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University of Miami Business Law Review

Document Type

Notes and Comments

Abstract

The growth of virtual worlds and digital goods will force US courts to examine whether traditional laws are sufficient to protect consumers. To do so requires judges and legislative officials to possess a deep understanding of concepts that are everchanging. Many aspects of virtual worlds, such as the metaverse(s), are driven by web3 technology, the technology responsible for the NFT and cryptocurrency craze of recent years. It is impossible to ascertain the impact of virtual worlds on daily life, however, companies must nevertheless prepare for the shift toward virtual spaces and digital goods. There is greater skepticism regarding the utility of a metaverse compared to other recent technological advancements, such as artificial intelligence models, but the push for metaverses prevails even in 2023. Brands, creatives, and consumers will turn to courts for clarification on traditional laws within intellectual property, securities, privacy and data, and torts in the digital landscape. This note argues in favor of the application of the traditional intellectual property regime as it relates to digital goods, as it incentivizes creators to produce content in virtual spaces. Without adequate protection of digital works, even when such works exist in new “markets” like the metaverse(s), concerns over protection of intellectual property will arise.

While we are still in the early stages of relevant cases, there are a handful of rulings that provide some clarity. In Hermès International v. Rothschild, the Southern District of New York ruled on whether a digital good, such as an NFT, could infringe on another’s trademark using the same legal analysis as a traditional trademark infringement. The court in Hermès applied the Rogers v. Grimaldi test (the test that protects some artistic works under the First Amendment), holding that an NFT consisting of another’s mark should be analyzed using the Rogers test so long the use of the mark does not function primarily as a source identifier that would mislead consumers. Additionally, the court in Yuga Labs Inc. v. Ripps. dealt with a well-known NFT collection and a lookalike collection. The California Central District Court in Yuga Labs Inc. held that trademark law and the Lanham Act applies to “intangible” goods (including) NFTs, but unlike Hermés, the court refused to apply the Rogers test, holding that the lookalike NFT collection failed to reach the artistic threshold required to engage in the First Amendment analysis.

Additionally, the Supreme Court’s recent ruling in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith may have transformed the meaning of artistic works and fair use in copyright law. The Court’s ruling should exist as a warning to creatives that the threshold for a transformative work is higher than anticipated. This is significant evidence that other intellectual property regimes, like trademark law, will be impacted, and it is possible the Rogers test may require satisfaction of a similar threshold to qualify as an artistic work. Nevertheless, it is likely that traditional intellectual property law will apply smoothly to virtual worlds and digital goods. Thus, to adequately protect one’s brand, companies must expand trademark fillings to apply to virtual spaces, and artists/creatives must be cautious when using another’s mark– particularly if artists hope that the First Amendment will come to save them.

Additional questions arise surrounding digital goods and other fields of law, like securities law. The U.S. Securities Exchange Commission’s recent actions toward influencers advertising cryptocurrency coins implies that it will soon categorize cryptocurrencies and certain NFTs as securities bound by federal regulations. The issue of privacy and data collection is one of web3’s greatest threats, as it is difficult to identify who governs in a decentralized space. This note argues that companies selling NFTs and offering metaverse interactive experiences should comply with the highest standard of privacy and data collection, such as the European General Data Protection Regulation, to ensure compliance in an inherently globalized industry. This note further argues that torts, such as sexual and physical assault and harassment, should be regulated and controlled by the entity that controls the virtual experience. For example, if Meta runs its version of the Metaverse, Meta must have systems in place to protect against illegal conduct. The enforceability is difficult based on the decentralization of these digital worlds. Therefore, without minimum government requirements, it is the social responsibility of companies to provide a safe environment for users to interact and engage.

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