Virtual Tops, Real Brands: How to Navigate Fashion IP in the Metaverse – Osborne Clarke
Defenses for trademark owners include trademarks for real and virtual uses, strong policy, and license and use terms.
The growing number of trademark applications using non-fungible tokens (NFTs) or metaverse filed with the United States Patent and Trademark Office (USPTO) and the European Union Intellectual Property Office (EUIPO) says running a business in the virtual world is an increasingly important priority for brand owners if they want to stay up-to-date and competitive.
So far in 2022, over 5,800 trademark applications have been filed with the USPTO for NFTs and 4,150 for Metaverse and related technologies. In the same vein, 1,157 trademark applications for NFTs and 205 trademark applications using the metaverse were filed with the EUIPO.
Virtual mode for avatars
The metaverse is becoming the biggest new growth opportunity for the fashion industry – companies can monetize existing intellectual property (IP) into new, immersive offerings. This business opportunity allows brands to develop branded virtual assets at near zero production cost to reach wider audiences through virtual world experiences.
As the economic value of the metaverse could generate up to $5 billion by 2030, fashion and luxury companies are doing everything possible to ensure they have a good positioning and benefit from the sustained interest of the market for all things metaverse. The myriad of unique experiences for consumers in metaverse environments has not gone unnoticed by big names in the luxury and fashion industry, such as Balenciaga, Gucci, Dolce & Gabbana or Ralph Lauren. Even brands initially reluctant to digitize their products have decided to do so, such as Hermès, which in August filed a trademark application with the USPTO covering NFTs, cryptocurrencies and the metaverse. The luxury cosmetics industry is not left out, using the powerful gaming experience channel, as Armani Beauty has teamed up with Fortnite to promote its new fragrance “Code” in the Metaverse.
Protecting brands in the metaverse
Despite the lack of clear rules governing the metaverse, the USPTO and EUIPO seem to agree that they will not endorse a new Wild West or new private monopolies. Intellectual property offices have established initial guidance on the approach to be taken for classification purposes. At the World Intellectual Property Forum, USPTO Director Kathi Vidal explained that intellectual property policies must be designed jointly by different offices to meet the needs of today and tomorrow.
The USPTO seems fully committed to addressing the issues posed by the rapid commercialization of the Metaverse. The Office has provided the first guidance on identifying the goods and services required for metaverse-centric applications. The USPTO determined that Nike’s claims in Classes 9, 35 and 41 were indefinite because the precise nature of the goods and services was unclear. The examining attorney encouraged Nike — and other trademark registrants — to clarify the wording of their products and services.
The following specifications are recommended: class 9 “in online virtual worlds”, class 35 “in online virtual worlds” or “for online use in online virtual worlds” and class 41 “created for the purpose of entertainment “.
Like the USPTO, Europe plans to thrive in new digital opportunities and trends such as the metaverse, as demonstrated by the EUIPO 2023 Draft Guidelines. In the classification of trademarks, the main legal challenge lies in the description of virtual goods, which generally uses a broad enumeration and lacks clarity and precision. Like the USPTO, the EUIPO considers the term “virtual goods” to be unacceptable and requires clarification as to content (i.e. virtual goods, i.e. virtual clothing). In this regard, the EUIPO will publish the 12th edition of the Nice Classifications which will incorporate the term NFT-authenticated downloadable files into class 9. In addition, services related to virtual goods and NFTs (generally classes 35 and 41) will be classified in accordance with established service classification principles.
New world and the stamp rush
A lot of attention has been paid to luxury and fashion brands in the metaverse, and the profits that flow from them. Therefore, it is not surprising that many malicious actors attempt to impersonate trademark rights in the metaverse with preventive filing.
Bad faith applications for metaverse brands have already been spotted for fashion and luxury brands. For example, last November, unaffiliated individuals filed two metaverse trademark applications with the USPTO for Gucci (#97112038) and Prada (#97112054), covering downloadable virtual clothing and bags, retail sale for such virtual goods and entertainment services providing online non-downloadable virtual goods. The USPTO refused to register the Gucci and Prada wordmarks on several bases.
The most obvious reason for refusal is the likelihood of confusion. Section 2(d) of the Trade Marks Act prohibits the registration of an “applied mark which is so similar to a registered mark that it is likely that consumers would be confused, deceived or deceived as to the commercial source parties’ goods and/or services.” Accordingly, the agency denied the Prada and Gucci applications due to a likelihood of confusion with previously filed trademarks.
According to the goods and services comparison, Gucci and Prada have always used their names, but neither has registered trademarks related to virtual goods, services related to virtual goods and entertainment services. As Counsel for the Examiner points out in the Prada decision, the Proprietor’s wares and services are related to the Applicant’s wares and services since the latter are merely virtual versions of the Proprietor’s wares. According to the USPTO examiner in the Gucci decision, Gucci’s registrations use broad language describing retail store services, including clothing, jewelry and handbags. Accordingly, Plaintiff’s narrower retail store services offering virtual goods in these categories are presumed to include all services of the type described by Gucci’s earlier registration.
As a result of these rulings, it appears that trademarks of well-known companies for “real-world” goods and services also apply to the Metaverse. Indeed, although none of the marks have an existing trademark registration extending to the metaverse, objections could still be raised based on the assumption that consumers would mistakenly assume that the marks in the space virtual are linked to “real” brands.
With the USPTO rulings not yet final, it remains to be seen whether the same objections would be raised regarding lesser-known marks – which may have more difficulty before the USPTO and other intellectual property offices. Therefore, brand owners should not only rely on their trademark in the “real world”, but also proactively extend the scope of brand protection by covering virtual use.
Even though the Prada and Gucci decisions are only binding on the USPTO – whose practice and law differs significantly from EU law and from those of individual EU member states – they do send a positive signal that ” real” marks can be protected in virtual environments. Accordingly, the EUIPO will likely take the same position as the USPTO in light of the similar approach of the two offices to regulating these new technologies. If the EUIPO considers that goods and services are not identical or similar or that there is no likelihood of confusion, luxury marks would still have a reputation mark defence.
From a European perspective, for lesser-known fashion brands, it might be possible for the brand owner to invoke a claim of misleading advertising, copyright infringement, unfair competition or parasitism in order to demonstrate that the third party sought to benefit from the investments of the trademark holder in an unjustified manner.
Commentary by Osborne Clarke
The best defense for trademark owners is to recognize the importance of registering their trademarks (covering both real and virtual uses), establishing a robust policing strategy, and defining license and use terms. appropriate as they grow in the metaverse. Left unaddressed, these trademark issues can lead to opportunistic registration by unaffiliated third parties, which can disillusion consumers with how branded virtual goods are marketed.