The metaverse has been described as the future of the internet – a digital world where we will live, work and play. It has attracted enormous investment from both tech companies and companies outside the traditional tech space. Web3 technologies (metaverse and non-fungible tokens) create a unique possibility for any company. This is not only true for those companies whose current or future business relies on brands, content creation and/or online platforms to connect and interact with customers, but for all companies, including those who have historically relied on face-to-face meetings with their customers.
The metaverse, or a very first iteration of it, is here to stay and presents tremendous opportunities for intellectual property protection regarding its technological basis as well as content. Legal practitioners are recommended to obtain a basic understanding of the metaverse as new digital business models emerge, shaping not only our clients’ businesses, but also how legal services are provided.
The metaverse is here to stay (and grow)
Much has been written about what the metaverse is (and isn’t). There is no universally accepted definition for the term “metaverse”, and, for many, it is simply an amorphous term used to refer to an as-yet-undeveloped future of the internet. Almost all concepts of the metaverse include the use of virtual reality (VR), augmented reality (AR), holography and avatars, connected by a massive network.
Nonetheless, while there are competing visions of the metaverse, one key feature of the metaverse is interoperability, or the ability for users to move their avatars and items of value such as digital assets from one “corner” of the metaverse, such as a program, site, or platform, to another without any loss in functionality or identity.
Whatever the metaverse “is”, predictions by leading experts see the metaverse market reaching around US$1 trillion in size, with potential revenue ranging between US$8 and $13 trillion by 2030.
Our IP framework will be fit-for-purpose
IP law has always been at the forefront of technological breakthroughs, showing the necessary degree of flexibility to deal with the protection of a novel subject. Given the fact that the metaverse will be based on a combination of known technologies, in particular software, we are confident that the existing legal framework will provide sufficient answers to most legal issues.
However, let’s keep in mind that any technical revolution that changes the ways how we communicate or do business with each other may require legislators to step in and close any gaps or even out imbalances. Think about the rise of the software industry, especially in the 70s and 80s, and its impact on copyright law, or the internet which has been continuously shaping consumer laws in particular up to today.
Thus, the real question is whether the metaverse will be a revolution that will push our legal system to its limits, for example, in relation to advertising goods and services in a fully rendered 3D environment. Of course, this does not only apply to IP law, but also to other key areas such as contract law, financial regulations, and especially data protection laws.
It’s all about value creation and preservation
The metaverse represents the next iteration of the “internet of value” with virtual creations and brands at its core. Creating such value requires proper legal protection of your digital creations through, for example, copyrights, patents, designs or trademarks. Think of the internet but with a third dimension and entirely new ways to work, consume and relax.
3D-workbenches will allow for new ways of productivity, providing users with the means to make (technical and creative) developments (e.g. interactive objects) alone or in collaboration with third parties. The possibilities appear to be endless, because the creator and/or operator of such workbench platforms will set the rules whether a (virtual) subject matter will behave in accordance with the laws of physics (e.g. by implementing powerful simulation software) – or completely differently depending on the particular use case.
The creation of content requires robust agreements between the stakeholders regarding, inter alia, the allocation and licensing of IP between or the protection of trade secrets. While this is not much different from traditional collaboration scenarios, the particularities of the metaverse need to be thought through at an early stage. In addition, apart from the collaborating parties and unlike “offline-scenarios”, there may be further (passive) stakeholders involved in the creation process, such as platform operators and cloud service providers.
Further, determining the identity of the creators of a given work in the metaverse may be more difficult when the work results from a decentralised collaborative process performed by users anonymised behind avatars.
Extending your brand into the metaverse
Another remarkable development is the power of brands and the creation of true “brand experiences” in the metaverse. Luxury fashion brands in particular – but also other entertainment or lifestyle companies – are actively exploring possibilities to engage with their customers in completely new, fascinating ways. Meanwhile, trademark lawyers are focusing on questions such as how trademark dilution might occur in the metaverse, whether digital assets should qualify as “goods” for the purposes of trademark laws, and who should be held liable when the identity of the infringer is unclear.
For example, Balenciaga’s venture into the metaverse near the end of 2021, as the first to take on Fortnite, designing and providing virtual fashion pieces for players of the famous battle royal-style video game. While most of the merchandise had to be purchased, some items could be unlocked through playing, such as certain sneaker models.
In another case, Benetton channelled the brand power of store design by re-creating the design of a retail store, which had only existed in the metaverse, in its flagship store on the prestigious “Corso Vittorio Emanuele II” in the heart of Milan during Milan Fashion Week. Who would have imagined that the lines between the real and the virtual world could blur so easily?
Increasing number of IP enforcement cases
The increasing number of IP infringement cases demonstrates that stakeholders are eager to defend their IP against violations by third parties in the metaverse. Platform operators in particular should set robust terms and conditions for their users to protect themselves against illegal conduct, including IP infringements, affecting products created on or uploaded to the metaverse, such as non-fungible tokens (NFT, which are unique digital products mimicking real-life products or tokenising limited works of art). Also, trademark counterfeiting and false advertising in the dark back alleys of the metaverse may become an increasing issue.
In Hermes Int. v Mason Rothschild, Hermes sued Mason Rothschild for copyright infringement for the creation of digital images of faux-fur-covered versions of the luxury Birkin handbags, subsequently amending the claims to add trademark infringement, trademark dilution, and cybersquatting. In another instance, studio Miramax sued filmmaker Quentin Tarantino over Tarantino’s decision to release a series of “Pulp Fiction” NFTs encompassing certain scenes from Tarantino’s famous movie. These are only two examples of several cases in the context of the metaverse demonstrating courts’ willingness to apply existing legal principles to this new realm.
Into the metaverse!
While the metaverse is still at a very early stage – comparable to the early days of the internet – with viable use cases largely still under development, market participants, including legal practitioners, should not miss the opportunity to get ready and gain first-hand experience in the metaverse. Although opening a branch office in the metaverse serves mainly as a marketing tool at this stage, the question is not if, but when entering the metaverse will feel as natural as, e.g. reading this article on your PC, smartphone or tablet.
nicolas.hohn-hein@cliffordchance.com
claudia.milbradt@cliffordchance.com
