Metaverse make-up

What will be the role of intellectual property in the metaverse?

Big publishers are already expanding intellectual property (IP) to an open-world, cross-platform, free-to-play model, which the Newzoo report notes, with an endgame economy, represent "huge opportunities" and in a new era of Web 3.0 and the 'open' metaverse "these opportunities have never been more exciting." However, there are a number of IP issues that entrants to the market must consider when looking to take advantage of these opportunities.

Trade marks

One of the greatest commercial appeals of the metaverse is the opportunity for brands to step into the driving seat and engage directly with consumers – and at a lower cost. Brands will see this opportunity to engage with customers in innovative new ways, whether these are fashion labels looking to provide branded digital clothing or, perhaps, drinks brands looking to establish their brand as a health replenishing elixir for players within the metaverse.

Trade marks serve as an important commercial asset but also as a valuable tool that can protect a business. This is even more relevant in the online landscape where protection has always been a challenge for brand owners given the territorial scope of trade marks and the global perspective of the internet. While the metaverse is proclaimed to be a new frontier, many of the existing laws we have can be reapplied to the new context. However, there are questions that brand owners should be asking themselves before entering a metaverse.

Is it possible to demonstrate genuine use of a trade mark if the only use is in the metaverse?

If trade marks are commercially exploited through profitable transactions within the metaverse then it is highly likely that such activity would be evidence of use. However, it may be challenging to show that this use occurred in the relevant territory covered by the representing trade mark. There is UK case law to suggest that evidence would be required that the use in the metaverse was directed towards consumers located in the relevant real-world territory. Whether such principles will be widely adopted in other jurisdictions is currently unclear. The concept of a metaverse does not perfectly fit with established case law in this area and evidence of targeting trade mark use may be difficult to obtain.

How will a right holder ensure brand quality when licensing IP and what uses of a brand are acceptable?

These sorts of questions will be manageable, to a degree, through smart contracts linked to digital assets. Also, the ability to perfectly duplicate digital assets will allow the quality of these items to be easily maintained as long as the right holder takes care when inserting them into the metaverse at the start. However, the broader question of what is an acceptable use for a brand will depend on the IP being used. For example, if a brand has a reputation and carefully crafted image in the real world, are there any actions within a metaverse, which would call that brand into disrepute, that a right holder would want to prevent? Would a right holder want to restrict the digital territory of a licence within the metaverse (for example, to prevent overlap with other licensees or competitors)? In practice, these sort of terms may be difficult to enforce and manage appropriately.

What if you decide to leave a metaverse?

During this interim phase of development, where there is no perfect metaverse and, instead, we are surrounded by a number of proto-metaverses, an exit strategy is as important as the entry strategy. Once a decision has been made to withdraw from a metaverse, there may be a risk of losing the ability to control or monitor activity there. This may not be of a commercial concern given that there is no revenue stream to protect once you have withdrawn, however, there is still a risk of harm to a brand's reputation and integrity. Accordingly, right holders should consider whether it is possible to put contractual obligations in proto-metaverse service agreements to ensure there is no unlicensed use within their marketplaces for a set period after they have left. However, as the metaverse expands and develops, this may become more difficult. If right holders are using NFTs within a metaverse, it may be worth considering disabling the servers that the underlying content derives from so as to remove access to it. However, it would also be sensible to include termination rights within a EULA for consumers and explain that these digital items are only being licensed to them and they have no rights in the IP in order to avoid reputational issues.

The Digital Copyright Directive

The metaverse creates multiple opportunities that may result in works of authorship such as virtual concerts, museum visits or fashion shows. For copyright owners, the metaverse presents endless potential for new sources of revenue. However, it is clear that copyright within the metaverse is going to have a complicated relationship through recent reforms and case law.

For instance, the recent Digital Copyright Directive (Directive (EU) 2019/790) will have an impact on copyright-protected works disseminated within a metaverse. One of the principles set out in the Digital Copyright Directive is that an author whose copyright has been licensed or assigned to another for commercial exploitation is able to go back to their commercial partners to request further remuneration later on. The aim of this provision is to allow for fairer remuneration of authors and performers where their works are more commercially successful than anticipated. At first glance, assuming that the relevant contracts will include terms around copyright, there is no reason to suggest that this provision should not be ported into a metaverse. Although it isn't clear how such a provision will work in practice, the ability to claim royalties from subsequent sales of NFTs through smart contracts will potentially serve as a benefit for authors seeking to rely on this new legal right.

While the metaverse provides opportunities for copyright owners, it might also pose an infringement risk, whether such works exist in real life and are reproduced in the metaverse or are solely created in a virtual space. In terms of protection, we have already been able to observe the implementation by augmented reality (AR) and virtual reality (VR) providers of copyright rules underpinned by EULAs and technical processes to prevent others from reproducing, communicating or modifying existing creations. However, practical experience shows that this is not always enough to prevent the spread of piracy.

Copyright enforcement

So how do you effectively enforce copyright in the metaverse? In a nutshell, article 17 of the Digital Copyright Directive provides that online content-sharing service providers are responsible for obtaining licences from right holders for content uploaded on their platforms and, if no authorisation is granted, for taking the necessary steps to avoid unauthorised uploads.

Therefore, the question arises as to whether metaverse providers could be held liable for such acts and if these providers could take advantage of the same safe harbours used by conventional internet providers. Or should the Digital Copyright Directive apply as soon as metaverse platforms could qualify as online content-sharing service? The potential issue is around who – and there are many layers of these – would fall within the criteria of an online content-sharing service; in the current embryonic form of the metaverse, this could describe the current service providers of the proto-metaverses, but, in the later iterations of the metaverse, this would also likely capture any popular marketplace for digital content which meets the threshold criteria (older than three years with a turnover of more than €10m).

However, even with these additional requirements on platforms, there are numerous issues regarding IP protection measures for a metaverse. For instance, there will invariably be issues around applicable law and jurisdiction and the process of how to act against an infringer. These issues are further made difficult when looking to enforce rights against individuals cloaked in anonymity of a "digital identity". However, many courts will be inclined to make court orders against intermediaries to disclose the identity of infringers so as to allow further action to be taken.

Patents, licensing and standards

As centralised metaverses expand and begin to interact with one another and as decentralised metaverses develop further, a key factor that must be considered is the potential interoperability of different software and systems.

At the centre of creating a vast, reliable and connected network lies one significant issue: compatible standards. When we think of the revolution in connectivity, we often think about the mobile telecommunications network. The telecoms industry has a vast and developed set of technical "standards" that allow devices from different manufacturers to work seamlessly with one another. If metaverses intend to be truly decentralised, or even allow for partial cross-over between different virtual spaces, it is crucial that the technologies they are built upon are compatible with one another. The development of a set of metaverse standards seems one natural way to aid the necessary interoperability.

However, many metaverse-adjacent technologies, such as AR, VR or related software, are often protected by patents. As with the telecoms and other industries, the use of patents raises both concerns and opportunity for industry players. The licensing of metaverse-related patents has the potential to generate revenue for developers, further aiding their individual growth, but this may stagnate growth as a whole by limiting the technological advances available to others. As an increasing number of patents are filed and granted, it could also become difficult for new entrants to the market to navigate the patent landscape, leading them to unknowingly infringe rights of others.

Overall, there are two directions in which IP in metaverse technology could develop. Firstly, key players in the market could create licensing pools containing their patents that are essential to a functioning metaverse – and are commonly known as "standard-essential patents". These patent pools would simplify the licensing process for developers of metaverse space and help to ensure interoperability is not prevented through the monopolies provided by patents. And, secondly, open-source licensing models could be used, with technology released by developers on open-licence, royalty-free terms to prevent monopolies occurring and allow the further development of technology.

Authors

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Julia Darcel Senior Associate, France julia.darcel@osborneclarke.com +33 1 84 82 45 42