From Reality to Virtuality: Trademark Challenges and Protection in the Metaverse

The Metaverse has rapidly emerged as one of the most talked-about technological advancements globally, with an increasing number of brands choosing to launch products and advertise within its virtual realm to connect with younger, tech-savvy consumers. Despite lingering skepticism about its future, the rush to secure intellectual property (IP) rights within the Metaverse is well underway. In fact, it's plausible that the way IP rights are protected and enforced, in the coming years, they will be significantly influenced by developments within the Metaverse.

So, what exactly is the Metaverse? At its core, the Metaverse blends virtual reality (VR) and augmented reality (AR), utilizing blockchain technology and digital media concepts to create a 3D virtual world. This immersive environment enables users to forge social connections and interact in ways that mimic real-world experiences.

Indian stakeholders are not far behind in the race to secure trademark rights for their brands within the Metaverse. A review of the Indian Trade Marks Registry's online database reveals that several parties have already obtained trademark rights for the standalone term ‘METAVERSE’ across various classes. Moreover, numerous METAVERSE-formative marks and designs incorporating the term have been registered in multiple classes. In addition to these existing registrations, there are several pending applications for METAVERSE-formative marks currently being processed. It is evident that businesses in India are actively seeking to secure statutory rights to the term METAVERSE and related marks across a wide range of goods and services. 

Trademarks are crucial for identifying and branding virtual goods, services, and entities within the Metaverse. They help consumers distinguish between products, provide legal protection against unauthorized use of intellectual property, and foster brand recognition and trust in the digital realm. In the Metaverse, trademarks safeguard the unique identity, reputation, and integrity of virtual goods, experiences, and businesses. As the Metaverse continues to grow in popularity, we are entering a new phase of the Internet, often referred to as a potential "cyber bubble." India, with its young population, active online culture, and large pool of skilled professionals, has the potential to become a leader in the virtual reality industry. Further, Indian companies such as Mahindra & Mahindra, Tanishq, and MakeMyTrip have entered the Metaverse and are leading the way toward a digital future. These companies, spanning various industries, are utilizing Metaverse-related technologies and NFTs as marketing tools to expand their presence in the digital realm.

TRADEMARKS IN THE METAVERSE

The Metaverse offers brand owners a unique opportunity to extend their presence into a virtual space, enhancing brand recognition and consumer trust. By utilizing registered and well-established trademarks in this new digital realm, businesses can create a strong connection with users, differentiate themselves from competitors, and leverage their brands as powerful marketing assets. Trademarks in the Metaverse not only represent authenticity but also serve as crucial tools for engaging consumers in innovative ways. Recognizing the significant potential of this new virtual environment, numerous large corporations have already begun formulating specialized marketing strategies to capitalize on its opportunities. Much like existing social media platforms, the Metaverse necessitates that businesses adopt a distinct communicative approach and interact in ways that are contextually appropriate for the platform, ensuring effective engagement with its unique audience.

In India, trademarks are governed by the Trademarks Act, 1999, which outlines that a trademark is any mark that can be publicly represented and is capable of distinguishing the goods or services of one party from another. This includes a wide range of identifiers such as logos, names, taglines, shapes, packaging, color combinations, and more. The Act grants exclusive rights to the owners of registered trademarks within a specific jurisdiction, protecting them from unauthorized use.

As brands increasingly look to establish themselves in the Metaverse, it is critical for businesses to seek appropriate trademark registrations. This will help protect their virtual assets, ensuring their brands are safeguarded in this emerging space. A strong trademark strategy—featuring robust policing mechanisms, proper licensing agreements, and clear terms of use—will empower companies to navigate the Metaverse confidently, preventing infringement, protecting brand identity, and unlocking the full potential of virtual market opportunities.

CURRENT LAW ON METAVERSE AND TRADEMARKS

With the rise of the Metaverse, companies worldwide are increasingly filing for trademark protection for virtual goods and online virtual services. The European Union Intellectual Property Office (EUIPO) and the United States Patent and Trademark Office (USPTO) have already seen a surge in trademark applications for these digital assets. Notable trademark disputes include Hermes suing Mason Rothschild over his “MetaBirkins” NFTs and Nike taking action against StockX for NFT sneakers, claiming trademark infringement. Further, as seen in the Nike case, it could be argued that virtual goods simply serve as a representation or proof of ownership of a physical product. Additionally, creators of virtual goods might defend their use of a third-party trademark by claiming fair use, such as exercising freedom of speech (as argued in the MetaBirkin case and Tata v. Greenpeace), or for purposes of parody, criticism, or reference. If there is no risk of consumer confusion, more companies may be able to produce and sell virtual goods featuring the same or similar trademarks, fostering competition in the virtual marketplace.

Trademark registration protects the owner's rights and solidifies the business's legal position. Once registered, the trademark owner gains exclusive rights to its use and access to essential legal mechanisms to prevent unauthorized usage by third parties. In India, the Indian Trade Marks Registry (TMR) has seen a rise in applications under classes 9, 35, and 41 for virtual goods and services, such as NFTs, digital collectibles, and downloadable virtual products. For example: Tommy Jeans (Mar 2022) – Filed under Class 9 for virtual reality applications and NFTs in clothing and accessories. Further, recent trademark registrations under Class 9, including well-known brands like Walmart, Tommy Jeans, Thar, Polarity, Vogue, and Ajio Luxe, highlight a growing trend in the inclusion of "virtual goods" and "digital collectibles." This indicates the rise of a new category within the trademark system aimed at protecting intellectual property in the Metaverse. Companies are proactively filing applications under this class to secure their digital assets and brand presence in virtual spaces. 

Current legal definitions for terms like ‘digital products’ and ‘virtual goods’ are not well-established, creating further uncertainty. For trademark law to adequately protect virtual assets, clearer definitions, more specific classifications, and efficient administrative systems are needed.

TRADEMARK RIGHTS AND OWNERSHIP IN THE METAVERSE

When an individual purchases a physical item like clothing, electronics, or a car, they gain full control over that item. They can modify it, resell it, gift it, or even destroy it. This is because the doctrine of exhaustion of rights ensures that once a trademarked product is sold, the trademark owner's rights over it are exhausted. However, the situation is far more complex when it comes to virtual goods. The central question arises: What rights does a buyer of virtual items actually have? Does the trademark owner retain control over these goods after they are sold, or does the sale exhaust the trademark rights? Do trademark owners have any ongoing obligations to the buyer or subsequent purchasers?

In the context of the metaverse, video games like Fortnite offer a helpful comparison. In Fortnite, players buy virtual items like skins or cosmetics for their avatars. These items are "owned" by the players, provided they continue to engage with the game. However, this "ownership" is not the same as full, unrestricted ownership, as it is tied to ongoing participation through licensing fees. In a scenario where the current "walled gardens" of the internet disappear, will players be able to use their virtual goods across multiple platforms in the metaverse, or will ownership remain confined to a specific environment?

NFTs (Non-Fungible Tokens) introduce unique complexities regarding ownership. NFTs, as unique digital assets, can command staggering prices, such as the Beeple NFT auctioned for USD 69 million. Given their value, disputes over ownership and intellectual property rights surrounding NFTs are inevitable.

Brand owners must be proactive in building their presence in the metaverse by securing appropriate trademark registrations, establishing clear policing strategies, and defining usage terms and licenses. The way brands handle these legal issues will directly impact consumer perception and brand goodwill.

SUGGESTIONS

To address potential trademark infringement challenges in the Metaverse, several strategies can be implemented to enhance trademark protection:

1. Extend Trademark Coverage to Virtual Goods: Just as online contracts are enforced (under the Information Technology Act of 2000, Section 10A), businesses should ensure their trademarks cover virtual representations of their goods and services. This helps safeguard their brand identity in the digital realm.

2. Register Multi-Class Trademarks: Businesses should consider registering a multi-class trademark that encompasses both their physical products and virtual offerings in the Metaverse, including services under Class 42. This broadens the scope of protection, allowing businesses to defend their trademarks in both physical and virtual environments and minimizing the risk of unnecessary litigation.

   
   

3. Clear Terms of Service: Metaverse developers must incorporate robust trademark protection clauses within their "Terms of Service" agreements. These terms should set clear guidelines for intellectual property usage and establish legal recourse for trademark violations.

   
   

4. Continuous Intellectual Property Monitoring: To ensure ongoing protection, businesses should invest in systems to monitor, evaluate, and manage their intellectual property within the Metaverse. Regular monitoring can help identify and address infringements in real time.

   
   

5. Proactive Trademark Enforcement: Businesses should actively enforce their trademark rights by taking swift legal action against infringing parties. This can include sending cease-and-desist notice or pursuing legal remedies within the Metaverse to protect brand integrity.

   
   

By employing these measures, businesses can effectively navigate the complexities of trademark protection in the Metaverse, reduce legal disputes, and ensure their digital brand assets are safeguarded.

CONCLUSION

As the Metaverse continues to evolve, it presents both vast opportunities and significant challenges for brand owners, especially in the realm of intellectual property protection. The rapid adoption of virtual goods, NFTs, and online services in this immersive digital space has prompted a surge in trademark filings worldwide, including in India. However, the current legal frameworks and trademark classifications are struggling to keep pace with the complexities of the Metaverse. The ambiguity surrounding the ownership and rights of virtual goods, combined with unclear definitions and evolving market dynamics, makes it essential for businesses to stay proactive in securing and policing their trademarks.

To thrive in the Metaverse, companies must adopt a forward-thinking approach to trademark protection by securing the appropriate registrations, clearly defining usage terms, and developing strong strategies to monitor and enforce their intellectual property rights. As this virtual world grows, it will likely reshape traditional concepts of trademark ownership and enforcement. Brands that navigate these legal uncertainties successfully will not only safeguard their assets but also build lasting relationships with consumers in this new, exciting frontier.

References:

1. IP Rights in the Metaverse, Reuters, 1 Aug. 2023, https://www.reuters.com/practical-law-the- journal/transactional/ip-rights-metaverse-2023-08-01/.

2.  Forbes India. (2023), Shashank Bharadwaj, Indian companies storm the metaverse and NFT space, Retrieved from https://www.forbesindia.com/article/crypto-made-easy/indian-companies-storm-the-metaverse-and-nft-space/75281/1

3. Bushell, Chris, The Impact of Metaverse on Branding and Marketing (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=4144628 or http://dx.doi.org/10.2139/ssrn.4144628

4.  Section 2, The Trademarks Act, 1999.

5.  World Intellectual Property Organization (WIPO), Kathryn Park, Intellectual property and the metaverse. WIPO Magazine.,  (2022, January). https://www.wipo.int/wipo_magazine/en/2022/01/article_0006.html

6. Walmart is the next big company with plans for the Metaverse, https://www.businessinsider.com/walmart-makes-plans-to-enter-the-metaverse-2022-1, Business Insider, Francis Agustin Jan 17, 2022. 

7.  Trademark protection for NFTs and the metaverse: IP enforcement fit for the future, Financier Worldwide Magazine, March 2023, https://www.financierworldwide.com/trademark-protection-for-nfts-and-the-metaverse-ip-enforcement-fit-for-the-future.