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A New Frontier: Brand Protection and Elevation in the Metaverse – Trademark – United States

A tectonic shift is underway in the realm of brand protection and elevation. Technologies such as blockchain, non-fungible tokens (NFTs), and others are creating new opportunities for brands in the metaverse, while raising complex legal issues related to brand protection.

The metaverse, NFTs and the blockchain

A metaverse generally refers to the translation of human experience from the physical world into an online virtual world. For example, there are currently digital platforms that allow users to immerse themselves in digital worlds where they can socialize; attend concerts and other events; purchase and own virtual goods; and even buy, own and develop virtual real estate. These virtual activities are primarily facilitated by NFTs and blockchain technology.

An NFT is a digital asset (or unit of digital data), stored on the blockchain that often represents ownership of physical world objects like art, music, clothing, photos, and videos. NFTs are bought and sold online, often with cryptocurrency. NFTs can only have one owner at a time and cannot be traded equally (i.e. they are not fungible).

NFTs use blockchain technology to provide verifiable proof of ownership of the item associated with the NFT. In other words, an NFT is a digital certificate of authenticity and blockchain technology secures and verifies this property. As a result, NFTs create “digital scarcity”, but often these rare digital creations already exist in some form in the physical world. Problems arise when the physical form of a digital creation is protected by copyright, trademark, and other laws of the physical world.

Problems arise when the physical form of a digital creation is protected by copyright, trademark, and other laws of the physical world.

Brand Protection in the Metaverse

Until recently, much of the enforcement of existing laws in the metaverse, especially intellectual property laws that are vital for brand protection, remained unknown. Recent litigation involving the Hermès and Nike brands, however, is likely to answer at least some unanswered questions.

In January 2022, Hermès filed a lawsuit against an artist, Mason Rothschild, over “MetaBirkin” NFTs, which are digital versions of bags resembling Hermès “Birkin” bags. Hermès argues that the sale of MetaBirkins is likely to confuse consumers and that the digital bags infringe and dilute Hermès’ federally registered trademarks BIRKIN.

On February 9, 2022, Rothschild offered to reject Hermès’ claims by arguing that because the digital images of the Birkin bags that are linked to the NFTs it sells are art, the Second Circuit test in Rogers vs. Grimaldi (a case that protects the use of trademarks in “expressive works”) applies and the application of the roger test demands the dismissal of Hermès’ claims on First Amendment grounds. In response, Hermès argued that the roger test done not
apply, but rather the likelihood of confusion must be assessed according to the two-pronged test in Gruner + Jahr vs Meredith Corp. In its order denying Rothchild’s motion to dismiss, the court confirmed that the roger test Is apply, but because Hermès’ Amended Complaint “contains sufficient factual allegations that the use of the mark is artistically irrelevant and that the use of the mark is explicitly misleading as to source or to the content of the work”, the rejection was not appropriate.

Here, the court will almost certainly consider, among other things, whether the BIRKIN trademarks – which are registered for physical goods and services are sufficient in a virtual context – and whether Rothschild’s MetaBirkin NFTs are protected as artistic works under the first amendment of the United States. Constitution.

In February 2022, Nike sued an online retailer, StockX LLC, for selling images of Nike sneakers as NFTs. Nike argues, among other things, that the sale violates Nike’s existing trademark rights by confusing consumers as to the source of the NFTs. StockX LLC, on the other hand, effectively argues that its use of Nike’s trademarks in its NFTs constitutes “fair use”, which exempts it from liability for trademark infringement. There are generally two types of “fair use”: descriptive and nominative. Descriptive fair use permits the use of another’s mark to describe one’s own goods or services, rather than to indicate the source of the goods or services. Nominative fair use allows the use of another’s trademark to refer to or describe something rather than to identify the source of that something.

On May 10, 2022, Nike asked the court to allow it to add infringement and false advertising claims to its lawsuit against StockX. Apparently, Nike purchased four (4) pairs of confirmed counterfeit Nike shoes from the StockX platform despite StockX’s guarantee that all sales are verified to be one hundred percent (100%) authentic. Accordingly, Nike argues that StockX makes false and misleading claims about authenticity to trick consumers into buying a counterfeit product.

In the Nike case, the court will likely address at least two issues based on intellectual property rights. If, as in the Hermès case, Nike’s existing marks, which have been registered to cover physical goods and services, are sufficient to cover virtual goods and services, i.e. NFTs. And whether StockX’s use of Nike’s trademarks in its NFTs constitutes fair use. (See Professional Pointer: Brand Management in the Metaverse – A Roadmap for Retailers). Finally, if Nike’s request to add claims is granted, the court will likely determine whether StockX is liable for misleading consumers by selling counterfeit products and falsely advertising authenticity.

Mark elevation in the metaverse

Notwithstanding the open legal issues mentioned above, which can make trademark protection more difficult in the Metaverse, the Metaverse presents unique opportunities for brands. For example, brands have the ability to engage new and existing customers by creating more immersive and interactive experiences. Brands can also generate additional revenue by marketing and selling their own virtual goods and services rather than waiting for others to do so.

Practical considerations moving forward

As the metaverse becomes more and more relevant, there are some practical steps brands can consider moving forward. For example, while trademark rights for physical goods or services are likely to be sufficient for protection in the metaverse, trademarks should register virtual marks. You will not be alone. In 2021, the United States Patent and Trademark Office (USPTO) saw the number of virtual trademark registrations increase by 400 times.

Also consider creating specific agreements, such as license, service, and nondisclosure agreements, that protect your intellectual property and proprietary rights before, during, and after an NFT sale – ownership in the metaverse is not not simple.

See relevant regulatory and tax laws relating to virtual goods and services, NFTs, cryptocurrency, and more. And finally, do your homework before filing charges against alleged offenders to avoid unnecessary and costly litigation.

Originally published by The Brand Protection Professional (BPP), June 20, 2022

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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