Trademark Infringements in the Metaverse – Applicable Law

1. What is the Metaverse?

The metaverse is a portmanteau of the prefix meta (meaning "beyond") and universe.

Nowadays, the term metaverse is often used as a collective term for digital, three-dimensional worlds of experience in which users can actively participate in economic, social and cultural activities with the help of customizable avatars. Although there are various approaches to defining the term (see overview of various definition approaches in a study of the European Parliament on the topic of "metaverse"), there is still no clear definition.

Currently, a distinction is regularly made between two types of metaverse:

• Centralized metaverse: Here, a single company is responsible for the metaverse. Examples include platforms such as Second Life, Minecraft and Fortnite or the latest forays by Meta.
• Decentralized metaverses: Decentralized metaverses use blockchain technology instead of relying on the control by a single company. Here, decentralized autonomous organizations (DAOs) play a key role. These organizations consist of a digital program code and manage their own capital according to predefined rules. Smart contracts on blockchains are common instruments.

2. Relevance of trademark protection in the metaverse

Even in the metaverse, brand protection remains a crucial tool for protecting the identity of companies and their products or services. Without a clear brand strategy, companies risk falling victim to brand misuse, reputational damage and product piracy in virtual worlds as well as losing control of their own market presence. In a worst case scenario, this can lead to a permanent competitive disadvantage.  

By securing trademark rights in the virtual space, companies can not only protect their digital presence, but also maintain consumer trust. The legal security offered by brand protection in the metaverse is therefore essential to ensure a sustainable and successful presence in the digital reality.

However, the protection of trademark rights in the metaverse is made more difficult by the fact that the metaverse is in principle not bound by national borders and different users regularly interact with each other in complete anonymity.

The question therefore arises as to how to determine which national law applies in the event of trademark infringement in the metaverse. Does it depend on the user's place of residence or the location of the metaverse platform? For example, which law applies if a user is from the US and commits a trademark infringement in a virtual environment hosted by a metaverse platform based in Germany? 

3. Applicable Law

At present, there are no uniform legal rules, particularly in the area of private international law, that specifically concern the metaverse. However, several working groups are investigating whether specific rules are required, for example the UNIDROIT Working Group on Digital Assets and Private Law and the UK Law Commission with a project called 'Digital Assets: Which Law, Which Court?'.

In Germany, the law applicable to trademark disputes with a connection to the law of different countries is determined by Regulation (EC) No. 864/2007 of the European Parliament and of the Council of July 11, 2007 on the law applicable to non-contractual obligations ("Rome II Regulation").

Pursuant to Art. 8 (1) Rome II Regulation, the so-called country of protection principle (lex loci protectionis) applies to the infringement of intellectual property rights and thus also of trademark rights, according to which the law of the country for whose territory protection is claimed applies.

In German legal practice, however, this approach has been subject to substantive restrictions in order to prevent an excessive protection of national trademark rights. So in addition to an infringement of trademark rights, German law requires that the infringement has a relevant "commercial effect" in Germany (see BGH GRUR 2020, 647 para. 27 et seq. - Club Hotel Robinson; BGH GRUR 2012, 621 para. 17 - OSCAR). The concept of the "commercial effect" was not developed by German case law on its own. It is known worldwide and traces back to recommendations of the WIPO Standing Committee on the Law of Trademarks, Industrial Designs and Geographical Indications.

In principle, a relevant commercial effect exists if goods and services are offered in the relevant country under the trademark in question (see BGH GRUR 2020, 647 para. 28 - Club Hotel Robinson). This applies in particular if goods are being delivered within Germany, even if the order was a one-off test purchase (see OLG Frankfurt GRUR-RR 2021, 360 para. 40 - Tommy Hilfiger MO Logo Scarf). Therefore, if the performance of the contract happens in the real world, even after the contract is concluded in the metaverse, there is often a sufficient connecting factor.

Cases in which the performance of the contract also happens in the metaverse are much more difficult to classify. Here, a comprehensive examination of the interests and circumstances involved must be carried out in order to determine whether there is an infringement under German law (see BGH GRUR 2020, 647 para. 28 - Club Hotel Robinson).

In the past, indicators for a relevant commercial effect in Germany were, for example, a domestic contact address, the use of the ".de" top-level domain, a website in the German language, the offer of goods and services to German customers or shipping to Germany (see BGH MMR 2005, 239 (241) - HOTEL MARITIME; BGH GRUR 2018, 417 para. 50 - Resistograph).

However, these connecting factors are often missing in the case of a trademark infringements in the metaverse (see Uhlenhut/Bernhardt, WRP 2023, 139, 144).

Therefore, German courts may, in future, refrain from the restrictive criterion of a domestic commercial effect in order to avoid gaps in protection and to effectively enforce the law in the case of trademark infringements in the metaverse. However, only time will tell. Also, it seems highly unlikely that German courts would dare to tackle this international problem on their own. It is to be expected that German legal practice will align with international developments.

4. Contractual Regulations

Also, it should be taken into account that many metaverse platforms have terms of use. Such terms of use can provide mechanisms for alternative dispute resolution, such as arbitration or mediation, and specify which law is applicable to disputes.

To name two examples:

• The terms of use of Sandbox state: “The rights and obligations of the parties and the interpretation of these Terms shall be governed by the laws of Malta without giving effect to its conflict of laws principles.”
• And in the terms of use of Epic Games states: “Any dispute or claim arising out of or relating to these Terms shall be governed by the laws of North Carolina, excluding its choice of law rules.”

However, such clauses generally only regulate the relationship between the respective metaverse platform and its users and not the relationship between different users. They cannot have any legal effect on external third parties.

From a purely technical point of view, it would also be possible to include dispute resolution and choice of law clauses in the code of smart contracts, which are generally used for the automatic execution of metaverse transactions. In principle, a free choice of law is possible (see Art. 3 (1) of Regulation (EC) No. 593/2008 of the European Parliament and of the Council of June 17, 2008 on the law applicable to contractual obligations ("Rome I Regulation")). However, the central question would be whether it can be assumed that users have actually agreed to this clause in individual cases.

5. Conclusions for Companies

Tapping into the metaverse is no longer a vision of the future – many have already taken this step.

Companies wishing to protect their trademark rights in the metaverse should consider at an early stage which law is applicable to the relevant factual constellations.  

In this respect, we recommend the following:

1. Early legal advice: Seek professional legal advice at an early stage to identify and minimize potential compliance and liability risks. This is crucial to avoid uncertainties and legal pitfalls.
2. Review terms of use: Carefully review the terms of use of the metaverse platforms, particularly with respect to dispute resolution clauses and choice of law. Understand the contractual terms that govern your interaction in the metaverse.
3. Implement clear guidelines: Develop internal guidelines for the use of the metaverse that take into account legal requirements, codes of conduct and the protection of intellectual property. Train employees accordingly to minimize misconduct.
4. Intellectual property protection: Check the options for protecting your trademarks and other intellectual property rights in the Metaverse. Register trademarks when appropriate and take action against trademark infringement.
5. Smart contracts and blockchain testing: If smart contracts and blockchain technology is used, check their legal effectiveness and integration into existing legal frameworks. Make sure that users are transparently informed about such mechanisms.
6. Adaptation to local laws: Note that the metaverse may have global users. Adapt your activities to the respective local laws and take possible different legal requirements into account.

External legal advice for the protection of your trademark rights in the metaverse is therefore indispensable. We are happy to assist you with this important step, offer our expertise and experience and provide you with comprehensive support.