Will Metaverse Platforms Establish IP Enforcement Protocols?

Tuesday, May 03, 2022

Many predict that the metaverse will be the next big thing in the internet’s evolution. Large tech companies, including Meta (formerly Facebook), Microsoft, and Amazon are investing massive resources into building it. Among other opportunities, it’s expected to be a robust environment for selling digital goods.

One of the big challenges facing brands who hope to profit from the metaverse is protecting their IP. Right now, when infringement occurs in the form of digital goods, brands have little recourse but to turn to the courts. As the metaverse grows, platforms may benefit from putting in place non-judicial protocols, as described below, that help brands enforce their IP rights.

What is the Metaverse?

The term “metaverse” was first coined in Neal Stephenson’s 1992 novel Snow Crash. While today’s metaverse is in its nascent stage, it’s envisioned as an immersive digital world where people can socialize, work, and play.

Technology such as virtual reality and augmented reality hardware devices will be used to access and engage in virtual spaces and experiences. Mark Zuckerberg has referred to the metaverse as the “successor to the mobile internet.”

The metaverse will also give rise to a digital economy, enabled by digital currencies and nonfungible tokens (“NFTs”), in which users can create, buy, and sell digital goods. Market research firm Gartner predicts that by 2026:

  • 25% of people will spend at least one hour a day in the metaverse for work, shopping, education, social and/or entertainment.
  • 30% of organizations worldwide will have products, such as apparel, automobiles, artwork, and other goods in the form of NFTs, available in the metaverse.

It’s not surprising, therefore, that analysts, such as those from investment bank Jeffries, project that the NFT market will reach $35 billion for 2022, and over $80 billion for 2025.

Intellectual Property Challenges in the Metaverse

The metaverse presents significant opportunities for companies to expand into the sale of digital goods, as opposed to only physical goods. But it also poses legal risks, particularly in the area of intellectual property.

A plethora of IP issues, including patent and trademark infringement, will likely arise. Just as in the physical world, brands will be forced to deal with counterfeiting and piracy by infringers looking to profit from the decentralized nature of the metaverse. We’re already seeing alleged infringement occurring, and brands taking steps to protect their IP.

One of the most high-profile examples is a lawsuit brought by luxury brand Hermès against a digital artist. Hermès alleges that the artist created images of the Hermès Birkin bag, minted them as NFTs, and then sold the NFTs for $23,500. Hermès argues that the “NFTs infringed upon the intellectual property and trademark rights of Hermès and are an example of fake Hermès products in the metaverse.”

One of the biggest IP challenges brands will face in the metaverse is the fact that it’s so easy to create and sell digital products, such as an image of a Birkin bag, relative to the cost and complexity of creating and selling a physical counterfeit product. As a result, brands will likely be forced to pursue aggressive enforcement actions in the metaverse, and if those actions must be pursued through traditional lawsuits, that will get real expensive real fast.

A Non-Judicial Alternative to Patent, Copyright, and Trademark Enforcement in the Metaverse

The metaverse is emerging alongside what is referred to as “Web 3.0”—often heralded as the next phase of the internet. Web 3.0 runs on the blockchain which allows it to function as a decentralized environment. Web 2.0, on the other hand, is the internet as we know it today, dominated by a few huge companies in areas such as search, social networking, and online commerce.

If Web 3.0 is about who controls the internet of tomorrow, the metaverse is about how we will experience it. And part of that experience will almost certainly involve aspects of commerce, with brands advertising and selling digital goods on metaverse platforms. That means new IP challenges will arise for brands, and if the decentralized ethos of Web 3.0 flourishes in the metaverse, then enforcing IP rights will become a difficult, expensive undertaking.

While Web 2.0 may seem archaic in the not too distant future, we may look back and realize that its dominant players helped pave the way for metaverse platforms to enable robust economic activity while guarding against rampant IP infringement.

As e-commerce has grown significantly on Web 2.0 platforms such as Amazon and Etsy over the past decade, patent and trademark infringement became a big problem. For many years, brands had no choice but to run to court to seek a surefire remedy, as the platforms on which the infringement occurred were ill-equipped to deal with the problem of IP infringement by sellers.

The solution that emerged on Web 2.0 platforms was the establishment of non-judicial alternatives to resolve IP disputes, such as Amazon’s Neutral Patent Evaluation system, which is meant to streamline dispute resolution for patent infringement claims.

Pursuant to the Neutral Patent Evaluation system, a party can lodge a complaint alleging infringement, and if an accused party responds, then Amazon will select a qualified patent attorney to serve as the neutral evaluator to assess the claims. If an accused party either (1) fails to respond to a complaint or (2) loses the evaluation, the relevant product listing(s) will be removed by Amazon. The entire process can take only a few months, and the expenses tend to be significantly lower than they would be if a patent infringement claim was litigated through the judicial system.

Amazon has other procedures in place for sellers on the platform to identify and address other forms of IP infringement, such as trademark and copyright infringement. Other e-commerce platforms that allow third parties to sell goods, such as Etsy, also have similar policies and procedures in place.

In short, as Web 2.0 platforms matured, they took it upon themselves to enable brands to seek recourse for infringement without necessarily having to resort to the judicial system. And while we currently are in the “Wild West” phase of the metaverse, platforms hoping to monetize by enabling third-party commerce (e.g., sales of digital goods in the form of NFTs) may want to consider, sooner rather than later, creating similar protocols to help guard against IP infringement.

To the extent that a metaverse platform has no means of curbing IP infringement, then it stands to reason that brands selling digital goods will be less likely to utilize such a platform, instead opting for ones that put an emphasis on IP protection. In an infinite metaverse made of bits, IP enforcement, and resolution protocols—enabling brands to avoid costly lawsuits—may create a competitive advantage.