFTs. Consumers will be able to ‘walk’ around the virtual store, enjoy the store displays and ‘try on’ the products, all in the comfort of their own home.

How big brands are already making their mark in the metaverse

A number of reputable brands, including Nike, the UFC and Penfolds, have already filed a new suite of trade marks as they take their first steps in shoring up their presence in the metaverse. We take a look at these, as well as the recent trade mark infringement action by Hermès, below.

Nike

In October 2021, Nike filed a number of US trade mark applications, which are still under examination, in respect of its well-known trade marks, including the NIKE swoosh device, AIR JORDAN device, and “JUST DO IT” slogan, extending its filings from the typical apparel classes and associated service classes to extend its protection to class 9 “virtual goods” and the provision of those goods.

Through these trade mark applications, Nike is extending its registered branding rights to virtual clothing, footwear and other goods for use online and in the metaverse. Nike’s plan to exploit this extended portfolio is highlighted by its recent acquisition of a virtual shoe company that makes NFTs and sneakers for the metaverse, RTFKT.[7] The trade marks, if registered, will extend protection of Nike’s brands in the metaverse, enabling Nike to bring a trade mark infringement action in the event that a third party uses its marks without authorisation in the metaverse.

UFC

In April 2021, the UFC filed an Australian trade mark application in respect of its "UFC" word mark, to cover NFTs and other digital collectibles and trading services for cryptocurrency. This application was granted registration in January 2022.

These recent filings are consistent with UFC’s partnership with Crypto.com, a cryptocurrency and NFT marketplace. Dana White, President of the UFC, has recently indicated that the UFC is planning to organise a fight in the metaverse.[8] It would be expected that UFC would also seek to protect its virtual merchandise in the metaverse in association with the fights it will organise, to ensure it has its brand protection strategy iron clad.

Penfolds

Esteemed Australian winemaker Penfolds has similarly filed multiclass Australian trade mark applications, which are under examination, in respect of its PENFOLDS word and logo marks, covering digital material and operating online marketplaces/retailing digital assets and online entertainment services.

The above applications, if registered, will protect Penfolds’ brand from being used by unauthorised third parties in respect of NFTs and the trading of NFTs and other virtual goods. The applications follow the move by Penfolds to partner with BlockBar (an NFT marketplace for wines and spirits) and launch limited edition NFTs tied to ‘ultra-rare’ barrels of wine.[9]

Hermès

In January 2022, Hermès commenced proceedings in the District Court for the Southern District of New York against the artist behind the “MetaBirkins”-branded NFTs, each which features a digitalised Birkin bag covered in colourful fur.[10] These proceedings are being watched for its precedent-setting potential in relation to the application of trade mark law to NFTs. Hermès is the registered owner of a number of trade marks including its famous “BIRKIN” trade mark (BIRKIN Mark) and Birkin bag trade dress (BIRKIN Trade Dress), used in relation to its exclusive Birkin handbags. Hermès has alleged that the “MetaBirkins” NFTs, which surpassed US $1.1 million in total sales volumes in January 2022, “rips off” its iconic Birkin trade marks.[11] The artist, Mason Rothschild, argues that the NFTs, being merely images and not actual handbags, are works of art and therefore protected by the First Amendment. Rothschild has admitted that he “seeks to make his fortune by swapping out Hermès “real life” rights for “virtual rights”.[12] Rothchild’s motion to dismiss the case in May 2022 was rejected,[13] and this case will set a precedent as to how US Courts will apply traditional trade mark rights to NFTs.

Legal issues from an Australian perspective

Trade mark classification and infringement issues

The key legal question concerning brand protection in the metaverse is whether it is necessary for trade mark owners to expand their filings to include protection for virtual goods and services, if their trade marks already cover the real-life equivalent. For example, is it necessary for a supplier of shoes to apply for “virtual shoes” in class 9 if their brand is already protected in class 25 for “shoes”? The answer to this question is determined by whether these two items are the same thing (and the authors’ view is that they are clearly not).

While virtual footwear, clothing and headwear have a visual likeness to the real-life counterparts, a virtual shirt for example, being a digital image generated by computer software, would not be of the same nature, have the same use, or be sold in the same trade channels, as a real-life one.

In applying this logic to a brand owner seeking to enforce its trade mark rights, a person will be held to infringe a registered trade mark if they use as a trade mark a mark that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.

An Australian court has not had to tackle this question.

These questions have not yet been judicially considered in Australia, and the outcome in the MetaBirkins proceedings will no doubt be relevant when such questions inevitably come before Australian courts. The authors note that the relevant claims in the MetaBirkins proceedings were brought under the Lanham Act, which includes claims that are not found in the Australian trade marks legislation, such as for trade mark dilution. Hermès relied upon its class 18 filing for the BIRKIN Mark for its trade mark infringement and trade mark dilution claims, as well as its class 18 filing for the BIRKIN Trade Dress for its false and misleading representations claim.

In July 2022, the EUIPO published its policy regarding the classification of virtual goods, NFTs and other claims regarding the metaverse. The policy states:

• Virtual goods are proper to Class 9 because they are treated as digital content or images. However, the term virtual goods on its own lacks clarity and precision so must be further specified by stating the content to which the virtual goods relate (e.g. downloadable virtual goods, namely, virtual clothing).
• The 12th Edition of the Nice Classification will incorporate the term downloadable digital files authenticated by non-fungible tokens in Class 9. NFTs are treated as unique digital certificates registered in a blockchain, which authenticate digital items but are distinct from those digital items. For the Office, the term non fungible tokens on its own is not acceptable. The type of digital item authenticated by the NFT must be specified.
• Services relating to virtual goods and NFTs will be classified in line with the established principles of classification for services.

As at the date of publication of this article, IP Australia has not published its policy regarding the classification of virtual goods, NFTs and other claims related to the metaverse.

Copyright infringement

If trade mark rights do not assist a brand owner, will copyright come to its aid?

Copyright will be a key tool in enforcing rights against unauthorised metaverse use (in the artworks underlying NFTs and the musical works in songs). Under Australian copyright law, copyright will be infringed when a person uses a substantial part of the copyright material without permission of the owner.

Copyright co-exists with trade mark rights and to some extent intellectual property rights in products. A digital asset in the metaverse, being the reproduction of a physical asset, could constitute activity infringing the copyright in:

• The product itself (if it is a work of artistic craftsmanship);
• Two-dimensional drawings of the product;
• Artistic works comprising any logo used on the product or appearing on the product itself; or
• Literary works comprising any slogan used with the product.

Under Australian law, the “copyright design overlap” prevents a person from being found infringing copyright in an underlying two-dimensional work (such as a design drawing) by reproduction of a three-dimensional product, if the owner of the copyright has industrially applied the artistic work by itself making and supplying three-dimensional works.[14] However, it is far from clear that these provisions can apply to excuse infringement by the user in the metaverse.

Infringing use in the metaverse comes with the added complication of being able to identify the infringer – in the metaverse, where individuals act behind the façade of an avatar, the infringer may not be as readily identified as they would be in the real world. Ultimately, the responsibility may fall on the platform providing the metaverse to provide appropriate take down protocols for rights holders to use to provide a clean track to enforcement.

Australian Consumer Law

The rights and prohibitions under the Australian Consumer Law will apply in the metaverse, to the extent Australian consumers are users of the metaverse. Of particular relevance are the consumer guarantees, prohibitions against misleading and deceptive conduct in trade or commerce, and against making false, misleading or deceptive representations about goods or services. With the lines between physical reality and virtual reality blurred in the metaverse, it may be relatively easy for example, to inadvertently lead a consumer to believe that they are interacting with a human avatar (when in fact it is a bot), or that they are purchasing a real-life good (when in fact it is a virtual good). Suppliers of goods and services in the metaverse should also be aware of the consumer guarantees under the Australian Consumer Law – including that goods sold must be fit for purpose – which apply regardless of whether suppliers are selling virtual goods and services or their real-life equivalents.

Where to next?

As the metaverse expands to its expected potential, intellectual property infringement in the metaverse is inevitable. Monetisation of third-party rights, such as through the lucrative MetaBirkins endeavour, is but one early example of the clash of traditional IP rights and entrepreneurs in the metaverse. Brands and other IP holders need to understand this risk and reshape their IP protection strategies accordingly.

[1] Bloomberg Intelligence, ‘Metaverse may be $800 billion market, next tech platform’, 1 December 2021, https://www.bloomberg.com/professional/blog/metaverse-may-be-800-billion-market-next-tech-platform/, (accessed 11 April 2022).

[2] Meta (formerly Facebook), Keynote, Connect 2021, 29 October 2021, https://www.facebook.com/facebookrealitylabs/videos/561535698440683/ (accessed 11 April 2022).

[3] Ibid.

[4] Ibid.

[5] Microsoft, Microsoft to acquire Activision Blizzard to bring the joy and community of gaming to everyone, across every device, 18 January 2022, https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device/, accessed 11 April 2022.

[6] Epic Games, Announcing a $1 Billion Funding Round to Support Epic’s Long-Term Vision for the Metaverse, 13 April 2021, https://www.epicgames.com/site/en-US/news/announcing-a-1-billion-funding-round-to-support-epics-long-term-vision-for-the-metaverse, accessed 11 April 2022.

[7] Nike, NIKE, Inc. Acquires RTFKT, 13 December 2021, https://news.nike.com/news/nike-acquires-rtfkt, accessed 11 April 2022.

[8] See, for example, BJ Penn, Dana White announces UFC will do fights in the metaverse, 2 February 2022, https://www.bjpenn.com/mma-news/ufc/dana-white-announces-ufc-will-do-fights-in-the-metaverse/ (accessed 11 April 2022)

[9] See, Forbes, BlockBar Launches NFT Gifting With 300 Bottles Of Rare Penfolds Wine, 12 January 2022, https://www.forbes.com/sites/jilliandara/2022/01/12/blockbar-launches-nft-gifting-with-300-bottles-of-rare-penfolds-wine/?sh=714bd55f7d33, accessed 11 April 2022.

[10] Hermes International et al. v. Mason Rothschild, U.S. District Court for the Southern District of New York, no 1:22-cv-00384 (‘Hermes v Rothschild’).

[11] See, Law360, Hermes Cites Designer's Interview In 'MetaBirkins' NFT Suit, 4 May 2022, https://www.law360.com/articles/1488882, accessed 10 May 2022.

[12] Hermes v Rothschild (n 10) 1.

[13] See, Reuters, Hermes lawsuit over 'MetaBirkins' NFTs can move ahead, judge rules, 7 May 2022, https://www.reuters.com/legal/litigation/hermes-lawsuit-over-metabirkins-nfts-can-move-ahead-judge-rules-2022-05-05/, accessed 10 May 2022.

[14] Sections 74-77 Copyright Act (Cth) 1968