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NIKE, INC.

(NKE)
  Report
Delayed Nyse  -  01:00 2022-11-25 pm EST
105.96 USD   -0.65%
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Through The Looking Glass: Towards A Clearer View Of Trademark Rights In The Metaverse

09/01/2022 | 06:10am EST

Like Alice who stepped into a fantastical world by climbing through a mirror into a world that she could see beyond, made famous by author Lewis Carroll in his eponymous novel, "Through the Looking-Glass, and What Alice Found There", the sequel to "Alice's Adventures in Wonderland," so too were we in the real world able to peer into and catch a glimpse of a futuristic parallel world of imaginary landscapes, virtual reality and beyond, known as the "Metaverse", following Facebook's CEO Mark Zuckerberg 's announcement in October 2021. Zuckerberg had announced that his mega social networking corporation would be transforming from a pure social media platform to a "metaverse" to be rebranded as "Meta" with a new corporate logo, and that his rebranded company would play an influential role in developing this futuristic new alternative digital frontier.

What is the Metaverse?

The metaverse, hailed as the next big technology platform, is the new generation of the internet, sometimes called Web 3. It is an online virtual and immersive world where, mirroring the real world, you enter using a digital replica or avatar of yourself and can interact with different digital environments, people and experiences. In the metaverse we will be able to access these alter egos of ourselves through augmented reality ("AR ") or virtual reality ("VR") using tools like VR goggles. So, in the metaverse you don't just look at a screen but immerse yourself in a digital world where you can work, play, collaborate, create, socialize on social media, and do all manner of things that you would do in the real world.

The word "metaverse" describes a fully realized digital world that exists beyond the one in which we live. It was coined by Neal Stephenson in his 1992 novel "Snow Crash," and the concept was further explored by Ernest Cline in his novel "Ready Player One". Mark Zuckerberg has described the metaverse as "a composite universe melding online, virtual and augmented worlds that people can seamlessly traverse." What exactly the metaverse is may be hard to conceive, conceptualize or even describe, but one thing is for sure, the hype that has been generated by metaverse-related technology will herald in a new era where our two worlds will converge-one in which our virtual lives will play as important a role as in our physical realities. For example, in the metaverse you can buy three dimensional (3D) designs of branded products online at a digital fashion store and receive a customized, bespoke garment that does not physically exist but is digitally superimposed onto a digital image. You can have digital designer garments and apparel in your digital closet to be worn by your avatar that are intangible and which you will never physically touch or wear. Fashion houses, like Gucci and Louis Vuitton, allow players of video games the ability to adorn their avatars with customized "skins" (graphic appearances) for various games being played in the metaverse environment. Sneaker startup company Aglet, on the other hand, has created a game app and released a collection of virtual sneakers.

Simply put, the metaverse is a form of cyberspace, being a combination of virtual reality, augmented reality, video, social media and the world wide web that forms an immersive digital world beyond our physical world.

Although the metaverse may be largely hypothetical at the moment and does not yet exist much beyond rudimentary versions in video games, mega corporations like Meta, Microsoft, Google and Apple are already staking their bets that this digital revolution will very soon explode into a huge and lucrative marketplace with enormous growth potential attracting online game makers, social networks and other technology leaders. As a result, consumers will spend lots of money there, albeit in the form of digital currencies to participate in this growing phenomenon. Based on an analysis by Bloomberg Intelligence, global revenue opportunity from the metaverse is expected to approach $800 billion in 2024 as against metaverse revenue earned of about $500 billion in 2020.

Trademarks in the Metaverse -New Opportunities and Challenges

While the metaverse may bring with it tremendous opportunities, it is not yet certain what impact it will have on your intellectual property rights, in particular to your trademark filing strategy, the selection and registration of your trademarks, your trademark portfolio management and monitoring, and to the protection and enforcement of your trademark rights in this unchartered world. These and other questions continue to tax the minds of companies seeking to do business in the metaverse and their trademark lawyers. In this article I attempt to explore some of these issues and offer some suggestions as to the possible application of trademark rights in the metaverse.

A trademark is a word, phrase, slogan, design, or logo that operates as an indicator of source for goods or services. Trademark law protects against trademark infringement. This is the unauthorized use of a trademark on or in connection with goods, or services in a manner that is likely to cause consumer confusion, deception, or mistake about the source of such goods or services. Thus, third-party use of a trademark in a manner that would cause a reasonable consumer to believe that the trademark owner either was the source of the goods or services, or endorsed or sponsored such goods or services, or which is used in a manner that may dilute the trademark, is considered an infringement of such trademark.

As brands and companies look for ways to present themselves in this new world and prepare their brands to become relevant and gain market share in the metaverse, trademark rights holders are actively expanding the scope of protection of their brands and seeking registration for metaverse - specific goods and services. Many well- known brands and companies are filing trademark applications for marks that they have traditionally used in a mostly physical medium, building upon their existing registrations in the real world. Thus, for example, footwear and sportswear brands like Nike and Adidas, and fashion companies, such as Gucci, Versace, and Ralph Lauren have already filed trademark applications for their marks in connection with their virtual offerings in the metaverse. Other big brands in the food, services, retail and apparel, footwear and finance industries have followed suit. Between August 2021 and January 2022, there has been a 552.17% increase at the United States Patent and Trademark Office ("USPTO") of metaverse - related trademark filings. In January 2022 alone, approximately 15 applications per day were recorded as being filed at the USPTO. This trend has also been seen in other national trademark offices. The most common key classes for metaverse- related goods and services for trademark registrations have been seen across classes 9,35, 41 and a few in class 42. Nike specifically lists in its trademark application with the USPTO "downloadable virtual goods" (in Class 9), "retail store services featuring virtual goods" (Class 35), and "entertainment services, namely, providing on-line, non-downloadable virtual footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys and accessories for use in virtual environments" (Class 41) as among the classes in connection with which it intends to use its metaverse -related marks. This gives an indication of which classifications and description of goods and services are commonly deemed appropriate for use in the metaverse and offers a roadmap of a metaverse filing strategy and possible approach to be taken for the potential registration for virtual goods. It should be noted however that Nike's application is still pending before the USPTO, and it is unclear at this time as to the attitude the USPTO will take to the filings for such selected class classifications and description of goods and services for use in a virtual realm. Brand and trademark owners' intent on doing business in the metaverse should therefore carefully review their portfolios and consider whether applications to register trademarks for use in the metaverse should be filed, even if they already have existing registrations for their real-world goods and services. If so, you should consider what adjustments are required to class classifications and product and services descriptions to meet the exigencies of the metaverse.

Another possible strategy that companies have used with regard to their metaverse presence is "collaboration" with other metaverse players. Gucci recently collaborated with augmented reality company, Wanna, for the innovative exploitation of digital fashion products. Instead of merely selling an authentic pair of digital shoes using Non -Fungible Tokens ("NFT's") and the blockchain, it sold the right to wear digital sneakers that can only be worn in digital environments under a license arrangement.

One challenge for trademark owners is the unauthorized use of famous brands' real world trademarks on third party virtual offerings in the metaverse. This has already led to metaverse- related lawsuits. We have recently witnessed a growing number of lawsuits that focus on NFT's and the metaverse. Three recent US lawsuits are worthy of mention. In the first case filed in the U.S. District Court for the Southern District of New York, Hermes International v Mason Rothschild, the luxury goods brand is suing Mason Rothschild, a digital artist who created fuzzy images of the iconic Hermes handbag and minted them as "MetaBirkin NFT's ". Hermes is claiming trademark infringement, trademark dilution and cybersquatting. Hermes' trademarks are for leather goods, specifically handbags. Generally, trademarks apply only to the goods or services listed on the registration and those reasonably related to the listed goods or services. Since Hermes does not have a registration for virtual goods, it will have to prove that it's trademark for leather goods extends to the artistic and expressive digital images created by Rothschild which is being sold to consumers by way of NFT's based on Hermes' leather goods (Birkin handbags). This case is ongoing, and no decision has as yet been handed down by the Court. In another pending U.S. District Court for the Southern District of New York lawsuit, Nike, Inc. v. Stockx LLC, Nike is suing resale marketplace Stockx for trademark infringement over the sale of NFT's depicting Nike sneakers. Nike argues that the NFT's are "virtual products , i.e., digital collectibles, created and first offered for sale by Stockx, and available direct to consumers for purchase and trade on the Stockx website and Stockx app." Stockx , on the other hand, argues that its NFTs "are absolutely not 'virtual products' or digital sneakers," and rather, serve to prove and track ownership of the sneakers akin to a "claim ticket, or a 'key' to access ownership of the underlying stored item." The third lawsuit is Miramax, LLC v Quentin Tarantino and Visiona Romantica,Inc in which Miramax is suing filmmaker Quentin Tarantino and his company, Visiona Romantica,Inc for breach of contract, copyright infringement, trademark infringement and unfair competition in the U.S. District Court in the Central District of California. The lawsuit centers on NFT's that represent chapters from the screenplay of the movie, PULP FICTION, which are being sold by Tarantino. The case raises questions about whether the trademark rights in issue extend to NFT's, whether an NFT can indeed be subject to trademark rights, and whether Tarantino has any rights at all to sell NFT's deriving from the PULP FICTION movie screenplay. ( For a more detailed analysis of this lawsuit and the intellectual property issues raised in it see my article" Three Lessons to be Learnt from the Miramax - Tarantino Lawsuit Over Pulp Fiction NFT's"). These lawsuits will hopefully provide insights into how the Courts will treat trademarks and decide claims to trademark infringement in the metaverse.

In the context of digital designs, trademark rights and trademark protection and enforcement is arguably the most valuable protection for brands. Thus, in the Hermes lawsuit, Hermes intends to rely on their trademark rights in the real world which they argue extends over to the metaverse in making their case against Rothschild that he has used the "MetaBirkins" name as a trademark and thereby with its association with the NFT's he intends to sell, such that it is not a matter of artistic expression but instead merely a case of trading off Hermes' brand name and reputation to sell his own virtual products that is at issue in this lawsuit. Interestingly, Hermes are not using their marks in the metaverse and it therefore remains to be seen whether they will succeed with their argument that established real world marks are distinctive and have acquired secondary meaning even in the metaverse. This may very well be the case for famous, well -known brands but other less well -known brands would have great difficulty in proving secondary meaning in the metaverse for virtual goods and services used in the physical world. They would have to rely on "likelihood of confusion" as a basis of infringement. This will involve an analysis of several factors, known as the Polaroid factors, to determine whether the infringer's unauthorized use of the trademark at issue would cause a likelihood of confusion amongst the public. With the crossover and expansion of fashion brands into the video game industry and digital fashion (for e.g. digital garments and sneakers as evidenced by the Gucci - Wanna collaboration), this may shift the likelihood of confusion analysis in their favor and may be to the benefit of brands and trademark holders. It is therefore more likely than ever before that the likelihood of the public being confused as to the source of a mark in the digital environment would be greater, and thus brands may have more success in enforcing their marks in the digital world than they would otherwise have with tangible designs and brands in the real world.

The importance too of a holistic approach to the protection of your IP rights must also be considered for virtual products in the metaverse. This approach could enhance trademark enforcement for product and service offerings in the metaverse. Protectable IP assets in the metaverse could include all manner of trademarks, including logos, brands, slogans and trade dress in the form of packaging and design. A virtual business may have a primary core asset like a virtual product design that may need protection as trade dress, through industrial design protection and even under copyright law. In such a case IP protection must be viewed in a holistic and all-encompassing manner. In this way, you will have a far broader and more efficient way to enforce your IP rights if litigation arises.

Monitoring trademarks for third party infringement and infringement of the trademarks of others may prove to be more challenging and harder to do in the metaverse. The metaverse will be an ever-increasing expansive place with many participants. It will not be limited to one platform but will be comprised of many different platforms on the basis of the principle of interoperability of the metaverse. Consumers will have the ability to move virtual items such as clothes or cars from one platform to another. In the virtual landscape, an outfit, for example, could be purchased and worn by an avatar in more than one platform. Its decentralized nature will thus make it more difficult for trademark watch services to monitor the metaverse for infringements and fraudulent trademark use. Nonetheless, it may be necessary to monitor the metaverse for bad faith trademark applications by bad actors, and as the Hermes case aptly illustrates, even if a company or brand is not yet active in the metaverse their products and services may very well find their way there.

As companies and brand owners seek to engage in this burgeoning new space and come to view the metaverse as a limitless market for promoting and selling their products to millions of potential consumers, so will ways be found to leverage and protect their existing trademark and intellectual property rights in this new digital environment.

It is therefore essential that companies who desire to enter this exciting new landscape be well acquainted with their trademark rights, and they should carefully review their trademark portfolios and consider a metaverse-related trademark and branding strategy, and protection and enforcement program.

Trademark lawyers will have to up their game and get up to speed on this new technology in this exciting new digital space and anticipate and consider both the metaverse and NFT's when advising clients on their client's trademark filing strategy , best practices for trademark enforcement and infringement issues and when reviewing and drafting IP -related agreements involving virtual products and NFT's, like co-existence and licensing agreements.

May 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ivan Lipshitz
JMB Davis Ben-David Ltd.
Beck Science Center
8 Hartom Street, Har Hotzvim
Jerusalem
9777508
ISRAEL
Tel: 25714777
Fax: 25714455
E-mail: Jeremy.Ben-David@jmbdavis.com
URL: jmbdavis.com

© Mondaq Ltd, 2022 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

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Financials (USD)
Sales 2023 48 955 M - -
Net income 2023 4 722 M - -
Net cash 2023 3 108 M - -
P/E ratio 2023 35,0x
Yield 2023 1,16%
Capitalization 166 B 166 B -
EV / Sales 2023 3,32x
EV / Sales 2024 3,07x
Nbr of Employees 79 100
Free-Float 79,5%
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Matthew Friend Chief Financial Officer & Executive Vice President
Mark G. Parker Executive Chairman
Andrew Campion Chief Operating Officer & Executive Vice President
Alan B. Graf Independent Director
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