Luxury law in the metaverse and the challenges of intellectual property

16 Jun 2022 , 3:42pm

Basham Ringe & Correa partner Eduardo Castañeda explains the developing realities for this ultra-sensory market.

When Neal Stephenson contemplated the term "metaverse" in his 1992 novel Snow Crash, he sought to illustrate a virtual world inhabited by avatars of real people, transgressing barriers of the unimaginable and blurring the online world from the offline.

Today the luxury industry has welcomed new realities and expanded horizons with the metaverse. Big fashion houses like Hermès, Gucci and Balenciaga, among others, are creating clothes and accessories in the metaverse that probably nobody will wear in the real world and that allow the digital user to have a different service experience at more reasonable costs for their avatar.

Millions of users are now acquiring services and goods from the fashion world that are protected by intellectual property rights in the offline plane. But in the metaverse there are still great and disturbing challenges as well as questions to be answered.

Luxury brands in the Metaverse

Gucci – In May 2021, the Italian fashion house launched an NFT experiment as it presented plans to celebrate its first centenary; a four-minute film, Aria, co-created by Gucci creative director Alessandro Michele and director Floria Sigismondi. The film was shown in the background of the physical parade and sold for $25,000 at Christie's auction house. Likewise, we had already had a Gucci bag being sold on the Roblox gaming platform, even before we knew the true extent of the metaverse.

Louis Vuitton -- It launched a game called “LOUIS THE GAME” that was not just any entertainment platform, but would give us the opportunity to access a collection of 30 NFT's of the brand.

Prada and Adidas -- In early 2022, they introduced the Adidas for Prada Re-Nylon Collection to the open metaverse. Adidas for Prada re-source, an exclusive collaboration with NFTs, featured user-generated artwork, personalities from fashion, design and crypto to co-create a large-scale digital design inspired by the physical collection Re-Nylon.

Balenciaga and Fortnite -- Balenciaga was the first fashion brand to partner with the online game Fortnite, selling four exclusive items from its collection to serve as skins and accessories for in-game avatars.

How does the principle of territoriality of intellectual property rights apply in the metaverse?

The nature of the metaverse contemplates a virtual space without defined territorial competence and whose accessibility is completely open. In this way, it could be understood as Decentralized Autonomous Organization, which responds to being an organization directed through rules encoded in computer programs called smart contracts.

However, beyond regulation through contractual will, there is no specific legislation for the metaverse to date that guides the application of the principle of territoriality as we know it in the offline world.

This has generated multiple discussions since there are already lawsuits about rights allegedly violated in the metaverse, such as the NFT made by a digital artist who replicated the famous Hermès Birkin bag in the metaverse, which do not have a clear legal framework.

What would be the competent jurisdiction to know the infractions that occur in the metaverse?

The answer is not clear. However, to date, the Assembly of the Paris Union and the General Assembly of World Intellectual Property Organization approved a joint recommendation on the protection of trade marks and other industrial property rights over signs on the internet, noting that the metaverse is an element of today’s digital environment.

Article 2 of the recommendation provides that the use of a sign on the internet will constitute use in a member state for the purposes of these provisions, only if the use has commercial effect in that member state.

To do this, each member state must develop its own criteria to determine whether the use of a trade mark on the internet has a commercial effect in its territory. In this way, under the interpretation of this recommendation, the competent court will be that of the place of production of the harmful event, if it is contemplated that it had a commercial effect in its territory.

Although this recommendation guides some discussions, the reality is that it does not replace the need for a binary regulation that has a presence both in the online world and in the offline world and that allows fashion creators and other luxury goods to be protected by intellectual property rights.

Eduardo Castañeda is a partner with Basham Ringe & Correa in Mexico City. He focuses his practice in intellectual property and entertainment law and can be reached at ecastaneda@basham.com.mx.