Virtual goods and NFTs – IP protection of digital assets in gaming, social media and the metaverse

The pioneering role of the gaming industry

Virtual goods and digital assets are issued, purchased and traded digitally. They are often conceived as counterparts of goods and services in the real world – virtually (pun intended) any product and services that exist in real life can also be imagined in the virtual world. And unlike its real-world counterpart, a digital item can be enhanced, modified, and equipped with new features. In the gaming industry, virtual goods have traditionally been used mainly as in-game items in the form of skins, clothing, accessories, equipment, and weapons for avatars. Through the introduction of blockchain, digital assets can be individualized, and a clear record of assignment or ownership be kept and tracked – excluding the risk of double selling, opening in-game items up to trade outside of an individual game’s ecosystem, and facilitating monetization through easy tracking of royalties for secondary sales. Game developers are already making significant investments in tokenized digital assets. In emerging games such as "Decentraland" and "The Sandbox", digital land can already be bought, sold and developed with virtual buildings. Game developer Ubisoft is introducing NFTs in its games and opening trade among players through its "Ubisoft Quartz" platform. Digital assets afford novel opportunities for creative collaborations between non-endemic brands, gaming companies, social media operators, artists, and exchanges. The Metaverse is here to stay.

EUIPO's response to the Metaverse

In response, the EUIPO is addressing the appropriate classification of these trending subjects of trademark protection in its new 2023 draft guidelines. Stakeholders can still comment on the draft until 3 October 2022.

The commercial capitalisation of digital assets is accompanied by efforts to protect the underlying intellectual property rights – including an increasing number of trademark applications covering  terms related to virtual goods and NFTs. The EUIPO defines virtual goods in their guidelines as "non-physical items that are purchased and used in online communities or online games" and assigns them to Class 9 of the Nice Classification. They are treated as digital content or images. The term “virtual good” – much like “software” – of course lacks clarity and precision, and applicants are advised to specify in more detail to which content the virtual goods relate – such as "downloadable virtual goods, namely, digital art".

In the EUIPO’s newest 12th edition of the Nice Classification, the office pays attention to terms relating to NFTs. Class 9 includes "downloadable digital files authenticated by non-fungible tokens [NFTs]". The EUIPO refers to NFTs as "unique digital certificates, registered in a blockchain, that are used as a means of recording ownership of an item such as a digital artwork or a collectible."  Of course the NFT does not stand for the digital object itself; it is merely a means of certification. As such, it can serve as an additional feature to specify the scope of trademark protection. Accordingly, the type of virtual good that is authenticated by an NFT must also be included in the trademark specification. As an example of a permissible application, the EUIPO cites "downloadable digital art, authenticated by an NFT."

Also important to note is that class 9 covers only downloadable virtual goods. Offers of non-downloadable virtual goods are to be classified as services corresponding to the specific offer in question, in line with the established classification principles for classes 35 – 45. To give an example for a class 35 service: "Provision of an online marketplace for downloadable digital art images authenticated by non-fungible tokens [NFT]."

In the latest version of the ID Manual of the U.S. Patent and Trademark Office (USPTO), the USPTO provides guidance similar to that under the EUIPO Guidelines on classes 9, 35 and 41.

Securing trademark protection of virtual assets

To date, we cannot yet seek guidance from a body of settled case-law on the scope of IP protection for virtual goods and their tokenization through NFTs. For instance: Is there similarity in terms of trademark law between a physical good and its virtual counterpart? What is clear and obvious though is that existing trademark protection for real goods does not extend into the digital world. Brand owners venturing into the space of digital assets are therefore advised to audit their trademark portfolios and complement them by new filings along the lines of the guidance issued by the EUIPO, the USPTO and other trademark offices.

The appropriate classification of new trademark filings for virtual goods and their tokenization through NFTs is only a first step. The fast evolving virtual landscape, just like its real world counterpart, will be a battleground for brand recognition and reputation, will invite copycats and freeriding, and will over time be the source of a dedicated body of regulation and case-law. Our international team of experts on gaming, digital assets and online regulation are here to help you navigate the metaverse – from NFT collaboration agreements and trademark, design and copyright protection strategies, to online enforcement and multi-jurisdictional regulatory advice on metaverse ecosystems. You can reach out to us through our dedicated gaming and esports page.

Authored by Anthonia Ghalamkarizadeh, and Fabian Stocks.