Protecting your brand in the age of NFTs and the metaverse

By taking each element of this new virtual eldorado, we can consider that the existing law makes it possible to resolve the conflicts specific to trademarks and copyrights (ownership, protection), and thus to organize their protection in this emerging environment.

What legal arsenal to protect brands in the metaverse?

The use of the blockchain to create NFTs does not alter questions relating to the ownership of the virtual or physical works or products to which the NFTs relate. Nor even those relating to the ownership of the rights to use trademarks and copyrights, with the exceptions of those attached to copyrights or the use of a trademark by a third party, reseller of authentic products.

Of course, if the protection of trademarks in the Web3 can raise difficulties of identification and localization of the actors, and therefore even of the territorial jurisdiction of the courts, these have become classic in the era of the Internet. Practitioners and courts are familiar with these difficulties, and trademark and copyright law, as well as civil procedure, offer useful legal tools for owners to protect their rights and trade them in the metaverse.

For example, director Quentin Tarantino offered to sell NFTs for digital copies of his famous screenplay written for “Pulp Fiction”. The Miramax studio has assigned the director. In view of the subpoena, the case turns on whether the rights reserved by Tarantino in the assignment of rights to the 1993 screenplay, namely the editing rights and the publication of the screenplay, allow him to sell NFTs relating to handwritten elements of the scenario.

For its part, Nike is suing StockX, which offers for sale NFTs relating to real Nike shoes which it claims to have in a high-security air-conditioned safe. Purchasers of NFTs can resell them or exchange them for the corresponding real pair of shoes. Nike sues StockX for trademark infringement and unfair competition. StockX defends itself by invoking the exhaustion of trademark rights after the first sale of the actual shoes by the licensee, and the lawful use of the mark by a reseller of genuine products.

NFT, blockchain: the myth of authenticity?

As a reminder, an NFT and blockchain technology only offer a guarantee of ownership or authenticity to the purchaser insofar as the contract associated with the NFT (i) relates to a virtual or real product or work of which the seller of the NFT is indeed the owner, and (ii) organizes in an adequate and sustainable manner the access of the purchaser to the product or work.

When NFTs are offered for sale by trademark owners and/or copyright holders of a work, they offer a strong guarantee of the authenticity of the product or work. But if the product or work authenticated by an NFT infringes the copyrights or trademarks of third parties, the seller and/or the buyer are exposed to actions for infringement such as those mentioned above.

In such a scenario, the much-vaunted security of blockchain and NFT would be of no help.

Similarly, neither NFT nor blockchain confers exploitation rights of the product or work, unless the contract associated with the NFT expressly provides for it and the seller of the NFT actually holds the exploitation rights. Thus, the purchase of an NFT for a virtual dress from a fashion designer or virtual sports shoes does not allow the buyer to reproduce the virtual product (nor of course a real product).

What values ​​do branded virtual products carry in the metaverse?

Beyond the specific characteristics of NFTs, and the limits linked to the guarantees promised by the blockchain, we must now look at the virtual universe in which these new products evolve. The metaverse is not yet today a unified plan of commercial or social interactions: one could even say that for the time being… the metaverse does not exist.

Indeed, the transfer of avatars and/or their accessories from one virtual world to another is a key issue in the metaverse, but is not yet a reality.

The purchaser of a virtual designer dress cannot therefore yet freely transfer it from World of Warcraft to Sims, from League of Legends to Fortnite or other open multiplayer video games, or between these games and various open universes called metaverse such as The Sand Box or Decentraland. As for virtual sports shoes, the acquisition of RTFKT by Nike for their development and the virtual places in which they can be worn remain to be discovered.

Past the fad, virtual products sold by brands or individuals will have all the more or less interest and value that the purchaser can use them in one, several or all virtual environments.

NFT, blockchain…: a contract like any other

The sustainability and accessibility of virtual products raise technical and legal issues that are not resolved by NFTs and blockchain.

The solution for brands is to make their virtual products more attractive beyond the fad of the nascent metaverse. The challenge must be the identification, as precise as possible, of the content and extent of the property right, and possibly the intellectual property rights, offered to purchasers when branded virtual products are put up for sale.

It is only in this approach that NFTs can fully play a role of guarantee of authenticity, when they are implemented by the legitimate owners of trademarks and other intellectual property rights with appropriate contractual provisions.

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* Stefan Naumann leads the Intellectual Property practice of Hughes Hubbard and Reed LLP to Paris. He is registered with the Paris Bars and from California, and is on the list from referees of I‘World Intellectual Property Organization, in particular for domain names.