In late October 2021, Facebook made a huge announcement. That it was changing the company name to “Meta” or “Meta Platforms”. The reason was to refocus the company around bringing “the Metaverse to life”, declared CEO of Facebook Mark Zuckerberg.
The term is essentially an idea of a virtual reality where users can buy land, building, create their own avatars and build their own virtual universe. Within the Metaverse, people can walk around, meet their friends, visit buildings, attend events, and even buy goods and/or services using cryptocurrency. The development of the Metaverse is being driven by augmented and virtual reality (AR/VR) headsets, in the hopes that these headsets will become cheaper and more accessible to the masses.
For better understanding, the below chart from Jon Radoff’s article, ‘Building the Metaverse’, depicts the seven (7) layers of the Metaverse.
(Source: https://medium.com/building-the-metaverse/the-metaverse-value-chain-afcf9e09e3a7 )
Ownership via NFTs
It’s a vision of a future world that takes many long-existing concepts, like shared online world and digital avatars, and combines them with recently emerging trends, like digital ownership through NFTs (or non-fungible tokens) technology. NFTs are digital or blockchain-based units of value of ‘tokens’, with a unique ID linked to the underlying asset. They exist on the public blockchain, the most common blockchain being the Etherium blockchain, but NFTs are also held on other blockchains, that serve as evidence of ownership. Anyone can view the item, however, only the buyer of an NFT has the ‘official’ ownership and status of being its owner.
The value of an NFT comes from it being ‘non-fungible’, meaning that the token cannot be replaced with an identical token, giving it its built-in rarity. This contrasts with the fungible nature of cryptocurrency, where each unit of currency is identical in value and can therefore be interchangeable with each other unit of currency.
So, what does the Metaverse mean for your business?
The Metaverse and with it NFTs present a wide range of opportunity as well as inherent risks for business owners. Below we will discuss the monetisation of your business’s IP rights, and the risk of your business’s IP rights being misused.
i. Monetisation of your business’s IP rights
The way in which an NFT can be monetised is by selling it to a third-party, however, this not a straightforward procedure like purchasing a physical asset. For example, say you are a fashion company, and you want your handbag to be available for sale in the Metaverse, you’re not licencing the actual handbag, you’re licencing an image of that handbag and therefore, that could potentially attract IP rights.
This is not just a hypothetical scenario; Popular brands such as Italian fashion house Gucci are investing in the Metaverse. The luxury brand in June 2021 collaborated with Roblox, an online game platform and game creation system, to sell a digital version of one of its handbags for US $4,115, roughly $700 more than the original sale price of the real-life version of the handbag.
To continue this analogy – buy purchasing the digital version of the Gucci handbag on Roblox you do not own the physical handbag itself but the proprietary rights in the original craftsmanship of the handbag. This is an important distinction that media coverage gets wrong and incorrectly suggests that ownership of an NFT amounts to some form of ownership of the underlying asset.
An NFT seller (assuming they are the owner of the IP rights in the underlying asset) can transfer those IP rights to the buyer. However, the IP must be assigned in writing and without express written terms stating otherwise, either in a smart contract or elsewhere, this will not constitute a sale of an NFT. NFTs then open a potential revenue stream for asset owners, as it is possible to code an NFT’s smart contract to make royalty payments automatic to the original NFT seller for each of the onward sales of the NFT.
ii. The risk of your business’s IP rights being misused
As business and investors seek new ways to monetise digital content and invest in the metaverse, we can anticipate an influx of misuse of a business’s or brand owner’s IP and Trademark rights held in any underlying asset through minting of unauthorised NFTs. This is all new territory because these issues have not been examined in any court of law as to our knowledge.
There are two (2) main types of infringement that can result from unauthorised minting of an NFT relating to a digital asset:
- Infringement of the reproduction right; or
- Infringement of the communication right.
In terms of Trademark infringement that may arise where an unauthorised party mints an NFT linked to an underlying asset, without the original asset owner’s permission, and advertises, offers for sale and/or sells the NFT using the original asset owner’s registered Trademark(s). The key question is whether the business owns the registered Trademark(s) that covers NFTs or similar goods and/or services. If so, there may be a case for Trademark infringement under the relevant jurisdiction’s Trademark law:
- The same Trademark is being used as the original asset owner’s registered Trademark for identical goods and/or services; or
- The same or similar Trademark is being used as the original asset owner’s registered Trademark in relation to the same or similar goods and/or services, causing the likelihood of confusion in the marketplace.
As stated above, it is a waiting game to see what direction a court will take on the above.
Key Takeaway
In the years to come, all your physical assets are likely to become digital assets that are going to be licenced to the people who are running these virtual worlds. Clearly there are many issues to overcome and ultimately how the law evolves, and the courts determine these issues remains to be seen.
Contact Us
Trademark law is the best area of IP law that offers protection, strategy, and leverage. Here at IP Partnership Lawyers, our team of solicitors are experts in Trademark registrations in both Australia and internationally, and we also assist clients with Trademark oppositions and the removal of Trademarks. Please see contact us to discuss further.
Disclaimer
This blog provides general information and is not intended as legal advice specific to your circumstances. Please feel free to seek our professional legal advice if you have any particular questions, concerns and/or queries.
