IP and the Metaverse: The Challenges of Protecting Trade Dress and Design Patent Rights in the Metaverse

Trade dress and design patents are important intellectual property (IP) protections that cover the appearance and aesthetic features of certain products, such as Coca-Cola bottles, Tiffany-blue boxes, and Converse’s Chuck Taylor All-Star shoes. As more content creators migrate to the metaverse—creating immersive, interactive, 3D virtual environments and placing virtual products within them—IP owners may face challenges in acquiring and enforcing trade dress and design patents for purely digital goods. To address this challenge, the U.S. Patent and Trademark Office (USPTO) should issue guidance clarifying the rights associated with trade dress and design patents, especially essential terms like “functionality” and “secondary meaning,” to ensure digital goods receive IP protections just like their physical counterparts.

Trade dress is a form of trademark protection covering the image and overall appearance of a product, and this protection can last in perpetuity for so long as a business commercially uses the trade dress. According to IP lawyer Julie Hopkins, this form of IP “must serve as a source identifier, be distinctive in the marketplace, be used in commerce, and must be primarily nonfunctional.” Unfortunately, it is also harder to acquire trade dress protection and easier to invalidate it for being functional. Rightsholders must prove a concept called “secondary meaning” in order to assert and retain trade dress protection. According to IP lawyer Patrick Concannon, proving secondary meaning requires rightsholders to show “that consumers have become conditioned to recognize the product configuration elements and associate them with the product source as a result of duration or intensity of product advertising.”

As Julie Hopkins also wrote, design patents are similar to trade dress, covering “visual, nonfunctional characteristics embodied in, or applied to, an article of manufacture [... relating] to the configuration or shape of an article, the surface ornamentation applied to an article, or to a combination of the two.” Like other patents, design patents must be new and non-obvious, as well as ornamental and “an article of manufacture.” The focus here is on whether there are multiple ways to achieve the function of the product; if so, the design is nonfunctional and potentially protectable by design patents. For example, the shape of a soda bottle is nonfunctional because a different design shape could still contain the liquid. Unlike trade dress, design patents do not require the rightsholder to use or practice the patent in commerce; and judges do not consider consumers nor market impactin determining design patent infringement cases. The USPTO issues these patents for an initial 15 years, but that term can be extended.

As the metaverse expands to include stores, new products, full bodies, and more, IP rightsholders may face new and increasing challenges in navigating between physical and digital goods. The greatest concern, however, is for innovators dealing entirely in digital goods. What differentiates “functionality” under trade dress law for digital goods? Can—and, if so, how does—a digital product acquire secondary meaning? Given that the metaverse is still in its infancy, the number of potential consumers and the duration or intensity of product advertising is significantly limited. Considering that proving secondary meaning requires these elements, how does an early innovator adequately prove trade dress infringement against an early infringer? Will courts interpret “use in commerce” differently with respect to the metaverse? And can those producing digital goods prevail against trade dress or design patent infringement in the metaverse by claiming transformative use—meaning the purpose of character of the digital good is fundamentally different from the original use—under copyright law?

Current litigation concerning another form of emerging technology, non-fungible tokens (NFTs)— unique digital tokens that use blockchain technology to create a digital certificate of authenticity for physical or digital assets—highlights challenges creators of digital goods will likely face in future commerce. Yuga Labs, the company that created the Bored Ape Yacht Club (BAYC) line of NFTs, instituted a trademark infringement case against Ryder Ripps and Jeremy Cahen for selling essentially identical NFTs on the same marketplaces. The only difference was Ripps added “RR” before the “BAYC” mark. Thus, it is easy to see how consumers might be confused. But what if Yuga Labs created these ape characters as avatars in the metaverse? Could they obtain a trade dress for the general shape and baseline design of their work? Also, since the metaverse has not garnered the same high-profile following as crypto, how could they prove secondary meaning against early infringers (considering Ripps’ NFTs were on the market approximately one year after Yuga Labs introduced BAYC)?

Another concern is the licensing, transference, and ownership of IP rights connected to digital goods related to physical goods. Much like the ongoing Nike v. StockX NFT case, metaverse creators and innovators may face uncertainty as to what rights they hold and what rights the original IP owners retain. For example, if Meta’s Horizon Worlds platform licensed the right to develop a virtual Walmart world, could Meta stock the shelves with Coca-Cola bottles without also obtaining a license from Coca-Cola for using its design patent? Physical stores purchase Coca-Cola for consumers to literally consume the bottle’s contents, and most in-store advertisements featuring the Coca-Cola bottles’ unique shape are subject to design patent licenses (often as part of a greater IP-licensing agreement). In a digital world, literally consuming a bottle’s contents is not the primary function of the object. Thus, the greater importance of the good rests in its design—i.e., its IP—and the virtual store could be subject to such licensing agreements.

Similarly, assume a fashion designer creates a virtual line of clothing, and their designs are protected by trade dress. The virtual creator enters into a licensing agreement with a physical manufacturer to produce, advertise, and sell physical versions of the virtual designs. Although the contract does not mention exclusivity, the parties agree to operate independently in their respective environments. If the virtual creator does not advertise the physical products in a Web3 environment, does the licensee that manufactures physical versions of the product have the right to advertise the physical goods in a Web3 environment to capitalize on the existing market?

Does it matter if these digital goods are high or low-resolution, subject to variations based on screen settings? Louboutin holds IP rights for heels with dark red soles. If a new avatar clothing option sells heels with dark pink soles, could a court deem the digital product as infringing, or could the USPTO deny the creator’s trade dress application for potentially causing confusion with an existing mark? Even though magazine advertisements might be subject to printer variations, there is still a physical good attached to the advertisement that should be submitted to the court or USPTO for evidence in infringement or invalidation cases. With purely digital goods, which resolution image is the most appropriate evidence?

These questions and many others have yet to be answered via USPTO guidelines or legislation, and some rightsholders are already turning to the judicial system for clarification and answers. Relying on common law decisions to shape the technological future for IP encourages the practice of forum shopping and creates uncertainty for creators and users alike.

Thus, the USPTO should issue guidance that adequately defines functionality and secondary meaning concerning the use of trade dress and design patents in the metaverse. Given the metaverse is still in its infancy, USPTO should also identify steps rightsholders can take to prove secondary meaning against early infringers. And, as always, USPTO should promote more dialogue and collaboration between rightsholders and metaverse stakeholders to develop best practices that balance IP rights, free expression, innovation, and creativity online.

Offering guidance now concerning IP rights within these emerging technologies will lay the framework for creators, rightsholders, and platforms to develop a balanced and thriving ecosystem surrounding the metaverse, enabling them to realize their full social and economic potential.