Long reads

Why is intellectual property protection essential in the virtual world?

Dale Carter

Dale Carter

Partner, Reddie & Grose LLP

This article was co-authored by Jasmine Walters, technical assistant at Reddie & Grose LLP.

In 2022, banking and finance brands made a number of notable forays into the metaverse in the context of protecting key Intellectual Property (IP) rights.

American Express filed seven new trade mark applications by March relating to its company name, logo and slogans, with the nature of the applications suggesting ‘virtual concierge services’ alongside an NFT marketplace. In November, Visa followed suit with a trademark application pertaining to ‘providing virtual environments’ and software for digital currency wallets.

JPMorgan also gave the metaverse its stamp of approval by labelling it a ‘one trillion dollar’ market opportunity, and established its own presence with the opening of a virtual lounge surreally featuring a virtual pet tiger roaming between virtual furniture.

The report from JPMorgan specifies that the post-pandemic digitisation of our daily lives, alongside the opportunities to create immersive environments with authentic avatars and communities built on shared values, is why we are at the inflection point of companies in the metaverse. The report also does not shy away from the fact that 54 Billion USD is spent on virtual goods every year, and that advertising in the metaverse is predicted to generate more than 18 Billion USD per annum by 2027.

Trust goes a long way

What ties these stories together is the grasping of opportunities to occupy virtual spaces with recognised names, symbols and logos of established brands. Just as night follows day, the advent of a new market brings opportunities, challenges, and risks to brands and brand owners. A modern and flexible IP protection strategy is key to managing some of these opportunities and risks.

Banking and finance perhaps has the most delicate of intersections when seeking to encourage brand engagement in the virtual world. Trust, with money, livelihoods, loans, debt and investments, is earned by brands. However,some users may be sceptical of virtual spaces adjacent to the high-profile volatility of NFT trading or the global increase in cybercrime. If banks and financial service providers are to extend the trust they have earned in real life into the virtual world, protecting and enforcing brands is indispensable to their success in the metaverse.

Living in a digital world: Opportunities for brands

Establishing trust is not the only benefit to brands when protecting trademarks for use in the metaverse. Having protection for virtual goods and services may become important in the future. Truthfully, it is unclear to what extent IP protection in the real world offers protection to the same goods and services in virtual spaces, so it is advisable to safeguard this risk by applying to protect trademarks for the metaverse as soon as possible. This should also prompt a company to review its trademark portfolio and ensure it remains relevant to current and future plans.

Even if brand owners are not certain of their own future in the metaverse, the potential threat of trademark squatting, the act of registering someone else’s trade mark with the motive to sell it for profit or ride on a brand’s success, could derail any metaverse strategy. Early intervention with trademark protection will be a vital tool to prevent this from happening.

One point of view is that a venture into the digital realm could enhance a brand’s reputation. Applying to protect trade marks in new, exciting and fertile environments such as the metaverse may signal to shareholders that a bank or financial services company is forward-thinking. Additionally, much has been said on introducing existing customers to the virtual world, but could the metaverse be enough of a pull for new audiences?

In one example, JPMorgan’s report states that 60 Billion messages are sent daily on Roblox, an online playground where 67% of users are under the age of 16. While this is a community for young people, it is a community nonetheless, and it has built what the finance sector is aiming for with their current IP activity. The industry would be wise to prepare virtual spaces for when a generation of digital natives, familiar with metaverse communities, are mature enough to seek out financial services for themselves.

Virtual bliss or real world risk?

Banking and finance brands’ leap into the metaverse is well underway, but it is still necessary to highlight where it could cause disruption with consequences that will spill over into the real world.

Virtual worlds open an entirely new frontier for reputational harm. It isn’t unusual in virtual environments for users to generate digital items or imagery that resemble or are inspired by well-known brands. Can we guarantee that it would not be possible for a bad-actor to recreate JPMorgan’s virtual lounge and manufacture ways to part unwitting customers with their cash?

Unauthorised third-party use of the same or a confusingly similar trade mark risks harm to the brand owner’s reputation. Ensuring that trademarks are adequately protected for use in the virtual world brings with it the right to enforce those rights against third parties who are using the same or confusingly similar trademarks. Thus, an effective trademark protection and enforcement strategy is one way to shield against reputational harm.

Securing IP protection also has its speedbumps that are familiar to issues thrown up in the real word. As with all IP strategies, there are different considerations in different territories. Applicants may face issues with how to approach virtual goods and services in different jurisdictions. Trademarks are territorial rights, limited by borders. The metaverse will likely be an all-encompassing virtual territory that does not discriminate based on geographical location or recognise geographical borders. Therefore, when selecting which intellectual property office(s) to file your trademark with, the challenges around jurisdiction and enforcement must be considered.

The metaverse is an unknown field where the requirements and conditions for trademark use or infringement remain unclear. The solution of filing early to prevent trademark squatting might also lead to brand owners encountering other issues. For example, brands who have not fully decided how they will operate in the metaverse have outdated trademark registrations that need amending. This could cause complications down the line when non-use of a mark is alleged. Again, the solution is a regular review of the IP portfolio to ensure everything is kept up to date.

Given the lucrative opportunities that the metaverse presents, it cannot be overstated how important it is to follow a robust IP protection strategy. It will secure value, safeguard reputations, and must be front of mind for all companies with eyes on the new virtual frontier.

What does the EUIPO and UKIPO say?

The European Union Intellectual Property Office (EUIPO) recently released official guidance regarding how to correctly classify these terms in trade mark applications. The guidance can be summarised as follows:

  • Applications including virtual goods and NFTs will fall under Class 9, with services relating to these goods being classified in line with current practice
  • “Virtual goods” and “NFTs” alone lack clarity and precision and will therefore not be accepted
  • “Virtual goods” must therefore be specified further by stating the content to which the virtual goods relate
  • The type of digital item that the NFT is authenticating must be specified
  • The term “downloadable digital files authenticated by non-fungible tokens” will be added to Class 9 of the 12th Edition of the Nice Classification which is due to be finalised in 2023

The United Kingdom Intellectual Property Office (UKIPO) is yet to release its own official guidance on this matter. Whilst the UKIPO’s classification practice appears to be in line with that of the EUIPO on requiring specificity as to the nature of “virtual goods”, some applications have been accepted for NFTs at large. It is unclear whether the UKIPO will change or clarify this practice in the near future.

Although the EUIPO may have answered brand-owners’ questions in relation to how and where to classify virtual goods and NFTs, the question of proving genuine use of a trademark covering virtual goods and services relating to virtual goods remains unanswered. Over time we will come to learn whether use of a mark in a virtual world will support use of the corresponding real-world goods, and vice versa.

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