Intellectual Property Issues in the "Unreal World"

There is evidently a lack of understanding of the intellectual property ramifications as well as an inability to adapt to the ever changing and constantly evolving digital environment

The metaverse has been described by many as the next big thing and has been tipped to shine over the next few years. For the uninitiated, 'metaverse' is defined, in the Merriam-Webster dictionary as "a persistent virtual environment that allows access to and interoperability of multiple individual virtual realities" as well as "any of the individual virtual environments that make up a metaverse". These virtual environments are constructed on various blockchains with cryptocurrencies acting as fiat currency in these digital spaces.

With the advent of the metaverse in the technological landscape, the global population in recent times has been heavily exposed to the same. The effects of the boom of the metaverse are apparent, even in Malaysia, where the first national metaverse festival, "Merdekaverse," was held to commemorate Malaysia's 65th anniversary of independence this year.¹ Matrix Concepts Holdings Bhd also unveiled the first-ever platform for property in the metaverse.² Notwithstanding, there is evidently a lack of understanding of the intellectual property ramifications as well as an inability to adapt to the ever changing and constantly evolving digital environment. The various pitfalls and developments surrounding the metaverse in the context of intellectual property encompass, among other industrial rights, trademarks, patents, and copyright.

Trademarks

With the rise in popularity of the metaverse as well as the potential for profit which comes therewith, both companies and individuals have been clawing at the chance to make the most of the metaverse. This, naturally, has resulted in a surge of metaverse-related trademark filings worldwide, including for non fungible tokens (NFTs), which are often commoditised in the metaverse. Various issues have arisen therefrom including the lack of specificity with which the specifications of goods and services have been drafted (including a non consensus among the intellectual property offices and authorities in respect of acceptable descriptions) as well as cybersquatting.

The main classes of goods and services, as per the Nice Classification, which stand to be affected are classes 9, 35, 36, and 42. Much of the worries of trademark proprietors surrounding NFTs and the metaverse entail whether or not the virtual goods traded in the metaverse are capable of coming within specification of their existing registrations. A case which may be of some guidance is that of Lavinia Deborah Osbourne v Persons Unknown and Ozone Networks Inc Trading as Opensea3 wherein the Court recognised NFTs as being property, in relation to which injunctions could be granted in the case of cryptocurrency fraud. By extension, if virtual goods, as property, fall to be treated in an identical manner to physical goods, then there is an argument to be made that existing specifications would be wide enough to encapsulate goods in the metaverse.

Further, in respect of cybersquatting, we can do no better than to highlight the case of Hermès Int'l v. Rothschild,4 wherein Hermès had commenced action for trademark infringement of its "Birkin" trademark when the same was used in relation to Rothschild's branding of his NFTs as "MetaBirkins". The Court ultimately held that Rothschild's use of the "Birkin" trademark, including the reproduction of the representation of Hermès' physical Birkin bags in the analog world, fell under the First Amendment of the United States Constitution (i.e. free speech), thereby falling within one of the defences to trademark infringement. The Hermès case perfectly encapsulates the importance and urgency for companies and brands to not be dilatory in filing for their metaverse-related trademarks for fear of losing control and exclusivity of the same.

Patents

There have also been interesting developments with respect to patents which have embraced the metaverse with open arms. One such patent is that of Nike's, granted in 2019, which in essence is a "System and method for providing cryptographically secured digital assets", wherein NFTs purchased by consumers on the blockchain are linked to physical shoes.5 A corollary benefit of a system such as this is that, if done at scale and deployed in industry at large, it could be a mechanism for combatting counterfeit goods.

Another proponent and one of the pioneers of the metaverse, Meta (formerly known as Facebook), had also filed for a multitude of patents in relation to systems for the facilitation of interactions in the metaverse.6 Naturally, Meta had also filed patents in relation to the hardware required for the facilitation of the abovementioned.7

As evidenced above, the metaverse is a wheat field in the summer just waiting to be harvested – companies who are earlier in catching the trend stand to gain the most.

Copyright

The common misconception surrounding the metaverse, and more particularly NFTs, is that the sale of the same essentially grants the purchaser the right to use the asset linked thereto as the latter sees fit. This, of course, is often not the case.

The point to keep in mind is that, in general, the owner of the copyright subsisting in the underlying asset linked to the token, if any, would be the party who mints the NFT. In other words, the copyright accrues to the party who "publishes" the NFT on the blockchain. Like with a physical work of Van Gogh's, the copyright subsisting within the same would not be transferred upon subsequent dispositions, unless it is done in writing.8 In view of the above misconception as to the transfer of rights upon purchase, buyers are unknowingly at risk of committing copyright infringement.

Conclusion

It would be an understatement to say that, in the realm of intellectual property, the metaverse has thrown a more than large spanner in the works. We only think it appropriate to conclude with a summary of the above:

1. Trademark proprietors, brand owners and companies should be vigilant and proactive in protecting their trademarks in the ever-evolving digital sphere;

2. Innovators and inventors stand to gain a fortune from the ripe fruit of the metaverse if they are able to capitalise on the exclusive benefits granted by patents;

3. Consumers and buyers should beware of the rights granted to them and any limitations imposed upon them as to the usage of the underlying assets of their purchased tokens.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.