Intellectual Property Rights in the Metaverse: Protecting Digital Assets and Virtual Real Estate

The metaverse is a collective virtual shared space, created by the convergence of virtually enhanced physical reality, augmented reality (AR), and the internet. Think of it as a digital universe where users can interact with each other and their surroundings in real-time.

In this space, intellectual property rights play a critical role. Just as in the physical world, creators in the metaverse rely on intellectual property (IP) laws to protect their innovations, designs, and creations. However, the metaverse presents unique challenges. For instance, how do you enforce a trademark when someone creates a virtual replica of your brand? Or how do you prove ownership of a digital asset that exists only in code?

Digital assets in the metaverse can include anything from virtual clothing and accessories to in-game items, artwork, and even cryptocurrencies. These assets often hold significant monetary and sentimental value. For example, a virtual Gucci bag sold for over $4,000 on Roblox, and a plot of virtual real estate in Decentraland fetched millions.

But here’s the catch: ownership of digital assets isn’t always straightforward. While blockchain technology and non-fungible tokens (NFTs) have made it easier to track ownership, disputes can still arise. For instance, if someone creates a digital artwork and sells it as an NFT, who owns the copyright – the original creator or the NFT buyer?

Case in Point: In Hermès v. Rothschild, the luxury brand sued an artist for creating and selling NFTs of virtual Birkin bags. Hermès argued that the NFTs infringed on its trademark, while the artist claimed it was a form of artistic expression. Rothschild was found liable for trademark infringement, dilution and cybersquatting for creating and selling ‘MetaBirkins’ NFTs. Thereby, damages were awarded to Hermes. The case highlights the complexities of IP rights in the metaverse and the need for clear legal frameworks, especially in the ever-evolving contemporary cyber world.

Intellectual Property Rights (IPR) refer to the legal protections given to creators for their inventions, artistic works, trademarks, and trade secrets. In the real world, these rights are well-defined. But in the metaverse, where everything exists digitally, enforcing these rights gets complicated.

Some key IP concerns in the metaverse include:

• Trademark Infringement: Can someone create a virtual store using a brand name without permission?

• Copyright Violations: What happens if someone copies and sells digital artwork in a virtual marketplace?

• Patent Issues: Can virtual inventions, such as unique digital architecture or algorithms, be patented?

• Ownership Disputes: If an avatar purchases a virtual asset, who legally owns it – the user, the platform, or the original creator?

The laws governing these issues are still evolving, but existing legal principles provide some guidance.

Virtual real estate refers to parcels of land in the metaverse that users can buy, sell, and develop. Platforms like Decentraland and The Sandbox allow users to purchase these plots using cryptocurrency. But what does it mean to “own” virtual land?

In most cases, purchasing virtual real estate grants you certain rights, such as the ability to build on the land or host events. However, these rights are often governed by the platform’s terms of service, not traditional property laws. This raises questions about long-term ownership and control. For example, what happens if the platform shuts down? Or if someone infringes on your virtual property by building too close to your land?

Key Consideration: Unlike physical real estate, virtual land exists in a decentralized and often unregulated space. This makes it crucial for buyers to understand the legal implications of their purchase and ensure their rights are protected.

• Jurisdictional Issues: The metaverse is global, but IP laws are not. What’s protected in one country may not be in another. This creates a legal grey area, especially when disputes cross borders.

• Enforcement: Even if you have a valid IP claim, enforcing it in the metaverse can be tricky. For example, how do you take down a counterfeit virtual item that’s being sold on a decentralized platform?

• Evolving Technology: The metaverse is constantly changing, and IP laws struggle to keep up. For instance, AI-generated content raises questions about authorship and ownership that traditional IP laws weren’t designed to address.

Digital assets in the metaverse include NFTs (non-fungible tokens), virtual goods, and even digital identities. Since these assets exist solely in a virtual space, protecting them requires a mix of traditional IP law and emerging legal frameworks.

How to Protect Your Digital Assets and Virtual Real Estate

• Register Your IP: If you’re creating digital assets or developing virtual real estate, consider registering your trademarks, copyrights, and patents. This gives you a stronger legal footing in case of disputes.

• Understand the Terms of Service: Before buying or selling in the metaverse, read the platform’s terms of service carefully. These documents often outline your rights and responsibilities.

• Use Smart Contracts: Smart contracts, powered by blockchain technology, can help automate and enforce agreements in the metaverse. For example, you can use a smart contract to ensure you receive royalties every time your digital artwork is resold.

• Monitor for Infringement: Keep an eye out for unauthorized use of your IP. Tools like blockchain analytics can help you track your digital assets and identify potential infringements.

In Friel v. Dapper Labs, a US court ruled that NFTs linked to digital assets could be considered securities under certain conditions, impacting how virtual properties might be regulated. It is pertinent to highlight that the plaintiff’s allegations that the respondents violated securities laws by offering and selling NFTs without registration were allowed – thereby paving way for legal precedents in this realm.

The metaverse offers incredible opportunities for creativity and innovation. But as with any new technology, it also comes with risks. Striking the right balance between fostering innovation and protecting IP rights will be key to the metaverse’s long-term success.

Policymakers, legal experts, and tech companies need to work together to develop clear and consistent IP frameworks for the metaverse. In the meantime, creators and users must stay informed and proactive about protecting their rights.

The metaverse is reshaping how we think about ownership, creativity, and commerce. But as we navigate this new digital frontier, it’s essential to remember that the same principles that protect IP in the physical world apply here too – just in new and sometimes unexpected ways.

Whether you’re a creator, a buyer, or simply a curious observer, understanding IP rights in the metaverse is crucial. After all, in a world where the virtual and physical are increasingly intertwined, protecting your digital assets and virtual real estate isn’t just a legal issue – it’s a necessity.

The legal framework around IP in the metaverse is still evolving. Courts are beginning to recognize digital rights, but many grey areas remain. Businesses, creators, and legal professionals must stay ahead by adapting existing IP laws to this new digital frontier.

While the metaverse presents endless opportunities, it also brings significant risks. Proactive legal strategies and vigilance will be key to ensuring that intellectual property rights remain protected in this digital world.

About the author: Ashish Deep Verma is the Founder and Managing Partner of Vidhiśāstras – Advocates & Solicitors.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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