Introduction

Gaming raises a multitude of legal issues for businesses. In this series of publications, Gaming and law: What businesses need to know, we cover a number of the most topical issues.

In this Part 2, Gaming, IP rights and the metaverse, Justin Davidson explains what the metaverse is and the implications for intellectual property (IP) rights and the gaming industry.

What is the metaverse?

The metaverse is a vision for shared, 3D virtual spaces that jointly comprise an online universe. Eventually, these online spaces will be parallel to physical spaces (marketplaces, social networks, workplaces, etc). The technology behind the metaverse is a confluence of the technology behind video games, social networks, e-commerce, and computer simulation that has developed over the last twenty years.

The gaming industry as the first developer of the metaverse

Well before the term "metaverse" was coined, the gaming industry had already developed various games incorporating virtual worlds that can be considered as an early prototype of the metaverse. These games include, for example, Minecraft, SimCity and Grand Theft Auto in which players can interact with each other in the virtual world.

Apart from gaming, the main metaverse applications also find their origins in certain simulation technologies such as virtual training, virtual tours of spaces (such as museums or factories) and spaces for shared working and collaboration.

Who are the current big players building the metaverse?

The major technology players see commercial opportunities in the metaverse. The major tech players currently active in developing the necessary infrastructure are mostly American and Chinese.

Secure storage and transfer of digital identity and digital assets are expected to require blockchain-type solutions and the use of digital currencies: for example, having access to a cryptocurrency that can be used to purchase objects in more than one metaverse.

Key technical, operational and governance considerations of the metaverse

Massively large databases

What kind of data capacity is needed to support the metaverse? The metaverse requires massively-large databases with real-time (or near real-time) updating, along with simultaneous access by millions or even billions of users. As with national telecommunications and electricity networks, or the very large databases of social media companies, the technical expertise needed to operate these very large IT systems will likely be concentrated in just a handful of commercial organisations.

Because of its size and great commercial potential, the metaverse has attracted attention from large technology companies. However, even these companies, despite their ambitions, are unlikely to be able to provide the entire metaverse platform on their own, or even jointly. It is much more likely that different parts of the metaverse will be provided by different companies, perhaps divided by geographic regions, or by vertical industry sectors, or by the types of applications and users.

Multiple stakeholders

If there are going to be multiple stakeholders, what are the technology implications of that? There may be significant scope for shared data platforms in the metaverse as a result - for example, distributed ledger technology is expected to play a big role. Such platforms might provide a means to transfer information and assets between metaverse subspaces based on different application domains or different sectors or different geographies (such as transfer of wealth obtained in online games across to bank deposits or across to purchase vouchers usable in e-commerce sites).

Technical/interoperability standards

What are the implications for data exchange between all the stakeholders? There could be quite a few implications, but for effective collaboration between multiple metaverse stakeholders, there will need to be standards for real-time exchange of data and user interactions.

Standards may emerge as the metaverse comes into being and grows, or standards may be agreed in advance. Already there are efforts to develop open-source standards, such as standards for rendering of graphical instructions. Whether they will be adopted commercially or not will depend on the attitudes of the major technology companies.

Often, standards in computing only emerge after much tactical jockeying and positioning by competing technology companies, each eager to impose their own views and practices onto final standards, though perhaps unwilling to be seen to be doing so.

Governance

What might governance look like inside a business in relation to the metaverse? It depends on what the business wants to use the metaverse for. If it is just for branding and marketing communications purposes, the governance might look very like that which applies in relation to a corporate website.

On the other hand, things will be very different if it is also a channel for distribution of new products and services, and in that case the particular risks associated with the metaverse would need to be factored in.

For a regulated business like a bank, a key governance issue will be how will regulators view product sale and distribution in the metaverse.

One metaverse or multiple metaverses?

Will there be just one metaverse that eventually arises out of the Worldwide Web, or are there likely to be multiple metaverses?

It is a matter of opinion, but one view is that, as things stand, we are most likely looking at the evolution of multiple metaverses. Stakeholders are still working out how to monetise the customer journey in the metaverse, and that may mean (for some at least) a desire for customer relationship ownership.


What is intellectual property?

IP refers to a collection of legal rights granted for creativity. It comprises a variety of intangible property rights including:

  • Patents (for protecting technical inventions).
  • Copyright (for protecting literary and artistic works, computer programs, sound recordings, films, etc.)
  • Trademarks (for protecting signs that are capable of distinguishing the goods or services of one provider from another).
  • Industrial designs (for protecting the ornamental or aesthetic aspect of manufactured articles).
  • Database rights (for protecting the contents of a database).
  • Trade secrets (for protecting confidential information).

IP rights are:

  • Territorial and can only be enforced in the state or country that grants the right, though it is possible to obtain IP rights for the same subject matter (e.g., an original computer program for a game) in more than one country.
  • Negative rights, meaning that the rights owner can prevent others from doing certain acts (e.g., copying others' work) but such rights do not guarantee that the owner can use the IP itself without possibly infringing another party's rights.

Ownership of IP in games

Generally, an IP right belongs to the person who generates it. In the case of IPs created by employees in the course of their employment, most countries provide that the employer shall automatically own the IP. For companies operating in innovative industries, the employment contract would usually include express provisions for the transfer of any generated IP to the employer, further securing ownership. Thus, the IP rights in an original game would often be owned by the company that develops the game.

Modern-day gamers very often like to create content using the game's settings and environment - for example, by capturing a screenshot of a special award, recording a successful move in the game or even designing their own gaming avatar. There can be uncertainty surrounding the ownership of such user-generated content, which may depend on the relative effort contributed by the game developer and the user in arriving at the final work product.

Case study: Nova Productions v Mazooma Games [2006] EWHC 24

This case concerned copyright infringement of a pool game. One of the issues was who owned the copyright in screenshots taken within the game by the game's players.

English law provides that "the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken".

The English High Court held that the arrangements necessary for the creation of the screenshots were undertaken by the developer of the game rather than by the players. The Court considered that the developer "devised the appearance of the various elements of the game and the rules and logic by which each frame is generated".


Third-party brands can commonly be found in the metaverses of the gaming world, enabling the brand owner to promote the brand via the game and allowing the gaming environment to resemble the real world (e.g., perimeter advertising boards on a sports field).

In many cases, the IP rights in the third-party brands are specifically licensed to the game developer for incorporation into the game. In the absence of such licence, questions of infringement may arise (as we will discuss in the section, Intellectual property, gaming and the metaverse, below).

AI-Generated content

The advancement of generative AI which is capable of producing text and graphics brings new challenging questions in IP and gaming (and IP issues relating to AI apply just as much outside the gaming world too), including the following:

  • The courts, and probably legislatures in many jurisdictions, will need to decide whether copyright can subsist in a work (say, one generated in a metaverse ecosystem) created by AI.
  • As AI both depends on vast amounts of data as well as generating data, there are going to be issues for the courts and legislatures to consider globally about the extent to which IP can be used to assert rights in such data, and so entrench its value.
  • The courts in many jurisdictions are currently grappling with whether AI can be an inventor for the purposes of a patent application.


Intellectual property, gaming and the metaverse

Here we deal with IP rights in virtual reality worlds, and in particular, how virtual goods intersect with traditional IP concepts and some of the disputed issues surrounding them.

What are virtual reality worlds and virtual items?

With the proliferation of online "virtual worlds" or "metaverses", a new set of issues has arisen involving the use of third-party IP rights. Some of the issues are arguably not that new though, since there have been platforms and games operating in virtual formats for some time now – for example, World of Warcraft and the Sims.

Second Life is one example of a large multi-player role-playing game that also operates as an online economy, allowing users to create their own virtual worlds, and even to sell their own branded creations (or those of others) for a profit.

Beauty and fashion brands have been quick to engage in these worlds by allowing avatars (virtual characters created by the users/players) to wear a virtual article of clothing that users may not be able to afford in real life. A common issue with the intersection of the virtual and real worlds has therefore been the use of real-world trade marks in or on virtual items.

Interoperability

There is presently no inter-operable standard software code for virtual items, so the products currently exist only in software code in their own compatible virtual worlds (for example, as downloadables in players' wallets in the particular game/world).


How do traditional IP concepts sit in the metaverse?

Trade mark protection

Virtual goods (and non-fungible tokens or NFTs) are still very much a developing area for trade mark protection and there is no firm consensus yet on the accepted method and practice of making trade mark applications specifically for such products.

For example, the EUIPO recently issued some guidance notes on its approach to classifying items relating to virtual goods. Their guidance is that virtual goods are proper to Class 9 (software) because they are treated as digital content or images. However, since the term "virtual goods" on its own lacks clarity and precision, they point out it needs to be further specified by stating the content to which the virtual goods relate (for example, "downloadable virtual goods, namely, virtual clothing").

Many brand owners have already conducted an audit to ensure that their existing trade mark registrations provide sufficient protection for the metaverse (both from an offensive and defensive perspective).

Trade marks: filing strategies

Putting aside specific fresh applications, there is currently legal uncertainty over whether existing "real world" trade mark registrations for the physical product/service (for example, "clothing" in Class 25) covers its virtual equivalent. That uncertainty is just one of the unknowns that could lead to challenges in brand protection and enforcement.

Given that uncertainty, some brand owners are pursuing strategies of extending their existing brand registrations to cover the equivalent virtual equivalents. Filing activity for metaverse-related goods/services to date has been predominantly in the US and in first-to-file jurisdictions (for example, China). There has been a huge rise in such applications.

Filings for a broader specification in a business's key jurisdictions will also assist with licensing of that business's trade marks in future in respect of gaming and metaverse-related activity, and with enforcement.


Monitoring for new conflicting trade mark registrations and brand infringement

A business with an existing trade mark watching service will wish to extend it to cover the additional "virtual world" specifications mentioned already, and perhaps consider using monitoring services which will identify infringements and potentially file takedowns of IP in games and the metaverse (and also on NFT marketplaces).

The virtual environment will throw up challenging legal issues for brand owners when seeking to identify infringements and enforce their rights. For example, will use of a trade mark in the virtual world constitute "use in the course of trade"? To make a successful claim for trade mark infringement in many jurisdictions, a brand owner must show their sign is being used without their permission in the "course of trade". It is not yet clear when, or even whether, dealing in virtual assets will amount to "use in the course of trade".

Take this example: suppose a user creates a virtual item of clothing for his or her avatar to wear in a game or the metaverse. Is that "use in the course of trade"? What about if a private individual then sells or transfers the virtual clothing to another private individual? Is that "use in the course of trade"?

It may prove challenging for brand owners to take action against individuals replicating branded digital assets or creating virtual equivalents of real-life products. On the other hand, there might be a better chance of success against a third party creating branded virtual clothing, and selling them to others for use in a game or the metaverse.

Case study: Hermès v Rothschild

In November 2021, Mason Rothschild, formerly known as Sonny Estival, created and sold one hundred NFTs linking to a depiction of a digital Hermès Birkin bag covered in faux fur and patterns, polka dots, and artworks such as the Mona Lisa and Van Gogh's Starry Night.

Rothschild also registered and used the domain name www.metabirkin.com and social media handles such as @metabirkins to promote the sale of the "MetaBirkins" NFTs. By early January 2022, Rothschild had sold in excess of $1 million in "MetaBirkins" NFTs.

Copies of Rothschild's "MetaBirkin" Fuzzy Handbags

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Hermès brought suit in the Southern District of New York against Rothschild, asserting claims of trade mark infringement, trade mark dilution, cybersquatting and unfair competition under the Lanham Act and New York law based on Rothschild's use of the Birkin mark to promote and sell the MetaBirkins NFTs.

Hermès alleged that Rothschild's use of the Birkin mark had caused actual confusion among consumers, sophisticated commentators, and even intellectual property attorneys who believed that the MetaBirkins NFTs were affiliated with, authorised by, or sponsored by Hermès.

Rothschild defended his actions on the grounds that his "MetaBirkins" works, and his efforts to promote and sell the same, were protected artistic expressions under the First Amendment of the U.S. Constitution. The District Court judge twice refused to dismiss the Hermès claims prior to trial. Background to Hermès' original claim against Mason Rothschild is detailed in our article together with our commentary, here.

On 8 February 2023 a jury found Rothschild liable for trade mark infringement, trade mark dilution and cybersquatting. The jury specifically concluded the First Amendment did not bar liability for any of these claims.

In rendering a verdict across the board for Hermès, the jury necessarily reached the conclusion that Rothschild's promotion and sale of the "MetaBirkins" NFTs was likely to confuse consumers as to the source or sponsorship of the same.

The jury awarded US$133,000 in damages to Hermès, an award consisting of a disgorgement of Rothschild's net profits, US$110,000, and an award of statutory damages totalling US$23,000 for Rothschild's cybersquatting. Post-verdict motions and appeals of the final judgment are highly likely.

As one of the first cases to consider the intersection of trade mark and First Amendment law in the digital age, brand owners and creators should watch how any appeals proceed. The First Amendment defence does not give artists the unfettered licence to infringe another's trade marks, but does permit creators to create artistic works which comment upon the products or services offered by brand owners. At some point, however, the public's interest in avoiding consumer confusion or competitive exploitation will override the interests sought to be protected by the First Amendment.


　

US perspective: potential infringement – trade marks and NFTs

Under U.S. trade mark law, registration of a trade mark is not required to enforce rights against NFTs or other uses on virtual reality platforms (or anywhere else).

Federal registration, however, can provide trade mark owners with a powerful enforcement tool, particularly if the registration is of sufficient scope to encompass goods and/or services being promoted or sold as NFTs or on virtual reality platforms.

Review of the USPTO trade mark application database confirms that brand owners are actively filing new applications (thousands to date) for marks expressly directed to NFTs, the metaverse or in a virtual environment. Because NFTs are a significant focus in the branding world, the news is replete with reports of brand owners launching promotional NFT drops and filing trade mark applications directed to NFTs and virtual environments.

The rise of NFTs and virtual reality marketplaces has also created significant challenges for brand owners seeking to protect their brands. One such challenge is the assertion of the First Amendment of the United States Constitution, an amendment which generally protects the freedom of artists and commentators to speak or express ideas in expressive works.

Many view NFTs as expressive works which are protected by the First Amendment and shields the creator from any liability for trade mark or copyright infringement. The boundaries of the First Amendment in this context are being explored, for example, in:

  • The Hermès v. Rothschild case (see Hermès succeeds in enforcing trade mark rights in NFT dispute, above), where a jury in the U.S. District Court for the Southern District of New York found Rothschild liable for trade mark infringement, trade mark dilution and cybersquatting. The jury specifically concluded the First Amendment did not bar liability of any of these claims.
  • The United States Supreme Court case of Jack Daniel's v. VIP, regarding whether a dog chew-toy in the shape of a bottle of Jack Daniel's Old No. 5 sour mash whisky styled "Bad Spaniel's Old No. 2", and sporting an array of jokes and puns based on dog excrement, infringes or tarnishes the Jack Daniel's trade mark, or if the chew-toy is a work protected by the First Amendment. There is little doubt that in considering the intersection of the First Amendment and intellectual property in this case, the United States Supreme Court will have the opportunity to provide clear guidance as to scope of protection the First Amendment affords those who choose to use trade marks or other intellectual property.


Trade marks: how will location of use and jurisdiction be established?

Trade marks are territorial rights, so infringement of a U.S. trade mark requires use in the U.S., and infringement of a Chinese trade mark requires use in China. How will this work in the virtual world? We have some guidance from the courts on how online use can be connected to a particular jurisdiction – for example:

  • Use of top-level country domains (for example: .co.uk).
  • Language and currency of the website.

However, in the virtual world, where platforms use .org or .game gTLDs, and permit users to trade using cryptocurrency, it is hard to make those connections to a specific jurisdiction. Until the courts are required to consider these issues, it could be difficult for brand owners to establish location of use and/or jurisdiction.

Trade marks: how will brand owners detect infringement and identify infringers?

There may be challenges in linking anonymous avatars, living in the digital world, with their real-world users, meaning it is difficult or near impossible to identify and enforce against infringers.

Copyright

To assert copyright protection in a work, it is first necessary to establish authorship and ownership of copyright in the work in question. These issues are likely to be complex issues to determine in relation to the metaverse.

For example, if there are multiple metaverses, what would be the position if a copyright protectable work is created by many metaverse participants in different parts of the world, and the work is continually being developed? Here determining authorship and ownership of copyright at a particular moment could be challenging.

Having said that, registering copyright in metaverse assets and software (where available, for example in the U.S.) could be beneficial, particularly where take down policies in NFT marketplaces are based on Digital Millennium Copyright Act (DMCA) principles.

Just as with trade marks, detecting copyright infringements and identifying the persons responsible for them could also be challenging. Finding infringing material could require virtual detection. New technologies might need to be developed to help here.

Requested take-down by Nintendo on Mario character

According to some reports 1, Nintendo requested Sony to take down a Mario character created by a user of the game "Dreams" on the basis of copyright infringement. Sony duly complied with the request and removed the infringing character, together with an e-mail to the user explaining that Nintendo objected to the use of the Mario character.


Personality rights

To increase a game's attractiveness and marketability, characters in the game may be created based on celebrities in the real world. For example, in many sports video games the virtual players are modelled on real-world sports celebrities and have the same name, facial character and body shape.

The protection of a real person's identity rights, which may include name rights, image rights and voice rights, differs between jurisdictions. Enforcement in the metaverse can be particularly challenging if the virtual character is created by a user rather than the game developer.

Case study: GTA V by Rockstar Games

Actress Lindsay Lohan claimed a character in Grand Theft Auto 5 was based on her and sued the game developer's parent company Take-Two Interactive Software in New York on the basis of infringement of her privacy rights.

Ultimately her claim was rejected unanimously by the New York state's Court of Appeals, finding that the in-game character is merely a "generic. . . twenty something woman without any particular identifying physical characteristics" and did not represent portraits of Lohan.


Final observations

What is clear is that a combination of judicial, regulatory and legislative action will shape the IP landscape in the virtual world in the years to come. Without such clarity, it will become increasingly difficult for businesses to innovate and protect their rights in the gaming and online virtual world.

What effect may virtual worlds have on existing and future IP licences and agreements?

The arrival of the metaverse may have an impact on various terms in IP licences entered into by a business (both licences in and licences out).

For example, while many licences (particularly for copyright and trade marks) currently permit use on the Internet, it is untested whether that would include use in the metaverse.

Use on the metaverse also raises questions of territory, due to its decentralised nature. Businesses may therefore wish to start thinking about whether use in the metaverse should be in or out of scope of an IP licence, and to consider expressly permitting or prohibiting it where appropriate.

Where such use is permitted, thought should also be given as to whether that use should be limited to certain specific parts of, or platforms or games within, the metaverse, and how other provisions might apply in that context (for example, royalties, exclusivity etc.)


Footnotes

1. https://metro.co.uk/2020/03/23/super-mario-pulled-dreams-nintendo-complaint-12441280/
https://www.gamesindustry.biz/nintendo-presses-sony-to-remove-mario-creations-from-dreams

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.