The convergence of human interaction in digital lives through the metaverse creates a harmonious virtual community, but how will this evolution cope with disputes and challenges brought by trademarks and patents from the real world?
The concept of the metaverse is not new. Human interaction with the metaverse on a daily basis for various purposes has thrown up several questions regarding the applicability of relevant laws. How are rights to be determined? What are the restrictions, and how do disputes have to be resolved, etc.? These are just a few questions that have arisen. This article attempts to address some of these questions.
First, what is the metaverse? The metaverse is a digital virtual world where individuals can create character avatars and play them through interactive programs and created experiences. It is a platform where developers or users create experiences that mimic the real world through virtual social possibilities, which are mixed with gaming or simulation experiences. In short, the metaverse can be considered a virtual universe that can be accessed using various technologies to create an experience in a digital world that is similar to the daily life of a person. The metaverse also provides opportunities for users to have an experience in the virtual world that might not be possible in the physical world.
As mentioned above, the metaverse is not a recent technical innovation. The concept of the metaverse is widely considered to be first discussed in the 1990s. Hollywood movies such as The Matrix series, SpyKids, Gamer, etc., and computer games such as Minecraft and Roblox, have further crystallised the idea of the metaverse. To the extent that it is considered akin to a virtual game or something that is solely restricted for entertainment purposes, the metaverse might not pose big questions.
However, recent developments such as the consideration of non-fungible tokens (NFTs) as assets, utilisation of the internet of things to do business and even choosing the metaverse as a platform for solemnising weddings has created a legal conundrum with no clear answers. The field of IP has, in particular, witnessed a spike in such dilemmas as matters of the virtual world start becoming the subject of legal battles in courts.
IP PROTECTION IN THE METAVERSE
The term metaverse is registered as a trademark in many countries. However, so far, there have been no disputes concerning a party’s exclusive rights in the term metaverse. To date, a majority of disputes have revolved around issues of cybersquatting. Recent domain name disputes involving Disney and Tencent, while being decided in favour of the complainants, leads to the conclusion that the term metaverse may have become generic in nature. Therefore, while the nature of the term from a domain name perspective may have some clarity, the position regarding enforcement of rights by owners of metaverse trademarks in different jurisdictions remains unclear.
While the term metaverse has not been the subject of a considerable number of IP disputes yet, the concept itself has been the subject of disputes. Nike and the National Football League (NFL) in the US have used the metaverse as a platform to conduct business. Even though their goods and services are utilised by the virtual avatars of users, their cost is in real-world money. Consequently, there is an increased interest in protecting IP in the metaverse.
One of the earliest cases was Minsky v Linden Research. Richard Minsky, an American scholar of bookbinding and a book artist, filed a complaint alleging violation of his rights in the mark SLART in relation to art galleries by an avatar, Victor Vezina, who was operating an art gallery in a virtual multimedia platform Second Life under the name SLART garden. The suit was finally settled. However, the court considered the matter on merits during the initial stages and granted a preliminary injunction against the avatar. Taser International v Linden Research dealt with the replication of high-voltage stun guns bearing the mark Taser in Second Life. However, Taser withdrew the suit.
Courts have also encountered issues relating to copyright in the metaverse. In Eros v Simon, the court observed that creating virtual sex toys similar to Eros’ toys by the defendant, who passed off these toys as genuine Eros toys and sold them at discounted prices in Second Life, was a violation of Eros’ rights. The court restrained the defendant’s activities and imposed damages.
On the other hand, in ESS Entertainment 2000 v Rock Star Videos, the Ninth Circuit Court of Appeals was of the opinion that use of the plaintiff’s logo and exterior design by a virtual strip club in the video game GTA: San Andreas did not infringe the plaintiff’s rights because the defendant’s rights protected the strip club in the video game under the First Amendment. Hence, determination of the specific nature of use and the intention behind the use is important.
While the above-noted cases will certainly help consider future disputes in the metaverse, technological advancement and evolution of laws necessitate further clarity in consideration of the techno-legal issues. Recently, brands like Nike have filed applications to register trademarks in many countries or jurisdictions for goods and associated services in a virtual format. In addition, these brands have initiated disputes on the basis of the creation of assets, such as NFTs.
METAVERSE V REAL WORLD
While such assets are primarily part of a digital world, recently, there have been instances where their utilisation has backed the creation of wealth in the real world. For instance, creators in the virtual world have used metaverse earnings to build assets in the real world. Courts have also veered to treat theft of virtual goods as they would treat property theft in the real world. Considering the nature of the interaction, utilisation and association of rights, ultimately, there may not be much difference in how IP laws operate in the metaverse and the real world.
Yet another important question that needs legal clarity is ascertaining jurisdiction in a dispute involving the metaverse. Certain metaverses have provided governing laws users will agree on before using the metaverse. In addition to this, there are rules for disputes arising out of matters in the metaverse. These rules have to be viewed based on how different jurisdictions have considered the development of public international laws in relation to resolving disputes.
Interestingly, in India, there have been instances of courts relying on the concept of “long-arm jurisdiction” to resolve disputes involving computer networks. For example, in Swami Ramdev & Anr v Facebook & Ors, the court has considered the meaning of a computer network to determine the jurisdiction of courts in Delhi to grant a global injunction.
Further, Indian courts are also considering the scope of resolving matters through arbitration in cases where the subject matter is related to in rem rights of parties. While observations in such cases may act as an initial guiding principle to resolve disputes between parties, the lack of clarity in applying laws from other jurisdictions may pose serious questions when disputes are related to products that are made available and utilised in the metaverse.
As discussed above, courts have been applying traditional concepts of trademark law for disputes in the metaverse. However, certain areas of trademark law need reconsideration. Licensing is one such area. Creating a product or a service in the metaverse based on a licence obtained in the real world could be a contentious issue. For example, can a licensee who was previously granted a licence to manufacture and sell ready-made clothing in the real world use the licence to sell such clothing in the metaverse?
Similarly, a licence covering online advertising may be used to advertise in the metaverse as well. This may not be something that the brand owner actually wants. Such questions need to be answered because a licensee’s unintended expansion into the metaverse might mean a restriction of an additional royalty source. Moreover, opinions created in the minds of users of a brand in the metaverse might affect consumer sentiments in the real world.
All of these potential issues and more must necessarily mean that licensing agreements must bring clarity on the intent of the parties, and clearly state the specific terms that have to be followed in relation to the metaverse.
From the technological point of view, having special smart contracts with licensees could be beneficial in ensuring that only authorised licensees can use a rights holder’s trademark in the metaverse.
Applying traditional concepts of copyright law in the metaverse also throws up its own peculiar set of issues. For instance, Indian copyright law specifically talks about the exclusion of the use of a work in a medium that was not in existence or was not specifically mentioned when an assignment of rights was made between parties. So how does one tackle rights in the metaverse that may not have existed when the assignment was made?
Theoretically speaking, having a separate assignment might be necessary to cover the extension of rights assigned in the real world to the metaverse. However, there might be hindrances to renegotiating such subsequent assignments in a practical sense. Nevertheless, to the extent parties can agree, en bloc assignments that extend real-world rights to the metaverse may help resolve such an issue. Intervention from the legislature may be required in this context.
Applicability of traditional concepts of fair use and fair dealing of copyright is another area that needs reconsideration. From an Indian standpoint, while the four-factor test – namely: (1) purpose and character of the work; (2) nature of the work; (3) portion used in relation to copyrighted work; and (4) the effect on the market and value – can also be applied to the metaverse, there needs to be a difference in the application of this test in the metaverse.
In particular, the market and value element of the test may have to be considered differently because of the possible variations of value in the metaverse due to multiplicity vis a vis the real world. Further, it might be hard to quantify the portion of use of a work in certain circumstances owing to continuous changes in the metaverse that cannot be predicted or tracked.
In relation to back-end software, considering the holding in cases such as Google v Oracle America, where even copying of around 11,000 lines of software code was not considered to be a copyright infringement, the purpose of the law relating to fair use or fair dealing might fail if exported to the metaverse concepts as it is.
The concept of the right of publicity might also have huge potential in the metaverse. Metaverse users could develop avatars or even goods that might resemble or incorporate some unique characteristics of a celebrity. Such use, if unauthorised and/or without due payment of royalty, would result in losses (both financial and reputation) for the celebrity or his/her legal heirs. Such association with a famous person might change the commercial value of a product.
While dealing with the violation of publicity rights on virtual platforms, courts have considered the defence of a “transformative” effect. For instance, in the case of Kirby v Sega of America, which dealt with the question of misappropriation of likeness and identity of the American singer, songwriter, DJ, designer, fashion icon, and activist, Kierin Magenta Kirby, in the videogame Space Channel 5 held that the likeness contained in the video game was so transformed so as to become an expression of the distributor of the video game and hence subject to First Amendment protection.
While transformation has been held to be a valid defence regarding the violation of personality rights, the authors see that instances of their misuse in the metaverse are likely to be more damaging than misuse in a single game. This is because, if the metaverse succeeds in becoming a substitute or an additional venue to the real world, unauthorised use of a celebrity’s likeness could result in loss to the celebrity, financially and with regards to their reputation, in the metaverse and the real world.
While analysing the protection to be granted to celebrities, the focus should be on whether the celebrity can be identified from unauthorised use without the requirement of proof of fallacy, confusion or deception.
Another potential issue is the rights and liabilities of creators of the metaverse. While safe harbour principles applicable in certain jurisdictions may be applied to metaverse service providers, the extent and manner of action to enable them to fall under a safe harbour exception needs further clarification.
While cases like Christian Louboutin SAS v Nakul Bajaj & Ors have provided certain guidelines on intermediaries in e-commerce, the utilisation of it concerning the metaverse is still doubtful since it is not clear whether metaverse service providers are supposed to be considered as “intermediaries”. While general principles in relation to intermediaries may be applicable to some extent, it will be an involved exercise to determine the roles of different parties in the metaverse.
Consideration of the nature and manner of technologies behind the metaverse is another challenge that needs specific answers. It is true that courts and tribunals have analysed and granted patents for software based on the technical effects of such software. However, the real question is the threshold of such technologies creating a different effect that was non-existent. While the metaverse environment is creating a unique experience for users, the determination of the underlying technology as a novel and not a mixture of pre-existing technology is something that must go through strict scrutiny.
Patent applications related to technologies behind the metaverse have been rejected as they were considered as mere inclusion of “novel non-functional descriptive material”. Nevertheless, there have been instances where technological advancements in relation to the metaverse have been considered for granting patent protection. Recently, Disney has obtained a patent for tracking visitors while projecting a personalised three-dimensional image for them.
Design protection also needs certain adaptations in the context of the metaverse. As noted previously, there have been instances of brands producing virtual goods at virtually the same price as real-world goods. In such circumstances, the term of protection, the condition for utilisation and obtaining rights such as novelty, has to be reanalysed in relation to the metaverse to avoid unnecessary hindrance in utilising rights similar to that in the physical world.
While certain legal principles are in existence as a guide to the resolution of disputes and the protection of rights in the metaverse, ambiguity continues to exist in the minds of various stakeholders. This is crucial from an Indian perspective as, recently, the Indian Finance Minister has proposed a 30% tax on virtual digital assets in her annual budget in early February. From the metaverse perspective, this leads to various questions about determining what “assets” are.
Whether such virtual goods can be considered digital assets in all circumstances, what are the criteria to determine the nature of goods and associated rights, how to determine the tax liabilities associated with certain parties, etc., are crucial questions that India needs to focus on. Along with the same, consideration of suggestions in the recent parliamentary committee recommendations on IP financing will also be crucial to determine the stakes of various parties in India. Providing facilitating frameworks, certain benefits to creators and a speedy resolution mechanism of disputes should be the prime focus of countries like India.
Sujata Chaudhri is founder and a managing partner of Sujata Chaudhri IP Attorneys in Noida. She can be contacted at +91 88 6013 0723 or by email at firstname.lastname@example.org
Urfee Roomi is a principal associate at Sujata Chaudhri IP Attorneys in Noida. He can be contacted at +91 98 1809 8835 or by email at email@example.com
Alvin Antony is an associate at Sujata Chaudhri IP Attorneys in Noida. He can be contacted at +91 94 9606 7371 or by email at firstname.lastname@example.org
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