United States: Trademark Law, NFTs And The Metaverse

(June 29, 2022) - John Morrow and James Dority of Womble Bond Dickinson (U.S.) LLP discuss the role trademarks play in the metaverse and the management of non-fungible tokens.

Last October, Facebook CEO Mark Zuckerberg announced that the company would be rebranding itself as Meta and detailed the company's newfound role in "bring[ing] the metaverse to life," and proclaimed that we were "at the beginning of the next chapter for the internet."¹

Less than one year later, droves of corporate giants have bought into Mr. Zuckerberg's vision of the future and are swiftly adapting their trademark strategies to account for the protection of their marks in connection with virtual goods and services in an immersive, virtual world that parallels our own.

At the same time, the seemingly overnight explosion of both curiosity and mass confusion² over non-fungible tokens (NFTs) has already led to a wave of intellectual property disputes that will shape the future of digital assets, their regulation, and disputes over their ownership.

What is the metaverse?

Coined by sci-fi writer Neal Stephenson, the word "metaverse" literally means "beyond our universe."³ Although the term lacks a single, agreed-upon definition, in general, the metaverse may be thought of as a simulated digital environment that uses concepts including augmented reality (AR), virtual reality (VR), blockchain, and social media to create spaces for rich user interaction that mimics the real world.⁴

Although the idea of the metaverse has garnered an extraordinary amount of attention since Meta's announcement last fall, the idea of it was hardly new.⁵ In fact, Mr. Stephenson's novel coining the term was published nearly three decades ago, and some critics argue that many platforms, including video games such as Second Life, Fortnite, and Roblox, technically qualify as metaverses that have independently existed long before Mr. Zuckerberg's announcement.⁶

Regardless, it does bring up an important point: Contrary to what the phrase "the metaverse" implies, there is not just one metaverse, at least not yet.⁷ And looking ahead, because Meta has recently announced it will take nearly a 50% cut of all virtual sales in its metaverse,⁸ it is easy to imagine a world in which companies including Microsoft, Sony, and Epic Games each develop metaverses and bring VR headsets to market.

Indeed, following Zuckerberg's announcement and the resulting metaverse hype, technology companies have been quick to develop metaverses, and the entirety of all metaverse NFTs already exceeds $500 million.⁹

What are NFTs?

A handful of the metaverse lawsuits over IP revolve around NFTs and their unauthorized use. NFTs are supported by the blockchain of Ethereum (one of many cryptocurrencies), and each NFT has a unique identification code and metadata that distinguishes it from other NFTs.¹⁰ NFTs may exist in the form of almost any kind of digital information, including artwork, music, and even digital "real property."¹¹

In contrast to the tokens of other fungible currencies such as the American dollar bill (which are all identical and have the same value), every single NFT is unique from other NFTs, at least on the Ethereum blockchain.¹²

For example, Tom Brady's recently acquired "Bored Ape #3667" NFT, worth approximately U.S. $430,000, is unlike any other "Bored Ape" on Ethereum's blockchain.¹³ In this regard, although the term "non-fungible token" does little to aid one's understanding of the term, in their simplest form, NFTs may be thought of as virtual, one-of-a-kind trading cards.

Among all forms of intellectual property, trademark law has experienced the most rapid change due to the development of metaverses. Specifically, a large number of U.S. companies have been quick to adapt their trademark strategies to account for the protection of their marks in connection with virtual goods and services, both in and out of metaverses.

One of the earliest players to embrace the metaverse concept was Nike,¹⁴ which filed a handful of trademark applications on the day of and one day prior  to Mr. Zuckerberg's formal announcement of Facebook's rebranding and its metaverse.¹⁵

The applications, directed to the word "Nike,"¹⁶ the phrase "Just Do It,"¹⁷ and the "swoosh logo,"¹⁸ seek the impart Nike with the exclusive right to use its marks in connection with:

"Downloadable virtual goods, namely, computer programs featuring footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys and accessories for use online and in online virtual worlds¹⁹

"Retail store services featuring virtual goods, namely, footwear, clothing, headwear, eyewear sports bags, backpacks, sports equipment, art, toys and accessories for use online; on-line retail store services featuring virtual merchandise, namely, footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys and accessories²⁰

"Entertainment services, namely, providing on-line, non-downloadable virtual footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys and accessories for use in virtual environments²¹

Just a few weeks after its metaverse trademark filings, Nike acquired RTFKT Studios, which Nike describes as a dedicated team who "leverages the latest in game engines, NFTs, blockchain authentication and AR to create one of a kind virtual products and experiences."²²

Soon thereafter, Nike filed suit against StockX LLC in the Southern District of New York, alleging that StockX's sales of its Vault NFT shoes infringe Nike's marks.²³ It remains to be seen if Nike's arguments will be successful as, notably, its metaverse-related trademark filings have not yet been granted.

Regardless, the fashion industry has firmly planted its flag in metaverses. Months prior to Mr. Zuckerberg's announcement of the metaverse, a digital-only Gucci bag sold for $4,115 on Roblox.²⁴

Similarly, on February 14, 2022 (coinciding with New York Fashion Week), a group of active investors and developers for metaverse ecosystems hosted a "Metaverse Fashion Week in the Second Life Metaverse," debuting NFT wearables designed by New York Fashion Week staples for over 40,000 attendees.²⁵

Considered "fashion's next frontier,"²⁶ metaverses are well-positioned to be lucrative business opportunities for luxury brands: An opportunity some brands are already vigorously litigating to protect.

One legal case that has perhaps gained the most notoriety is Hermès International, et al. v. Mason Rothschild.²⁷ That case "represents one of multiple recent disputes between a fashion house and NFT creator attempting to implement a brand's trademarks into a new digital frontier — the metaverse."²⁸

In its complaint,²⁹ Hermès asserts that Rothschild's sale of "MetaBirkins"³⁰ — a self-coined NFT collection of images allegedly resembling Hermès' iconic Birkin bag³¹ — on OpenSea (the largest NFT marketplace in the world), constitutes trademark infringement of Hermès' BIRKIN mark.³² Mason Rothschild has in turn raised the First Amendment as an affirmative defense.

While it remains to be seen if Rothschild's First Amendment defense will prevail,³³ it should be noted that metaverse-IP disputes are not limited to virtual goods. Marks in connection with virtual services are equally important to protect, as Olive Garden has demonstrated in its public dispute with "Non-Fungible Olive Gardens."³⁴

Restaurant chains including Panera and McDonald's seemingly agree, as both recently filed applications to protect a handful of their marks in connection with virtual services.³⁵

Conclusion

Although only time will tell if metaverses and NFTs can withstand the test of time, potential trademark holders would be foolish to take a wait-and-see approach. It is generally agreed that an immense amount of trademark litigation is on the horizon, as users are already buying and selling infringing virtual goods, constituting "a significant problem that rights holders should be aware of."³⁶

Moreover, infringing activities are "rampant" and expanding in what experts project to be an $800 billion market.³⁷ The bottom line is that potential trademark owners should act now to protect their marks in connection with virtual goods and services, while closely monitoring metaverses in which those goods and services reside.

Footnotes

1 Mark Zuckerberg, Founder's Letter, 2021, META (Oct. 28, 2021), https://bit.ly/3tQtg0W.

2 See Saturday Night Live, NFTs  — SNL, YOUTUBE (Mar. 28, 2021), https://bit.ly/3OxU7XI

3 Cathy Hackl, The Metaverse Is Coming  And It's A Very Big Deal, FORBES (Jul. 5, 2020), https://bit.ly/3Otwm2J.

4 Metaverse Meaning —  What is this New World Everyone's Talking  About?, XR TODAY (Jan. 10, 2022), https://bit.ly/3Nd7Gui.

5 See Unpacking Meta: Where Did the Word Metaverse Come  From?, XR TODAY (Dec. 1, 2021), https://bit.ly/3QBWN8d. This would not be the first time Zuckerberg seemingly took credit for something that was not (at least entirely) his. The Social Network (Columbia Pictures 2010).

6 See Unpacking Meta: Where Did the Word Metaverse Come  From?, supra note 5.

7 See Andrew Morse & Scott Stein, The Metaverse Is on the Way: Here's What You Need to Know, CNET (March 27, 2022), https://cnet.co/3b4pjPB; see also Who is Building the Metaverse? A Group of 160+ Companies, and You, XR TODAY (Dec. 7, 2021), https://bit.ly/3zSWNuF.

8 Jon Swartz, Facebook parent Meta set to take nearly 50% cut from virtual sales  — and Apple is calling it out, MARKETWATCH (Apr. 13, 2022, 5:29 P.M.), https://on.mktw.net/3bjCzQI.

9 Vremaroiu Alin, Top 3 areas where NFT adoption in the Metaverse will have a positive impact, MEDIUM (Apr. 24, 2022) https://bit.ly/3zNX3ex (noting that $513 is merely 3% of the worldwide NFT market value); see also Mark Arguinbaev, Top 5 Most Traded Metaverse NFT Collections on OpenSea, THE VR SOLDIER (Nov. 25, 2021), https://bit.ly/3Oc96Xc.

10 Rakesh Sharma, Non-Fungible Token (NFT) Definition, INVESTOPEDIA, https://bit.ly/3N3zAcl (updated Feb. 26, 2022); see also Mitchell Clark, NFTs, Explained, THE VERGE, https://bit.ly/39DWCsr (updated Aug. 18, 2021).

11 Raisa Bruner, Why Investors Are Paying Real Money  For Virtual Land, TIME (Jan. 20, 2022), https://bit.ly/3OrLT38; see also Sharma, supra note 9.

12 See Sharma, supra note 9.

13 See @boardroom, Twitter (Apr. 6, 2022, 3:56 P.M.), https://bit.ly/3bdCdLh.

14 See Jessica Golden, Nike is quietly preparing for the metaverse, CNBC (Nov. 2, 2021), https://cnb.cx/3n1rOVP.

15 News of the company's rebranding and its self-proclaimed role in the Metaverse had leaked earlier that month. See Alex Heath, Facebook is planning to rebrand the company with a new name, THE VERGE (Oct. 19, 2021), https://bit.ly/3HUXW7f.

16 U.S. Trademark Application Serial No. 97/095,855 (filed October 27, 2021).

17 U.S. Trademark Application Serial No. 97/096,236 (filed October 27, 2021).

18 U.S. Trademark Application Serial No. 97/095,944 (filed October 27, 2021).

19 IC 009.

20 IC 035.

21 IC 041.

22 NIKE, Inc. Acquires RTFKT, NIKE NEWS (Dec. 13, 2021), https://swoo.sh/3tQNlEo.

23 Complaint at 1-5, Nike, Inc. v. StockX LLC, No. 22-cv-983 (S.D.N.Y. Feb. 3, 2022), ECF No. 1.

24 A Digital-Only Gucci Bag Sold for $4,115 on Roblox, as Brands Continue to Look to Gaming to Reach Gen-Z, THE FASHION LAW (May 25, 2021), https://bit.ly/3n5Mags.

25 See Rachel Wolfson, NFT fashion hits the runway as designers  launch in the Metaverse, Cointelegraph (Mar. 8, 2022), https://bit.ly/3OeBS9O.

26 Thuy Ong, Clothes That Don't Exist Are Worth Big Money in the Metaverse, BLOOMBERG (June 16, 2021, 5:00 P.M.); see also The Future  Of Fashion: NFTs and The Metaverse, HARPER'S BAZAAR SINGAPORE (Feb. 15, 2022), https://bit.ly/3y5ZKqA.

27 See generally Complaint, Hermès Int'l vs. Mason Rothschild, No. 22-CV-384 (S.D.N.Y. Jan. 14, 2022), ECF No.1.

28 Adrian F. Jabbary & Robert S. Weisbein, NFTs and Trademark Matters in the Metaverse, NATIONAL LAW REVIEW (Mar. 31, 2022), https://bit.ly/3y6Il0L.

29 See generally Complaint, supra note 31.

30 Cassell Ferere, Digital Artist Mason Rothschild Drops 100 'MetaBirkins' NFTs Through Basic.Space, FORBES (Dec. 13, 2021), https://bit.ly/3bapBEF.

31 HERMES Epsom Birkin 35 Bougainvillea 98215, FASHIONPHILE, https://bit.ly/3bgTlja (accessed June 21, 2022).

32 See Complaint at 1-4, supra note 31.

33 See Memorandum of Law in Support of Defendant's Motion to Dismiss at 1-2,  Hermès Int'l vs. Mason Rothschild, No. 22-CV-384 (S.D.N.Y. Jan. 14, 2022), ECF No.17; see also MetaBirkins Creator Files New Motion to Dismiss in Hermès Case, THE FASHION LAW (Mar. 23, 2022), https://bit.ly/3NbgCjM.

34 The Metaverse, NFTs Are Forcing Brands to Face Off Against Alleged Infringements, THE FASHION LAW (June 21, 2022) https://bit.ly/3n1ygfv; see also NFOG: OWN AN OG ON THE BLOCKCHAIN, NFOG, https://bit.ly/3bilUg7 (accessed June 21, 2022) (stating that its business roadmap includes launching 880 Non-Fungible Olive Gardens, launching the world's first "Never-Fungible Pasta Plate on the blockchain," and "us[ing] project funds to complete leveraged buyout of Darden Restaurants, Olive Garden's parent company.").

35 See Mason Bissada, McDonald's Files Trademark  For Metaverse-Based 'Virtual Restaurant', FORBES (Feb. 9, 2022), https://bit.ly/3N5WgZj.

36 Tim Lince, OpenSea: how trademark infringement is rampant on the biggest NFT marketplace, WORLD TRADEMARK REVIEW (Jan. 20, 2022), https://bit.ly/3xKtVSQ.

37 Matthew Kanterman & Nathan Naidu, Metaverse may be $800 billion market, next tech platform, BLOOMBERG, Dec. 1, 2021), https://bloom.bg/3QzQ8vs.

Originally Published by Westlaw Today (Thomson Reuters)

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