In a world of unlimited imagination… how to protect your IP rights in the metaverse

The metaverse is a whole new world, and with it come new commercial opportunities. Whether it is creating the software on which the metaverse is built or designing the clothes and accessories which virtual avatars will wear – the metaverse is not just a buzzword. Futurists predict that those who brave this next internet frontier may be rewarded handsomely. Of course, wherever there are opportunities, there are also risks. This article outlines some of the risks and opportunities in the metaverse for IP owners.

What is the metaverse and what does it mean for business?

While “metaverse” has been a buzzword over the past year or so, the term was first coined by Neal Stephenson in the early 1990s in his science fiction novel, Snow Crash. The novel describes a virtual reality-based internet in which the main character lives in an imagined version of the world through a life-like avatar (described as an "extension" of the character). Plugged in with goggles and earphones, the protagonist walks the wide streets of “the Metaverse”, home to amusement parks, shops, offices, and entertainment complexes.

While the building blocks of the metaverse are still in the process of being imagined and assembled, the metaverse represents a fundamental shift in how we interact with the internet. It is said to be both the gateway to most digital experiences and a core component of future physical experiences. Instead of having access to the internet, we will, in a sense, be within the internet – blurring the distinction between online and offline activity.

In a metaverse environment, global consumer brands can allow customers to experience products in this parallel version of the world without ever shipping a single physical item. A metaverse avatar can attend a live virtual performance (like the concert Justin Bieber gave late last year) or a boardroom meeting. In time, this technology has the potential to make videoconferencing – such a boon during COVID – appear quaint, as avatars replace camera images.

The opportunities for intellectual property right owners in the metaverse

Trade marks

In the metaverse, much like the real world, the value of a trade mark is two-fold: it is both a commercial asset and a tool to protect a brand from infringement.

Brand owners should be considering whether their existing IP strategies provide sufficient protection in a metaverse environment. To take one example: under Australian law, while a registered trade mark covering clothing would be infringed by the sale of physical clothing online, there is some doubt as to whether the use of the trade mark on clothing worn by avatars in the metaverse would be an infringement. As such, it is prudent for brands to seek to update their trade mark portfolios to reflect the development of the metaverse – and many leading brands have done just that. For instance, in late 2021, Nike filed an array of trade mark applications with the US Patent and Trademark Office (USPTO) which included the sale of virtual shoes and apparel in the metaverse. Similarly, McDonald’s has filed 10 trade mark applications with the USPTO and three trade mark applications with the European Union Intellectual Property Office seeking to protect “virtual food and beverage products.”

Patents

User experience and participation in the metaverse will be dependent on a variety of technologies. This may include augmented reality (AR) and virtual reality (VR) headsets, or even surgically implanted chips in human brains (as Elon Musk’s company Neuralink is already promoting). Beyond hardware components associated with the metaverse, there may be opportunities to claim patent protection relating to software processes for the metaverse environment. Software innovations can include processes for performing, accessing, or synchronising states within the metaverse. For example, earlier this year Meta filed patent applications relating to eye and face tracking technologies. Last month, Magic Leap filed a patent application in Australia that processes images of a user’s eye in order to reproduce virtual images in the most life-like size.

Copyright

One sector which has been quick to see the potential of the metaverse is the music and entertainment industry. In late 2021, the 3D virtual browser-based platform, Decentraland, hosted its first metaverse music festival featuring 80 artists and DJs. Equipped with a VIP area, food trucks and a merch village, the festival featured everything one might expect at an ‘actual’ music festival. These events provide new opportunities for copyright owners to obtain royalties for the use of copyright works – and also represent a new environment which needs to be monitored for possible infringements.

Non-fungible tokens (NFTs) have also been the subject of considerable interest over the past year. Some NFTs have recorded purchase prices in the millions of dollars. Just as ownership of a physical asset (eg. a book) is distinct from ownership of the underlying copyright, the same is true for NFTs. A purchaser of an NFT will generally only acquire a limited licence to use any underlying copyright (consistent with their rights as owner of the NFT). However, this position can be altered by agreement between the creator and the purchaser. Creators and purchasers of NFTs should therefore consider ownership of copyright and the extent of any copyright licence before entering into a sale agreement.

Designs

In Australia, the registration system for designs provides rights holders protection for the overall appearance of a product resulting from one or more of its visual features. Importantly, in the Australian Designs Act, a product is defined as a thing that is manufactured or hand made. In other words, for its design to be capable of protection under the Designs Act, an article must take up space and mass in the real world – it must have a physical form.

Computer-generated objects may function as an integral part of a digital product without necessarily embodying a physical form. For instance, a graphical user interface (GUI) is an object that visually represents the communication presented to the user for easier interaction with a machine. The Chrome icon you click when wanting to open the Google search engine (as opposed to opening a command prompt, adding application commands, and feeding instructions to start the Google Chrome application) is an example of a GUI. Because they do not occupy space or mass, novel designs embodied in such items are unlikely to be protected under the design registration regime as it presently exists in Australia. While countries such as Singapore and Japan are ahead of the curve in developing legal frameworks to register designs related to emerging computer technologies, Australia is yet to catch up. IP Australia is currently considering changes to Australian designs law to provide protection for virtual designs. In the meantime, however, the extent of protection available for virtual designs remains uncertain.

How you can manage and mitigate risk in the metaverse

Brand protection and enforcement

If the metaverse is an extension of our reality, then it will also be an extension of the difficulties businesses already face in protecting their brands in the physical world. The metaverse won’t be free from counterfeiting and copycats. In fact, the metaverse may make it easier, and cheaper, to reproduce trade marks in the form of NFTs or virtual images (as opposed to producing physical counterfeit goods). 

Businesses should therefore consider a proactive approach to brand protection and enforcement. The first step is to consider establishing a presence in the metaverse. After all, you cannot stop infringements if you are not aware they are occurring. The second step is to register trade marks for use in a virtual marketplace. Trade marks are not confined to word marks, but can include non-traditional signs such as movement marks, holograms and sound marks. Brands that take such a proactive approach are likely to have a more efficient way of enforcing trade mark rights if the prospect of litigation arises.

There is a growing misalignment between what trade mark classes were designed to protect and what they are currently protecting. For instance, while class 9 has historically been used to file trade marks relating to, among other things, electronic equipment and instruments for scientific research, it is now being used to cover “downloadable virtual goods” in “virtual online worlds”. For example, the virtual Nike shoes described above were filed in the United States in class 9, in conjunction with class 35 (retail store services). In forming a trade mark protection strategy for the metaverse, it is therefore important for companies to consider expanding the scope of registration by adding additional classes. 

Proactive metaverse agreements

When deciding to enter the metaverse, it is important to consider the terms and conditions of any metaverse platform you intend to work with. If you are a developer of a platform, you have the ability to set appropriate and balanced terms that will encourage adoption by users and IP owners alike.

One important consideration is interoperability: that is, how various platforms within the metaverse will interact with one another. Further, agreements will need to balance the interests of rights holders with the interests of prospective customers. Intellectual property rights holders could be expected to prefer working with platforms that clearly stipulate how IP rights are managed and protected on their platform. Individuals, on the other hand, will want to move easily between platforms, and take their virtual clothing, cars or artwork with them. These interests may conflict, and it is important to be aware of them whether creating a platform, licensing content for a platform, or entering a platform as a user.

Where businesses have a licence to use a brand owned by a third party, they should review their current licence agreements to assess whether they confer sufficiently broad licences to cover the intended uses of the licensed IP in the metaverse. If they do not (or if the position is unclear), the licensee should seek to renegotiate the licence terms if use in a metaverse environment is potentially on the radar. Difficulties may arise where they are competing interests, such as where the IP is licensed to different companies in different jurisdictions. Perhaps their exclusive rights in the real world will be shared on a non-exclusive basis in the metaverse. Or perhaps the IP owner may wish to preserve these new opportunities for itself. All of these issues should be reviewed in the context of the metaverse.

Confronting anonymity in the metaverse

We have become accustomed to the concept of online anonymity and the challenges that this presents in enforcing IP rights. In the metaverse, identities can also be hidden by digital avatars. This, along with the anonymous nature of the blockchain, can make it challenging for brand and content owners to enforce their rights in the metaverse. There are various legal mechanisms which can be used to seek to uncover the identity of online infringers, but they are not without their complexities. IP owners looking to engage in the metaverse should consider the IP policies of platforms with which they seek to engage – eg. whether they have “take down” procedures and/or will disclose the identities of suspected infringers. The IP policies of businesses such as YouTube, Facebook and the like have been developed over many years. Will metaverse platforms take their lead from these established internet pioneers?

Considering patentability of inventions

Seeking patent protection for inventions associated with the metaverse will have its challenges. One challenge will be the requirement to demonstrate that the invention is novel and involves an inventive step. Is the new technology within the metaverse environment similar to an existing product or process outside the metaverse environment? If the only difference between a proposed invention and the prior art is that it has been deployed in the metaverse, applicants are likely to face difficulty in obtaining patent protection.

In a similar vein, there may be difficulties in demonstrating that the alleged invention is patentable subject matter (or, to use the language of the Australian Patents Act, a “manner of manufacture”), in much the same way as computer-implemented inventions have floundered in Australia.