by Katelyn Shindler (New York)

In an ever-changing technologically advanced world, remaining up to date on new software and different ways to explore the internet has become increasingly important. While many people are still trying to grasp concepts such as virtual reality and online clubs, a much more advanced version is soon to become a reality. The metaverse is a never-sleeping virtual version of our world where soon, users will be able to build avatars, virtually attend concerts, go shopping, take classes, buy art, build houses, and do many more exciting activities that they may not have the necessary means to do in the real world.

Value in the metaverse will be exchanged in a way that is not much different from the real world, however, the main form of currency that will be used in the metaverse will be cryptocurrencies such as Bitcoin and Ethereum. There will also be virtual marketplaces where people can buy and sell virtual products such as art, clothing, furniture, houses, cars, and valuable trading tokens called Non-Fungible Tokens (NFTs). In short, NFTs are digital tokens representing different items such as a piece of artwork, a video, or a voice recording. These NFTs are encrypted and stored in a blockchain containing unique IP addresses which may be used to show proof of ownership of each NFT. A consumer may buy NFTs instead of a regular digital painting because NFTs have the potential to increase in value over time, unlike a digital home or car, and are more comparable to rare baseball cards.

Businesses and intellectual property attorneys should be aware and proactive in making sure their brands will be protected in the metaverse considering not all of the intellectual property registrations that companies currently have will protect their virtual products and services. One way for a brand owner to protect their brand in the metaverse is by federally registering their brand’s name and logo for the virtual goods or services they are selling. Specific classes being used for trademarking in the metaverse include goods in class 9 identified as “downloadable virtual goods”, services in class 35 identified as “retail store services featuring virtual goods”, services in class 41 identified as “entertainment services, and providing online, non-downloadable goods, e.g. virtual clothing and accessories, for use in virtual environments”, and services in class 42 identified as “providing online non-downloadable virtual goods and NFTs for use in virtual worlds”. The brand owner or their attorney will probably need to include at least one of these classes in their U.S. Patent and Trademark Office (USPTO) application.

In the brand owner’s USPTO application, the applicant will need to provide specimens of their virtual goods shown in virtual marketplaces where they are currently sold. In the metaverse, users will be able to build an avatar, walk into these marketplaces, and look at products much like shoppers would in the real world. A screenshot showing the goods being sold in a virtual marketplace would suffice as a specimen. In the trademark or service mark application, the USPTO will also require applicants to explain how their products can be used in virtual online environments. For example, if the application covers virtual clothes, will avatars wear them or will they be collector’s items? Lastly, the applicant will need to develop software with a platform for consumers to search for, purchase, and download their virtual goods, such as a virtual marketplace or server. This may require the brand owner/applicant to hire a software engineer who is familiar with the metaverse to guarantee their products will be functional in that virtual environment.

Regarding patenting in the metaverse, obtaining a patent may be necessary to protect unique software for the metaverse such as a one-of-a-kind virtual atmosphere within the virtual world or a virtual marketplace that is unlike the rest. A patent may also be necessary if the inventor creates hardware such as a unique virtual reality headset that can be used for the metaverse. For copyrights, U.S. copyright protection covers “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102. This includes digital artwork, audio, and any other form of expression an author may create in the metaverse. Therefore, the author should copyright their digital works for the metaverse. However, since current copyright laws cover virtual products, the process of obtaining a copyright for the metaverse remains essentially the same as in the real world.

Surprisingly, trademark infringement involving NFTs has already happened. In February 2022, in the case of Nike, Inc. v. StockX LLC, the popular footwear brand Nike sued the online resale marketplace StockX for trademark infringement among other violations in the United States District Court for the Southern District of New York. StockX is unique due to its authentication system, unlike other resale marketplaces, ensuring consumers receive legitimate products. Once an order is placed, the products are first shipped to StockX by a seller where an expert in the products being sold will examine and authenticate them before shipping the products to the consumer with a token of authenticity. StockX recently expanded its authentication system using NFTs, which manifest on the StockX website as a line of virtual tokens represented by images of Nike sneakers. The online resale company claims these virtual tokens are linked to previously authenticated physical products which are stored in their “vault.” The buyer of the NFT will receive the physical product in the mail, only if they decide to trade in their Nike NFT for the physical product.

The main issue is whether StockX’s Nike NFTs only represent proof of ownership of physical products as they claim, or if they are virtual products themselves. StockX denies the claim that its NFTs are virtual products and restates that they are just a method of tracking ownership of the physical goods they sell. However, Nike argues that the Nike NFTs are virtual products in themselves due to StockX’s claim that users can trade NFTs for physical sneakers. This exchange system from StockX fails to currently exist, and there is a noticeable lack of proof that it ever will.

Nike further claims StockX violated multiple trademark laws including trademark infringement of its JORDAN 1, NIKE DUNK LOW, KAWS, AIR JORDAN, AIR JORDAN 3, NIKE SB,  and NIKE AIR marks, as well as false designation of origin (misleading the consumer as to where the goods came from, 15 U.S.C. § 1125); by the unauthorized use of Nike’s trademarks, StockX has created the false impression that their NFTs are produced by, authorized by, or associated with Nike. Lastly, Nike argues that StockX committed trademark dilution. StockX’s unauthorized use of Nike’s marks has diluted the distinctive quality of the marks and in the same cause of action, Nike claims StockX tarnished the fame of the marks by selling NFTs with images of Nike sneakers for much more than the sneaker is worth, leading consumers to believe Nike is collaborating with StockX and raising its prices at disproportionate rates. 

Nike is especially worried about brand confusion as they have already begun registering for certain virtual trademarks under the name RTFKT (artifact) from which they will be selling digital art and collectibles including a line of digital Nike sneakers. The first design of the line has already been released under the trademark CRYPTOKICKS. Nike alleges this is confusingly similar to StockX’s NFTs which are virtual tokens featuring images of Nike sneakers. Nike also filed new intent-to-use applications for the metaverse for many of their current trademarks such as NIKE (Application Ser. No. 97096366), AIR JORDAN (Application Ser. No. 97096952), and JUST DO IT (Application Ser. No. 97096236) which will all be sold in their trademarked virtual server NIKELAND (Application Ser. No. 97133113).

On April 12, 2022 Judge Valerie E. Caproni assigned this matter to Justice Sarah Netburn for settlement, however, there has not been action taken to settle this matter since.

In May 2022, Nike amended its lawsuit to add allegations that StockX was also selling counterfeit Nike sneakers. Nike stated it was able to buy four pairs of counterfeit Nike sneakers from StockX, undermining StockX’s claim that all of its shoes are authenticated.

In June 2022, StockX responded by claiming that Nike has previously praised their authentication system and their latest counterfeit claim is without merit. StockX further countered that their vault NFTs are in fact not virtual products or digital sneakers, but merely proof of ownership of the physical products stored in their vault and the use of Nike images on NFTs is analogous to retail stores that use images of the same to sell physical products. This case is still ongoing.

Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only. No information contained in this post should be construed as legal advice from Natter & Associates, P.C., nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

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