Kate Ellis
2 September 2022

Branding in the Metaverse: the new big thing


Kate Ellis, Head of the Branding Group at Konexo, considers the implications for brand owners who want to protect, use, exploit and enforce their brands in augmented virtual reality.

 

Firstly, what is it?

The initial problem with the Metaverse is defining it. As a portmanteau of ‘meta’ and ‘universe’, at its most literal, it means ‘beyond the universe’. Possibly at its simplest, it is an immersive, 3D virtual world where avatars (us) can eat, sleep, work and play. It is a new simulated, digital environment that uses augmented and virtual realities and blockchain. What it is not is just a virtual reality game (although that’s where the proto-Metaverses are being played out) but it is a persistent, shared virtual world. It is the application of real-life, tangible people and property in an intangible, digital environment.

Within a few years, it is likely that we are all going to be working, playing and socialising in this new environment. Our avatars are going to be attending virtual workplace meetings, shopping for designer non-fungible token (NFT) clothes and, possibly, achieving our dreams of playing our favourite sports alongside our virtual sporting heroes with our virtual family cheering us on inside a virtual stadium. Its mind-blowing.

Many businesses are grappling with how they can best gain an entry point into this new multi-faceted digital ecosystem. Intellectual property is one of the many uncertainties in this virtual world. Indeed, how do trade marks, which are territorial in nature and which need to be used to be enforceable, translate?

 

A work-in-progress

As the Metaverse is at the start of its journey, the answer to brand protection in the virtual world is similarly a work-in-progress, with laws playing catch-up to technological advancements. But there are a number of key issues which brand owners need to start considering if they want to be a player in this new world.

 

Trade mark protection

For consumer brands, a key issue is whether additional trade mark protection is needed for their products in the virtual world. For example, does a UK trade mark registered in Class 25 for ‘clothing, footwear and headgear’ provide protection for those products in the Metaverse? At this stage, it is still to be worked out by the courts.

Generally accepted principles regarding online use of brands on websites being assessed by reference to the country targeted by the website do not extrapolate so easily to the Metaverse, which is not defined by geographical borders and for which the currency is bitcoin rather than sterling or dollars.

Nonetheless, numerous well-known brands have already filed trade mark applications which cover virtual products and well-known restaurant chains have similarly sought to obtain protection for their soon-to-be virtual restaurants. Protection for downloadable virtual goods (Class 9), retail stores featuring virtual goods (Class 35) and entertainment services including providing online non-downloadable virtual footwear (Class 41) are likely to be popular classes for consumer-facing, retail brands.

While it has not yet been tested by any courts whether these trade mark registrations will provide effective protection against brand infringement in the Metaverse, having some degree of protection in the real-world may well provide brand owners with some armoury to allow them to better police the use of the brands in the virtual world.

 

Licensing

For brand owners who are entering the Metaverse, they will need to licence their rights to the platform provider. The terms of the licence need to be carefully considered to ensure that the brand’s reputation is not going to be damaged through its use (or misuse) in the Metaverse. While NFTs can assist with the protection of a brand and its products, there is significant scope for damage to be caused inadvertently in the Metaverse. Licensing issues will increasingly be important issues for brand owners to grapple with as they enter the virtual worlds, possibly through different proto-Metaverses.

 

Owning intangible property

Another difficult issue in the Metaverse is: what is it are you actually getting for your cryptocurrency when you buy your avatar a popular brand of trainers or a pair of designer glasses? There is no physical property. To address this issue, the commercialization of brands in the Metaverse has led to exponential growth in the use of NFTs; digital certificates which prove the ownership of digital property. In 2021, NFT sales reached $25 billion. Big bucks.

Perhaps not surprisingly, it is the luxury goods companies which have been among the most prolific in releasing new NFTs. Numerous well-known luxury brands have launched virtual equivalents of their products in the Metaverse. Various virtual collaborations have already shown the possible benefits of having a virtual presence. Jordan was among the first brands to launch a digital ‘skin’ for avatars playing in the popular game, Fortnite. The benefits of intangible property, with no overheads, have got many businesses and investors excited. For consumers (or their avatars), NFTs allow them to have something to own and this provides brand owners with new opportunities to commercialize their brands.

Interestingly, earlier this year Dubai passed the Virtual Assets Law* (*Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai) as part of its efforts to be at the forefront of the regulation of crypto assets. The Law governs the use of Virtual Assets, which are defined as “a digital representation of value that can be digitally traded, transferred or used as an exchange or payment tool or for investment purposes, including Virtual Tokens and any digital representation of any other value …”. Under the Law, Virtual Tokens are defined as a form of Virtual Asset, where activities related to them are limited to trading on a platform where Virtual Assets are sold, purchased, offered, issued, safeguarded and cleared and settled through distributed ledger technology, i.e. blockchain. Those definitions are likely to include much that is traded or used in the metaverse.

The Law establishes the Dubai Virtual Assets Regulatory Authority and provides a list of regulated activities. These include Virtual Asset platform operation and management; transfers of Virtual Assets; exchanges between various forms of Virtual Assets or between Virtual Assets and currencies; custody, management or control over Virtual Assets; Virtual Asset portfolio services; and Virtual Token offering and trading services. The Law limits all those activities to those who are authorised to do so by the Authority. The Law gives the Authority general powers of oversight and control, including the classification and identification of Virtual Assets according to the standards and rules it is expected to publish; regulating and authorizing Virtual Asset service providers; and regulating the processes of issuing and listing of Virtual Assets.

The Authority is affiliated with the governing authority of the Dubai World Trade Centre free zone and the aim is to make the Dubai World Trade Centre free zone a centre for regulated crypto asset activity in Dubai. It is likely to become a key location for Middle East businesses and activities connected with the metaverse.

 

Enforcement

As mentioned, the territorial nature of trade marks does not align in the Metaverse, with users and locations often being unidentifiable. As brands gain exposure to wider audiences in the virtual world, the risks of third-party infringements and damage to brands in the virtual world, which could spill over to the real world, is a significant challenge for brand owners. While brand owners can arm themselves with real world trade mark protection, there are inevitably going to be challenges about identifying infringers and jurisdictional complexities in pursuing virtual infringers through the real-world courts. While the platform providers may have brand owner friendly dispute resolution policies and takedown procedures, inevitably there will be challenges to brand owners who will now need to police and enforce their rights on a second front, in the online world.

But, as the proto-Metaverses have shown us, the virtual world is an exciting opportunity for brand owners to further commercialize their brands and take them on a new journey.

Consumer facing brands should now be starting to plan their entry into this virtual world. In any new trade mark filing programme, consideration should be given to securing protection for virtual goods and services. For those most well-known brands which may be attractive to avatars, theyshould be monitoring the use of the brands in these online environments and working with the platform providers if any misuse of their brands is identified.

The Metaverse is going to be a whole new existence of fluctuating risk and opportunity which brand owners will need to embrace and, over the next few years, the protection of brands in this environment is going to be the key issue for consumer-facing brand owners.

 

Kate Ellis, Head of The Branding Group at Konexo

 

About Konexo: 

Konexo – developed by Eversheds Sutherland – delivers global alternative legal and compliance services. It provides advisory services, managed services, project support and interim resources to national and international clients. Konexo operates globally through different entities and is present in the UK, US and Asia.

www.konexoglobal.com

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