In Short

The Situation: The metaverse provides new commercial opportunities for businesses to reach consumers and creates new challenges for protecting and enforcing brands in a virtual environment.

The Result: Brand owners should consider seeking relevant trademark protection for potential uses of trademarks in the metaverse to best position brands to be leveraged and enforced in this virtual space.

Looking Ahead: U.S. courts are still evaluating how traditional trademark law principles apply in the metaverse, but early cases suggest that courts will apply real-world rules to the virtual world.

The metaverse is an infrastructure of technology that allows users to experience online networks in a 3D or virtual reality space. Dubbed the next generation of the internet, a fully developed metaverse may eventually connect all users across online virtual environments to socialize, share information, or transact business. At present, the metaverse consists of various siloed platforms that offer users a variety of online experiences—from video games to online virtual reality social networks.

The ability to engage customers in an interactive virtual space presents brand owners with new business opportunities, to advertise, test, and sell both virtual and real-world goods. For example, Nike sells digital sneakers to online players on the Roblox platform to customize its avatar's footwear. And KFC announced plans to launch virtual restaurants, where users can enter a digital KFC online and order real food for delivery. In short, the metaverse is open for business.

At the same time, the metaverse presents legal challenges. The use of a brand owner's trademarks by third parties in a virtual world may lead to consumer confusion or brand tarnishment, violating real-world laws that prohibit trademark infringement and dilution. The metaverse represents not just a changing commercial landscape but also a new setting for the development and application of trademark law.

New Worlds, Old Laws

The metaverse includes a virtual marketplace that allows users to purchase virtual and real-world goods and services. In the virtual marketplace, as in the real world, trademarks serve as source identifiers and distinguish a trademark owner's goods and services from those of others. The way in which goods and services are offered and sold in the virtual world, replicating transactions in the real world, justifies the conclusion that real-world trademark laws should apply to virtual commerce.

The limited cases alleging trademark issues in virtual spaces supports this reasoning. The developer of "Second Life," an early metaverse platform where online "residents" control 3D avatars to simulate real-life activities, faced several infringement suits by owners of trademarks for both real world and virtual goods. For example, Taser sued Linden Research after discovering residents were utilizing the trademarked word "taser," including in advertisements for similar products, which led to Linden Research removing all instances of the word from the platform. Taser Int'l, Inc. v. Linden Rsch, Inc., No. 09-CV-00811 (D. Ariz. 2009). Linden Research also settled a suit by a "Second Life" resident who alleged that the developer facilitated the counterfeiting of its virtual goods by charging fees to access the in-game market. Eros, LLC v. Linden Rsch, Inc., No. 09-cv-04269-PJH (N.D. Cal. 2009). These cases demonstrate that trademark owners are using traditional trademark laws to address virtual infringement issues.

Defenses in the Metaverse

As in the real world, there will be defenses to infringement that apply to virtual trademark uses. But how these defenses apply and which will be successful may vary depending on the context.

First, traditional infringement claims must satisfy the commercial-use requirement, and virtual infringers may allege their use of a mark is non-commercial. To determine commercial use, courts consider whether use of a mark is connected to the sale of a good or service. The sale of both real-world and virtual goods and services should meet this standard.

But what if virtual goods are given away for free? On platforms where users are encouraged to generate free content, this dilemma may be particularly problematic. Some courts have held commercial use does not require an actual sale, but rather proof an infringer offers a competing service to the public using the mark. In the metaverse context, however, whether a digital recreation of a real-world good or service is competing may not be clear, especially if the trademark holder lacks any presence in the metaverse or fails to provide the same type of virtual good or service to users.

It is also expected that the First Amendment defense will be raised by alleged infringers in the metaverse, as this defense has been successful in cases involving infringement claims in the video game context. Under this defense, courts allow use of a trademark owner's mark for expressive purposes if the use has artistic relevance and does not explicitly mislead consumers. In AM General LLC v. Activision Blizzard, Inc., 450 F.Supp.3d 467 (S.D.N.Y. 2020), the court held that the video game publisher for "Call of Duty," a narrative-heavy military shooter game, did not infringe on the Humvee trademark based on the First Amendment defense. The use of Humvees was artistically relevant because it provided a sense of military realism, and it was unlikely to mislead players for a variety of reasons, including the parties' dissimilar uses and the differences in the parties' businesses.

This analysis is not necessarily applicable in a more-open-ended metaverse platform, like "Horizon Worlds." Driving virtual Humvees may be a fun experience but has questionable artistic relevance in a general online social network. Additionally, as more companies advertise, engage, and sell to metaverse users, the likelihood of misleading consumers also increases. Therefore, this defense may present challenges outside of the video game context or niche metaverse spaces.

Fair use may also be raised as a defense in metaverse infringement claims. There are two kinds of fair use: classic and nominative. Classic fair use permits the use of trademarks to describe a defendant's goods or services rather than to identify their source. By contrast, nominative fair use involves use of a trademark to describe the plaintiff's goods or services, but requires a defendant only use as much as necessary and not indicate any sponsorship or endorsement by the trademark owner. Either could apply in the metaverse and should be subject to the same analysis as the real world.

Finally, an alleged infringer in the metaverse may challenge whether an asserted mark actually covers a good or service. For example, in Brantley v. Epic Games, Inc., 463 F.Supp.3d 616 (D. Md. 2020), the plaintiffs alleged the publishers of the online multiplayer game "Fortnite" committed false designation of origin by selling customized dance moves for players that included the plaintiffs' allegedly trademarked "Running Man" dance. The court held the plaintiffs lacked a valid trademark because their dance designated an underlying choreographic concept, not a good. This defense may have traction in some metaverse cases given the amorphous nature of virtual goods and services that are commercially viable on online platforms.

Practical Suggestions

In developing a trademark protection strategy for the metaverse, brand owners should first assess their trademark portfolios and determine whether key brands will be utilized in a virtual setting. If so, brand owners should file applications that specifically cover the relevant virtual goods or services that will be distributed or sold in the metaverse.

In addition, brands that are likely to face virtual infringements should consider developing a comprehensive policing strategy to identify infringement across metaverse platforms. The strategy should account for important differences in the various platforms. For example, while "Horizon Worlds" is implementing traditional takedown protocols to combat infringing activities, "Sandbox" requires users to exhaust all self-help options before the platform will become involved in any dispute. The policing strategy should also consider prioritizing unauthorized uses to determine which justify involvement in order to efficiently manage enforcement costs.

Conclusion

As metaverse platforms and their underlying technology develop, so too will the trademark issues facing companies. Whether fad or fate, brand owners should be prepared to respond to the existing and future legal issues involving the metaverse by understanding how traditional trademark doctrines will apply and developing practical measures to protect and enforce their trademarks in the metaverse.

Three Key Takeaways

  1. The metaverse offers a commercially viable digital marketplace that provides existing brands new opportunities to advertise, engage with, and sell to consumers. Many brands have already leveraged their trademarks within virtual environments to build new business, selling both virtual and real-world goods and services.
  2. Traditional principles of trademark law will likely remain applicable to new issues involving infringement in the metaverse, but future court decisions will clarify how the analysis of infringement in the virtual world will shift within the existing real-world framework.
  3. Brand owners should consider assessing their trademark portfolios and developing a comprehensive strategy to protect and enforce their trademarks across metaverse platforms.