Clear rights and responsibilities are essential
5 min read
The explosion of the metaverse into popular consciousness has created a wealth of exciting new commercial opportunities for businesses. This in turn has led to a number of high-profile collaborations, typically between ‘offline’ brand owners looking to commercialise their IP in the virtual world, and digital-native technology companies and platforms that can provide the necessary skills, access and infrastructure (and ‘street cred’ in the online world) to turn ideas into (virtual) reality. However, as discussed in more detail in this Insight, these collaborative projects give rise to a number of unique and important legal considerations.
- Businesses looking to collaborate to pursue commercial opportunities in the metaverse should ensure they have a robust contractual framework in place, which clearly documents each party’s respective rights and liabilities. In particular, from an IP standpoint, the parties should tailor the scope of any IP licences granted by the parties (eg how and to what extent each party’s existing IP may be customised, including by end users), and clearly specify who will have what rights to exploit, protect and enforce any IP developed during the course of the collaboration (both new IP and derivatives of existing IP).
- In addition, there are new exposures for ‘offline’ businesses making a move into the metaverse, which may need to be reflected in the allocation of risk between the parties. For example, if a business’s conduct in the metaverse is likely to fall under the laws of a jurisdiction in which it does not typically operate, that will amplify its risk of becoming subject to a third-party IP infringement claim in that jurisdiction. As such, it may wish to push for a higher level of protection from its collaborating partner. It is also recommended that businesses obtain local legal advice for each jurisdiction that is potentially relevant.
Types of collaborations
Although the term ‘metaverse’ has been around since at least the early 1990s, it is only in recent times that we have seen a spate of interesting commercial collaborations relating to the metaverse – these can be broadly categorised as follows:
- Collaborations between brand owners and operators of metaverse platforms. In 2021, Vans collaborated with metaverse platform Roblox to launch ‘Vans World’, a virtual skatepark in which users can meet friends, take part in challenges and design their own virtual skateboard and shoes.
- Collaborations between brand owners and virtual product developers. Earlier this year, luxury fashion house Gucci announced a collaboration with 10KTF, an exclusive NFTs shop that allows users to craft unique derivative NFTs of parent NFTs they own. This initiative involved Gucci’s creative director, Alessandro Michele, travelling to a floating city within the metaverse named ‘New Tokyo’, in which he met with the famed digital artisan in charge of 10KTF, ‘Wagmi-san’ – the result being a collection of ‘collaborative creations’ accessible only to those with a ’10KTF Gucci Grail Mint Pass’.
- Collaborations between brand owners and digital studios. Late last year, luxury fashion house Balenciaga collaborated with Dimension Studio, the operator of a volumetric & 3D capture studio, to launch a video game entitled ‘Afterworld: The Age of Tomorrow’. In the game, players are able to explore a futuristic New York populated by models showcasing Balenciaga’s Fall/Winter 2021 collection.
- Collaborations between different brand owners. Adidas recently collaborated with Bored Ape Yacht Club to release a collection of ‘Bored Ape NFTs’, ownership of which affords membership of an ‘exclusive club’ and access to merchandise and events.
As these examples demonstrate, collaboration is a key pathway for ‘offline’ brands seeking to capitalise on the commercial opportunities presented by the metaverse.
A robust contractual framework needed
When putting together agreements for collaborations in the metaverse, businesses should, at least, consider the following from an IP perspective:
- Is the scope of any licence to use each party’s IP appropriately tailored so that it is sufficiently broad to serve the commercial purposes of the collaboration (eg does it deal with who has rights to create and/or sell NFTs), but ensures the parties retain adequate control over their existing IP? Further, does it address the potentially thorny issue of whether, and to what extent, each party, any persons authorised by them, and also end users, may customise the licensed IP?
- Who will have what rights to any new, developed IP that arises out of the collaboration (including any new trade marks, marketing materials, NFTs, websites and social media accounts, as well as modifications or improvements to any existing IP)? Are there valid assignment mechanisms built into the agreements to effect the proposed allocation of rights? Who will have what responsibilities to protect and enforce such IP?
- Are there clear brand guidelines that set out how each party’s existing brands and any new brands are to be used, including prohibitions against unauthorised co-branding?
- How does the proposed treatment of IP under the collaboration agreement interact with the rules of the provider of the digital metaverse platform on which the collaboration project will be based, including in relation to ownership of IP?
Who will bear the risk with respect to, and have the responsibility to deal with, any third-party claims of IP infringement that may arise during the course of the collaboration?
The nature of the metaverse also means there would be new exposures for businesses looking to enter the metaverse through collaboration. In particular, businesses should carefully consider what jurisdictions’ laws may apply to their conduct within the metaverse. If their conduct is likely to fall under the laws of a jurisdiction in which they do not typically operate, that will increase their risk of becoming subject to:
- a third-party IP infringement claim in that jurisdiction (eg under Australian law, a key consideration will be whether their use of a trade mark in the metaverse is considered to be specifically directed to an Australian audience and therefore constitutes use of the trade mark in Australia); or
- jurisdiction-specific regulatory requirements (eg consider whether the proposed collaboration agreement complies with competition laws, or whether any of the parties are required to be licensed due to the nature of the services they provide).
This may in turn inform, for example:
- the level of due diligence required ahead of launch (eg freedom to operate IP searches, and review of agreements with third parties to ensure the collaboration partner has the rights to provide the IP they say they will bring to the project); and
- the level of protection required to cover such exposures (eg by way of procuring that one party provides an indemnity to the other party, or by the parties jointly obtaining appropriate insurance cover).
Actions your business can take now
If your business is looking to enter into a collaboration with a view to pursuing an opportunity in the metaverse, remember to obtain IP advice, as well as local legal advice for each jurisdiction that is potentially relevant.
This should be done at an early stage in the collaboration to minimise the risk of the project having to be cancelled, particularly after it has already been publicised, which could lead to significant reputational and commercial damage for both parties.