Intellectual Property and the Metaverse

Amidst all the excitement about the metaverse, it's always interesting to think about what else needs to evolve; what are the second-order effects that we need to consider.  There are, broadly, an interesting set of legal issues and questions that arise from the metaverse.  I have written, for example, about emergent threats to privacy or new forms of manipulation through fake immersive experiences; but similarly, it is clear that the metaverse also poses some interesting challenges from an intellectual property perspective that forward-looking regulators and practitioners need to consider now.  Indeed, in my recent meeting as part of a US Chamber of Commerce delegation with the leadership of the Saudi Authority for IP (SAIP), this was one of the points that I raised as warranting further discussion.

Intellectual Property is often not well understood, even by those in business, and is often assumed to mean patents; sometimes copyrights and trademarks are conflated; and sometimes trade secrets are not thought of as intellectual property.  As more and more of our economy activity moves to the metaverse, it is likely that it is going to impact how we think about intellectual property and, for governments and businesses, how we can enforce and commercialise in this new medium.

The most obvious impact is from the perspective of trademarks and we have started to get a sense for this with the emergence of Non-Fungible Tokens (NFTs).  The recent legal dispute between Nike and StockX highlights some of the questions of who owns brands in the metaverse and, to what extent and by what mechanism, brand owners can protect and enforce their brands.  In this particular case, StockX issued NFTs for Nike sneakers; Nike initiated legal action arguing it was a trademark infringement; and StockX countered by arguing they hadn't violated a trademark as the NFT was only used to authenticate Nike shoes (see here for detailed response).

The primary purpose of trademarks are to enable a consumer to know the origins of an object or item; by giving the brand owner the right to affix their logo to some goods, the authenticity and provenance of that thing can be demonstrated.  The items that can be subject to trademarks are defined in what is called the Nice Classification of Goods and Services.   The classification scheme, however, only applies to physical products so, for example, if you wanted to trademark your sneaker brand, you would apply as footwear.

The digital objects created in the metaverse, however, are not physical, so there is an ongoing discussion as to how trademarks would apply.  Are they considered footwear or are they actually software products (i.e. virtual goods)?  If they are indeed considered footwear then the existing trademarks would apply but if, however, they are considered software or virtual goods then firms may need to apply for trademarks against a different classification.  Hence, there has been a rush of firms to register trademarks for virtual goods to protect their brands within the metaverse where, increasingly, virtual goods, including virtual clothing, will be of increased economic value and importance; and, particularly when you have "first to file" rules that incentivize people to register metaverse trademarks for brands that, ultimately, they don't own.

This then leads to questions of discovery and enforcement.  Given the nature of the metaverse, how will brands monitor and discover potential infringements of their trademark?  This could involve new forms of marketplace monitoring, such as "virtual inspectors" who, just like their human counterparts, patrol metaverse stores and marketplaces to check for trademark violations.

Similar to trademarks, there is also vast potential for copyright violation in the metaverse.  When anyone can create anything and any physical object can be easily replicated digitally, the possibility for art, music, literature, or any other copyrighted expression to be replicated in the metaverse is clear.   Someone could, for example, easily mint an NFT for some copyright work and sell it.  This raises multiple questions including how copyright should be confirmed by the buyer, whether someone is buying or licensing the work, do all rights associated with the creator/owner of the work transfer at point of sale (i.e. are, in legal terminology, exhausted) or are some retained, or, given the way NFTs are represented as metadata on a blockchain, whether someone is truly buying/licensing the work or whether they are merely buying the metadata.  With the ability to also create code that runs inside the metaverse, there is also an emergent risk of this software being stolen within it and, by doing so, copyright potentially violated.

This, of course, represents a significant opportunity for forward-looking authorities and practitioners to address these challenges.  For example, there is a need to look at how rights are transferred (or not) with NFTs and how the jurisdictional requirements for the transfer of rights can be met in a digital and metaverse context.  With reference to Roman law, we can also think about how we can digitise more granular rights: such as the right to use (usus), the right to profit from (fructus), and the right to destroy or dispose of something (abusus).  This might enable, for example, someone to license their trademark or copyright work on the basis that it isn't used for certain types of purposes – with the rules embedded in smart contracts; or it could enable a broad new set of royalty schemes to be created for the metaverse, including novel schemes for user-generated content.

Thirdly, patents will, of course, also be affected.  The most obvious way is that there will be filings for much of the foundational innovations that will go into the hardware and software that will enable the metaverse.  A more interesting question, though, was raised by the incredible efforts to build a virtual machine – essentially a computer – natively within a metaverse.  Known as Chungus, it is an 8-bit processor built natively within Minecraft that can run its own software.

It is therefore possible to build a virtual world of something that is already patented in the physical world.  A patent might describe a series of steps involving some physical object but, in the virtual world, there is no physical object but a virtual replica or maybe no equivalent; yet the steps outlined in the patent may remain.  In a fascinating discussion of this very concept, Holland and Knight discuss the example of a "virtual turnstile" for a virtual event in a virtual world that is used to count virtual patents; and the extent to which a real-world patent for a real-world turnstile reads on the virtual invention.   Is this an infringement?  The answer comes down to some complex legal questions of whether the virtual turnstile is equivalent to the apparatus in the patent.

Just as physical assets can be tokenised for use within the metaverse as a digital asset representing some property right (abusus, fructus, and/or usus), the intangible assets – much of which is intellectual property – sitting on the balance sheets of firms globally might also benefit.  Imagine, for example, if firms could create digital tokens represent different rights over a patent and then use this to secure finance or license for use.  This has the potential to address a challenge in a part of the balance sheet that has, historically, been difficult to value but also difficult to create liquidity around.  

More broadly, we also have questions of jurisdiction and territorial enforcement.  For example, existing IP licensing might be constrained to a particular country or market; thus raising a question as to how these will map to virtual worlds where there is no notion of country in the conventional sense.   Will we see, for example, rights assigned based on distinct "areas" within the metaverse or for different jurisdictions to be established within the metaverse – similar, in some sense, to classical "special economic zones" or charter cities – in which there is a physical real-world governing authority responsible for managing and enforcement of rights?

There are also questions of ownership that will arise as we see, firstly, more user-generated content created inside the metaverse and where the authors or creators may want to establish some intellectual property rights over it.  The ability to register a trademark or copyright on some work that is truly native to the metaverse and where the inventors themselves might be veiled behind an avatar is an interesting opportunity for further discussion; and also touches on questions of identify and privacy in the metaverse and how digital identity should be represented and managed.  With more and more generative AI being used, as evidenced by the recent debates around the artistic value of AI-generated art such as Midjourney, there are also important IP considerations here too.  Aside from the question of whether a computer can "invent", there's the less philosophical question of whether a program that generates artwork based on having essentially learned the statistical and other patterns underpinning billions of actual creations of real humans is truly inventing or whether, by virtue of it leveraging and/or reusing actual work by real artists, true ownership can be asserted over the resulting productions – particularly given its possible that they were derived from works that themselves might be copyrighted.

These are, of course, non-exhaustive and a few ideas on considerations that we will need to think through as we continue to explore the concept of the metaverse.  Whilst there are new challenges, there are also new opportunities; particularly for new forms of commercialisation of existing and new intellectual property and for entirely new classes of virtual products to be created and monetised.  As more and more content is created by the users themselves of the metaverse, the possibility of novel forms of monetisation that share value with the people who created the digital object, asset, or contributed to it is also exciting.  As the metaverse touches most professions and industries, the legal profession and intellectual property domain are no exception, and practitioners and leaders in both would be encouraged to start exploring and thinking about these questions – and opportunities – now.