Virtual Reality May Create Novel IP Issues in the Real World

By Jonathan M. Purow

Originally appeared in Law360.

Our world is going virtual. Major industry players such as Microsoft Corp., Sony Corp., Facebook Inc. and Samsung Electronics Co. Ltd. are investing heavily in the future of virtual reality, so it is no wonder that projections estimate that the number of augmented and virtual reality (VR) devices sold will rise from 2.5 million this year to 24 million in 2018.[1] By that time, analysts predict that the VR hardware market will be worth $2.3 billion and the VR software market will be worth $4.7 billion.[2] Consumers are already being offered a number of options separated by power, price and functionality, from the smartphone-dependent $20 Google Cardboard glasses and $100 Samsung VR, to the Facebook-owned and PC-connected $599 Oculus Rift. The virtual world Second Life is populated by 1 million people on a daily basis, and there are expected to be as many as 171 million active VR users by 2018.[3]

Within a couple of years, the types of uses for virtual reality will change dramatically: users will be able to tour a virtual version of the house they are considering buying, classes will be taught in VR, and friends from around the world will hang out with each other in virtual bars. With the rise of virtual worlds comes a number of questions about how different parties are going to create, use and enforce their intellectual property in VR.

The first section of this article will summarize how the current trademark and copyright laws relate to VR users, content creators, large businesses with established trademarks or copyrighted content and the proprietors of the different virtual worlds (the “world owners”). Since it is still hard to predict how these virtual worlds will develop, the second section of the article will discuss certain hypotheticals that could create novel intellectual property issues.

The Current State of Trademark and Copyright Law As Applied to VR

As a general rule of thumb, trademarked or copyrighted content that is uploaded into a virtual world is protected by the same standards that apply in the real world. Creators who have made coded content that is sold in VR can protect it by copyright and register a federal copyright in the products. If creators have built a brand under which they sell these products, they can register the trademark for that brand.

Early entrepreneurs in virtual worlds such as Second Life have already started to register their IP. Eroc LLC, a maker of virtual adult toys in Second Life, has registered its brand name with the United States Patent and Trademark Office for “providing temporary use of non-downloadable software for animating three-dimensional characters.”[4] Going one step further, certain avatars in virtual worlds have become celebrities in their own right, and therefore warrant their own IP protection. The avatar named “Aimee Weber,” the virtual counterpart of Alyssa LaRoche, was registered as a trademark with the USPTO in relation to Class 42 “computer programming services, namely, content creation for virtual worlds and three dimensional platforms” in 2008.[5] We are not far away from a virtual reality in which virtual celebrities are paid an “appearance fee” to attend a social event, like an online version of Kim Kardashian.

As for enforcement, if a creator or large company owns a trademark, it can prevent a third party from selling virtual T-shirts by asserting trademark infringement or related claims. If a user is distributing copies of copyrighted content in VR, a company can assert copyright infringement. However, certain enforcement procedures that occur in the virtual world are dependent on the world owner, as it is in the best position to identify and fight infringers.

The world owner’s main concern will be to minimize any risk of liability due to the infringing actions of its users. A world owner will generally qualify as a “service provider” for purposes of the Digital Millennium Copyright Act (DMCA), and so the familiar notice-and-takedown procedures will apply in copyright matters. If a company sends a notice to the world owner that there are infringements of its copyrights in the virtual world, the world owner will minimize its liability if it properly follows the takedown procedures provided for in the DMCA. As a matter of practice, most online e-commerce platforms and world owners have informally applied the copyright notice-and-takedown procedures to trademark matters as well. Occasionally, a company will go one step further and proceed to litigation, as Taser International Inc. did in 2009 when it sued Linden Labs, the world owner of Second Life, after finding virtual versions of its stun-gun products being sold in Second Life. The lawsuit was voluntarily dismissed, after Linden Labs presumably removed all of the infringements.[6]

All users must agree to a terms of service agreement before entering a virtual world operated by the world owner, and enforcement of these contractual terms is the most important weapon for enforcement. These terms of service almost certainly grant the world owners the ability to remove infringing material, or delete the accounts of users that infringe registered trademarks, copyrights or proprietary materials. However, the world owners have to be careful with their terms of service because case law has imposed certain requirements, and because users can be litigious. For example, a district court in Pennsylvania struck down part of the Second Life terms of service because the court found that the contract was a completely one-sided and “unconscionable” contract of adhesion in Linden’s favor.[7] Subsequently, a group of Second Life users launched a class action against Linden due to its changing the terms of service agreement without their consent, claiming that Linden Labs’ action prevented them from having access to virtual property they had previously purchased.[8]

But what if the world owner is the party that is creating the allegedly infringing content, in order to increase the realism of the virtual world? World owners could then rely on a strong body of case law that applies First Amendment protection to video game developers. In Brown v. Entertainment Merchants Ass’n,[9] the U.S. Supreme Court found that video games are entitled to free speech protections, because they are “expressive works” similar to films, books and music. The Supreme Court invalidated a California statute prohibiting the sale of violent video games, but the decision affects intellectual property cases as well.

The issue was more directly addressed in E.S.S. Entertainment 2000 Inc. v. Rock Star Videos Inc[10]. The Ninth Circuit ruled that Rock Star’s depiction of the plaintiff’s real-life Los Angeles strip club in the video game “Grand Theft Auto: San Andreas” (which included the exterior design of the building and the club’s logo) did not infringe E.S.S.’s trademark and trade dress rights because under the First Amendment “[n]othing indicates that the buying public would reasonably have believed that [the club owner] produced the video game or, for that matter, that [the video company] operated a strip club. The Ninth Circuit came to this conclusion even after finding against Rock Star’s defense of nominative fair use. The court applied the Second Circuit’s widely adopted test from Rogers v. Grimaldi,[11] which consists of two prongs: (1) is the trademark use relevant to the defendant’s work from an artistic standpoint? and (2) is the trademark use explicitly misleading?[12]

From the other side of the aisle, a user or creator accused of copyright or trademark infringement will generally have limited defenses. In certain circumstances, a potential infringer can claim that he/she was engaged in a parody of the protected content. Otherwise, infringers would most likely claim a defense of fair use. With respect to copyright matters, the fair use analysis is fact-intensive and relies on an examination of four factors: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion taken, (4) the effect of the use upon the potential market for the copyrighted work.[13]

Hypothetical Virtual Reality Intellectual Property Uses and Issues

Several hypothetical situations illustrate some potential issues that could arise with regards to IP in virtual worlds:

A creator makes a virtual T-shirt with a picture of his favorite celebrity on it, or goes one step further and creates an avatar with his favorite star’s face.

The interesting wrinkle about this fact pattern is that there are two potential plaintiffs. The owner of the copyright in the photograph could bring a claim for copyright infringement, and the celebrity could potentially bring claims for false light or defamation. The celebrity would not necessarily be able to bring a claim for right of publicity in this instance unless the infringer capitalizes financially from the use of the celebrity’s likeness.[14]

A proprietor opens a series of virtual hangout rooms where a few friends located all over the world pay a fee to congregate and enjoy visualizations with popular music playing in the background. Each of these virtual hangouts plays different music that isn’t selected by the users.

The question raised by this hypothetical is whether or not a performing rights organization such as BMI, ASCAP or SESAC would be able to collect a licensing fee for the music that is played in the virtual hangout rooms. A performance is considered public when the work is performed or transmitted to a “place open to the public or at a place where a substantial number of persons outside of a normal circle of a family and its social acquaintances are gathered.” In this circumstance, even though the creator of these hangouts is profiting from the musical performances, they may not be liable to pay licensing fees since the limited number of users in each room doesn’t qualify as a public performance under the statutory definition.

A creator in a virtual world creates a place that is an exact replica of the dojo from the movie “The Matrix,” where users can battle avatars based on characters from “The Lord of The Rings” trilogy by J.R.R. Tolkien free of charge.

The question here is whether this would be considered copyright infringement of the rights in “The Matrix” and “The Lord of the Rings.” The Copyright Act provides that copyright owners have an exclusive right to “prepare derivative works based upon the copyrighted work,” and so the owners would insist that these virtual copies are derivative works.[15] If the matter proceeded to litigation, the creator would claim that its creation was a fair use, and a court would have to analyze the relevant factors. The most important factor would be whether or not the allegedly derivative work is transformative, which in turn is generally determined by analyzing two factors: (1) whether the copyrighted material has been transformed through the addition of new original material and (2) whether value was added to the original by the new material.[16]

A creator creates an avatar with a T-shirt that has the Under Armour logo on it and wears it around as he insults people. This creator does not sell copies of the shirt.

The issue in this instance for Under Armour is that this person would most likely not be considered to be using the mark “in commerce,” a requirement of U.S. Lanham Act trademark-related claims (infringement, false designation or origin, dilution etc.), since there is no financial component related to this person’s use. One could easily make the argument that this isn’t fair to Under Armour, as it would be paid for that T-shirt if someone bought it to wear in the real world. Under Armour would additionally have difficulty preventing this creator from wearing the shirt or damaging the brand by acting in an unsavory fashion.

As trademarks require constant enforcement to avoid potential vulnerability, this could quickly become a nightmare scenario for companies.[17] They will have to expend resources enforcing against virtual “infringement” when there isn’t an actual legal claim that it could make against this creator. In order to prevent this type of action, companies would presumably have to rely on the intellectual property provisions in the terms of service created by the world owner and agreed to by the offending user.

However, this would require the terms of service to be more restrictive than current law dictates. Taking a step away from a legal perspective and viewing things practically, having excessively restrictive terms of service could easily lead to user backlash in an age where one tweet can set off a firestorm. As discussed above, Linden has already been sued by its customers for issues relating to its terms of service. Facebook has had to repeatedly adjust its privacy settings to match the desires of its users,[18] or else risk compromising its fickle audience. This type of factual situation would put the world owner in the uncomfortable position of having to choose between losing its users or being sued by a big company. A freestanding company that specializes in this platform would have one approach to this situation, but what happens when a Facebook or Google, with resources that dwarf even large companies, are the world owners? Such a situation would lay the groundwork for another monumental Big Biz v. Big Tech litigation, like the Viacom v. YouTube lawsuit. Yet the answer to this quandary, as with that case, would most likely come from technology that can move quicker than the law—a fingerprinting technology that could visually search for copyright or trademarks in a virtual world similar to the technology that scours YouTube for infringing content.

Conclusion

While existing trademark and copyright law and well-drafted terms of service can control the vast majority of current interactions between users, creators, companies and world owners in virtual worlds, it is inevitable that the evolving nature of these worlds will prompt novel questions of law that will have to be addressed through a technological fix, legislation or case law.

[1] Paul Lamkin, Virtual Reality Devices: $4 Billion+ Business By 2018, Forbes (Jun. 18, 2015), http://www.forbes.com/sites/paullamkin/2015/06/18/virtual-reality-devices-4-billion-business-by-2018/#1bfd6428fd92
[2] Sean Peasgood, Why Virtual Reality Will Break Out in 2015, Cantech Letter (Nov. 9, 2014), http://www.cantechletter.com/2014/11/virtual-reality-poised-create-real-profits-investors/
[3] http://www.statista.com/statistics/426469/active-virtual-reality-users-worldwide/
[4] USPTO, Serial No. 77110299.
[5] USPTO, Serial No. 77202601.
[6] Adam Garson, Real Trademarks Used In Virtual Worlds, Lipton, Weinberger & Husick (June 23, 2009), http://www.garson-law.com/real-trademarks-used-in-virtual-worlds/
[7] Sara Stefanini, Virtual Worlds Driving New Real World IP Questions, Law360 (Sept. 25, 2008), http://www.law360.com/articles/70602/virtual-worlds-driving-new-real-world-ip-questions
[8] Erin Coe, Virtual-World Conflicts Lead To Real-World Suits, Law360 (June 8, 2010), http://www.law360.com/articles/167970/virtual-world-conflicts-lead-to-real-world-suits
[9] 131 S. Ct. 2729 (2011)
[10] 547 F.3d 1095 (9th Cir. 2008)
[11] 875 F.2d 994 (2d Cir. 1989)
[12] Sean Kane, Case Law on Trademark Use In Video Games Is Evolving, Law360 (Sept. 9, 2013), http://www.law360.com/articles/469694/case-law-on-trademark-use-in-video-games-is-evolving
[13] http://fairuse.stanford.edu/overview/fair-use/four-factors/
[14] Po Yi, Jessica Borowick and Andrew P. MacArthur, Virtual Reality Creates Potentially Real Legal Issues, Mondaq (Jul. 9, 2015), http://www.mondaq.com/unitedstates/x/412502/Trademark/Virtual+Reality+Creates+Potentially+Real+Legal+Issues
[15] 17 U.S.C. 106 (2).
[16] Eric Greenbaum, Frankly, I Find Your Work Derivative: derivative works law as related to virtual reality environments and simulations, Greenbaum Patent Blog (Mar. 24, 2014), https://greenbaumpatent.wordpress.com/2014/03/24/frankly-i-find-your-work-derivative-derivative-works-law-as-related-to-virtual-reality-environments-and-simulations/
[17] Richard Acello, Virtual Worlds, Real Battles: Trademark Holders Take on Use in Games, ABA Journal (Jan. 1, 2011), http://www.abajournal.com/magazine/article/virtual_worlds_real_battles
[18] Vindu Goel, Facebook Tries To Explain Its Privacy Settings But Advertising Still Rules, The New York Times (November 13, 2014), http://bits.blogs.nytimes.com/2014/11/13/facebook-tries-to-explain-its-privacy-settings-but-advertising-still-rules/?_r=0