[NFT Trademarks] NFTs in the Metaverse Are Forcing Brands to Fight Alleged Infringements.

The war between brands and non-fungible tokens (“NFTs”) has truly begun to heat up. Hermès apparently sent a cease-and-desist letter to the MetaBirkins inventor. They likely filed a takedown notice with OpenSea to have the NFTs deleted from the platform in the last few weeks. Darden Restaurants, the owner of Olive Garden, filed an IP Takedown Request with OpenSea to have NFTs connected to photos of the restaurant chain’s 880 physical locations removed, claiming that this violates its trademarks and OpenSea’s policies that prevent infringement. Still, on copyright grounds, OpenSea recently banned $2.2 million in PHAYC and Phunky Ape Yacht Club NFTs, including mirrored images of unrelated Bored Ape Yacht Club NFTs.

Taken as a whole, these individual cases shed light on some of the rapidly growing legal issues that are arising through connection with the Metaverse (i.e., the virtual reality construct that meets reality with the online 3D virtual environment). That enterprising brands and other entities are readily populating to connect with consumers and generate revenue. Many challenges originate from the fact that, while many digital offerings are being provided on gaming platforms like Roblox and Fortnite, ecosystems like Decentraland and the Sandbox, and through NFT markets result from collaborations with companies are not. Neither the developer of the viral MetaBirkins nor the unknown organization behind the Non-Fungible Olive Gardens was granted the respective trademark.

The law on Virtual and Real Brands

The law is relatively well-established in trademark infringements involving actual goods and matching services. For example, the unauthorized use of Hermès’ name and/or its Birkin trademarks in a way that may confuse consumers. Such as on physical handbags and related offerings, or in a way that does not confuse consumers but otherwise damages the French luxury goods brand, makes for easy infringement and/or dilution claims for Hermès. The same could be true for Darden if an unaffiliated third party began using the Olive Garden name in connection with actual restaurant operations or similar goods/services.

 While I would argue that existing trademark law is capable of protecting trademarks in the Metaverse (virtual world), and things like NFTs is starting to corner brands against makers of NFTs with increasing frequency, raising some compelling questions – 

  • from how far companies’ existing trademark rights extend to new technologies 
  • to what infringement (and secondary liability for marketplace platforms) might look like.

Trademarks for Metaverse and NFT

As I discussed above, one question immediately comes to mind is whether businesses have the necessary trademark rights to legally claim infringement in connection with virtual goods/services (NFTs) if they are not operating in the Metaverse. Trademark rights, including the ability to sue for infringement, are often acquired by using a mark in specific classes of products or services.

 However, the fact that Olive Garden or Hermès do not exist in the Metaverse (yet) may not be a deal-breaker. A trademark holder may successfully stop unauthorized use of its mark even if the allegedly infringing mark is not used on a similar level. After all, trademark owners have the legal right to restrict others from using their fault or a similar effect on “related goods or services.”

Image courtesy ThefashionLaw

Given the similarity between the Olive Garden and Olive Gardens NFTs, trademark attorney Ed Timberlake recently stated that “it is easy to imagine that restaurant services and what is going on in the Metaverse would be related. Especially since we know that plenty of owners of federal trademark registrations for services in the non-metaverse is applying to register the same marks for use in the Metaverse.”

Confusion in Commercial use: NFTs vs. Brands

The commercial aspect of such NFTs is only one-half of the issue here, as a trademark holder plaintiff (a person who brings a case against another in a court of law) would also need to prove a probability of confusion to get a trademark infringement case. This is determined by several factors, which generally include:

(1) The strength of the plaintiff’s mark.

(2) The degree of similarity between the two marks.

(3) the proximity of the products.

(4) the likelihood that the owner will bridge the gap/expand its product lines.

(5) evidence of actual confusion.

(6) the defendant’s intent in adopting the mark.

(7) the quality of the defendant’s product.

(8) consumer sophistication.

Continuing with Dougherty and Lastowka’s example of virtual swoosh-bearing sneakers, that could also apply, for example, 

NFTs are tied to portraits of swoosh-bearing sneakers. The first factor is a no-brainer, as Nike’s name and swoosh logo are two of the most famous marks in the market and certainly among the most famous in the sportswear segment.

If the unaffiliated virtual sneakers had a swoosh logo or a replica of the Nike wordmark, then the second criteria, the degree of similarity between the two marks (in sight, sound, and meaning), would also favor Nike.

The number and variety of brands that actually are operating in the virtual world via gaming, AR/VR, NFTs, and so on are rapidly growing. The trademark holder’s probability of expanding their product lines seems to weigh heavily in favor of trademark holders.

Likelihood Confusion

Nonetheless, evidence of actual misunderstanding and a defendant’s intent in adopting a particular mark is very fact-specific. However, when a defendant deliberately uses an exact (or nearly exact) reproduction of another’s mark, it may strongly reflect an intent to profit from the plaintiff’s mark’s reputation.

It is undeniably true that the metaverse and related technologies are still in their early life, but more unauthorized uses emerge; it will not be surprising if otherwise skeptical or hesitant brands choose to engage in metaverse ventures in order to amass stronger rights in their valuable assets and thus more easily stomp out infringements and control over their images.

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