Katy Bourne April 11 2022 Beyond the universe: 8 trillion reasons to understand the metaverse and what this means for IP rights Pinsent Masons | Intellectual Property - International Katy Bourne Intellectual Property What is the metaverse?How will brands use the metaverse?What does this mean for IP rights?Other points to noteCommentWhat is the metaverse? The metaverse does not yet exist – but it is coming and it is set to be an $8 trillion opportunity.While there is no single agreed definition of what the metaverse is, the word "metaverse" itself means "beyond the universe" and it describes the permeability between the physical and digital world. By wearing a virtual reality (VR) headset, it is possible to enter a virtual world as a 3D avatar representation. For example, it would be possible to watch a concert on a mobile phone and decide to jump virtually inside, or participate in a work meeting as a digital hologram sat around a table.There are, broadly speaking, two schools of thought on what the metaverse will and should be:decentralised – many decentralised metaverse platforms are built on blockchain technology, incorporating non-fungible tokens (NFTs) and cryptocurrencies; orcentralised – with all aspects of that metaverse being controlled by one single entity.How will brands use the metaverse?The metaverse can deliver interactive and immersive experiences to users and it will inevitably change how people socialise, shop and work. The virtual economy generates well over $100 billion a year, with over one-third of the world's population playing video games. Plus, in a world where businesses are coming under increased pressure to have "net zero" carbon emissions, some digital assets can require 97% less carbon to create. The metaverse provides a lucrative channel for brands to reach huge audiences with minimal environmental impact.How brands use the metaverse will depend upon the shape of the platform. In a decentralised metaverse, it is likely that infinite NFTs – digital assets whose ownership is recorded on an invisible ledger known as the blockchain – will be created. These can cover all manner of things, including digital land, music and clothes for a personal avatar.What does this mean for IP rights?Clearly, this seismic change will generate new creative works to be protected and create a new environment in which to enforce IP rights. As physical and digital worlds collide, how do businesses ensure that their IP rights are protected in both worlds?PatentsOver the past few years, the numbers of augmented reality (AR) or VR technology patents have surged as the technology behind the metaverse is fast evolving. When creating innovative technologies, businesses should consider whether to seek patent protection. Patents can protect software, provided that it is novel and it solves a technical problem.The challenge for businesses is that the courts have been quick to invalidate software patents, holding the software as an implementation of an abstract idea, and incapable of patent protection.(1)Policing patent infringement in the metaverse also has practical difficulties. Unlike other IP rights, software patents are working behind the scenes. Establishing infringement hinges upon a source code comparison, likely meaning launching proceedings, obtaining disclosure and instructing experts. This is expensive and time-consuming, and runs the risk of the infringer rewriting the source code to avoid liability.Trade secretsIn light of the challenges regarding registration and enforcement of software patents, businesses may be better off leveraging trade secrets to protect their metaverse technology.Trade secrets protect confidential information, which is commercially valuable, gives the owner a competitive advantage and (most obviously) is treated as a secret. Trade secrets can last indefinitely if kept out of the public domain. However, as technology shifts so quickly, it is important to question whether it will have indefinite relevance.The success of the metaverse hinges upon its understanding of both the physical world (a place, shop or product) and its user (their location, habits and interests). The metaverse can apply real-world features to a virtual environment, for example enabling someone to visit digital versions of real-life destinations. Clearly, data will play a significant part in this. Additionally AR/VR technology will generate data of unparalleled granularity, not just measuring where a person clicks, but how they move. This data provides access to the user's subconscious that is "gold to a data capitalist". Though trade secret protection is relatively narrow, if the requirements are met, trade secrets may assist in protecting this data.Copyright In some jurisdictions, such as the United Kingdom, copyright is an unregistered right protecting literary, dramatic, musical and artistic works that are original, fixed in some way and qualify for protection. As a consequence of being unregistered, copyright is a flexible right. However, this also means that it can be practically difficult to enforce.In other jurisdictions, such as the United States, brand owners may wish to ensure relevant copyright is registered in metaverse assets and software.If a business finds its copyright material is being used in the metaverse without consent, it should notify the platform immediately and utilise any takedown procedures available. However, depending upon the location of a host server, takedown procedures and website blocking procedures may vary according to local laws.When assessing copyright infringement, a court will determine whether a substantial part of a copyright work has been taken. It remains to be seen how the courts will interpret substantiality in the metaverse. It is also uncertain how the courts will interpret the fair dealing defences to copyright infringement in a metaverse context.On a more fundamental level, the availability of copyright protection is dependent upon whether a work is made by a qualifying person or whether it is published in a qualifying country. This begs the question as to how the courts will interpret the validity of copyright works beyond the universe, which, by definition, has no boundaries.TrademarksRegistered trademarks provide the owner with the exclusive right to prevent others from using the mark for the goods and services covered by the registration. They are valuable assets of a business, can last indefinitely and avoid the need for trademark owners to prove the elements of a passing-off action.A number of brands are filing trademark registrations to ready themselves for launch in the metaverse. For example, McDonald's has filed trademarks for virtual restaurants offering home delivery and Walmart has applied for trademarks for financial services "for use by members on an online community via a global computer network".In the absence of a body of decisions, it is difficult to know the value of metaverse registrations and it is unclear how valuable existing marks covering digital goods and services will be in protecting brands in the metaverse. However, it is fair to assume that expanding registered trademark protection to cover digital assets will prove beneficial for enforcement.In order to protect a brand, it is advisable to implement a trademark monitoring and watch service so that problematic third-party applications are identified swiftly. When using a registered trademark in the metaverse, it is advisable to mark this as such and swift action should be taken to prevent dilution of a brand.Leveraging the metaverse has potentially significant advantages for brands, but reaching a wider audience comes with increased potential to infringe third-party rights as brands expand into new territories and new promotional services. Furthermore, trademark owners have not been overly successful in preventing the use of their trademarks in virtual worlds. For example, in the United States, the trademark proprietor of HUMVEE was unable to enforce its mark with respect to its use in Call of Duty, with the court determining that the use in Call of Duty had "artistic relevance" and evoked "a sense or realism and lifelikeness".(2)Design rightsRegistered design rights are not limited to particular classes of goods and services. This flexibility is likely to be useful in the metaverse. For example, if a brand has a design registration for a popular handbag and it is adopted by a digital avatar, the registration could be enforced against a digital embodiment of the same.IP authorities around the world may need to adapt national design regimes to keep up with the development of the metaverse. The UK Intellectual Property Office, for example, recently issued a call for views on the UK design regime, including on how the government can futureproof the designs framework and ensure that this deals with emerging and future technologies, particularly in digital environments. The consultation does not make reference to the metaverse specifically; however, it is clear that improved protection for digital assets such as avatars would impact upon the availability of design rights to better protect brands in the metaverse.Like the law itself, any brand enforcement strategy will need to be adaptable to new infringement risks – for example, combating digital counterfeiters seeking to monetise fake branded NFT versions of real-world assets.Other points to noteWhen licensing IP rights, businesses should review any existing licences to assess whether these cover the use of that intellectual property in the metaverse. Caution should also be taken as to whether any first rights of refusal are offered that may result in infringement if IP rights are offered to a third party. Any future licences should be carefully crafted to deal with the metaverse and any use in digital assets such as NFTs.The metaverse is likely to be a strong marketing tool, with more than half of adults fearing that this will lead them to neglect reality. Interestingly the metaverse has attracted people diverse in age, race and gender, providing a wide target audience for brands. Technologies that blend the physical and digital worlds far outweigh more abstract, digital-only formats such as NFTs and cryptocurrency. However, despite the strength of the metaverse in advertising, in some jurisdictions – including, for example, the United Kingdom – there is currently a lack of guidance on the metaverse.(3) As brands look to promote themselves in the metaverse, they will need to navigate the relevant codes and rulings as these emerge.CommentThe development of the metaverse is dependent upon a rich tapestry of decisions around innovation, ownership and investment, and anyone who bought a MiniDisc player will know the perils of trying to predict technology's future.It is clear that the metaverse provides brands with exciting opportunities to reimagine their businesses. With those opportunities come new threats and issues to be determined. For example, as an overarching point, it is unclear whether the metaverse will be considered a territory or a medium. Perhaps one day a separate IP office, governing law and the judicial system for the metaverse, may be seen. As a starting point, businesses will need to undertake a full audit of their registered and unregistered IP rights to understand what rights they can enforce in the metaverse and where there are any gaps in their protection.One thing is for certain: by ignoring new technologies, businesses risk becoming a digital casualty. By embracing the metaverse, businesses can engage consumers in previously undreamed ways and, in doing so, can monitor third-party activity. However, presence alone is not enough – brands will need to actively implement a digital brand strategy to monitor and detect infringements of their IP rights and take appropriate enforcement action in this digital universe.For further information on this topic please contact Katy Bourne at Pinsent Masons by telephone (+44 121 200 1050) or email ([email protected]). The Pinsent Masons website can be accessed at www.pinsentmasons.com.Endnotes(1) For example, see Alice Corp v CLS Bank International, 573 US 208 (2014).(2) AM General v Activision Blizzard, No. 17-cv-8644 (SDNY 2020).(3) For example, the UK Advertising Standards Authority (ASA) is yet to provide any guidance on the metaverse. Perhaps this is to be expected, given that the ASA only issued advice on advertising in-game purchases in September 2021.