Trademark protection in the metaverse

As in an earlier article in our series on the metaverse, we are addressing the topic of the distribution of digital products. In this context, the question that inevitably arises is whether and how trademarks can be protected in the metaverse. As far as the application of trademark law is concerned, much is still unclear in this context. The principles developed to date by law and jurisprudence can only be applied to a limited extent to this as yet relatively unknown field. The following article explains the extent to which trademark protection in the real world also applies in the virtual realm and what significance this has for the future trademark strategy of companies.

1. Emergence of trademark protection in the metaverse

The German Trademark Act [Markengesetz, MarkenG] provides various ways of obtaining trademark protection. Through registration of a trademark in the relevant registers (Sec. 4 No. 1 MarkenG); through reputation gained as a result of the intensive use of a sign in the course of trade (Sec. 4 No. 2 MarkenG) or through gaining general brand awareness (Sec. 4 No. 3 MarkenG). For the metaverse, various peculiarities have to be taken into account in the cases mentioned, which we examine in more detail below.
 

1. Registration

   One way of obtaining trademark protection is registration in the trademark register. Each application must be accompanied by a list of goods and services. This raises the question of which classes actually cover virtual goods and services. Due to the increasing number of applications containing terms relating to virtual goods and non-fungible tokens (NFT), the European Intellectual Property Office (EUIPO) has published an approach for classification purposes (Source). According to this, virtual goods fundamentally have to be registered in class 9 of the Nice Classification. Virtual services are to be treated in line with the established principles for classification of services, i.e. typically registered in classes 35 and 41. To be borne in mind in this respect is that the term "virtual goods" is not sufficiently clear when used on its own. The content to which the respective virtual goods refer therefore must be included in the trademark application. Consequently, the EUIPO does not classify virtual goods in the classes to which the corresponding physical goods would be assigned. This is based on the separation of digital and physical goods prescribed by the Nice Classification.
    

2. Use

   Trademark protection may also arise from the use of a sign in the course of trade, provided that the sign has acquired a degree of brand awareness as a trademark amongst the relevant public. This requires both the use of the trademark in the domestic market and the brand awareness acquired through such use. When these requirements are met is problematic in the context of the metaverse. Use presupposes the use of the sign for which trademark protection is claimed. If trademark protection is claimed in respect of a virtual good, it is therefore necessary that such use takes place in the virtual world, i.e. in the metaverse. Use in the real world is not required. Furthermore, the trademark must acquire a degree of brand awareness, i.e. the relevant public is familiar with the sign and understands it as a trademark. With regard to virtual products existing exclusively in the metaverse, the relevant public will thus consist of the users of the metaverse. It is necessary that a more than insignificant part of the relevant public establishes a connection between the sign and the trademark proprietor.

   The creation of trademark protection through use of the sign also requires its use in the course of domestic trade. In the case of the metaverse, however, the determination of domestic trade is problematic. The metaverse is accessible from everywhere. Because this problem has already arisen in the case of trademark protection on the internet, the principles developed there can at least partially be transferred. It is a recognised fact that the domestic connection has to be examined on the basis of a catalogue of criteria. There has to be a so-called "commercial effect" in Germany. For example, factors that may be taken into account are whether the products in question are delivered to Germany, whether the prices are indicated in euros and whether German contact details are indicated.

   However, these criteria are only partially suitable for determining a domestic connection in the metaverse. For example, if an image is used as a basis, the fact that the metaverse can be accessed from any location, is designed exclusively in English and payment is only possible in cryptocurrency, would render it impossible to establish a reference to a specific country. In addition, there is no actual physical delivery of goods purchased via the metaverse. Rather, the recipient of the delivery is only the avatar in the virtual world, to which no location in the real world can be assigned. This poses new challenges for legislators and jurisdiction.

3. Brand awareness
   
   Finally, trademark law stipulates notorious brand awareness as a condition for the establishment of protection. For this purpose, notorious brand awareness in the domestic market is required. Not a requirement, on the other hand, is domestic use. Case law requires a "general brand awareness", which is set at significantly more than 50%. Compared to the difficulties in determining domestic use, the determination of domestic brand awareness should therefore be easier. Despite the fact that a higher degree of brand awareness is required, this variant is likely to play a more than insignificant role in the establishment of trademark protection in the metaverse.
    

2. Protection of an existing trademark in the metaverse

Where trademark protection already exists, the question arises as to whether, when and how action can be taken against possible trademark infringements, and in particular when a trademark infringement can be assumed. The prerequisite for a trademark infringement is first of all the encroachment on the scope of protection, i.e. a trademark-like use of the protected sign.

Use as a trademark generally presupposes the use of the sign to distinguish goods and services. This applies on the internet as well as in the real physical world. With regard to the metaverse, whose purpose is to represent a virtual image of the physical world, the question is to what extent the use of protected signs there constitutes use as a trademark. The metaverse mainly deals with goods and services that are offered purely virtually. The considerations also applied to physical goods and services can be transferred to their virtual use. Questionable is whether the public perception that has developed with regard to a physical group of goods can also be transferred to the corresponding virtual goods. However, this question has not yet been clarified and still cannot be answered conclusively. In all events, one must bear in mind the applicability of the territoriality principle in trademark law. This means that the intellectual property rights are only valid within the state that granted or recognised them. Here as well, the above-mentioned problem of the domestic connection is relevant: if protection exists in Germany, a trademark infringement cannot be challenged in the USA, for example. The ubiquity of the metaverse contradicts this.

Infringement of a protected trademark especially comes into consideration if there is a likelihood of confusion. The criteria for assessing the likelihood of confusion are the similarity of the products or services, the similarity of the trademarks and the distinctiveness of the trademark. The assessment is based on the overall impression, taking into account all the circumstances of the individual case. In the present context, clarification is required as to whether and under which circumstances there can be a similarity between a physical product and the corresponding virtual product. The answer to this question has particular impact when trademark owners want to take action against digital equivalents of their product in the virtual world that are marked with their trademark. The decisive factor in this case will be whether there is a similarity between the physical product for which trademark protection exists and the virtual product. On the one hand, the fact that the virtual product is merely a copy of the physical product and does not fulfil the same or any function in the real world could oppose the existence of a similarity of goods. In addition, when applying for a trademark, a very strict distinction is made between the virtual and the physical product. This also speaks against the existence of a similarity of goods. However, it is generally accepted that the Nice Classification specifically is not decisive for the assessment of a similarity of goods. For the existence of a similarity of goods, it is therefore argued that the digital good or service fulfils exactly the same function as the physical equivalent for the avatar, which is the virtual image of the user. German courts have not yet ruled on this question and further developments remain to be seen. Until there is clarity, trademark owners are advised to also protect their virtual goods or services in order to be able to take action against infringements with legal certainty.
 

3. Conclusion

Many questions of specific relevance for trademark owners in connection with the metaverse are still unresolved. The principles developed by the legislator and long-standing case law can only be transferred to a limited extent and are insufficient in parts. For more legal certainty, new regulations are necessary to create sufficient protection in the digital world. Until then, it makes sense for trademark owners to also have their virtual goods or services protected in order to be able to counter possible trademark infringements in the metaverse. How legislators and case law can dispel the large shadow cast by the metaverse remains to be seen.

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