For many of us, the metaverse may be a rather vague and distant concept.  It might even seem irrelevant in light of the “metaverse is over” narrative following Mark Zuckerberg/Meta’s change of direction in favour of artificial intelligence (‘AI’).

However, research published by UK-based company Metaversed Consulting in 2023 puts the number of monthly active users of the metaverse at 520 million people, a figure which has been steadily rising over the past few years.  Further, analysts at Bloomberg estimate that we could see a metaverse market worth $800bn by 2024.

Therefore, people – consumers – are interested in what the metaverse might have to offer in growing numbers.

For businesses, this means that the metaverse could offer new and as yet largely unexplored commercial opportunities that should not be overlooked.

After outlining some key terminology, this article explores the potential benefits of the metaverse (and Web 3.0 more generally) for businesses, and aims to highlight some of the intellectual property (‘IP’) considerations and risks associated with a move into this space for those in the creative industries.

Fashion and the Metaverse: Risks

There are two sides to every story and, together with the potential benefits, there are also a number of possible IP pitfalls that brand owners should bear in mind.

Firstly, businesses may need to expand their trade mark portfolios (and watching services) to include virtual goods/services, since these are not covered by a registration for their real-world equivalents. 

Many brand owners have already taken this step, and we have seen numerous trade mark applications covering downloadable clothing, retail services connected with virtual goods, and virtual entertainment services filed by the likes of Louis Vuitton, Adidas and Zara.

At the time of writing, there is no cross-border consensus on how such goods/services are classified for the purposes of trade mark registration.

For instance, the UK IPO has published guidance saying that virtual goods, irrespective of their type, should be classified in Class 9, and that NFTs should be classified according to the underlying asset (i.e. Class 16 or 18 if the underlying asset is a piece of physical artwork or designer handbag).

However, the EU IPO’s approach currently appears to restrict inclusion of NFTs to Class 9, whilst a White Paper published by the International Trade Mark Association in April 2023 notes that there has even been talk of introducing an entirely new Nice Class for virtual goods/services.

In addition, there is some doubt over whether designs of virtual-only goods meet the legal definition of a registrable design in the EU (i.e., the appearance of “any industrial or handicraft item”). 

This is under review but, in the meantime, businesses might consider registering virtual goods as 3D trade marks (although this comes with its own complications, due to the legal requirement for a sign to be “distinctive”).

The EU IPO refused an application by Burberry to register its ‘check’ pattern as a trade mark for virtual clothing and accessories on the grounds that it lacks distinctiveness, since the pattern “is not markedly different from various basic patterns commonly used” for clothing/accessories. 

Brand owners should be aware that overcoming such objections with evidence of acquired distinctiveness could be challenging where the sign has not previously been used for such virtual goods, even if the sign has been used in the real-world for many years.

Crucially, even if a brand owner has no interest in the metaverse or offering virtual goods/services, it would be a mistake to ignore it completely. 

At a minimum, brand owners should look to buy potentially relevant Web 3.0/blockchain domains to avoid cybersquatting, and should be vigilant about what is being offered in virtual worlds to ensure that their IP rights are not being exploited.

The issue of enforcement

For brands that do not have any interest in the metaverse, and so have not expanded the scope of their trade mark portfolio accordingly, there remains uncertainty as to whether a trade mark for real-world goods can be relied on to prevent use for virtual goods.

Currently, the only guidance we have comes from the US case of Hermès v Rothschild, which concerned use of the sign ‘MetaBirkins’ to sell digital bags authenticated by NFTs.  In a win for brand owners, the jury upheld Hermès’ complaint, finding that use of ‘MetaBirkins’ for digital bags infringed Hermès’ trade marks rights to ‘Birkin’ in real-world bags.  

It remains to be seen how other jurisdictions might deal with this issue, whether the outcome would be different if the claimant’s trade mark does not enjoy a strong reputation, and if the logic would apply in reverse (i.e. could a virtual-only fashion brand prevent use of their trade marks for real-world clothing?).

Moreover, Web 3.0’s new means of sale (transferring NFTs rather than physical goods) potentially introduces new infringing activities.  For example, the US case of Nike v StockX, involving the sale of NFTs linked to Nike trainers on the resale market, calls into question whether NFTs for physical goods have a distinct value of their own, separate from those physical goods. 

Whilst Nike claims that the activity constitutes trade mark infringement, StockX asserts that it is no different to using Nike trade marks descriptively in a web-listing to sell the products (as in Web 2.0).

Finally, the importance of ownership within Web 3.0 could give rise to increased numbers of IP ownership disputes.

In particular, there is a key distinction to be drawn between owning an NFT linked to a digital asset on the one hand, and owning the copyright in that asset on the other. 

Typically, the author of the asset is the first copyright owner, and when a user buys the NFT they are being granted a licence by the copyright owner to use the work in a certain way. 

Therefore, owners should be clear on the effect of transferring an NFT, and buyers should read the terms of the licence so they understand what they can and cannot do.

Looking Ahead

Whilst there are a number of differences between the real and virtual worlds, ultimately, much is the same. 

Intended as it is to be a digital version of the real world, the long-term vision for the metaverse is one that allows us to easily blend our real and virtual selves on an everyday basis.

Though some legal principles may need to be adapted (e.g., the Canon similarity factors may not be suitable for comparing virtual and real-world goods and services), others could be readily applied to the digital environment (e.g., consumers’ recollection and perception of trade marks). 

Greater certainty will come, in time, as the case law evolves on the topic, just as it has for online enforcement issues arising from Web 2.0 developments.

In fact, our experience of Web 2.0 demonstrates the ability of brand owners and the law to deal with new commercial contexts – e-commerce, social media, search engine listings, to name a few. 

This knowledge provides grounds for optimism that the next phase of the internet, whatever form that takes, should be no different.