With Internet searches for “metaverse” increasing by 7,200% in 2021,[i] brands have been moving quickly to register their trade marks for virtual goods. Registration provides protection against third-party infringers and also indicates a brand’s ambitions to the market. But while some well-known brands have been active and successful in early-stage metaverses, the reality is that the Metaverse is still in its infancy and relatively primitive. Tech leaders like Nvidia’s CEO Jensen Huan and Epic Games’ CEO Tim Sweeney, for example, have expressed views that the Metaverse will only begin to emerge in the coming decades.
Depending on progress in tech such as AR and VR hardware, real-time 3D rendering and network solutions, there is a genuine possibility that registrations for various virtual goods will remain unused in the next 5 years. This could cause a problem: in the UK, trade marks that haven’t been used in five years can be revoked for non-use. That is, unless there are proper reasons for non-use.
Could a brand claim that their registration for virtual goods hasn’t been used because there are proper reasons for non-use, i.e. that technological limitations have sufficiently hindered or prohibited use?
Proper reasons for non-use exception – case law and guidance from TRIPS
The proper reasons for non-use exception (the “Exception”) has been applied sparingly to date. TRIPS and UK/EU case law reveals a few principles:
- There need to be valid reasons for non-use based on the existence of obstacles, with such obstacles:
- “Proper reasons” is unlikely to cover normal situations or routine difficulties, but instead abnormal market conditions outside of the proprietor’s control.[ii]
The most common examples given for the Exception are import and governmental restrictions (caused by events like war) rather than a delay in technological development. However, in Magic Ball Trade Mark,[iii] the High Court addressed the Exception in respect of popping candy, cutting-edge technology at the time. Zeta (the proprietor) had failed to use its Magic Ball marks in respect of lollipops as it could not perfect the manufacturing technique, despite significant investment. However, Justice Park held that Zeta had shown proper reasons for non-use, noting that:
- But for the technical difficulties, Zeta may well have placed the goods on the market (meaning there was no suggestion that the marks had been abandoned);
- While Zeta could have put lollipops produced from unsatisfactory machinery on the market, it was entitled not to do so (on the basis that production and marketing would have caused large economic loss);
- This was an exceptional, rather than normal or routine, set of circumstances.
Applying the Exception to Virtual Clothing
Considering the Exception in respect of a registration for a virtual product raises some interesting questions. Take the example of a skin (i.e. a piece of virtual clothing). This may seem like the worst candidate for the Exception: Balenciaga and other brands have already made significant profits from their partnerships with metaverse-type spaces such as Fortnight. It is clear that use of marks for these goods is feasible and already happening.
However, skins purchased on Fortnight are not (currently) interoperable – they can’t be moved across and used in Meta’s Horizon Worlds, for example. The development and adoption of standards for 3D objects could allow full interoperability and possibly be a game-changer for retailers (particularly smaller ones). The cost of entry into the market for virtual clothing could plummet and allow commercial opportunities in the Metaverse to grow exponentially. A business might (rightly or wrongly) decide that use of its trade mark in the Metaverse only becomes commercially viable once interoperability is achieved. At first glance, if we apply the Exception to the facts, the absence of interoperability:
- has a sufficiently direct relationship to use of the trade mark for virtual clothing (due to commercial limitations);
- perhaps makes use of the mark unreasonable or unjustifiable (albeit not impossible); and
- arises independently of the will of the proprietor (the proprietor is reliant on development of tech standards led by bodies such as the Metaverse Standards Forum and adoption by metaverse platforms).
On the other hand, fundamental issues arise which muddy the waters. Whereas the development of a machine for popping candy has a relatively clear point of success, the Metaverse will continue to evolve over the coming decades. Courts may look unfavourably on a “wait and see” approach from brands, particularly where low-cost and low-risk opportunities are available. For example, Roblox allows users to create and sell their own virtual items with relative ease and a judge may conclude that a test launch, even on a single platform, is a commercial no-brainer, thereby precluding reliance on the Exception.
In addition, there is the possibility of a considerable grey area arising. In the example above, what level of interoperability would be needed before use was required, what kind of evidence would the proprietor need to show and how would the application of these rules differ from one virtual good to another? Considerable expert evidence could be needed which may be entirely disproportionate to the matter in question.
In the right case (most likely a revocation for non-use action filed as a counterclaim to infringement proceedings), the Exception could be appropriate and deployed effectively. Realistically, success is more likely to occur where the registration is for a niche virtual good relying on an anticipated technological innovation and the business can evidence clear commercial reasons why use would be impossible, unreasonable and unjustifiable. However, depending on the landscape towards the end of this decade, specific guidance from intellectual property offices may prove highly welcome.
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[i] Next big thing? Signals of the metaverse (McKinsey)
[ii] Article 19(1), Agreement on Trade Related Aspects of Intellectual Property Rights, Haupl v Lidl (C-246/05), Invermont  R.P.C. 125
[iii] Magic Ball Trade Mark  R.P.C. 439