les Nouvelles May 2023 Articles of the Month:
This month we present two articles of the month.
The Once Thought Far-Off-In-The-Future Challenges To Copyright Law Posed By Artificial Intelligence Have Arrived: And I For One—Gulp—Welcome Our New Robot Overlords
This article will be of interest to all those who were interested in the ‘AI’s Evaluation and Impact Given to the Business and Intellectual Property Law Systems’ panel discussion at the LESI Annual Conference in Montréal.
Trade Marks And The Metaverse:
A European Perspective
This article will be of interest to all those who were interested in the ‘Various Legal Issues in the Metaverse’ workshop at the LESI Annual Conference in Montréal.
Trade Marks And The Metaverse:
A European Perspective
Attorney at law
Franzosi Dal Negro Setti
Attorney at law
Franzosi Dal Negro Setti
What is the metaverse is a question we have heard answered thousands of times recently, each of them with a more or less detailed and precise definition. What seems certain is the origin of the word, which has been coined by Neal Stephenson in his 1992 cyberpunk novel “Snow Crash,” to indicate a three-dimensional space within which individuals can move, share and interact through custom avatars. The difference with Stephenson’s novel is that today the metaverse has overwhelmingly become part of our lives and has become a reality and is no longer science fiction. Nowadays, even the most ordinary daily activities, which are part of our work or leisure, are somehow connected to the metaverse, whether we like it or not: have you ever attended a legal seminar on the metaverse? We had, and although in terms of access and content it did not seem to be particularly different from a normal webinar, the legal implications of the same are instead extraordinary. In this regard, the metaverse has been discussed under uncountable law profiles such as finance, tax, employment, real estate, data privacy, criminal law, etc., and, it must be said, intellectual property is no less. Therefore, assuming no one needs to hear a new definition of the metaverse, the goal of this article is to try to identify the legal issues the latter raises in particular in relation to the use of trade marks. Companies which have now entered the metaverse in the most different ways are well aware that the metaverse is a potential new market and have been very careful to register their trade marks also to deal with the virtual world. A report from Research and Market1 has named 50 of the most active companies in the metaverse, among which are Meta, Apple, Google, Microsoft, Alibaba, Sony, Binance, Walmart, Nike, Gap, Netflix, adidas and Atari.
But how can someone exploit and protect their trade marks in the metaverse? What issues do companies have to face when registering trade marks in the metaverse? Do companies have to register even if they own wellknown trade marks? Does the principle of exhaustion by virtue of which the owner of an intellectual property right who places his goods in the territory where the trade mark is protected can no longer oppose further and subsequent circulations of those goods also apply in the metaverse?
Let’s try to see if these questions can be answered in the light of the available case law.
2. General Legal Issues
The most diverse types of companies have already entered in several ways in the metaverse and already partially dealing with the above-mentioned problems, but it must be said that a lot is still unknown: until a specific case occurs it is difficult to predict the effects of an action, especially if such action takes place in a virtual world. Not only, therefore, the countless possibilities that the metaverse offers have not yet been discovered / invented, not only each company will exploit a different aspect of the metaverse, but it is also difficult to imagine each and any legal scenarios that could emerge over time. The two problems that arose at the very beginning with reference to the use of trade marks in the metaverse and that in some way have already found a solution are those concerning classification and territoriality.
With reference to the first issue, the question was compelling: can a trade mark registered, for example, in class 25 cover virtual clothing items for sale in the metaverse? The answer is no. In this regard, as far as Europe is concerned, the EUIPO (European Intellectual Property Office) intervened clarifying what classes one should claim in order to obtain protection in the web 3.0 field: virtual goods are in Class 9 because they are treated as digital content or images. However, lacking in clarity and precision, the term virtual products should be further specified by clarifying the content to which said virtual products refer (for example downloadable virtual products or virtual clothing). As far as non-fungible tokens (NFTs) are concerned, the term non-fungible token in itself will not be considered acceptable: the type of digital element that NFTs authenticate must be specified.2 In this regard, the 12th edition of the Nice Classification will be modified accordingly but, as one can easily find out on trade marks databases, companies have already accepted such indications.
With reference to the second issue, at first sight it seems that the notion of territoriality is incompatible with the existence of a parallel, virtual, intangible world without precise boundaries, such as the metaverse. How can a trade mark, by its very nature a territorial right, have its effects also in the metaverse? In this regard, the national (and international) trade mark offices have not yet provided us with any solution but one may try to apply the solutions applied in similar cases. In fact, some may argue (and we agree) that the use of a trade mark on the internet (web 2.0) is no different than its use in the metaverse (web 3.0), so the solutions for protection of trade marks on the internet should also work for the metaverse. With e-commerce and social media for marketing purposes, right holders and platforms have implemented notice and take-down procedures and various protection tools (notification systems, protection programs, contact points, etc.). The same can be done in the metaverse: Rules of Conduct and specific Terms and Conditions of use should be drafted taking into account the necessity to provide trade mark owners with tools to protect their rights in the “metaverse market” and the national and international (in particular European) law provisions already existing with reference to trade mark protection on the internet should be applied also to the metaverse, with all the necessary adjustments. The transition is already underway, but it will take some time to be refined and it will certainly lead to addressing even more problems than those of web 2.0 due to the nature of the metaverse. Nonetheless, we believe that bringing what is still unexplored into the known is the key to finding solutions, predicting problems, and allowing companies to exploit the metaverse as safely as possible.
3. Contractual Aspects of Trade Marks in the Metaverse
Technically speaking, the metaverse is a digital ecosystem, a network of interoperable virtual worlds, including augmented reality, virtual reality and other experiences. At the moment, there is no unified metaverse, but rather multiple metaverse experiences operating across multiple platforms. In these platforms, users, among other activities, can buy virtual items, play virtual games, and attend virtual concerts, or can be creators of experiences and digital products.
Each platform has its own characteristics, thus the way users access the metaverse and the related regulations vary from platform to platform depending on its structure, the services offered, and the level of interaction and/or contribution of the user inside the platform.
For example, Sandbox is a blockchain-based platform where users can rent and buy virtual land and set up its virtual presence by opening virtual stores and shopping malls. Decentraland is a 3D virtual social world where users can trade NFTs, organize events, trade goods/ services, play games, and socialize with people from all over the virtual planet. As its name says, Decentraland is entirely decentralized, providing complete ownership over the experiences users have created on the platform. Roblox is a leading metaverse gaming platform that allows players to create games of their own. It allows users to dress up their avatars with accessories from real-life brands.
Generally, in order to access these platforms, users must accept a pre-filled form of terms and conditions available online. These types of documents fall into the genus of General Terms and Conditions within the context of the so-called adhesion contracts, which are especially typical of distance contracts. The rules contained therein apply indistinctly to all users.
Additionally, the platforms provide specific terms for users who create content inside the virtual reality, the so-called creators. In this case, metaverse platforms provide the users with the opportunity to submit, post, display, transmit or otherwise make available certain content, including messages, files, data, software, sound, videos, photos, graphics and other items, on or through the metaverse platform. Generally, by submitting, transmitting, posting, displaying or otherwise making available any content, the user grants the owner of the platform a worldwide, non-exclusive, sublicensable, royalty-free and paid up license to exploit such user content in connection with the platform, including trade marks.
In the current practice, companies usually implement a dual system of regulation involving, on the one hand, the acceptance of the general conditions submitted by the platform and, on the other hand, a side agreement for a specific regulation based on the company’s need to protect its own trade marks and, more in general, its intellectual property rights.
Another interesting profile of the relationship between the metaverse and trade marks is that goods can be tokenized and purchased in the metaverse. In this regard, companies usually outsource the creation of the digital product to a third party through a service agreement. In this case, goods are converted into NFTs when they are uploaded to the virtual marketplace and linked to smart contracts. Smart contracts play a key role in NFT-based blockchain technology. They can provide a mechanism to manage and enforce intellectual property rights in the NFTs: in particular, the smart contract acts as a license to specific content governing the use of the NFT to which the virtual asset is linked.
In this framework, it is possible to grant a non-exclusive, non-transferable limited license to display the digital work underlying the NFT to the purchaser for its personal use only, and to clearly define the scope of intellectual property rights and restrictions that accompany the purchase of the NFT, as well as to agree on a mechanism for potential royalty payments.
4. Licensing in the Metaverse
In light of the above, particular attention should also be paid to the delicate issue of trade mark rights licenses between the owners and the platforms (and other players). We would go so far as to say that in fact it is one of the most important aspects of brand management on Web 3.0: the nature of the metaverse, the absence of defined borders, the potential unlimited replicability of the products and services offered, the anonymity of users and their behavior, and the infinite ways of exploiting intellectual property assets are all aspects that will have to be taken into consideration in drafting this type of agreement.
In our opinion, there are mainly two aspects to keep in mind when it comes to trade marks licenses in the metaverse. On the one hand, it will be essential to carefully evaluate the content of the clauses and their formulation: it is important that typical cases of the virtual world are not left unregulated but also that traditional clauses in already existing contracts are reviewed in light of the virtual word and its implications. The license agreements, for example, will have to be carefully drafted in order to predetermine when platforms can be considered liable for trade mark infringement, also due to users’ activity.
On the other hand, perhaps the most relevant aspect will concern effective compliance with and fulfillment of the contractual clauses and the enforcement of such agreements. The control on such compliance indeed appears particularly difficult due to the very same nature of the metaverse: gathering evidence, and identifying and locating offenders. Investigating and monitoring the metaverse market will be a complex challenge to carry on, which will involve the need to refine the internal monitoring systems of companies but also those of the players in the field (i.e., trade marks attorneys and lawyers) and above all that these adapt to the constant fast change and improvement of technology.
As seen above, one of the many ways to deal with both of the above-mentioned issues could be found from the regulations, agreements, and case law referable to the world of the traditional web and marketplaces, which seems to be the closest to the metaverse we know and we are used to dealing with, so far.
That the licensing issue is actual and relevant is also confirmed by the facts. Although it is not a case that directly affects Europe, the case involving the famous director Quentin Tarantino and the copyrights and trade marks relating to his equally famous film “Pulp Fiction” is well known. In that case, Tarantino had been sued by Miramax after announcing the imminent market launch of seven NFTs containing digital copies of his handwritten screenplay of the movie, including unedited movie scenes and comments from himself. The main argument in Miramax’s defense was based on the fact that in the rights licensing agreement with the director, among the rights granted to the director, no mention existed on the possibility to produce NFTs. In fact, since the contract was dating back to the 1990s, it could hardly be expected otherwise. Unfortunately for us, the case has not been decided by a court because the parties reached a settlement agreement a few months ago. Nonetheless, this dispute shows that the standard licensing clauses are not anymore suitable to deal with the uncountable variety of cases that the metaverse offers.
5. Case Law
The use of NFTs, as seen above, has already generated interest and has already been the subject of particularly famous court cases overseas. On the contrary, the European cases are less frequent, and the only one that seems to involve NFTs and Intellectual Property rights within the territory of the European Union has been decided at the end of July 2022 by the Court of Rome, Italy.3 The case was initiated by the well-known Juventus Football Club against a company producing NFTs associated with entirely digital collectible “stickers” depicting famous footballers. More specifically, Juventus argued that the reproduction of the images of a wellknown footballer (reproduction authorized by the footballer himself), depicted during a game with the team uniform bearing its registered trade marks and the use of such trade marks for advertising purposes, constituted infringement of the same. The decision is interesting under several points of view, as it gives answers to certain questions raised in our introduction.
In the first place, emphasis was placed on the fact that the Juventus trade marks were renowned, stating the well-known principle that these kind of trade marks can obtain ultra-merchandise protection, also with reference to products and services linked to the web 3.0. This issue solves one of the problems that companies may find themselves having to face in managing their entry into the metaverse: the registration of a well-known trade mark. According to this decision it seems that no need for registration would be required for well-known trade marks. On our side, we suggest always to adopt a precautionary approach: unless the trade mark is famous enough to fall within the notion of well-known mark (and even if this is the case), it is better to register it for all classes of products and services in the markets in which one intends to enter, in order to avoid the burden of proof in judicial or administrative proceedings. Secondly, the Court of Rome held that the fact that the trade mark was registered for the classes involved in the case (more precisely Class 9, in accordance with the EUIPO guidelines referred to above) the conduct of the defendant implied not only trade mark infringement but also multiple hypotheses of unfair competition (including cases of appropriation of merits and non-compliant acts to professional correctness). Finally, and we would argue most importantly, the decision in question seems relevant due to the fact that it clarified that the authorization of the player to use his own image did not automatically imply the authorization to use third-party trade marks depicted in said image. Based on the above, the Court of Rome has issued the injunction on the production, marketing, promotion and offer for sale, directly and/or indirectly i) of the NFTs ii) of their digital contents and iii) of any other digital content or product in general bearing the contested photograph, even modified, and/or the Juventus trade marks.
This decision confirms that from a legal point of view the NFTs are not considered a single entity but the NFT certificate and the content of the same (the image) differ from each other and we will see if such principle will be held in mind by the U.S. judges in deciding the two most renowned pending cases,4 that in some respects will have to face the same issues.
As already mentioned, this article was not meant to provide a certain and the only right answer to the most frequent questions that could arise with reference to the metaverse. What we wanted, rather than merely solving a particular case by finding the legal solution, was to provide the tools for a different and critical reading of the metaverse, from the practical point of view. Certainly, this task has been possible on the basis of the legal tools we possess nowadays and of which we are now quite familiar. However, in such new open and decentralized environments as the metaverse(s), we can’t help but wonder what are the next challenges legal experts (and beyond) will be facing in the metaverse? What role will intellectual property play in this new system? How (and how fast) will the IP protection evolve in such a new world? It seems somewhat strange and frustrating not to be able to provide any definite solution to these questions. The only thing that seems certain is that the metaverse is going to be a profitable place for companies willing to enter this virtual environment, since it has the potential to reshape businesses in the sense of having a new tool to virtually exploit their trade marks and market their products. In the same way, intellectual property will assume an increasingly important and predominant role in the management of aspects relating to platforms and users in the metaverse.
Nevertheless, since most of these challenges and the related answers cannot be anticipated at this stage, the conclusions of this article are somehow open, and allow us to set ourselves the good intention of returning to the subject at a later time to settle the doubts we have posed so far and to answer those that are not yet even imaginable. In the meantime, we look forward to knowing what other challenges this new world will bring us. ■
Available at Social Science Research Network (SSRN): https://ssrn.com/abstract=4337756.
- “Metaverse Market by Technologies, Platforms, Solutions and Applications in Industry Verticals 2022—2027.”
- Court of Rome, Specialized Division in company matters, Juventus Football Club s.p.a V Blockeras s.r.l., Decision on urgent proceeding dated 20.7.2022 in darts-ip.com.
- Hermes Int’l v. Rothchild; Nike, Inc. v. StockX LLC.