Metaverse and trademark rights

1. Background and ongoing developments

Trademarks help to identify the goods and services and distinguish them from those of the competitors. Trademark law provides an exclusive right to the right holder and grants protection to a sign, logo, etc., concerning the goods and services for which trademarks are registered. The classification of the goods and services for trademark application purposes is often done as per the Nice Classification of Goods and Services ^[1]^[2].

The question that arises in the Metaverse context and the trademark is: Can the exclusive right and protection granted to the trademark holder for physical goods could cover the protection for the same goods in the virtual world too? E.g., can the trademark granted to a company for clothes under class 25 of Nice classification of goods for physical goods would extend protection in the situation where the company start commercializing it on Metaverse through NFTs?^[3]

There can be arguments on both sides. On the one hand, it can be argued that virtual products/ NFTs in the metaverse are a mere representation of physical goods – these merely relate to the image/ pictorial representation of the physical goods. While on the other hand, it can be argued trademark right is only limited to registered goods or services or goods of similar nature[4] – as physical products cannot be the same as virtual products, trademark for physical goods cannot cover virtual products if the trademark is not provided also in the class covering computer software or related class which can cover virtual products.

Separately, the above arguments may not apply to a trademark that has the legal status of the trademark with reputation – in such cases; the trademark holder can prevent the use of the trademarked item in the virtual world too, where the use by a third-party tantamount to taking undue advantage of the distinctive character or reputation of the mark^[5].

However, many reputed companies are filing applications to cover metaverse transactions to be more secure even if they hold a trademark with a reputation, for ex. – Nike filed the application in the classes ‘Downloadable virtual goods, namely, computer programs featuring footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys and accessories for use online and in online virtual worlds’ and ‘Retail store services in relation to virtual goods, namely, footwear, clothing, headwear, eyewear sports bags, backpacks, sports equipment, art, toys and accessories for use online’. Nike also applied for registration of NIKELAND – virtual reality and interactive game service currently being used to identify the sports and virtual games space within the Roblox game (an online multiplayer sandbox video game )^[6].

Also, brands like NYSE, DKNY, PUMA, Gucci, Prada etc., have been filed for trademarks for covering the metaverse transactions^[7]– already, there were clothes featuring the logo from the likes of Louis Vuitton, Prada and Chanel^[8] that were sold in Roblox.

These companies are filing applications mainly in the categories following categories^[9]:

Class 9: Downloadable virtual goods, computer programs
Class 35: Retail store services featuring virtual goods; entertainment services
Class 36: Financial services, including digital tokens
Class 42: Online non-downloadable virtual goods and NFTs

Separately, there are already several court cases that companies have filed where they believed that their trademark was infringed. Some of them are discussed in the next section. The case filed by Hermès against Mason Rothschild has been covered in more detail.

2. Cases filed by the company for infringement of trademark

(i) Luxury brand Hermès (a French company) sued^[10]American artist Mason Rothschild for creating and commercializing in the metaverse around 100 NFTs with the name MetaBirkins extremely similar to the ‘Birkin’ ( a popular bag category ‘Hermès Birkin’)^[11].

Hermès assertion:

Rothschild didn’t have permission to use its Birkin mark^[12] – the artist registered and used the domain name ‘MetaBirkins.com’, obtaining an economic revenue and taking unfair advantage of their established trademark – It is also alleged that ‘MetaBirkins brand simply rips off Hermès’ famous Birkin trademark by adding the generic prefix ‘meta’ to the famous trademark Birkin’.^[13]
The artist had used a disclaimer on the MetaBirkins site, which reads: ‘We are not affiliated, associated, authorized, endorsed by, or in any way officially connected with the HERMES, or any of its subsidiaries or its affiliates’. Hermes mentioned that this ‘disclaimer actually made matters worse by excessively using the brand’s name and unnecessarily linking to its website’.^[14]

Rason Rothschild’s arguments:

NFTs created are artistic representations of imaginary ‘Birkins’- his entire argument encircles around the point that he should be allowed to ‘create art based on [his] interpretations of the world around [him]’^[15]. According to Rothschild, Metabirkins depict ‘furry Birkin bags, reflecting his comment on the fashion industry’s animal cruelty and the movement to find leather alternatives’^[16].
His arguments were also based on the ‘Fair use’ defence. He even referenced Andy Warhol’s Campbell Soup Cans series as justification for why he should be allowed to promote/sell MetaBirkins NFT collection^[17].

Snapshot of the open letters on the artist’s Instagram account:

In the lawsuit, Hermès demanded damages along with the request to place an injunction on Rothschild NFTs by destroying previously minted NFTs and that the domain for the project’s website should be turned over to Hermès.

OpenSea had delisted MetaBirkins for sale in the primary market. It is yet to be seen what final turn this case takes, as U.S. District Judge Jed Rakoff rejected a Motion of Dismiss filed in March by Rothschild, allowing for Hermès’ lawsuit to move forward on 6th May.

(ii) Similarly, in another case, Nike sued StockX (a marketplace in the metaverse) for commercializing Nike’s footwear as NFTs. NFTs represented existing Nike shoes but were tied to the physical sample. Consequently, when customers purchased the NFT, they also acquired the right to exchange it with a physical version of the footwear. However, StockX granted exclusive benefits to consumers where they keep these NFTs instead of exchanging them for real shoes.

Nike’s line of argument was that this could be misleading for consumers, as they may believe they were purchasing authentic Nike NFT products. Accordingly, Nike considered this harmful against its established reputation as consumers can consider StockX as the authorized NFT retailer^[18].

3. Action that can be taken to protect cases of future infringements

Companies should consider seeking additional protective trademark registration by filing an additional trademark application to cover virtual products (where required)^[19]. Specific countries’ laws in relation to the trademark law should also be considered.However, it would be difficult to determine the jurisdictions for which such an application for an additional trademark is to be filed in the metaverse world (as the trademark mainly works on the territoriality principle).
Intermediaries or creators of the metaverse should impose additional checks and terms for the transactions in the metaverse. For the user generated content, agreements should state the actions (for ex. – delisting) that can be taken by the metaverse provider in case of infringing content. For example: Decentraland include non-infringement clauses within their terms of use. They also opened channels through which users can report trade mark infringement cases.^[20] This could also help them protect themselves from contributors’ liability. Seperately, for the intermediary/ metaverse provider, there may be option under safe harbour mechanism in the European Union (article 14 of the EU E-commerce Directive) or U.S. Digital Millennium Copyright Act in the US, to seek protection against any liability of intermediary/ metaverse provider as long as the infringing content is removed as soon as they became aware of the infringement^[21].

[1] Intellectual Property in the Metaverse. Episode II: Trade Marks, European Innovation Council and SMEs Executive Agency (29 March 2022); see https://intellectual-property-helpdesk.ec.europa.eu/news-events/news/intellectual-property-metaverse-episode-ii-trade-marks-2022-03-29_en

[2] Nice classification ; see https://www.wipo.int/classifications/nice/en/

[3] Intellectual Property in the Metaverse. Episode II: Trademarks (ibid n. 1)

[4] João Pereira Cabral , Trademarks in the metaverse, inventa (26 April 2022); see https://inventa.com/en/news/article/734/trademarks-in-the-metaverse

[5] João Pereira Cabral (ibid. n. 4)

[6] João Pereira Cabral (ibid n. 4)

[7] Vikrant Rana et al., Well-versed with the Metaverse? An IP perspective, Bar and Bench (14 March 2022); see https://www.barandbench.com/view-point/well-versed-with-metaverse-an-ip-perspective

[8] Vikrant Rana et al. (ibid n. 7)

[9] Kathryn Park, Trademarks in the Metaverse, WIPO Magazine (March 2022); see https://www.wipo.int/wipo_magazine/en/2022/01/article_0006.html

[10] 47-page complaint addressed to New York’s Southern District Court; see https://www.documentcloud.org/documents/21181175-hermes-international-vs-mason-rothschild?responsive=1&title=1

[11] ibid n. 10

[12] Andrew Rossow, The Hermès Lawsuit May Dictate the Future of the NFTs; nftnow (19 May 2022); see https://nftnow.com/guides/how-the-hermes-lawsuit-could-determine-the-future-of-trademark-rights-in-nfts/

[13] Taylor Dafoe, Hermes Is Suing a Digital Artist for Selling Unauthorized Birkin Bag NFTs in the metaverse for as Much as Six Figures, artnet (26 January 2022); see https://news.artnet.com/art-world/hermes-metabirkins-2063954

[14] Taylor Dafoe (ibid n. 13)

[15] Andrew Rossow (ibid n. 12)

[16] Andrew Rossow (ibid n. 12)

[17] Andrew Rossow (ibid n. 12)

[18] Intellectual Property in the Metaverse. Episode II: Trademarks (ibid n. 1)

[19] Thomas W. Brooke, Intellectual Property Protection in the Metaverse, Holland & Knight (9 March 2022); see https://www.hklaw.com/en/insights/publications/2022/03/intellectual-property-protection-in-the-metaverse

[20] To file or not to file? Trade mark protection in the metaverse (23 March 2022), CMS Law-Now; see https://www.cms-lawnow.com/ealerts/2022/03/to-file-or-not-to-file-trade-mark-protection-in-the-metaverse

[21] Jonathan Tam, Metaverse Creators: Beware these Potential Legal Pitfalls, Connect on Tech (14 February 2022); see https://www.connectontech.com/metaverse-creators-beware-these-potential-legal-pitfalls/