The “metaverse” refers to a virtual shared space where users can interact with each other and with digital objects in a seemingly real and immersive environment.

In terms of IP rights, the metaverse may present various options for businesses and established brands. It was thought to represent a revenue opportunity worth between $8 and $13 trillion in 2022.

Some potential areas of opportunity include: (a) licensing and merchandising of IP rights, such as logos, trademarks, and other types of branded content, and which may include creating virtual goods or experiences that incorporate a company's brand; (b) virtual real estate, which may include buying/selling and leasing virtual spaces in a manner similar to physical real estate ("metaverse land grab"), or otherwise using those virtual spaces to showcase products, services, or branding (virtual goods).

On another note, some opportunities may require massive investments to market and distribute digital content/assets. The hardware that generates virtual spaces, the connectivity to relate those spaces (such as 5G networks) and some activities carried out within the metaverse, may all also require substantial investments.

Consequently, many technology companies joined forces, or absorbed others through M&A, in order to expand their metaverse activities. This was the case of Microsoft and Sony, which announced in January 2022 their acquisition of, respectively, Activision Blizzard and Bungie.

The legal minefield of digital collectibles

Non-fungible tokens (NFTs), are a type of digital asset, generally built as smart contracts on Ethereum blockchain, that represent ownership of a unique item, such as a piece of artwork or collectible.

They are unique, indivisible, and non-fungible/interchangeable tokens associated with a user or a virtual wallet. Nevertheless, as one can code practically anything in a smart contract, these characteristics may vary and new types of NFT may deviate from the above definition.

We have seen recently that IRL trademark deposits may apply to NFTs, but that is just one aspect of IP protection. NFTs IP protection is fraught with ambiguities, misappropriation, and with contractual, data protection, taxation, and other legal problems.

Regarding the IP rights they provide, NFTs could include contract rights, asset ownership, or a right to use someone else’s IP. Buyers need to be aware of what they are buying, including any smart contract features that are built into the NFT. Factors like whether fractional ownership is allowed by the NFT token, and the related regulatory framework will depend on the business justification for issuing it.

However, NFT issuers will need to strictly regulate how buyers exploit the related IP. The issuer often retains copyright and other IP rights, while the buyer is given permission to show the underlying item. On any resale of the tokens, the buyers of NFTs could be subject to an automatic payment of royalties or commissions, with the payment being handled by a smart contract within the NFT.

One must also consider that NFT transactions are different from regular ones because data stored in the blockchain can't be deleted or changed, which may affect data protection regulations (such as the EU’s General Data Protection Regulation).

Furthermore, an agreement that specifies the provider's obligations and safeguards IP and sensitive information should be in place before a corporation engages that third party to mint its NFTs.

The conditions under which NFTs are offered for sale must be prepared in accordance with local consumer protection laws and take enforcement concerns into account. Proving the non-fungibility aspect of the NFT is crucial in keeping the NFTs transactions out of the scope of crypto asset regulations (such as MiCA in the EU).

From virtual land to legal sand: NFTs in the metaverse

NFTs may be used in the metaverse to purchase virtual goods, such as "virtual real estate", which may represent ownership of virtual land, as well as of virtual or in-game products, digital artwork, collectibles, experiences, identities, among others.

The internet, being a decentralised, transnational network that works beyond national borders, generates particular issues when it comes to dealing with IP rights. The metaverse is no exception, and its immersive and participatory nature may provide further challenges for intellectual property protection.

NFTs, and the metaverse as a whole, may encounter additional challenges as a result of employing a virtual environment for business purposes that need the use of real-world legal rights. However, these concerns appear to be basically the same as they were with cryptocurrencies only a few years ago: