For many of us, the metaverse may still be a rather vague and distant concept. It might even seem irrelevant in light of the “metaverse is over” narrative that has followed Meta/Mark Zuckerberg’s apparent shift in focus towards artificial intelligence (‘AI’).

However, research published by UK-based company Metaversed Consulting in 2023¹ puts the number of monthly active users of the metaverse at 520 million people, a figure which has been steadily rising over the past few years. Further, analysts at Bloomberg estimate that we could see a metaverse market worth $800bn by 2024².

Therefore, and whether this is borne of a yearning to be free from the constraints we face in the physical world or simple curiosity, people (and – by extension – consumers) are interested in what the metaverse might have to offer in growing numbers.

For businesses, this means that the metaverse offers new and as yet unexplored commercial opportunities that should not be overlooked. After outlining some key terminology, this article explores the potential benefits of the metaverse (and Web 3.0 more generally) for businesses, and aims to highlight some of the intellectual property (‘IP’) considerations and risks that are associated with a move into this space – particularly for those operating in the creative industries where the physical world is perhaps more readily transferable to the virtual.

Understanding the Metaverse and Web 3.0

There’s been a lot of talk about how the metaverse is the “next chapter” for the Internet, but what that actually means is difficult to define.

Essentially, the trajectory of the Internet from its infancy through to today is one of increasing richness: its capability has gone from text-only webpages (Web 1.0) to more detailed and engaging audiovisual content (Web 2.0). This pathway is now entering a new, more immersive phase (Web 3.0), where the boundaries between the physical world and the virtual world are being blurred.

Our present mode of interaction with the Internet centres on accessing content through pages and websites and, whilst it allows for some user-generated content, it is largely owned and controlled by big tech firms.

In contrast, Web 3.0 is predicted to be a decentralised version of the Internet where content is accessed via virtual spaces (collectively known as the metaverse), and where users have greater control and ownership over the content they create.

Hand-in-hand with these developments are the use of blockchain, cryptocurrency, and non-fungible tokens (‘NFTs’), all of which facilitate the decentralisation of Web 3.0 by enabling direct transactions between users.

In particular, fundamental to Web 3.0 and the metaverse is blockchain, which is a type of ‘distributed ledger’ where transactions are recorded across a number of independent computers. Recording data in this way allows it to be viewed, shared and corroborated by anyone, and thus protects against one entity holding too much power (as in a centralised ledger). This technology is thus well-suited to the decentralised nature of Web 3.0.

Blockchain technology is also used to record, store and track electronic transactions that take place in digital currencies (cryptocurrency, of which Bitcoin is a well-known example); cryptocurrency is, in turn, likely to be widely used in the metaverse since it can enable consistency across the various virtual worlds and networks.

Finally, and crucially for the important ownership aspect of Web 3.0, NFTs are unique metadata files, tracked and verified using blockchain, that relate to a particular asset (physical or virtual) and enable the holder to exclusively own and control that asset.

Fashion and the Metaverse: Opportunities

The fashion industry is no stranger to breaking new ground: pioneering fashion designer Iris van Herpen has been experimenting with 3D printing in her fashion collections since 2009, collaborations have taken place between the likes of Google and Levi’s to create ‘smart’ clothing, and leading fashion schools are emphasising the importance of the digital world (in particular, the London College of Fashion has established the ‘Fashion Innovation Agency’ which aims to “close the gap” between fashion and technology).

When it comes to the metaverse, there are numerous potential benefits for those in the fashion industry, and a number of brands are already embracing these opportunities.

From the point of view of art, the metaverse offers considerable scope for creative freedom and innovation, since physical limitations surrounding the construction and wearability of garments, or the layout and capacity of a fashion show, no longer apply.

For instance, one can look to Metaverse Fashion Week (which took place in 2022 and 2023 on the Decentraland platform), where several major fashion labels including Balmain, Coach and Tommy Hilfiger launched experimental boutiques and shows for users to experience (technical issues notwithstanding). Whilst some brands stayed true to their real-world aesthetic, others embraced the ability to try something new – such as Dolce & Gabbana’s use of cat avatars to model clothing on the virtual catwalk, or Coach allowing avatars to enter and explore a giant version of their Tabby bag.

These virtual spaces also allow for new collaborations between those working within and outside of the fashion industry, thus facilitating innovation and productivity. Recent examples of digital collabs include luxury fashion house Gucci and Superplastic (a global entertainment brand specialising in limited edition designer toys, synthetic celebrities, and digital art) teaming up to create ‘SUPERGUCCI’, a series of ultra-limited NFTs featuring motifs from Gucci’s 2021 Aria collection accompanied with real-world ceramic equivalents, and the partnership between Balmain and Barbie to auction off three unique Barbie avatars wearing looks from the physical collection.

From the point of view of business, the metaverse allows fashion brands to reach new, younger audiences that will be the consumers of the future – research indicates that 83.5% of metaverse users are under the age of 18, with many of those being aged 13 or below³ – and to increase brand loyalty through more immersive and dynamic forms of engagement compared to traditional advertising.

Showcasing products in virtual spaces also means that more consumers can be reached. In the two weeks it was available, the ‘Gucci Garden’ in virtual world Roblox (an exhibition “exploring and celebrating the house’s inimitable creative vision”) attracted over 20 million visitors – something few real-world venues could achieve in a fortnight. It is perhaps no coincidence that Gucci, one of the leading fashion houses embracing technology, is now the top luxury brand that Gen Z and Millennials say they want to own⁴.

Finally, the exclusivity offered by NFTs increases demand and, in turn, prices. For example, the world’s first digital-only dress, the unique ‘Iridescence’ dress designed by digital fashion house The Fabricant, sold at auction for $9,500 in 2019. This exclusivity also extends to other digital-only assets, such that they could become more desirable than physical goods (exemplified by the sale of a virtual Gucci Dionysus bag on Roblox in June 2021 for around $4,100, more than $700 over the price of its real-life counterpart).

As well as benefits for brands themselves, it is also worth highlighting the exciting environmental benefits of fashion in the metaverse.

The carbon footprint associated with digital clothing is significantly smaller than for physical clothing, which faces huge environmental challenges in terms of ethical sourcing of materials, intensive water usage, wastewater pollution, and unrecyclable materials, all of which are real-world problems that would have no counterpart in the metaverse. Whilst virtual clothing is not going to entirely replace physical clothing, the metaverse provides an outlet where people can express themselves in a way that does not have the same detrimental impact on the environment – something that could be very applicable for short-lived ‘fad’ clothing (the Primark x Greggs collab comes to mind, for example).

Further, if consumers can experience digital clothing prior to purchasing the physical equivalent, and if brands are able to gather data on the types of clothing consumers want, these factors could help to streamline and focus the fashion supply chain and result in less waste (both from consumers throwing away clothes they don’t like, and from brands over-producing goods that turn out not to be popular).

Fashion and the Metaverse: Risks

There are two sides to every story and, together with the potential benefits, there are also a number of possible IP pitfalls that brand owners should bear in mind.

Firstly, businesses may need to expand their trade mark portfolios to reflect the new virtual goods/services being offered, or that could be offered in the future, since these goods are not covered by a registration for their real-world equivalents. Many brand owners have already taken this step, and we have seen numerous trade mark applications covering downloadable clothing, retail services connected with virtual goods, and virtual entertainment services filed by the likes of Louis Vuitton, Adidas and Zara.

The greatest challenge here is that, at the time of writing, there is no cross-border consensus on how such goods/services are classified for the purposes of trade mark registration. For instance, the UK IPO has recently published guidance saying that:

• NFTs will not be accepted as a classification term alone, and will be classified according to the underlying asset (i.e. Class 9 if digital on nature, or Class e.g. 16 or 18 if the underlying asset is a piece of physical artwork or designer handbag).
• Virtual goods, irrespective of their type (i.e. clothing, bags, etc.), will all be classified in Class 9 (the position is more complex for services).

However, the EU IPO’s approach currently appears to restrict inclusion of NFTs to Class 9, whilst a White Paper published by the International Trade Mark Association in April 2023 notes there has even been some talk of introducing an entirely new Nice Class for virtual goods/services – and these are not the only international inconsistencies. For instance, trade mark applications in China should generally conform with a list of ‘standard’ goods published by the China National Intellectual Property Administration (CNIPA). At this time, there is still limited scope for explicitly including metaverse-related goods and services, and so brand owners may have to rely on more general wording (such as software and entertainment services).

As with any broadening of a trade mark portfolio, brand owners may also need to increase the breadth of their watching service(s) to capture applications/activity related to these new Classes.

Because there is a potential question mark over whether designs of virtual-only goods meet the legal definition of a registrable design in the EU (i.e., the appearance of “any industrial or handicraft item”), businesses might also need to consider registering virtual goods as 3D trade marks. However, this comes with its own complications owing to the legal requirement for a sign to be “distinctive”.

The EU IPO refused an application by Burberry earlier this year to register its ‘check’ pattern as a trade mark for (amongst other things) virtual clothing and accessories on the grounds that it lacks distinctiveness, since the pattern “is not markedly different from various basic patterns commonly used” for clothing/accessories. Brand owners should be aware that overcoming such objections with evidence of acquired distinctiveness could be challenging where the sign has not previously been used for such goods, even if the sign has been used in the real-world for many years.

Crucially, even if a brand owner has no interest in the metaverse or offering virtual goods/services, it would be a mistake to ignore it completely. At a minimum, brand owners should look to buy potentially relevant Web 3.0/blockchain domains to avoid cybersquatting, and should be vigilant about what is being offered in virtual worlds to ensure that their IP rights are not being exploited (for example, by setting up alerts for online posts or articles mentioning their brand in the metaverse, and periodically accessing virtual worlds to check for use of their trade marks).

However, this brings us to the key issue of enforcement. For brands that do not have any interest in the metaverse, and so have not expanded the scope of their trade mark portfolio accordingly, there remains doubt as to whether the owner of a trade mark for real-world goods can prevent the use of their trade mark on virtual goods.

Currently, the only guidance we have comes from the US case of Hermès v Rothschild, which concerned use of the sign ‘MetaBirkins’ to sell digital bags authenticated by NFTs. In a win for brand owners, the jury upheld Hermès’ complaint, finding that use of ‘MetaBirkins’ for digital bags infringed Hermès’ trade marks rights to ‘Birkin’ in real-world bags. It remains to be seen how other jurisdictions might deal with this issue, whether the outcome would be different where a claimant’s trade mark does not enjoy a strong reputation, and if the logic would apply in reverse (i.e. could a virtual-only fashion brand prevent use of their trade marks for real-world clothing?).

Moreover, Web 3.0’s new means of sale (transferring NFTs rather than physical goods) potentially introduces new infringing activities. For example, the US case of Nike v StockX, involving the sale of NFTs linked to Nike trainers on the resale market, calls into question whether NFTs for physical goods have a distinct value of their own, separately from those physical goods. Whilst Nike claims that the activity constitutes trade mark infringement, StockX asserts that it is no different to using Nike trade marks descriptively in a web-listing to sell the products (as in Web 2.0).

Finally, the importance of ownership within Web 3.0 could give rise to increased numbers of IP ownership disputes.

In particular, there is a key distinction to be drawn between owning an NFT linked to a digital asset on the one hand, and owning the copyright in that asset on the other. Typically, the author of the asset is the first copyright owner, and when a user buys the NFT they are being granted a licence by the copyright owner to use the work in a certain way. Therefore, it is important for owners to be clear on the effect of transferring an NFT, and for buyers to read the terms of the licence so they understand what they can and cannot do (for instance, the Gucci Vault FAQs specifies that buyers are able to use the work for “personal, non-commercial use”).

Also, insofar as virtual worlds facilitate collaborations between different businesses, brand owners should be careful to consider what IP assets are being co-created as part of such collaborations, and to have suitable agreements in place to provide certainty as to ownership and the permitted manner of use by the concerned parties.

Looking Ahead

The metaverse presents brand owners with a new way of selling their goods and services, and it is difficult for both businesses and the law to keep up with the pace of change.

But whilst there are a number of differences between the real and virtual worlds, ultimately, much is the same. Intended as it is to be a digital version of the real world, the long-term vision for the metaverse is one that allows us to easily blend our real and virtual selves on an everyday basis.

Though some legal principles may need to be adapted (e.g., the Canon similarity factors may not be suitable for comparing virtual and real-world goods and services), others could be readily applied to the digital environment (e.g., consumers’ recollection and perception of trade marks). Greater certainty will come, in time, as the case law evolves on the topic, just as it has for online enforcement issues arising from Web 2.0 developments.

In fact, our experience of Web 2.0 demonstrates the ability of brand owners and the law to deal with new commercial contexts – e-commerce, social media, search engine listings, to name a few. This knowledge provides grounds for optimism that the next phase of the internet, in whatever form that takes, should be no different.

¹https://www.metaversed.consulting/blog/metaverse-monthly-active-users-q2-2023
²https://www.bloomberg.com/professional/blog/metaverse-may-be-800-billion-market-next-tech-platform/
³https://www.metaversed.consulting/blog/the-metaverse-reaches-400m-active-users
⁴https://www.ypulse.com/article/2023/01/24/the-top-10-luxury-brands-gen-z-and-millennials-want-to-own/