NFTs and the Metaverse

At a glance: 

And in more detail:

With the recent excitement around the “metaverse”, NFTs, and the market for “virtual products” heating up, it is a good time to take a closer look at the protection of brands in computer games and virtual reality environments, as well as art, film and other media more broadly. In particular, this author looks to explore what happens when artistic creations and “virtual” or “fictional” brands start a life of their own.

Background

The use of Trademarks and other copyright material in creative works, such as art or film, and more lately, computer games and virtual reality applications has so far been a somewhat one-sided subject. Case law and jurisprudence, so far, has developed with the primary focus being on the (unauthorized) use in creative works of existing brands, and products bearing Trademarks, which often already have a significant presence and reputation on the marketplace.

For example, it may be desirable for a character in a film to drive a particular brand of car because of the connotations attached to the brand and how the image influences character building in the artistic medium. James Bond would likely not look the same driving a reasonably priced car.

Insofar as product placement is concerned, the principles are relatively straightforward – owners of brands wish their brands to be featured in creative works in such a way that it enhances the desirability of the products and the prestige of the brands. Conversely, it is also desirable to prevent such uses, which in some way tarnish the reputation of the brand e.g. by showing the products as having an inferior quality, the branding (Trade Marks and other stylization) being used incorrectly, or in a way that is not desirable, for example, by creating a negative association. In other instances, advertising standards may limit the displaying of brands due to public policy or health concerns, e.g., in the case of cigarettes or alcohol.

There are notable exceptions to brand owners’ rights in protecting their intellectual property from unauthorized use, such as fair use clauses in copyright law allowing under certain conditions for the fair use of elements of an artistic work for the purposes of education and parody, for example. In terms of trademarks, the position tends to be different.

As discussed by my colleagues Jack Kenny and Mike Shaw in 2016, unlike in the US, no such provision exists in the UK or the EU in respect of “trade mark parodies”. Indeed, such an exception may not be desirable – or necessary – as a parody exception might unduly limit a trademark owner’s capabilities to exploit or enforce their rights. Existing provisions in the Trademarks Act 1994, and a wealth of case law, already provide guidance as to when the use of a trademark (or of a similar mark) constitutes infringing use, and conversely provide indication where uses of trademarks do not constitute an infringement.

So, when it comes to game characters and various designs that a user might encounter in a film, computer game or in other AR or VR environments, protection potentially exists in the forms of copyright, designs, as well as trademarks. In this article, I will focus primarily on the use of trademarks in the aforementioned environments and the measures of protection that might be available for rights holders.

Breaking the fourth wall

Compared to the scenario involving product placement or the use of “real life” trademarks as expounded above, the waters become muddier when creative works feature “fictional Trademarks”. These are brand names and logos, which are affixed to products or under which services are rendered in a fictional world without an (authorized) counterpart existence in the physical world. One notable example of a fictional Trademark is “Duff beer” from the Simpsons cartoon. Due to the show’s popularity a number of breweries have attempted through the years to introduce the fictional “Duff beer” into the real world, arguably riding on the coattails of the reputation – or at least the recognizability – that the fictional brand name and logo have gained through their use in the cartoon. In the case of “Duff”, so far, the owners of the rights to “The Simpsons”, Twentieth Century Fox Film Corporation, have been able to rely on copyright law to prevent some unauthorized uses, however, the protection afforded by copyright is more limited and would not extend to the word “DUFF” on its own.

For copyright protection to really come to the fore, the infringer should not only be using the name “Duff” but also perhaps the stylization of the logo, a font known from and associated with the series, artwork or images of characters, or other copyright-protected works that would enable the rights holder to pursue an effective claim.

Such enforcement actions, however, also tend to be more difficult to substantiate and more costly to run as compared to oppositions or infringement cases based on registered trademarks. The latter types of actions benefit from a significantly higher rate of incidence, clearer and more straightforward procedural and evidentiary rules, and more developed case law, and thus are more predictable in their outcomes. Furthermore, a trademark registration provides a sole right which could potentially carry on in perpetuity, whereas most other forms of intellectual property have limited lifespans.

So, why not simply register the fictional trademark in respect of the goods or services on which it is used in the virtual context?

In most territories in the world, it will be necessary to identify the particular goods and/or services for which protection is sought when applying for a trademark. That is, protection does not automatically extend to all possible goods and services.

The issue is that in most territories in the world it is necessary to make actual commercial use of a trademark in respect of the goods and services that are covered by the registration in order to maintain the registration in force. In the UK and the EU, for example, trademark registrations become vulnerable to cancellation on the grounds of non-use after a grace period of 5 years has passed since their registration. A further consideration to take into account is that in the UK, for example, the applicant needs to declare a bona fide intention to use the trademark in respect of the goods and/or services applied for. When demonstrably no such intention exists, this could lead to repercussions for the applicant, including the loss of rights and potential other punitive sanctions.

In other territories, such as the USA, it may be necessary to demonstrate that a trademark is being put into commercial use in respect of the goods and/or services applied for in order for the registration to be granted in the first place. Continued use may also need to be demonstrated at intervals.

Therefore, the potential obstacle faced by proprietors of fictional trademarks, such as Duff, is a choice between either marketing the goods or services covered by the fictional trademark in the real world, or licensing such rights to third parties (one such example is the Coyote Ugly franchise of bars and restaurants), or potentially losing their trademark registration(s) once the marks become vulnerable to challenge by third parties.

For the foregoing reasons, so far traditional registered trademark infringement has not provided the main cause of action against copycats. Legal actions against unauthorized uses have mainly had to claim copyright infringement, passing-off or rely on other IP rights, such as registered and/or unregistered designs. The emergence of a new trend to file for particular “virtual goods”, could, however, herald a change in the way jurisdictions approach trademark infringement.

Arguably, “virtual shoes” in Class 9, which are marketed relying on NFTs, should be found to be similar to real “shoes” in Class 25 – although the broader categories of “software” and “footwear” would remain dissimilar – especially, if the market develops in such a way to tie in purchases of physical goods with ownership of the same goods in a virtual format – and perhaps vice versa, as many manufacturers of trainers already allow customers to customize the appearance of their footwear before the completion of the manufacturing process and physical sale.

What about reputation?

A potential third option could be to rely on the reputation of a registered trademark in a different class of goods or services, e.g. reputation built up by the use of a mark in relation to “entertainment services”, which could then be relied upon when challenging use in respect of dissimilar goods and/or services. In order to rely on reputation, the owner of a trade mark would need to demonstrate that a) the trade mark has a reputation in the territory in question, b) that there would exist a link between the  later use of the mark in respect of dissimilar goods or services and the original trade mark in the mind of the consumer, c) that such use would take unfair advantage or be detrimental to the distinctive character or the reputation of the earlier mark and d) that the later use of the mark is without due cause.

While this avenue appears to show some promise as a potential option, some issues will nevertheless remain:

It can be quite difficult to demonstrate a sufficient degree of reputation in a “regular” trademark, let alone a “fictional” or “virtual” one.

Passing off (common law jurisdictions)

In the UK, it is possible to rely on the tort of passing off to potentially restrain and seek damages for the unauthorized use of some “unregistered” intellectual property rights. On the one hand, passing off provides somewhat more flexibility as the “goodwill” and “reputation” claimed could persist in multiple different aspects of a product or a service which may potentially go beyond the more narrowly defined limits of registered rights. Passing off claims could, for example, rely on the name of the brand, the trade dress, the shape of products, style and elements of marketing, etc.

On the other hand, in addition to the aforementioned “goodwill” and “reputation” that need to be demonstrated, for a passing off claim to succeed, it would also be necessary to demonstrate a “misrepresentation” on behalf of the defendant i.e. that the defendant has attempted to deceive consumers and pass off their products as those of the claimant, or to claim that the claimant’s products actually originate from them; and also “damage” or a real likelihood thereof to the goodwill and business of the claimant. Unless this “trinity” of factors is satisfied, a passing off claim will not succeed.

In the context of the “Duff” beer scenario, for example, a passing-off claim could potentially succeed, if the defendant makes clear references to “The Simpsons”, indicates or suggests an affiliation with the producers of the show or the rights holders, or otherwise attempts to associate itself with the goodwill enjoyed by the fictional beer (e.g., by adopting a similar trade dress).

Examples of successful actions come from the US, where “common law trademark infringement” or “unfair competition” have prevented the use of the DAILY PLANET (name of the newspaper where Clark Kent works in Superman) in the real world. Similarly, Viacom the owner of rights in the cartoon SpongeBob SquarePants was able to prevent the use of the name of the fictional diner KRUSTY KRAB for a real-life restaurant.  In these cases, however, the rights owners had engaged in some use of the fictional marks in the real world, e.g., via licensing or merchandising other goods such as paraphernalia bearing the marks in the real world over an extended period of time.

It is important to note that passing-off and relying on copyright could also be particularly relevant in the context of merchandising associated with game characters and/or artefacts, i.e., virtual objects that do not necessarily feature specific branding but will still be recognizable by fans of the games.

So, what about NFTs and “virtual goods”?

The emergence of NFTs or “non-fungible tokens” does not really alter the picture as far as the laws governing intellectual property are concerned. In its essence, an NFT is what makes a copy of a virtual article, e.g., an image file or a 3D model, unique; however, it does not in and as of itself give the owner of the NFT any rights in the source material (unless accompanied by a transfer of ownership agreement).

What the emergence of NFTs as an investment and “ownership vehicle” does show, however, is that the consuming public is becoming increasingly more aware of virtual environments and virtual goods as things of more than transient value. The owners of IP rights are also encouraging interest and investment by developing new (virtual) products and new ways of marketing their brands. This is leading to a new and increasing trend in seeking registered protection for trademarks in respect of “virtual goods” and registered designs in respect of shapes, which will only be marketed in virtual environments.

Separately from creating collectibles which may or may not be limited in number, the implication does arise that NFTs could be used in the future to indicate ownership of various IP assets, which could in turn potentially reduce time and effort associated with producing evidence of copyright or other types of IP ownership in legal proceedings, as all the relevant information and chain of title could be contained within the NFT itself.

Having said that, the validity of the information contained within or relating to such an NFT might still need to be validated in the old-fashioned way, if challenged, so this author does not expect NFTs to introduce significant change to proceedings for enforcement of IP rights just yet, however, if protection for “virtual goods” is to be fully recognized, such protection should have implications on identical or similar subject matter in the real world.

What are the practical steps then that creative industries can take in order prevent unauthorized uses?

Computer game, and AR- and VR-software developers – but also other professionals in the creative industries – should seek guidance from IP attorneys to timely protect their artistic creations and commercial investments from unauthorized exploitation. Effective IP advice can also ensure that potential avenues for future exploitation of IP rights are not excluded and generally allow for a more streamlined and cost-effective approach.

posted with permission from Marks&Clerk