Tag: Trademark

What’s in a Name Anyway? Trademark Basics for Community Associations

This article explores the essentials of trademark rights, their relevance for community associations, and the balance between protecting these trademarks versus respecting the free speech of homeowners.

I. What is a Trademark?

A trademark is a word, phrase, symbol, design, or any combination thereof that identifies and distinguishes the source of the goods or services of one party from the goods or services of another.

  1. Common Law Trademark Rights

    Common law trademarks arise from the exclusive, continuous use of a mark in commerce. It is not necessary to have a registration to use or protect these designations. However, rights in a common law (or unregistered) trademark are generally limited to the geographic area where the mark has been used. Trademark ownership is perpetual if the owner continues to use the trademark to identify its goods or services.

  2. Registered Trademark Rights

    Registered trademarks provide broader protection. There are two levels of trademark registration: state and federal.

    State registration provides protection within the boundaries of the state where the trademark is registered. This is a simpler and less costly process compared to federal registration, making it suitable for businesses that operate primarily within one state. For North Carolina, state trademark registration is done through the North Carolina Secretary of State.

    Federal registration, managed by the United States Patent and Trademark Office (USPTO), offers nationwide protection and several advantages, such as a legal presumption of ownership and the exclusive right to use the mark on or in connection with the goods/services listed in the registration.

II. Can a Community Association Have a Federally Registered Trademark?

Yes, a community association can register a trademark to protect its name, logo, or other identifying symbols for use in connection with the community association services offered.

  1. What is the Process?

    The process of registering a trademark involves several steps:

  2. Search: Conduct a trademark search to assess if the mark is available for registration.
  3. Application: File an application with USPTO, including a description of the mark, the goods/services it will cover, the dates of first use, and examples of such use.
  4. Examination: The office examines the application to ensure it complies with all legal requirements. If there are any issues, the applicant will receive an initial refusal (called an “Office Action”). There is a three-month window to respond or file a three-month extension to respond. If a Final Office Action is issued, the applicant has the option to request reconsideration and/or file to appeal the Examiner’s decision.
  5. Publication: If approved, the mark is published in the Official Gazette, allowing others to oppose the registration.
  6. Registration: If no opposition is filed, the mark is registered, and the owner receives a certificate of registration.
  7. How Time-Consuming is it?

The federal registration process typically takes about a year from filing, but the process can be longer if there are complications or opposition. State registrations are usually quicker, often taking a few months, but the resulting protection is limited to the state.

  1. What are the Benefits?

Trademarks offer several benefits to community associations. For example, the owner of a registered trademark has the exclusive right to use the mark in commerce. Therefore, the community association can prevent other community associations from using a confusingly similar mark and misleading prospective residents as to source, affiliation, or endorsement as a result. For further example, registered trademarks are listed in the USPTO database. A subsequent application for a similar mark for the same or related services will be blocked by the community association’s registration. Finally, the use of the registration symbol (“®”) acts as increased deterrence against other associations from using similar trademarks.

  1. What Does it Protect?

A registered trademark protects the association’s name, logo, and other branding elements from being used by others in a way that could cause confusion. It helps maintain the association’s reputation and ensures that its identity remains distinct.

  1. What Does it Not Protect?

Trademarks do not protect against every type of use. Notably, they do not protect against non-commercial commentary or criticism, which falls under fair use and is safeguarded by the First Amendment. This means that while trademarks prevent individuals or entities from misusing the trademark, they cannot stop individuals from expressing opinions or criticisms.

III. How does a Community Association Enforce its Trademark?

Enforcing a trademark involves monitoring its use and taking action against unauthorized usage.

  1. Monitoring: Keep an eye on how the trademark is used in the marketplace.
  2. Cease and Desist Letters: If unauthorized use is detected, a cease and desist letter can be sent to the infringing party to resolve the matter without litigation.
  3. Litigation: If the cease-and-desist letter is ignored, litigation may be necessary to

When it comes to property owners using the trademark of a community association, the line between trademark infringement and nominative fair use can be tangled. Property owners using the trademark to offer competitive services or confuse residents into thinking that their use is sponsored by the community association are examples of infringement. Only the community association can use its trademark to offer community association services. Only the community association can market the community to prospective residents. Finally, the community association must monitor and enforce against any uses of the trademark that could tarnish its valuable reputation.

Yet, while enforcing trademark rights is important, it is crucial to consider the potential backlash from property owners and the broader community. Even if there is a legitimate claim, aggressive enforcement actions may jeopardize community trust and invite public criticism. Such efforts, especially against gripe sites, can lead to stronger reactions and widespread publication of enforcement efforts online, further damaging the reputation. Put another way, a community association attempting to protect its reputation must consider if its enforcement efforts do the opposite.

Sometimes, directing energy elsewhere and addressing concerns through dialogue and engagement can be more effective and less costly than legal battles.

IV. Value Proposition for Community Association

Trademark rights are crucial for protecting the identity and reputation of a community association. They help prevent confusion among property owners and prospective residents by ensuring that the association’s name and symbols remain distinct. However, while trademarks are valuable tools for community associations to deter unauthorized use, they cannot be used to silence opinions or criticisms. Understanding this balance is essential for effectively managing and enforcing trademark rights in a manner that respects both legal protections and fundamental freedoms of the property owners.

© 2024 Ward and Smith, P.A.. All Rights Reserved.
For more on Trademarks, visit the NLR Intellectual Property section

Trademark Insights: What the First Precedential TTAB Expungement Decision Means for You

As a trademark applicant, encountering a prior registration that obstructs your path to registration is never a pleasant experience (nor for your attorneys who have to inform you about it). The frustration only intensifies when it becomes evident that the registered mark has never been used for the specified goods or services. Until 2021, the sole recourse with the USPTO to address this issue was filing a Petition to Cancel, with the hope that the registrant would not respond, leading to a swift default judgment. Unfortunately, this is not always the case, and a response means expending an appreciable amount of time and money before resolution can be obtained, often through a settlement agreement.

In late 2021, the landscape changed with the passing of the Trademark Modernization Act of 2020, which brought about two new ex parte proceedings: reexamination and expungement. The goal was to provide faster, more efficient, and less expensive alternatives to contested cancellation proceedings at the Trademark Trial and Appeal Board (the “Board”).

Expungement proceedings, in particular, offer a means to cancel trademarks that have never been used in commerce. “Any party can request cancellation [by the USPTO Director] of some or all of the goods or services in a registration because the registrant never used the trademark in commerce with those goods or services.” This action is available against all types of registrations, but must be requested between three and ten years after the registration date.

Now, after two-and-a-half years of these proceedings, on July 1, 2024, the Board issued its first precedential decision in an expungement proceeding: In Re Locus Link USA.

In July 2022, a third party filed expungement actions against Locus Link USA’s (the “Registrant”) two SMARTLOCK registrations, alleging nonuse of the marks for the specified goods: “components for air conditioning and cooling systems, namely, evaporative air coolers.” The USPTO Director found sufficient evidence of nonuse and proposed cancellation. The registrant responded with evidence of use in the form of specimens showing connectors for metal tubing and air condition components, arguing that this evidence was sufficient, and had been previously accepted by the USPTO during examination. The USPTO maintained the cancellation, noting that the subject registrations only covered the specific goods following the term “namely” in the identification, here “evaporative air coolers.”

On appeal, the Registrant argued that the SMARTLOCK marks are in use in connection with the goods identified in the registration because the identification of goods covers components for evaporative air coolers. The Board disagreed and affirmed the USPTO’s decision.

Goods and services in an application should “state common names for goods or services, be as complete and specific as possible, and avoid indefinite words and phrases.” TMEP § 1402.03(a), cited in In re Solid State Design Inc., Ser. No. 87269041, 2018 TTAB LEXIS 1, at *18 (TTAB 2018).

Applicants take notice: “the goods or services listed after the term ‘namely’ must further define the introductory wording that proceeds ‘namely’ using definite terms within the scope of the introductory words.” In other words, the goods or services that come after “namely” must specifically define the broader category mentioned before. Essentially, “namely” helps to clarify otherwise vague descriptions.

In this case, the broad category is “components for air conditioning and cooling systems.” The applications were only accepted for registration because they specified “namely, evaporative air coolers.” This means the SMARTLOCK marks cover evaporative air coolers that are components for air cooling systems. It does not cover component parts that go into making evaporative air coolers.

Key Takeaways

  1. Grammar Matters. Properly identifying goods and services in an application is vital. The USPTO continues to increase its specificity requirements for identifying goods and services, and applicants need to ensure not only original identifications, but also amendments to identifications proposed by an examiner accurately and correct reflect their goods and services. In Locus Link, was the Board, splitting hairs? Maybe, but the lesson is critically important for obtaining and maintaining trademark registrations.
  2. Specimen Acceptance Isn’t Conclusive. The acceptance of specimens by the USPTO does not control the ultimate question of use. Although not a new concept, one to keep in mind. It is more important to have multiple records of proper and consistent trademark use than to rely on a single specimen. It is wise to retain an attorney with experienced eyes to review your use specimens prior to filing for both registration and for maintenance of your registrations.
  3. File for New Marks as Necessary. While the SMARTLOCK marks were never in use for the goods, nonuse or lack of coverage can happen. Businesses expand and evolve over the years and so too should the portfolio of trademark registrations. It is important to occasionally audit your trademark portfolio to look for any gaps in coverage for certain marks and certain goods and services. Do not just think you have proper coverage, be sure so you are in the best offensive and defensive position possible for your brand. You never know who else is out there, looking to use your mark. If your registrations are in not order, your marks are vulnerable.

It is still early days for these new ex parte proceedings, but the hope is that they will prove a useful tool moving forward. This precedential decision although not groundbreaking does provide a good overview of the relatively new expungement proceeding and some good reminders for trademark owners.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Trademark Expungement, visit the NLR Intellectual Property section.

Supreme Court Upholds Refusal to Register Trademark Containing the Name of Living Individual – Donald Trump

In a recent unanimous decision in the case Vidal v. Elster (602 U.S. ___ (2024)), the U.S. Supreme Court upheld the refusal to register a federal trademark for the phrase “Trump Too Small” based on the fact that the Lanham Act prohibits the registration of the name of a living individual without their consent. The plaintiff in this case, Mr. Elster, filed a federal trademark application in 2018 for the mark “TRUMP TOO SMALL” for use on clothing as shown below, without the prior consent of former President Trump, arguing that the phrase was intended to be a criticism of Donald Trump and his policies and that the refusal was a violation of Mr. Elster’s First Amendment right of free speech. Mr. Elster claimed he wanted to register the mark to convey a political message about the former president.

The Supreme Court reviewed the matter based on the initial refusal to register issued by the United States Patent & Trademark Office, which was then appealed to the U.S. Court of Appeals for the Federal Circuit, who overturned the refusal holding that barring registration of “Trump Too Small” under a provision of federal trademark law unconstitutionally restricted free speech. The Court’s ruling upholds the “living-individual rule” established under the Lanham Act which requires the consent of the living individual prior to registration. Specifically, “No trademark … shall be refused registration … on account of its nature unless it…[c]onsists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent….” 15 U.S.C. §1052(c). Proponents of the law, including the International Trademark Association, argue that this provision of trademark law is consistent with the concepts of the right of publicity and privacy, and assists in preventing the unauthorized use of individuals’ names in commercial contexts. In explaining the rationale for the decision, Justice Thomas wrote: “This Court has long recognized that a trademark protects the markholder’s reputation, and the connection is even stronger when the mark contains a person’s name,” and further stated, “This history and tradition is sufficient to conclude that the names clause — a content-based, but viewpoint-neutral, trademark restriction — is compatible with the First Amendment.”

It is worth noting the Court’s decision does not affect the ability of Mr. Elster to offer goods or services under any particular name or brand – in fact, Mr. Elster’s T-shirts bearing the phrase “Trump Too Small” are still available online for $24.99, even though his trademark application was refused. But the ruling does uphold the prohibition of seeking and obtaining federal trademark protection where the mark contains the name of a living individual without their consent. This ruling from the Supreme Court joins a string of other First Amendment challenges to provisions of the Lanham Act, the main statute governing trademarks. The high court in 2017 struck down a section of the law that barred registration of disparaging marks and did the same for a provision prohibiting immoral or scandalous marks in 2019.

The key takeaway from this narrowly tailored decision is that, prior to seeking federal trademark protection for a mark containing the name of a living individual, consent from that individual must be obtained. In the context of protecting a name or brand focused on a living individual, or in the continuation of such use post-merger or other transaction, it is important to ensure that the consent of the living individual is secured in some manner.

© Polsinelli PC, Polsinelli LLP in California

How to Recover Attorneys’ Fees in a Schedule A Trademark Case in the Northern District of Illinois

In recent years, a substantial number of “Schedule A” trademark infringement cases have been filed in the Northern District of Illinois. In such a case, the trademark owner may file a trademark infringement complaint against a number of defendants, with the complaint identifying the defendants as “The Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified on Schedule A hereto.” [See, e.g., Opulent Complaint]

The trademark owner may file Schedule A separately from the complaint with a request to the Court that the schedule be placed under seal. Sometimes, trademark owners file the entire complaint under seal. After filing sealed pleadings that shield the defendants’ identities, the trademark owner may then file ex parte motions for temporary restraining orders (“TROs”) against the secretly-named defendants. Because the proceedings are ex parte, the alleged infringer is not given notice of the proceedings or an opportunity to appear. If the Court grants the TRO, the trademark owner may then present the TRO to online marketplaces with a demand that the marketplaces immediately stop selling the allegedly infringing goods. The result may be that an alleged infringer may find all of its activity frozen by the online marketplace, including a freeze on the alleged infringer’s cash held with the online marketplace. This may create cashflow problems for the alleged infringer and prevent the alleged infringer from making future sales. Because its identity is sealed by the court, an alleged infringer may first learn of the TRO after its accounts are frozen.

Schedule A cases appear to be concentrated in the Northern District of Illinois because judges in that district have been receptive to granting ex parte relief. See, A. Anteau, “The Northern District of Illinois v. the Internet: How Chicago Became the Center of Schedule A Trademark Infringement Litigation”; Law.Com, December 19, 2023. At least two judges in that district even provide templates for TROs, preliminary injunctions and default judgments in Schedule A cases. See Northern District of Illinois (uscourts.gov); Northern District of Illinois (uscourts.gov). The justification for the ex parte nature of these proceedings is that it, if notice was required, online counterfeiters (frequently from China) could hide their assets or move their counterfeit products to new sites as soon as an infringement case was filed.

Notwithstanding the foregoing, remedies and relief do exist if an entity is the subject of a wrongfully obtained ex parte TRO. Recently, Ya Ya Creations, a defendant in a Schedule A trademark case, obtained an attorneys’ fees award against a plaintiff that failed to conduct a proper investigation before naming two Ya Ya-affiliated entities as alleged infringers in a case filed in the Northern District of Illinois. [Award of Fees] The dispute began in August 2021, when the plaintiff filed a lawsuit against Ya Ya for trademark infringement and a variety of other causes of action in the Eastern District of Texas. The Texas court transferred the case to the Central District of California in April of 2022. Four months after the transfer, the plaintiff filed a very similar lawsuit against Ya Ya in the Middle District of Florida. On May 26, 2023, the Florida court transferred the case to the Central District of California, and then the CD California consolidated the cases due to the similarity of the facts and claims. On September 26, 2023, the plaintiff filed yet another lawsuit. This time, the plaintiff filed a Schedule A trademark infringement case against a number of defendants in the Northern District of Illinois. In the Schedule A case, the plaintiff named two entities affiliated with Ya Ya as alleged infringers.

Notwithstanding the litigation history between the parties, the plaintiff obtained an ex parte TRO against Ya Ya in the Northern District of Illinois. Ya Ya first learned about the TRO after the court issued it and after an online marketplace froze Ya Ya’s accounts.

Ya Ya’s first step in seeking redress was to file an emergency motion asking the court to dissolve the ex parte TRO. [Ya Ya Motion to Dissolve TRO] Ya Ya argued that, because the parties were actively litigating against each other in California, the plaintiff had no basis to seek ex parte relief against Ya Ya or its affiliated entities without notifying Ya Ya of the proceedings. Ya Ya also argued that the plaintiff’s ex parte TRO was a transparent attempt to gain a litigation advantage in the California cases to either leverage a settlement, force Ya Ya into a position where it could not even pay its lawyers to mount a defense, or force Ya Ya to file for bankruptcy. In response to Ya Ya’s motion to dismiss, the plaintiff agreed to dismiss all of its claims against the Ya Ya-affiliated entities.

Ya Ya’s next step was to file a motion for recovery of the attorneys’ fees it expended in the Northern District of Illinois proceedings. [Ya Ya Request for Reimbursement of Attorneys’ Fees]. In response, the plaintiff argued that it was not obligated to pay Ya Ya’s attorneys’ fees, because it did not know the entities it named in the Northern District of Illinois lawsuit were affiliated with Ya Ya. But the court rejected that argument. The court concluded that, pursuant to Federal Rule of Civil Procedure 11, a court may award attorneys’ fees incurred while defending an ex parte TRO when (1) the TRO caused “needless delay” and unnecessarily “increased the cost of litigation,” or (2) the TRO was obtained by pleadings that were not “well grounded in fact” or made after “reasonable inquiry.” The Court determined that plaintiff could have avoided increasing the costs of litigation if it had conducted a reasonable inquiry to determine if the two entities were affiliated with Ya Ya, but it failed to do so. As a result, the Court awarded Plaintiff to pay Ya-Ya almost $100,000 in attorneys’ fees.

Trademark litigators should be aware that judges in the Northern District of Illinois have been receptive to granting ex parte TROs in trademark cases. If you represent a client that is the subject of an improperly granted ex parte TRO, be prepared to move quickly to dissolve the TRO and consider whether you have a basis to move for an award of attorneys’ fees.

Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.
For more news on Recovering Trademark Infringement Attorney’s Fees, visit the NLR Intellectual Property section.

IP Rights in Virtual Fashion: Lessons Learned in 2022 and Unanswered Questions

There was a lot of talk and much hype about the “metaverse” in 2022. While some were skeptical and stayed on the sidelines to watch, many companies began offering virtual counterparts to their real-world products for use by avatars in the metaverse, including virtual clothing and accessories. For example, Tommy Hilfiger live-streamed a virtual fashion show on Roblox as part of the New York Fashion Week, and Decentraland hosted a Metaverse Fashion Week. Many companies also introduced NFTs into fashion product lines, such as Alo’s NFT offering.

The emergence of virtual goods has generated novel questions about how to protect and enforce IP rights in virtual fashion, and how those strategies might differ from IRL (meaning “in real life”) fashion. Although many questions remain unanswered, this article sets out important considerations for how companies might use various IP laws to protect virtual fashion goods in the United States.

I. DISTINCTIONS BETWEEN VIRTUAL FASHION AND IRL FASHION

Before diving into the IP discussion, it’s worth highlighting some distinctions between virtual fashion and IRL fashion outside the legal context, beyond the obvious fact that virtual fashion is worn by avatars. IRL clothing and accessories are worn primarily for protection against the elements, to conform to societal standards, to conform with a specific event’s dress requirements, to communicate via express messages on clothing or accessories, or to express oneself through the style or design of the clothing.

Virtual fashion can also serve each of those purposes for an avatar, and in some cases the person behind the avatar. But, because it is comprised of software code, the possibilities for virtual fashion utility are endless. For example, a particular piece of virtual clothing can also grant access to certain virtual spaces or events or give the avatar special powers within virtual worlds. If tied to an NFT (non-fungible token), virtual clothing can also provide benefits on and off virtual platforms, including exclusive access to sales promotions and IRL events.

Unlike IRL clothing, however, virtual fashion items currently face compatibility limitations, as the ability to use any virtual fashion item across all virtual platforms is unlikely.

To muddy the waters, as virtual and augmented reality technologies are becoming more popular, they can blur the lines between IRL and virtual fashion. For example, an IRL sweatshirt, when viewed through an appropriate lens, could feature virtual components.

II. IP PROTECTION FOR VIRTUAL FASHION

Because there are no IP laws specific to virtual fashion items, we must seek protection from laws that have traditionally applied to real-life clothing, namely, trademark, trade dress, copyright, and design patent. But the application of these laws can sometimes differ in the virtual context. Each is addressed below.

A. TRADEMARK

Trademark law protects source identifiers such as words, names, logos, and slogans. Obtaining trademark rights specifically in virtual goods, whether acquired through use in commerce or federal registration, is generally straightforward and similar to marks covering IRL fashion. This is evidenced by many marks that were registered in 2022 and specifically cover virtual goods.

That said, even if a company does not have trademark coverage specifically for its virtual goods, the owner of a trademark covering IRL fashion items should have strong arguments that such trademark rights extend to their virtual counterparts. To that point, the U.S. Patent & Trademark Office (USPTO) has refused registration of marks covering virtual goods and services based on prior registrations for the identical marks covering the corresponding IRL goods and services. See, e.g., the refusals of Application No. 97112038 for the mark GUCCI and Application No. 97112054 for the mark PRADA, each of which were filed by parties unrelated to the famous brands.

However, for purposes of enforcement outside of the USPTO context, if a defendant’s goods are virtual, it would have a stronger argument that such goods are not commercial products, but rather expressive works protected by the First Amendment. If a court accepts such an argument, it must then weigh the plaintiff’s trademark rights against the defendant’s First Amendment right of free expression, meaning it would be more challenging for a brand owner to enforce its trademark rights.

In this regard, please see our earlier alert regarding the Hermès v. Rothschild case, in which the court deemed NFTs tied to images of bags called “MetaBirkins” subject to First Amendment protection. [1] In denying Rothschild’s motion to dismiss, the court acknowledged in a footnote that virtually wearable bags (i.e., as opposed to virtual fashion that is displayable but not wearable) might not be afforded First Amendment protection. But we suspect defendants will argue even virtually wearable items should be afforded First Amendment protection, especially given that video games have received such protection. [2]

On balance, companies should consider seeking federal trademark registration specifically for virtual goods and services, for a few reasons:

More direct coverage could help a company in an enforcement action against infringing virtual goods, even if the defendant successfully argues it should be entitled to First Amendment protection. For instance, if the plaintiff has direct coverage for virtual goods, it may be easier to prove the defendant’s use of the mark was “explicitly misleading” under the Rogers test. [3]

Certain platforms featuring virtual fashion items may only honor a takedown request if the complainant company has a federal registration covering goods that are the same or nearly identical to the allegedly infringing virtual goods.

The registration will provide a presumption of valid trademark rights nationwide, and it may serve as a deterrent to third parties wishing to use confusingly similar marks in virtual worlds.

B. TRADE DRESS

U.S. trademark law also protects certain source-identifying elements of a product’s aesthetic design, configuration/shape, and packaging, often referred to as “trade dress.” To obtain trade dress protection, such elements must be (1) non-functional and (2) distinctive (either inherently or acquired through use). There are a couple of interesting nuances with respect to acquiring trade dress protection in the virtual context.

First, although we have not yet seen any case law specifically addressing this, companies will likely have stronger arguments that virtual shape or design elements (as opposed to IRL elements) are non-functional. Specifically, the non-functionality requirement means the relevant elements must not be essential to the use or purpose or affect the cost or quality of the article. For real-life fashion items, this can be difficult to meet due to the inherently functional nature of many aspects of clothing or accessories. However, because virtual fashion items are essentially software code with endless possibilities, in many instances the fashion item will not require any particular design or shape to function.

Second, some virtual fashion items could receive more favorable treatment from a distinctiveness perspective. The distinctiveness requirement has historically been a difficult barrier for protecting IRL fashion. Specifically, case law prior to 2022 established that, while packaging can sometimes be inherently distinctive, product design and configuration/shape can never be, meaning companies must prove such elements have acquired distinctiveness. Proving acquired distinctiveness is burdensome because the company must have used the elements extensively, substantially exclusively, and continuously for a period of time. Often, by the time a company can acquire distinctiveness in the design, the design is no longer in style. Or, if a design is popular and copied by third parties, it can be difficult for the company to claim it used the design substantially exclusively.

If, however, a virtual fashion item provides the user with benefits that go beyond merely outfitting the avatar, such as by providing access to other products or services, one might argue that those items should be construed as packaging, or some new category of trade dress, for such other products or services, in which case the elements could possibly be deemed inherently distinctive with respect to those other products or services.

That said, if a company already has trade dress protection for IRL fashion goods, it should have good arguments that the protection extends to any virtual counterpart. On the flipside, given the difficulties companies typically face in seeking trade dress protection in IRL fashion, to the extent they can obtain trade dress protection in a virtual counterpart more easily, perhaps it can argue the rights in any virtual goods should also extend to the physical counterpart. Or, if a company introduces a physical design and virtual design simultaneously, it could possibly acquire distinctiveness in both sooner, as the simultaneous use would presumably create greater exposure to more customers and reinforce the source-identifying significance of the alleged elements.

With respect to enforcement, like traditional marks, defendants are more likely to raise a successful First Amendment defense for any virtual products allegedly infringing trade dress. The Hermès case is again an example of this, as Hermès alleged infringement of both its BIRKIN word mark and the trade dress rights in the design of its handbags, and the court held that the defendant’s MetaBirkin NFTs were entitled to the First Amendment protection.

Finally, although obtaining trade dress protection is typically more difficult than obtaining trademark protection for traditional marks such as words and logos, companies should also consider seeking registration for trade dress in virtual goods, particularly for important designs that are likely to carry over from season to season, for the same reasons discussed in the trademark section above.

C. COPYRIGHT

Copyright protects original works of authorship that contain at least a modicum of creativity, which is a relatively low bar. However, copyright does not protect useful articles. In effect, for IRL fashion items, copyright generally extends only to those designs that would be entitled to copyright protection if they were extracted or removed from the clothing or viewed on a different medium, and not to the shape of the fashion item itself.

Like trade dress protection, copyright protection should provide companies with greater protection for virtual fashion items than would be available for IRL items, particularly because the software behind the virtual fashion can theoretically create an infinite number of clothing shapes that are creative and not necessarily “useful.” Nonetheless, if a virtual clothing item is merely shaped like its IRL counterpart that lacks originality (e.g., a virtual t-shirt shaped like a basic real-life t-shirt), it may also fail to qualify for copyright protection based on a lack of creativity.

Unlike trade dress protection, however, copyright protection arises immediately upon creation of the work and its fixation in a tangible medium of expression, so it can be a useful tool for protecting virtual fashion without having to spend the time and resources required to seek registration as trade dress and establish acquired distinctiveness.

In addition, unlike IRL fashion, a separate copyright protects the underlying source code for virtual clothing items, which could provide owners with an additional, though likely limited, claim against unauthorized source code copycats.

A copyright registration will provide owners with the ability to sue for copyright infringement, but companies should balance:

  • the benefits of seeking potentially broader copyright protection in virtual fashion items (apart from the code) than it would for IRL items with the risks of conceding that virtual fashion items are works of art entitled to First Amendment protection, which would make trademark and trade dress enforcement more difficult; and
  • the benefits of obtaining any copyright registration for source code with the benefits of keeping the source code secret (although the Copyright Office permits some redactions, significant portions are required to be deposited into the public record).

We are unaware of any 2022 case law specifically addressing copyright in virtual fashion. However, the following cases are worth watching:

  • Andy Warhol Found. for Visual Arts, Inc. v. Goldsmith[4]: In October 2022, the U.S. Supreme Court heard arguments regarding whether Andy Warhol’s “Prince Series” silk screen prints and pencil drawings based on a photograph infringed the photographer’s copyright, or whether they were sufficiently “transformative” to constitute fair use. The outcome of this case could affect a copyright owner’s ability to enforce copyrights against unauthorized digital reproductions of its work, especially if the original work is fixed in a physical medium (e.g., enforcing copyright in a physical clothing item against a third party’s digital reproduction).
  • Thaler v. Perlmutter[5]: Filed in June 2022, the plaintiff is suing the U.S. Copyright Office for refusing registration of an AI-created image because there was no human author. The outcome of this case will necessarily implicate virtual fashion incorporating any AI-generated work.

D. DESIGN PATENT

Design patents protect the ornamental appearance or look of a unique product. Specifically, they protect any new, original, and ornamental design for an article of manufacture. Traditionally, this law was interpreted to require that the article of manufacture is a physical or tangible product. Thus, in the fashion industry for example, one can file a design patent application directed to a unique shoe, handbag, or jewelry design. Historically, an image or picture would not qualify for design patent protection.

However, the USPTO is currently assessing design patents with respect to new technologies such as projections, holograms, and virtual and augmented reality. In December 2020, the USPTO issued a request for public comment regarding a potential rule change to the “article of manufacture” requirement and whether U.S. law should be revised to protect digital designs. Public opinion was mixed, and in April 2022, the USPTO issued a summary of this requested information.

Although the USPTO has not yet formally revised the rules, it has issued guidelines over the years that provide examples of non-physical products that could be protected by a design patent, suggesting changes may ultimately be coming to U.S. design patent law. For example, in 1995, the USPTO released guidelines for design patent applications claiming computer-generated icons. In general, to be eligible for protection, the computer-generated icon must be embodied in a computer screen monitor, or other display monitor. The USPTO has also issued guidance allowing type font to be protectable by design patents. However, it is still unclear whether the USPTO will set forth design patent guidance specific to digital designs or virtual fashion.

Notwithstanding the possibility of obtaining a design patent specifically on such virtual goods, courts have been reluctant to find that a virtual product infringes the design patent for an IRL product. For example, in 2014, in P.S. Products, Inc. v. Activision Blizzard, Inc.,[6] P.S. Products accused Activision of infringing its design patent directed to a stun gun by depicting a virtual weapon in its video game that P.S. Products claimed resembled its patent-protected IRL product.

The court found there was no infringement because “no ordinary observer would be deceived into purchasing a video game believing it to be plaintiffs’ patented stun gun.” This case may have come out differently if the virtual gun was sold separately from the video game and could be used across various platforms rather than being one component of a particular video game. Although there are still software compatibility restrictions for virtual goods, portability of virtual goods is likely to grow as technology evolves and companies respond to consumer demands.

While we wait for further USPTO guidance that ultimately may have application to virtual fashion, parties seeking design patent protection may consider simultaneously filing one application to protect the work as a digital design on a display screen, like a patentable computer-generated icon, and a second, traditional design patent application to protect the design as a tangible product. That said, companies should consider other options for protecting any designs created by AI, as the Federal Circuit Court of Appeals held in 2022 that AI cannot qualify as an inventor for purposes of obtaining a patent.[7]

III. Virtual Fashion in Practice

Contracts relating to virtual fashion are analogous to contracts for IRL fashion and should be structured accordingly. For instance, companies should ensure that contracts with IP contributors include an assignment of all IP rights, or at least a sufficiently broad license. In the virtual context, this includes rights to the software code itself. Likewise, downstream licensing should generally address ownership, licensee rights, and if applicable, confidentiality for any trade secrets in the source code. In addition, for both IP contributors and licensees, if AI software is used in any part of the creative process, companies should give thought to allocation of ownership.

In addition, some designers or marketing teams may prefer to encourage a brand’s customer base to copy its designs or create derivative works. Although this seems counterintuitive (especially to an IP lawyer), many players in the Web3 space encourage others to build off their own designs. For example, the Bored Ape Yacht Club (BAYC), known for issuing NFTs tied to images of apes, grants owners of its NFTs the rights to use the images of apes, including for commercial purposes.[8] For example, one purchaser of a Bored Apt NFT created a Bored Ape-themed restaurant.

In the virtual fashion context, if a marketing team wants customers to build off the brand’s virtual designs but wants to retain ownership of its own designs (and perhaps derivatives), it should implement standard licensing terms relating to ownership, customer licensee rights, and other provisions. However, it’s important to consider how the terms are presented and how customers indicate assent to maximize the prospects of enforceability.

From a business perspective, companies can also now use NFTs and smart contracts to receive automatic royalties in any downstream sales or licenses. And because NFTs use blockchain technology, which provides an immutable chain of title, third parties will be able to trace such designs to the original source. This means companies can encourage the sharing of designs and receive royalties in connection with the downstream licensing of designs tied to NFTs, and third parties can confirm that the designs are legitimate by reviewing the relevant blockchain ledger. Accordingly, although encouraging customers to use the brand’s designs may not be a model for every brand, there are some steps brands can take to protect the IP rights associated with them and reap financial benefits.

As virtual fashion items become more popular, companies are faced with uncertainties and novel questions regarding how to protect and enforce their IP rights. In 2022, some questions were answered, but many more remain open. Therefore, it is important to discuss strategies for protecting innovative virtual fashion with IP counsel.

FOOTNOTES

[1] Notably, on December 30, 2022, the Hermès court denied both parties’ motions for summary judgment, with an opinion to follow by January 20. A jury trial is scheduled to begin on January 30, 2023. Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384-JSR (S.D.N.Y.).

[2] See, e.g., AM Gen. LLC v. Activision Blizzard, Inc., 450 F. Supp. 3d 467, 485 (S.D.N.Y. 2020).

[3] If a defendant’s unauthorized use of a mark is protected by the First Amendment, many courts use the Rogers test to balance the plaintiff’s trademark rights with the defendant’s First Amendment right of expression. This test looks at whether the defendant’s use of the plaintiff’s mark was artistically relevant and, if so, whether it was explicitly misleading. Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).

[4] 11 F.4th 26 (2d Cir. 2021), cert. granted, 142 S. Ct. 1412 (2022).

[5] Case No. 1:22-cv-01564 (D.D.C.).

[6] 140 F. Supp. 3d 795, 802 (E.D. Ark. 2014).

[7] Thaler v. Vidal, 43 F.4th 1207, 1213 (Fed. Cir. 2022).

[8] We will save for another day a discussion of the recent lawsuit against BAYC and many celebrities for failing to disclose financial incentives when promoting the BAYC NFT collection, and instead focus here on IP protection. Adonis Real, et al., v. Yuga Labs, Inc., et al., 2:22-cv-08909 (C.D. Cal.). But companies should also ensure that influencers properly disclose any incentives and other material connections.

For more intellectual property legal news, click here to visit the National Law Review.

©2023 Pierce Atwood LLP. All rights reserved.

Not So Fast—NCAA Issues NIL Guidance Targeting Booster Activity

Recently, the NCAA Division I Board of Directors issued guidance to schools concerning the intersection between recruiting activities and the rapidly evolving name, image, and likeness legal environment (see Bracewell’s earlier reporting here). The immediately effective guidance was in response to “NIL collectives” created by boosters to solicit potential student-athletes with lucrative name, image, and likeness deals.

In the short time since the NCAA adopted its interim NIL policy, collectives have purportedly attempted to walk the murky line between permissible NIL activity and violating the NCAA’s longstanding policy forbidding boosters from recruiting and/or providing benefits to prospective student-athletes. Already, numerous deals have been reported that implicate a number of wealthy boosters that support heavyweight Division I programs.

One booster, through two of his affiliated companies, reportedly spent $550,000 this year on deals with Miami football players.1 Another report claims that a charity started in Texas—Horns with Heart—provided at least $50,000 to every scholarship offensive lineman on the roster.2 As the competition for talent grows, the scrutiny on these blockbuster deals is intensifying.

Under the previous interim rules, the NCAA allowed athletes to pursue NIL opportunities while explicitly disallowing boosters from providing direct inducements to recruits and transfer candidates. Recently, coaches of powerhouse programs have publicly expressed their concern that the interim NIL rules have allowed boosters to offer direct inducements to athletes under the pretense of NIL collectives.3

The new NCAA guidance defines a booster as “any third-party entity that promotes an athletics program, assists with recruiting or assists with providing benefits to recruits, enrolled student-athletes or their family members.”4 This definition could now include NIL collectives created by boosters to funnel name, image and likeness deals to prospective student-athletes or enrolled student-athletes who are eligible to transfer. However, it may be difficult for the NCAA to enforce its new policy given the rapid proliferation of NIL collectives and the sometimes contradictory policies intended to govern quid pro quo NIL deals between athletes and businesses.

Carefully interpreting current NCAA guidance will be central to navigating the new legal landscape. Businesses and students alike should seek legal advice in negotiating and drafting agreements that protect the interests of both parties while carefully considering the frequently conflicting state laws and NCAA policies that govern the student’s right to publicity.

ENDNOTES

1. Jeyarajah, Shehan, NCAA Board of Directors Issues NIL Guidance to Schools Aimed at Removing Boosters from Recruiting Process, CBS Sports (May 9, 2022, 6:00 PM).

2. Dodd, Denis, Boosters, Collectives in NCAA’s Crosshairs, But Will New NIL Policy Be Able To Navigate Choppy Waters?, CBS Sports (May 10, 2022, 12:00 PM).

3. Wilson, Dave, Texas A&M Football Coach Jimbo Fisher Rips Alabama Coach Nick Saban’s NIL Accusations: ‘Some People Think They’re God,’ ESPN (May 19, 2022).

4. DI Board of Directors Issues Name, Image and Likeness Guidance to Schools, NCAA (May 9, 2022, 5:21 PM).

Article By Jonathon K. Hance, Joshua H. Gold-Quirós, and Drew Taggart of Bracewell LLP

For more entertainment, art, and sports news, click here to visit the National Law Review.

© 2022 Bracewell LLP

Intellectual Property: Understand It to Protect What You Own, Drive Value to Your Business and Positively Impact Your Bottom Line

Intellectual Property (or “IP”) is commonly defined as a group of legal rights that provide protection over things people and businesses create or invent. It might sound straightforward, but there is a lot of confusion over what can actually be protected and what cannot.

Who needs to be concerned with IP Protection?

We’ve all heard the phrase, “hindsight is 20/20”. That’s especially true when it comes to IP protection. So often people and businesses do not realize a new creation or innovation should be protected until it is too late. If you are creating or developing within your space, you need to have an IP strategy to avoid any unintentional disclosure missteps. And, when you are creating, be careful to:

  • Make records. They should be accurate, dated, and corroborated.
  • Research the competitive landscape early and identify both opportunities for protection and risks of infringement.
  • Use a non-disclosure agreement or contract before collaborating with another business or other people, such as consultants.

What are some of the biggest IP challenges business owners and employers need to overcome?

The goal for your IP strategy needs to be: Identify, Protect, Monetize.  The question business owners need to answer is how they can most effectively achieve this. The first step is understanding the applicable types of IP that are protectible and the steps needed to secure protection  of each.

Intellectual Property Type The Value

Trade Secret

 No registration fees or costs. Goes into effect upon creation and can last forever. Protection available at the state and federal levels.

Non-Disclosure Agreement/Contract (or “NDA”)

 Very affordable and flexible but, it only binds the contracting parties. An NDA should be used with your employees and other businesses you deal with concerning sensitive business information.

 

Copyright

 

 Free and automatic upon creation, register for significant added value. Protection available only at the federal level and registration is required to enforce protection.

Trademark/Service

 Commercial differentiation, quality identifier and price enhancement. Low cost and can last forever but must police others’ misuse.

How can an IP strategy affect your bottom line?

It’s important to understand there is no “one-size fits all” approach to IP. The correct IP strategy must be tailored to your unique business. While some businesses may be overspending on a scattered approach to protecting IP, other businesses may not be investing enough and potential losing out on what could have been an important revenue stream.

© 2022 Davis|Kuelthau, s.c. All Rights Reserved
For more articles about IP Law, visit the NLR Intellectual Property section.

SDNY Allows Skechers to Walk Away from Trademark Claims

After Skechers began selling open-back women’s shoes under the name “Commute Time” in August 2018, Easy Spirit, owner of the mark TRAVELTIME for similar shoes, sued Skechers in April 2019 for trademark and trade dress infringement under the Lanham Act and New York law.  In January 2021, the U.S. District Court for the Southern District of New York granted summary judgment on the trade dress claims for Skechers, and the remaining trademark infringement claims—trademark infringement under 15 U.S.C. § 1114(a), false designation of origin under 15 U.S.C. § 1125(a), and common law trademark infringement under New York state law, proceeded to trial.  Following a twelve-day bench trial, the district court dismissed the trademark infringement claims, finding no likelihood of confusion existed between the marks.

As the opinion recounted, to succeed on a claim for trademark infringement under 15 U.S.C. § 1114(a), Easy Spirit needed to prove the validity of its mark (which Skechers did not contest) and a likelihood of confusion between the marks.  Analyzing likelihood of confusion, the court assessed the eight factors used by the Second Circuit:  (1) strength of the prior owner’s mark; (2) similarity between the marks; (3) competitive proximity of the products; (4) likelihood that the prior user will bridge the gap; (5) actual confusion; (6) defendant’s good faith; (7) quality of the defendant’s product; and (8) buyer sophistication.

First, in analyzing the strength of Easy Spirit’s TRAVELTIME mark, the court examined its inherent distinctiveness and acquired distinctiveness in the marketplace.  Regarding inherent distinctiveness, the court found that TRAVELTIME was “modestly” inherently distinctive because it was plainly suggestive.  In other words, the mark required some imagination for a purchaser to “go from ‘travel time’ to the idea of movement, then to what one might need when moving, and finally to the product, an open-back comfort shoe.”

As to acquired distinctiveness, which the court explained referred to the recognition that the mark earned in the marketplace as a designator of Easy Spirit’s goods, the opinion analyzed six factors used by the Second Circuit:  (1) advertising expenditures; (2) consumer studies linking the mark to a source; (3) unsolicited media coverage of the product; (4) sales success; (5) attempts to plagiarize the mark; and (6) length and exclusivity of the mark’s use.

Here, the court noted that Easy Spirit did not provide advertising expenditures or other evidence showing how many consumers its TRAVELTIME-specific advertising reached, as opposed to Easy Spirit advertising generally.  Regarding unsolicited media coverage, the court stated that Easy Spirit presented only one piece of evidence from before 2018, so it was unclear if the mark acquired secondary meaning before Skechers started selling its Commute Time shoe that year.

The sales success factor favored Easy Spirit however, as the court cited evidence that the TRAVELTIME shoe became the number-one-selling shoe in U.S. department stores in 2016 and amassed $26.3 million in sales between July 2017 and March 2019.  The court also determined that length and exclusivity moderately weighed in Easy Spirit’s favor because whole Easy Spirit had sold TRAVELTIME shoes continuously since 2004, other shoe companies routinely used marks containing the words “time” or “travel”—including Easy Spirit for its other products.

Thus, the court concluded that Easy Spirit had not provided strong evidence that TRAVELTIME acquired secondary meaning before Skechers began using the Commute Time mark, and accordingly the strength of the mark factor weighed “only moderately” in favor of a likelihood of confusion.

Second, the court held that the marks were not similar based on their overall impression on consumers.  It found several differences in their appearance, including that:  (1) TRAVELTIME is one word while Commute Time is two; (2) TRAVELTIME generally appears in all capital letters but Commute Time does not; and (3) TRAVELTIME is written on one line yet Commute Time generally appears on separate lines.  The court also found that TRAVELTIME appeared on a minimalist beige box with simple orange lettering alone, while Commute Time appeared on a jewel-toned patterned box with various shapes, accents, and other Skechers marks.  And the opinion noted that “travel” and “commute” neither sounded the same nor were synonymous.

Third, the court found no evidence of actual confusion.  It pointed out that Easy Spirit did not submit any consumer survey showing confusion, and while Easy Spirit did not need to, the absence of a survey was evidence actual confusion could not be shown.  The opinion also emphasized Skechers’ survey showing 0% confusion, which Easy Spirit failed to adequately rebut or discredit.  Specifically, the court rejected Easy Spirit’s concern as to the universe of participants, that the survey showed participants the parties’ websites and not those of third-party retailers, and incentives given to participants.  It held that the survey properly targeted consumers beyond women 55-years-and-older because prospective customers should be counted, any marketplace could be replicated given the parties sold their shows on multiple platforms, and incentives are commonly accepted for surveys.

Fourth, the court examined whether Skechers acted in bad faith or with an intent to deceive consumers about the source of its product.  It determined that evidence showing Skechers based some measurements of its shoe on TRAVELTIME but included several aesthetic and functional differences demonstrated an intent to compete rather to deceive.  The court noted that companies in the shoe industry commonly incorporate features of other products in order to compete.

Fifth, the court determined that the customer sophistication factor also weighed in Skechers’ favor.  As neither party presented direct evidence of consumer sophistication, the court stated it could rely solely on indirect indications of sophistication, such as nature of the products or their price.  The court rejected Easy Spirit’s argument that because its customers were older women they were not sophisticated consumers of women’s shoes, finding it borderline “offensive” and contrary to common sense.  It also found the price points of the shoes sufficiently high to indicate thoughtful purchases.

Finally, while Skechers did not contest that the proximity of the goods factor weighed in favor of a likelihood of confusion, the court independently found this factor weighed in Easy Spirit’s favor because the Commute Time shoe was sold to the same class of purchasers, thorough the same marketing channels, and for approximately the same price as the TRAVELTIME shoe.  It did not assess the remaining two factors—bridging the gap and disparity of goods—because the parties agreed they did not apply.

In closing, the court held that no likelihood of confusion existed given the absence of any direct evidence that customers were actually confused or survey evidence of actual confusion.  Accordingly, it dismissed the federal trademark infringement claim.  And because the federal false designation of origin and common law trademark infringement claims also required a likelihood of confusion, the court dismissed those remaining claims too.

The case is Easy Spirit, LLC v. Skechers U.S.A., Inc., No. 19-cv-3299 (JSR), _ F. Supp. 3d _, 2021 WL 5312647 (S.D.N.Y. Nov. 16, 2021).

© 2022 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
For more articles about trademarks, visit the NLR Intellectual Property Law section.

In the Coming ‘Metaverse’, There May Be Excitement but There Certainly Will Be Legal Issues

The concept of the “metaverse” has garnered much press coverage of late, addressing such topics as the new appetite for metaverse investment opportunities, a recent virtual land boom, or just the promise of it all, where “crypto, gaming and capitalism collide.”  The term “metaverse,” which comes from Neal Stephenson’s 1992 science fiction novel “Snow Crash,” is generally used to refer to the development of virtual reality (VR) and augmented reality (AR) technologies, featuring a mashup of massive multiplayer gaming, virtual worlds, virtual workspaces, and remote education to create a decentralized wonderland and collaborative space. The grand concept is that the metaverse will be the next iteration of the mobile internet and a major part of both digital and real life.

Don’t feel like going out tonight in the real world? Why not stay “in” and catch a show or meet people/avatars/smart bots in the metaverse?

As currently conceived, the metaverse, “Web 3.0,” would feature a synchronous environment giving users a seamless experience across different realms, even if such discrete areas of the virtual world are operated by different developers. It would boast its own economy where users and their avatars interact socially and use digital assets based in both virtual and actual reality, a place where commerce would presumably be heavily based in decentralized finance, DeFi. No single company or platform would operate the metaverse, but rather, it would be administered by many entities in a decentralized manner (presumably on some open source metaverse OS) and work across multiple computing platforms. At the outset, the metaverse would look like a virtual world featuring enhanced experiences interfaced via VR headsets, mobile devices, gaming consoles and haptic gear that makes you “feel” virtual things. Later, the contours of the metaverse would be shaped by user preferences, monetary opportunities and incremental innovations by developers building on what came before.

In short, the vision is that multiple companies, developers and creators will come together to create one metaverse (as opposed to proprietary, closed platforms) and have it evolve into an embodied mobile internet, one that is open and interoperable and would include many facets of life (i.e., work, social interactions, entertainment) in one hybrid space.

In order for the metaverse to become a reality, that is, successfully link current gaming and communications platforms with other new technologies into a massive new online destination – many obstacles will have to be overcome, even beyond the hardware, software and integration issues. The legal issues stand out, front and center. Indeed, the concept of the metaverse presents a law school final exam’s worth of legal questions to sort out.  Meanwhile, we are still trying to resolve the myriad of legal issues presented by “Web 2.0,” the Internet we know it today. Adding the metaverse to the picture will certainly make things even more complicated.

At the heart of it is the question of what legal underpinnings we need for the metaverse infrastructure – an infrastructure that will allow disparate developers and studios, e-commerce marketplaces, platforms and service providers to all coexist within one virtual world.  To make it even more interesting, it is envisioned to be an interoperable, seamless experience for shoppers, gamers, social media users or just curious internet-goers armed with wallets full of crypto to spend and virtual assets to flaunt.  Currently, we have some well-established web platforms that are closed digital communities and some emerging ones that are open, each with varying business models that will have to be adapted, in some way, to the metaverse. Simply put, the greater the immersive experience and features and interactions, the more complex the related legal issues will be.

Contemplating the metaverse, these are just a few of the legal issues that come to mind:

  • Personal Data, Privacy and Cybersecurity – Privacy and data security lawyers are already challenged with addressing the global concerns presented by varying international approaches to privacy and growing threats to data security. If the metaverse fulfills the hype and develops into a 3D web-based hub for our day-to-day lives, the volume of data that will be collected will be exponentially greater than the reams of data already collected, and the threats to that data will expand as well. Questions to consider will include:
    • Data and privacy – What’s collected? How sensitive is it? Who owns or controls it? The sharing of data will be the cornerstone of a seamless, interoperable environment where users and their digital personas and assets will be usable and tradeable across the different arenas of the metaverse.  How will the collection, sharing and use of such data be regulated?  What laws will govern the collection of data across the metaverse? The laws of a particular state?  Applicable federal privacy laws? The GDPR or other international regulations? Will there be a single overarching “privacy policy” governing the metaverse under a user and merchant agreement, or will there be varying policies depending on which realm of the metaverse you are in? Could some developers create a more “privacy-focused” experience or would the personal data of avatars necessarily flow freely in every realm? How will children’s privacy be handled and will there be “roped off,” adults-only spaces that require further authentication to enter? Will the concepts that we talk about today – “personal information” or “personally identifiable information” – carry over to a world where the scope of available information expands exponentially as activities are tracked across the metaverse?
    • Cybersecurity: How will cybersecurity be managed in the metaverse? What requirements will apply with respect to keeping data secure? How will regulation or site policies evolve to address deep fakes, avatar impersonation, trolling, stolen biometric data, digital wallet hacks and all of the other cyberthreats that we already face today and are likely to be exacerbated in the metaverse? What laws will apply and how will the various players collaborate in addressing this issue?
  • Technology Infrastructure: The metaverse will be a robust computing-intensive experience, highlighting the importance of strong contractual agreements concerning cloud computing, IoT, web hosting, and APIs, as well as software licenses and hardware agreements, and technology service agreements with developers, providers and platform operators involved in the metaverse stack. Performance commitments and service levels will take on heightened importance in light of the real-time interactions that users will expect. What is a meaningful remedy for a service level failure when the metaverse (or a part of the metaverse) freezes? A credit or other traditional remedy?  Lawyers and technologists will have to think creatively to find appropriate and practical approaches to this issue.  And while SaaS and other “as a service” arrangements will grow in importance, perhaps the entire process will spawn MaaS, or “Metaverse as a Service.”
  • Open Source – Open source, already ubiquitous, promises to play a huge role in metaverse development by allowing developers to improve on what has come before. Whether or not the obligations of common open source licenses will be triggered will depend on the technical details of implementation. It is also possible that new open source licenses will be created to contemplate development for the metaverse.
  • Quantum Computing – Quantum computing has dramatically increased the capabilities of computers and is likely to continue to do over the coming years. It will certainly be one of the technologies deployed to provide the computing speed to allow the metaverse to function. However, with the awesome power of quantum computing comes threats to certain legacy protections we use today. Passwords and traditional security protocols may be meaningless (requiring the development of post-quantum cryptography that is secure against both quantum and traditional computers). With raw, unchecked quantum computing power, the metaverse may be subject to manipulation and misuse. Regulation of quantum computing, as applied to the metaverse and elsewhere, may be needed.
  • Antitrust: Collaboration is a key to the success of the metaverse, as it is, by definition, a multi-tenant environment. Of course collaboration amongst competitors may invoke antitrust concerns. Also, to the extent that larger technology companies may be perceived as leveraging their position to assert unfair control in any virtual world, there may be additional concerns.
  • Intellectual Property Issues: A host of IP issues will certainly arise, including infringement, licensing (and breaches thereof), IP protection and anti-piracy efforts, patent issues, joint ownership concerns, safe harbors, potential formation of patent cross-licensing organizations (which also may invoke antitrust concerns), trademark and advertising issues, and entertaining new brand licensing opportunities. The scope of content and technology licenses will have to be delicately negotiated with forethought to the potential breadth of the metaverse (e.g., it’s easy to limit a licensee’s rights based on territory, for example, but what about for a virtual world with no borders or some borders that haven’t been drawn yet?). Rightsholders must also determine their particular tolerance level for unauthorized digital goods or creations. One can envision a need for a DMCA-like safe harbor and takedown process for the metaverse. Also, akin to the litigation that sprouted from the use of athletes’ or celebrities’ likenesses (and their tattoos) in videogames, it’s likely that IP issues and rights of publicity disputes will go way up as people’s virtual avatars take on commercial value in ways that their real human selves never did.
  • Content Moderation. Section 230 of the Communications Decency Act (CDA) has been the target of bipartisan criticism for several years now, yet it remains in effect despite its application in some distasteful ways. How will the CDA be applied to the metaverse, where the exchange of third party content is likely to be even more robust than what we see today on social media?  How will “bad actors” be treated, and what does an account termination look like in the metaverse? Much like the legal issues surrounding offensive content present on today’s social media platforms, and barring a change in the law, the same kinds of issues surrounding user-generated content will persist and the same defenses under Section 230 of the Communications Decency Act will be raised.
  • Blockchain, DAOs, Smart Contract and Digital Assets: Since the metaverse is planned as a single forum with disparate operators and users, the use of a blockchain (or blockchains) would seem to be one solution to act as a trusted, immutable ledger of virtual goods, in-world currencies and identity authentication, particularly when interactions may be somewhat anonymous or between individuals who may or may not trust each other and in the absence of a centralized clearinghouse or administrator for transactions. The use of smart contracts may be pervasive in the metaverse.  Investors or developers may also decide that DAOs (decentralized autonomous organizations) can be useful to crowdsource and fund opportunities within that environment as well.  Overall, a decentralized metaverse with its own discrete economy would feature the creation, sale and holding of sovereign digital assets (and their free use, display and exchange using blockchain-based payment networks within the metaverse). This would presumably give NFTs a role beyond mere digital collectibles and investment opportunities as well as a role for other forms of digital currency (e.g., cryptocurrency, utility tokens, stablecoins, e-money, virtual “in game” money as found in some videogames, or a system of micropayments for virtual goods, services or experiences).  How else will our avatars be able to build a new virtual wardrobe for what is to come?

With this shift to blockchain-based economic structures comes the potential regulatory issues behind digital currencies. How will securities laws view digital assets that retain and form value in the metaverse?  Also, as in life today, visitors to the metaverse must be wary of digital currency schemes and meme coin scams, with regulators not too far behind policing the fraudsters and unlawful actors that will seek opportunities in the metaverse. While regulators and lawmakers are struggling to keep up with the current crop of issues, and despite any progress they may make in that regard, many open issues will remain and new issues will be of concern as digital tokens and currency (and the contracts underlying them) take on new relevance in a virtual world.

Big ideas are always exciting. Watching the metaverse come together is no different, particularly as it all is happening alongside additional innovations surrounding the web, blockchain and cryptocurrency (and, more than likely, updated laws and regulations). However, it’s still early. And we’ll have to see if the current vision of the metaverse will translate into long-term, concrete commercial and civic-minded opportunities for businesses, service providers, developers and individual artists and creators.  Ultimately, these parties will need to sort through many legal issues, both novel and commonplace, before creating and participating in a new virtual world concept that goes beyond the massive multi-user videogame platforms and virtual worlds we have today.

Article By Jeffrey D. Neuburger of Proskauer Rose LLP. Co-authored by  Jonathan Mollod.

For more legal news regarding data privacy and cybersecurity, click here to visit the National Law Review.

© 2021 Proskauer Rose LLP.

The Naked Truth About Trademark Cancellation: Only Harm, No Proprietary Interest Required

The US Court of Appeals for the Federal Circuit determined that a contracting party that contractually abandoned any proprietary interest in a mark may still bring a cancellation action if it can “demonstrate a real interest in the proceeding and a reasonable belief of damage.” Australian Therapeutic Supplies Pty. Ltd. v. Naked TM, LLC, Case No. 19-1567 (Fed. Cir. July 24, 2020) (Reyna, J.) (Wallach, J., dissenting).

Australian sold condoms with the marks NAKED and NAKED CONDOMS, first in Australia in early 2000, then in the United States in 2003. Two years later, Australian learned that Naked TM’s predecessor had registered a trademark NAKED for condoms in September 2003. Australian and Naked TM communicated by email regarding use of the mark for a few years. Naked TM contended that the parties reached an agreement; Australian disagreed and said no final terms were agreed upon. Australian filed a petition to cancel the NAKED trademark registration. Ultimately, and after trial, the Trademark Trial and Appeal Board (TTAB) concluded that Australian lacked standing because it had reached an informal agreement that Naked TM reasonably believed was an abandonment of any right to contest Naked TM’s registration of NAKED. Thus, the TTAB found that Australian lacked a real interest in the proceeding because it lacked a proprietary interest in the challenged mark. Australian appealed.

The Federal Circuit reversed. First, the Court clarified that the proper inquiry was a matter of proving an element of the cause of action under 15 USC § 1064 rather than standing. The Court explained that, contrary to the TTAB’s conclusion, “[n]either § 1064 nor [its] precedent requires that a petitioner have a proprietary right in its own mark in order to demonstrate a cause of action before the Board.” Assuming without deciding that the TTAB correctly determined that Australian had contracted away its rights, the Court found that fact irrelevant. Ultimately, even though an agreement might be a bar to showing actual damages, a petitioner need only show a belief that it has been harmed to bring a petition under § 1064.

The Federal Circuit found that Australian had a reasonable belief in its own damage and a real interest in the proceedings based on a history of two prior applications to register the mark, both of which the US Patent and Trademark Office rejected on the basis that they would have created confusion with Naked TM’s mark. The Court rejected Naked TM’s argument that Australian’s abandonment of those applications demonstrated there was no harm, instead concluding that Australian’s abandonment of its applications did not create an abandonment of its rights in the unregistered mark. Moreover, as a prophylactic rationale, the Court explained that Australian’s sales of products that might be found to have infringed the challenged registration also create a real interest and reasonable belief in harm.

Judge Wallach dissented. Although he agreed that the TTAB erred by imposing a proprietary-interest requirement to bring suit under § 1064, he disagreed that Australian properly demonstrated an alternative, legitimate interest—i.e., a belief of damage with a reasonable basis in fact. Judge Wallach would have given dispositive weight to the agreement between Australian and Naked TM in which Australian supposedly gave up any right to contest Naked TM’s rights in the mark NAKED.

Practice Note: Ultimately, although the majority and dissent disagreed about how to apply the law to the facts, Australian Therapeutic Supplies stands as a firm reminder that something less than a proprietary interest is required in order to challenge a trademark registration. How much less is a fact-specific inquiry.

© 2020 McDermott Will & Emery

For more on trademark cancellation, see the National Law Review Intellectual Property law section.