Virtual tops, real trademarks: how in the US and Europe to navigate fashion IP in the metaverse

The increasing number of trademark applications using non-fungible tokens (NFTs) or the metaverse filed with the United States Patent and Trademark Office (USPTO) and European Union Intellectual Property Office (EUIPO) indicates that running a business in the virtual world is an increasingly important priority for brand owners if they want to stay up to date and competitive. 

So far, in 2022, over 5,800 trademark applications have been filed with the USPTO for NFTs and 4,150 for the metaverse and related technologies. In a similar trend, 1,157 trademark applications for NFTs and 205 trademark applications using the metaverse have been filed with the EUIPO. 

Virtual fashion for avatars

The metaverse is emerging as the most significant new growth opportunity for the fashion industry – companies can monetize existing intellectual property (IP) into new immersive offerings. This commercial opportunity allows brands to develop branded virtual assets at almost no production cost to reach a wider demographic through virtual world experiences.

As the economic value of the metaverse could generate up to $5trn by 2030, fashion and luxury companies are doing everything possible to ensure they have good positioning and benefit from the sustained market interest in all things metaverse. The myriad of unique experiences for consumers in metaverse environments has not gone unnoticed by the big names in the luxury and fashion industry, like Balenciaga, Gucci, Dolce & Gabbana, or Ralph Lauren. Even brands initially reluctant to digitize their products have decided to do so, such as Hermès, who in August filed a trademark application at the USPTO covering NFTs, cryptocurrencies, and the metaverse. The luxury cosmetics industry is not far behind, using the powerful channel of the gaming experience, as Armani Beauty partnered with Fortnite to promote its new perfume "Code" in the Metaverse. 

Protecting brands in the metaverse

Despite the lack of clear rules governing the metaverse, the USPTO and the EUIPO seem to agree that they will not endorse a new Wild West or new private monopolies. The IP offices have established some initial guidance as to the approach to be taken for classification purposes. During the Global Forum on Intellectual Property, USPTO director Kathi Vidal explained that IP policies must be designed jointly among the different offices to meet today's and tomorrow's needs.

The USPTO seems fully engaged in addressing the issues posed by the rapid commercialization of the Metaverse. The Office provided the first indications regarding the identification of goods and services required for metaverse-focused applications. The USPTO determined that Nike's applications in classes 9, 35, and 41 were indefinite because the precise nature of goods and services was unclear. The examining attorney encouraged Nike – and other trademark applicants – to clarify the wording of their goods and services. 

The following specifications are recommended: class 9 "in online virtual worlds," class 35 " in online virtual worlds," or "for use online in online virtual worlds," and class 41 "created for entertainment purposes."

Similarly to the USPTO, Europe plans to thrive in new digital opportunities and trends such as the metaverse, as the EUIPO's draft of the 2023 guidelines demonstrated. In trademark classification, the main legal challenge lies in the description of virtual goods, which usually uses broad enumeration and lacks clarity and precision. Like the USPTO, the EUIPO considers the wording "virtual goods" unacceptable and requires a specification as to the content (that is, virtual goods, namely virtual clothing). In that regard, the EUIPO will release the 12th edition of the Nice Classifications that will incorporate the term downloadable files authenticated by the NFT in class 9. In addition, services related to virtual goods and NFTs (typically classes 35 and 41) will be classified in accordance with the established principles of classification for services.

New world and the trademarks rush

A lot of attention has been paid to luxury and fashion trademarks in the metaverse, as well as the resulting profits. Consequently, it is not surprising that many bad actors try to usurp trademark rights in the metaverse with preventive filing.

Bad faith applications for metaverse trademarks have already been spotted for fashion and luxury brands. For example, last November, unaffiliated individuals filed two metaverse trademarks applications for Gucci (No. 97112038) and Prada (No. 97112054) at the USPTO, covering downloadable virtual clothing and bags, retail-store services for these virtual goods and entertainment services providing online non-downloadable virtual goods. The USPTO refused to register Gucci and Prada wordmarks on several bases. 

The most obvious ground for refusal is the likelihood of confusion. Trademark Act section 2(d) bars registration of an "applied-for mark that is so similar to a registered mark that it is likely consumers would be confused, mistaken, or deceived as to the commercial source of the goods and/or services of the parties. " Accordingly, the agency refused the Prada and Gucci applications because of a likelihood of confusion with the previously registered trademarks.

According to the goods and services comparison, Gucci and Prada have consistently employed their names, but neither has registered a trademark related to virtual goods, virtual goods-related services, and entertainment services. As the examinator's attorney points out in the Prada decision, the registrant's goods and services are linked to the applicant's goods and services since the latter are merely virtual versions of the registrant's goods. According to the USPTO examiner in the Gucci decision, Gucci's registrations use broad wording describing retail-store services, including clothing, jewelry, and handbags. Therefore, the applicant's more narrow retail store services with virtual goods in these categories are presumed to include all services of the type described by Gucci's previous registration.

As a result of these decisions, it appears that trademarks of well-known companies for "real world" goods and services apply to the metaverse as well. Indeed, although neither brand had existing trademark registrations extending to the metaverse, objections could still be raised based on the assumption that consumers would mistakenly assume the trademarks in the virtual space are linked to "real" brands.

Since the USPTO decisions are not yet final, it remains to be seen whether the same objections would be raised concerning lesser-known brands – which may have more difficulty before the USPTO and other IP offices. As a consequence, brand owners should not only rely on their registered trademark in the "real world" but also proactively extend the scope of trademark protection by covering virtual use.

Even though the Prada and Gucci decisions are only binding on the USPTO – whose practice and legislation differ significantly from EU law and that of the individual EU Member States – it offers a positive signal that "real" trademarks can be protected in virtual environments. Accordingly, the EUIPO is likely to take the same position as the USPTO in light of the similar approach of both offices to regulate these new technologies. If the EUIPO considers that goods and services are not identical or similar or that there is no likelihood of confusion, luxury brands would still have a defense based on the reputed trademarks.

From a European perspective, for less well-known fashion brands, it could be possible for the trademark owner to allege a claim for false advertising, copyright infringement, unfair competition, or parasitism to demonstrate that the third party has sought to benefit from the investments of the owner of the trademark in an unjustified manner. 

Osborne Clarke comment

The best defense for brand owners is to recognize the importance of registering their trademarks (covering both real and virtual uses), establishing a robust policing strategy, and setting appropriate licensing and usage terms as they grow in the metaverse. Without care, these trademark issues may result in opportunistic registration of unaffiliated third parties leading to consumer disillusionment regarding how branded virtual merchandise is marketed.