An unreal issue: Managing IP in the metaverse

What is the metaverse and why is it important?

The metaverse: the next generation successor to the mobile internet. Made up of shared, online, and persistent digital spaces,¹ the metaverse can be conceptualised as a combination of digital layers over the physical world (think Pokémon Go), immersive worlds we inhabit through avatars (think the Matrix), and the internet familiar to us today.

While the idea of plugging into a visceral parallel reality like Neo is still some while away from reality, the metaverse is no longer purely an artefact of science fiction. Advancements in virtual reality now let us delve into digital worlds in first person, augmented reality tech gives us the ability to pull the internet into our physical world, while distributed ledger technology and blockchain is redefining concepts of trust and transparency in ownership and transactions in digital assets.

For consumer brands, the metaverse is the ‘next big thing’ for how brands will interact with customers. In the metaverse, brands will be able to give consumers the opportunity to interact and experience products and services without a single item ever having to be physically produced or delivered.²  Already we can buy virtual Gucci for our Roblox avatars or watch Ariana Grande perform live on Fortnite. Soon enough, we may be walking down the street wearing digital clothing visible only through augmented reality glasses and in the same afternoon, attend a VR meeting hosted in Facebook Horizon.

Licencing IP for the Metaverse

While the ultimate vision of the metaverse is a series of interoperable, decentralised worlds between which users glide seamlessly, the reality of the current state of the metaverse is that these worlds are more likely ‘walled gardens’ controlled by single entities.³ That means, for any brand looking to experiment in the metaverse today, it is crucial to establish clear IP licensing arrangements with the metaverse platform provider. As with any IP licence, typical terms such as term, territory, and royalty rates are important, however, particular attention should be paid to the scope of the licence.⁴

As part of any collaboration, a metaverse vendor may combine their own proprietary IP with a brand’s IP when creating content. Absent mutually granted IP rights, the risk is that a brand owner may end up in a situation where they are granted particular rights to a digital product, but cannot leverage those rights for future uses.⁵ If, for example, a brand is looking to create a 3D sneaker as an add-on for a game and it wants that sneaker to be ported to another game or used in a different context, it should ensure that its contract with the metaverse vendor grants all necessary IP rights to give flexibility for the brand’s future uses.

Scoping the IP licence to account for broad use and anticipate future uses is crucial. As an old-school approach to preventing unauthorised use of a trademark, obtaining registered rights has its place but it may not be sufficient in all situations – particularly in the metaverse. Brands need to mitigate the risk of reputational damage arising from unwanted brand associations by setting the boundaries of usage. A brand may, for example, not wish to have its branded items in a particular part of a game depicting graphic violence. Setting out the limits of use at the outset will help avoid disputes down the track. Brands should also be aware of their partner metaverse platform’s terms of service and end user licence agreements. These documents should prescribe what players can and can’t do on its platform (user and community guidelines), as well as how the platform will handle infringement of third party IP. Put this on your vendor DD checklist: understand what steps can (and will) the metaverse provider take to remove or censor infringing content.

IP Interactions with User Generated Content

Given the scale of content creation required to populate and give depth to metaverse worlds, you can’t avoid the fact that user generated content will become not only ubiquitous in the metaverse but essential to its development.⁶  Brands must consider their approach to protecting and enforcing their IP when it interacts with user generated content.

In the game ‘Animal Crossing’, a recent popular trend arose where players created clothing for their avatars that mimicked designs of real-life clothing brands. Many of these items of digital clothing potentially infringed third party trademarks (such as using the Louis Vuitton monogram).⁷ Snap decision time: is allowing this sort of user-generated content good for your brand, or damaging? Do you have any hope of heading it off or are you trying to boil the ocean? Is a beautifully executed fashion homage in Animal Crossing free advertising for you, and slapping it down will turn lovers into haters, or is it like wearing 2016-era logomania gear - about to be banned from nightclubs?

There are alternative means to discourage infringing user generated content. One potential avenue may be to embed perks or signifiers of authenticity into authentic digital items as a way to discourage use and creation of counterfeit digital goods, as well as provide the public with the ability to determine the provenance of the digital goods they encounter. Embedding these extras could also grant digital goods potential utility beyond being purely decorative or as a status signifier. Another alternative may be to create a ‘fan-art’ policy that grants limited permissions to create work based on brand IP.⁸

Managing IP through Non-Fungible Tokens

If a brand’s digital goods will exist beyond a single metaverse platform, brands should also consider the use of NFT technology (for further reading of NFTs, please refer to our previous article) to embed and establish rights associated with digital goods and content. Information that could be provided through metadata in an NFT include:

• a product’s history of ownership;
• the scope of any relevant rights that pass with ownership of the NFT; and
• descriptions and information about the relevant product.

By embedding this information at the point of purchase, parties are given clarity on what they can and can’t do with the digital products from the very beginning of the digital product lifecycle.⁹ Through tokenising a digital asset as an NFT, this information remains accessible throughout the life of the digital asset and between platforms. Even as a digital asset moves from one virtual world to another, embedding the relevant IP rights information within the asset through NFT technology ensures that a brand’s IP remains protected throughout.

How we can help

Looking to dive into the metaverse? We can provide you with IP and regulatory advice to help you bring your project to life. If you would like to talk about any of these issues or tap into our global know-how, get in touch.

Through our TOKO platform, we can even offer an end to end solution that combines our legal advice with a tokenisation solution for creating NFTs.

¹ Matthew Ball, ‘Framework for the Metaverse’ (29 June 2021) (Accessed 14 September 2021).
² Theodore C. Max, ‘Trademarks in the Veldt: Do Virtual Lawyers Dream of Electric Trademarks?’ The Trademark Reporter 2011, 101(1) 282, 290.
³ Wired Magazine, ‘We need to kick Big Tech out of the Metaverse’ (7 July 2021) (Accessed 14 September 2021).
⁴ Max, above n 2, 290.
⁵ Max, above n 2, 295.
⁶ Cory Ondrejka, ‘Escaping the Gilded Cage: User Created Content and Building the Metaverse’ New York Law School Law Review 2005 49(1) 81, 84.
⁷ Vogue Singapore, ‘Gaming the Fashion System: Nook Street Market is the collective taking over digital fashion’ (21 September 2020) (Accessed 14 September 2021).
⁸ For example: Epic Games has a Fan Content Policy that allows non-commercial fan content to be created using Epic’s IP.
⁹ Kelly Vero, Luxury and Art: A Common Framework for Metadata in Practice (1 July 2021) (Accessed 14 September 2021).