[Guest post] IP entering the Metaverse

The IPKat is delighted to host the following guest post by Katfriend Nick Kempton (Osborne Clarke) on videogames, IP, and the .. metaverse.

Here's what Nick writes:

IP entering the Metaverse

by Nick Kempton

Fortnite's own Kat

By now most will have heard of the 'metaverse'. Announcements such as Facebook's rebrand of their corporate name to 'Meta' and Microsoft announcing virtual avatars in Teams - represented in the media as 'plays' for the metaverse - have reached centre-stage. What people are probably less likely to be aware of is the fact that conversations and investment in the metaverse have been ongoing in the video games industry for some time. For example, earlier this year Epic Games, the owners of popular video game 'Fortnite', completed a $1 billion round of funding to develop their own metaverse.

But what is the metaverse and why are so many people excited about it?

At the moment, one of the difficulties when discussing the metaverse is trying to define it. Many companies declaring that they are heading into a new direction have conflicting views on what makes up the metaverse. At its most simplistic level, the metaverse is the convergence of physical, digital and augmented reality. A popular analogy is to reference the movie "Ready Player One" - although some enthusiasts dislike this reference because it leads to oversimplifications. Conceptually a metaverse can be said to be made up of several key characteristics which venture capitalist Matthew Ball set out in an influential essay on the metaverse in 2020, namely:

• Scaling – the ability to increase the size of the metaverse.
• Persistence – unlocking technical limitations to improve the metaverse's immersive nature and allow a continuous virtual world.
• Interoperability – the merging of different virtual worlds and systems.
• Economy – an independent economy allowing for trading across the metaverse.
• Identity – evolving current online identities for avatars for a stronger connection to the user.
• Digital and physical – spanning across many aspects of life.
• Multiple contributors – content will come from all sorts of stakeholders from individuals (user generated content) to commercial organisations (licensed content).

Ultimately, what we are talking about is an embodied internet where you can experience a living virtual world, with a digital personality tailored by you, using an independent economy and allowing you to create and experience things differently. You could wander the metaverse and acquire (or create) digital clothing or skin, work with colleagues remotely sharing a virtual space (bringing new meaning to data rooms for our corporate colleagues) or even attend school virtually.

In the video games industry we are seeing many video games that tick off some of these characteristics and have been dubbed 'proto-metaverses'. These proto-metaverses take many forms, including games embracing blockchain technology and/or providing social and educational events. Fortnite, for example, has already combined gaming and non-gaming elements in a digital world – popstars like Ariana Grande have played concerts in Fortnite in front of millions of fans. Blockchain games are a controversial development in the industry which is starting to get more momentum as it opens the door for players to earn real money from a game (potentially exposing itself to regulatory issues).

As you can see from the above characteristics, the concept of a metaverse is a complicated one and will be a central point that many technological advancements are gravitating towards including, AI, blockchain / NFTs and cloud computing. Many of these technologies are already challenging IP rights in a number of different ways making the metaverse a potential hot pot of IP issues.

IP rights in the metaverse

Analysing the impact the metaverse will have on IP rights is just as difficult as trying to define it. However, brands are already considering entering the metaverse (or at least proto-metaverses) as a way of increasing brand awareness with hard-to-reach demographics. We have already seen companies like Nike file trade marks to cover digital items giving an indication that they are already considering digital fashion allowing users to buy (and possibly resell) digital clothing for their avatars. The expectation is that many other brands will be looking at similar filing strategies going forward making class 9, 41 and 42 an even more crowded space for rightsholders.

The metaverse will also call up questions around:

1. Territoriality

Similar to the internet the territorial reach of a metaverse, or particular parts of it, may not be readily apparent. Whilst there is plenty of case law around issues such as targeting in the context of websites it may be more challenging assessing the relevant objective criteria in an open virtual world which is territorially agnostic and won't have tell-tale indicators such as prices in local currency.

2. Licensing

When a rightsholder authorises the use of its IP in a digital asset within a metaverse, it is still going to want to retain some control over the use of that digital asset. Therefore a rightsholder will need to try and effectively manage their IP, including a brand's reputation, through the scope of any licence. In a metaverse, where the potential uses could be limitless, it is going to be challenging for rightsholders to cover every instance of what will amount to an acceptable use. On the plus side, there is potential for technology to step in and assist with managing the risks, for example, NFTs linked to a digital asset may enable rightsholders to ensure brand quality is maintained.

3. User generated content ("UGC") and the mixing of IP

More freedom to create will inevitably lead to more third party infringement. Previously, in video games UGC was contained within the walled garden of a video game with appropriate reporting tools to flag infringing content. In a metaverse, the walls will have come down, meaning that users will be able to create their own content in the wild without limitation. Furthermore, the interoperability of metaverses will inevitably require the mixing of IP between metaverses resulting in brands being used in unforeseen ways, for example, a children's avatar skin like Peppa Pig could be used in a horror survival game.

The difficulty for in-house counsel will be managing the risk of their IP being used in inappropriate and commercially damaging ways with the business's desire to be involved in the metaverse. Companies will need to reconcile their marketing team's desire for consumers to interact with IP in novel ways while also ensuring that the interaction is compatible with what the company considers to be acceptable use of their IP. This is particularly important since the opportunities for identifying and dealing with infringement issues within a metaverse are not yet clear. Whilst IP licences will be very important for retaining control, it may be difficult for a rightsholder to manage and exercise control if consumers perceive that they 'own' a digital asset. It is therefore important for the rightsholders to be upfront with consumers about any transactions involving IP licences to ensure there are no PR backlashes (especially within video games, which has a vocal and at times fragmented community).

4. Enforcement

There are also questions around how rightsholders will try to enforce their rights in a metaverse. As with current internet platforms, it is likely that rightsholders will look to intermediaries to help them enforce their rights. However, in a metaverse neither the infringing content nor the platform from which it is accessible may be hosted by a single intermediary, so the mechanisms for rightsholders and intermediaries to work together to remove infringements may not be straightforward.

Furthermore, the detection of infringements may become more challenging, since it is unlikely that rightsholders will be able to easily monitor open environments like the metaverse. As a stop gap for rightsholders entering proto-metaverses, it may be better to consider old school tactics like sweeps of digital marketplaces to pick up when infringing digital assets go up for sale.

Conclusion

The technological leaps required for a true metaverse are going to be staggering – currently some video games can hold up to 150 players within a single virtual space whereas the metaverse would be looking at hundreds of thousands if not millions of digital avatars interacting with one another.

While the development of a true metaverse is no longer an "if" but rather a "when", the way the metaverse will develop over time is far from clear. Some believe that a single corporation will be able to create and own the metaverse in some form of dystopian future. Given the technological feats required to develop a metaverse this theory seems somewhat incredulous. The more likely result will be that proto-metaverses will advance technology in different ways and those that are the most successful will obtain critical mass and then merge with other metaverses to allow it to grow organically. As time passes there will be more IP issues that will crop up and if rightsholders decide to enter a (proto-)metaverse they will want to continue to keep an eye on these developments closely.