Three questions brands must ask about trademarks and the metaverse

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Many brands are rushing headlong into the metaverse, eager to cash in on the plethora of new marketing and customer engagement opportunities that it can offer. There are some urgent legal questions that are likely to follow in the wake of this broad-scale virtual land grab.

The metaverse has generated excitement about new opportunities for businesses large and small. But as with any technological frontier, legal uncertainties can cause new risks to emerge alongside opportunities. One critical area currently full of open questions is trademark law.

Below are only a few of many unknowns that should make every business entering this brave new world tread carefully—and should make businesses staying IRL be prepared to protect their brands from unexpected challenges.

The First Amendment protects would-be infringing uses of other peoples’ trademarks, where those uses involve free expression, such as art. The power of this constitutional protection has been recently shown AM General v. Activision Blizzard (S.D.N.Y. 2020). In this case, truck maker AM General sued video game studio Activision Blizzard, alleging trademark infringement for including the plaintiff’s Humvee trucks in Call of Duty. The court ruled in favor of Activision Blizzard, explaining that this particular use of the Humvees does not “explicitly mislead” consumers as to the source of the games and has “artistic relevance” because “featuring actual vehicles used by military operations around the world in video games about simulated modern warfare surely evokes a sense of realism and lifelikeness.”

If video games can use trademarks without a license to “evoke a sense of realism and lifelikeness” so long as doing so does not “explicitly mislead” consumers, then what about the metaverse? If metaverse platforms are entitled to the same protections as Call of Duty, then brands may in some cases be in for a surprise if they try to halt unauthorized uses of their marks on these platforms. Of course, Activision Blizzard was selling video games that featured the plaintiff’s mark as just one element of a wider experience, rather than, for example, NFTs of in-game virtual Humvees, and distinctions could be drawn between the use of the trademark of a brand name and the image of an item that is protected by trademark. But there is a lot of gray between these two extremes. Without knowing where a court will draw a line, trademark protection in the metaverse can start to look muddled for both brands and creators.

Imagine that I own a successful real-world landscaping business called Rose and have trademark rights in that name. If you start a restaurant called Rose, you are probably not infringing my mark. Although trademark law generally prevents the same or similar marks from being used in connection with goods and services in the same or similar classes, the same does not apply to cases in which the relevant classes are very different and the trademark is a relatively common word or phrase — in those cases, different businesses are generally allowed to use a similar or even the same mark. This is why Dove soap and Dove chocolate, for example, are brands that can coexist under different ownership — the idea is that the products and services are different enough that consumers will not be confused and mistakenly assume a connection.

But what about goods and services in the metaverse? When a company offers real-world products and services under a trademark, which virtual products and services are by implication also covered under that mark, and which ones are different enough that another company could use a similar trademark without being accused of infringement? For example, could a startup that designs 3D environments in the metaverse share a name with a preexisting real-world landscaping business? Could a designer of customized metaverse avatars use a brand similar to that of a real-world fashion designer? Ultimately, as with any question of trademark infringement, the key factor is whether coexistence causes consumer confusion. But the likelihood of future confusion is difficult to assess when comparing real life with an unprecedented virtual world. To expand and strengthen the breadth of their trademark protection, real-world businesses could file trademark registration applications that specifically cover classes of goods and services including NFTs and the metaverse (as some already have). But applying for trademark protection in a particular class requires that a business use, or have a concrete plan to use, the mark in that class, and many businesses may not be ready for virtual expansion.

We’re finishing with a question that may actually soon be answered. In Nike v. StockX, currently being litigated in federal court in New York, Nike has sued online collectibles marketplace StockX for selling Nike-branded NFTs, which Nike claims are “new virtual products,” but which StockX says are no more than digital “claims tickets” for physical pairs of shoes that it keeps in an on-premises vault.

This case has major implications for NFTs and the metaverse. If the court holds that branded NFTs do not require a license from the trademark owner so long as they are linked to lawfully owned physical goods bearing the same brand, it could serve as a green light for other companies to start selling NFTs featuring branded goods.

Wai Choy is a partner in Proskauer’s Technology, Media & Telecommunications Group; Peter Cramer (who contributed to this op-ed) is an associate in the Firm’s Corporate Department and a member of the Technology, Media & Telecommunications Group; Jonathan Mollod (who also contributed) is an attorney and writer at Proskauer. Choy, Cramer and Mollod are based in Proskauer’s New York office.

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