Intellectual property in a metaverse of madness

25 Nov 2022 , 3:02pm

Anand and Anand lawyers Dhurv Anand and Ashutosh Upadhyaya examine the changing landscape of IP today

Justice Lynn Ungoed-Thomas in 1966 opined that “a trade mark is a commercial asset, intended to be used commercially by businessmen”. Between this opinion and today the use of IP has traversed beyond reality or tangible form and has entered the virtual realm, with new trends of NFTs and the metaverse burgeoning over the past few years. We now see famous brands filing for NFT trademarks, introducing their own metaverses and using blockchain technology for brand protection and monitoring ownership.

The answer to the question of infringement in cases of tangible goods is pretty much straight forward. The burning query that arises today is what is the scope of IP protection in virtual reality.

Hermes vs. Rothschild:

The case of Hermes International vs. Rothschild has opened an interdimensional portal which can decide the fate of IPR litigation concerning NFTs and the metaverse. In this matter, Rothschild created digital images titled ‘Metabirkin’, which depicted the famous Hermes ‘Birkin’ handbag and used NFTs to sell these digital images on four different platforms. The defendant took the non-infringement defense laid down in Rogers vs Grimaldi (the case which laid down the famous Rogers Test, i.e., infringement of trademark can be protected as artistic expression under the First Amendment) and moved a motion to dismiss the suit. The court dismissed the motion, applying the Polaroid factors, which were, likelihood of confusion, dishonest adoption, and evidence of actual confusion, among others.

Fair Use:

Rothchild's defense is also known as the ‘Fair Use’ defense. Apropos India, Section 30 of the Trade Marks Act, 1999 and Section 52 of the Copyright Act, 1957 deals with this defense. The use can either be traditional or classic fair use or nominative fair use:

  • Classic fair use, which could be using the trademark descriptively, or to indicate quality, quantity, or origin of a product, or to indicate the adaptability of a spare part/accessory, not in a manner to suggest a commercial connection.
  • To understand nominative fair use, we will discuss the case of ‘Pig Pen’ vs. ‘Play Pen’, which can be considered a case which came closest to the concept of virtual reality litigation, in the year 2008.
  • In terms of copyright, fair use can be for transformative or derivative purposes such as education, criticism, or parody.

ESS Entertainment Inc. vs. Rock Star videos Inc.3

One of the most popular games ‘Grand Theft Auto’ resulted in litigation concerning infringement of a mark in the virtual reality of the video game. The game re-created the city of Los Angles virtually and named it Los Santos, so much so that the game also depicted the shops, streets, and parks of Los Angles. One establishment in Los Angeles was a strip club by the name of ‘Play Pen Gentlemen’s Club’ owned by ESS Entertainment Inc., which was virtually recreated by the video game makers as a cartoon-style strip club named ‘Pig Pen’.

The court dismissed ESS’s infringement claims on the ground that this qualified as ‘Nominative Fair Use’, where the defendant uses plaintiff’s trade mark to describe not its own product but plaintiff’s product, only for indication purpose. Interestingly in 2008, the plaintiff argued that players are free to ignore the game and spend as much time as they want in the virtual strip club and therefore, the same ought to be considered a significant part of the game. The judge gave an opinion:

“But fans can spend all 9 innings of a baseball game at the hotdog stand that hardly makes Dodger Stadium in a butcher shop. In other words, the chance to attend a virtual strip club is unambiguously not the main selling point of the game.”

In a similar case of Tata Sons Limited v Greenpeace International which involved a game which was using the trademark of TATA, the Honorable Delhi High Court applied the law of nominative fair use and denied an injunction.

The question that we ask ourselves is that, does this still hold up in today's world of the metaverse?

Easter egg:

At this stage it’s imperative to add an update from the United States, where the Supreme Court is set to re-visit the question of fair use in the Warhol case. The case was filed by Lynn Goldsmith, a photographer, against Andy Warhol, who made a silkscreen painting of a photograph of the rockstar Prince Rogers Nelson, authored by Goldsmith. Andy Warhol estate has moved the Supreme Court against the decision of 2nd circuit court order which observed that a derivative work should be ‘fundamentally different’ and not just the same work ‘in different form’. This is a counter to Rothschild’s ‘digital artistic work’ argument.

‘Use of trade mark

In terms of trademark infringement, one need to establish the unauthorized use of the mark on a product or for services. Section 29 of the Trade Marks Act, 1999 which explains the infringement focusses on the term unauthorized ‘use’ of the trademark and the term use has been extensively explained by the Hon’ble Supreme Court of India in Hardie Trading Ltd. and Anr. vs. Addison Paints and Chemicals Ltd. 2003 Supp (3) SCR 686.

The Honorable Supreme Court interpreted Section 2(2)(b) of the Trade Marks Act of1999 citing the case of Hermes TM5, which defines ‘use’ and held that the ‘use of trademark may be other than physical and could be non-physical too’. Does that mean the infringement can travel beyond physical form and enter the virtual reality?

Infringement- metaverse vs reality:

The objective of a trademark is to identify the origin of any product or service. A trademark may have an underlying goodwill, reputation, popularity, element of being a well-known mark and an assigned commercial utility. The question that may come up is does these objectives change, because the trademark has entered a virtual world? Does the role of trademark different in tangible and virtual world? The answer is plain ‘NO’.

Commercial transactions concerning NFTs in the metaverse are akin to the sale of goods in a physical or online store. Therefore, unauthorized use of a trade mark in the virtual world is equally capable of creating a likelihood of confusion. Let’s not forget the world may be virtual but is operated and travelled by real people, and therefore, the test of the ‘average consumer with imperfect recollection’ will still be applicable in the metaverse.

Moreover, the issues such as false endorsement, commercial connection, false designation of origin, misappropriation, commercial exploitation, and illegal benefits from the reputation of the mark, can very well prop up in matters pertaining to the use of trade mark in the metaverse.

Finally, just like an unauthorized use can tarnish the goodwill and reputation of a trade mark in real world, which may lead to dilution, one cannot turn blind towards the fact that in this technologically advanced world, an unauthorized use in the metaverse is equally capable of dilution of one’s trademark, resulting in the loss of good will and reputation.

Conclusion

The fact that various brands are launching their own metaverses and offering NFTs for sale, there is a new market that exists, which is beyond the real world and what we understand that intellectual properties demand protection. One must appreciate that the competition itself has moved to a new universe, albeit virtual, but will have a huge impact on the brand owners in real world.

However, the major question that is going to haunt practitioners for some time to come is: How do you establish jurisdiction? How do you execute the order and take down NFTs from the blockchain? Who is the owner in metaverse? Artistic work or infringement? Is the use commercial or incidental? What is the functional utility of a product in metaverse?

One thing we know for sure is that the law has just started to develop.

Dhurv Anand is a partner and Ashutosh Upadhyaya is a senior associate with the Indian IP law firm Anand and Anand, www.anandandanand.com