Why brands are racing to get trademarks that extend to the digital world 

The metaverse has a trademark problem — and it has many big-name brands scrambling to play defense.

The most prominent example involves Nike. In early February, the brand sued sneaker exchange StockX, accusing it of marketing NFTs with its iconic logo and brand.

StockX resells merchandise online through its marketplace and verifies the authenticity of brand-name merch. In January, the marketplace decided to sell NFTs that can be traded online and redeemed for physical goods in real life. This collection included NFTs of images that appeared to look like Nike shoes, as shown in the screenshot below. Nike alleged the NFTs constitute a trademark infringement. 

In October, Nike had filed for trademark for “downloadable virtual goods, namely, computer programs featuring footwear, clothing, headwear, eyewear, bags, sports bags, backpacks, sports equipment, art, toys, and accessories for use online and in online virtual words.” The lawsuit with StockX is still ongoing.

The core legal question here is whether current trademark law sufficiently covers digital goods, according to Mark Lee, CEO and cofounder of MarqVision, a law firm specializing in brand counterfeiting and intellectual property theft.

When you sell merchandise as an NFT, you are essentially selling computer code that displays as an image. While trademark protects against physical items like footwear, purses, clothes, legal experts aren’t yet sure if they protect against code and software.

Given this uncertainty, “brands are currently being legally advised to register new additional trademarks for NFTs, on top of their existing trademarks for physical goods,” said Lee.

That helps explain why brands from Red Bull to Wing Stop to Tommy Hilfiger have filed for NFT trademarks or trademarks that refer to “the metaverse.” 

“No general counsel wants to be left behind,” says Mike Kondoudis, a trademark attorney. “They want to close out the weakness in their brand.”

In fact, brands and celebrities are filing for NFT trademarks at a record rate. So far, in just the first three months of 2022, the government has received 1263 trademark applications that mention NFTs, according to data compiled by Kondoudis. Last year it received 1653 total.

Also on the rise are trademark applications that explicitly mention the term "metaverse." In February, there were 267 such applications filed, versus just 13 a year prior.

For example, American Express is seeking a trademark for “banking services in the metaverse and other virtual worlds.” Tommy Hilfiger's application describes “creating an online community for digital assets, non-fungible tokens, and metaverses and online world."  

Nike also isn’t alone in having filed an NFT-related lawsuit. In January, luxury fashion group Hermès sued an artist over Birkin Bag-inspired NFTs. That lawsuit is also still ongoing.

“Hermès will need to prove its trademark for leather goods extends to expressive images based on the leather goods,” writes attorney Joseph Barber in the legal analysis website Fashion Law and Business.

Barber writes that to win, Hermès will need to “demonstrate that consumers will confuse Hermès and its handbags with digital images of altered handbags using MetaBirkin.” 

Plans for 'the metaverse'?

Are all these trademarks purely about playing defense, or might they also signal a company's intent to sell NFTs or operate a store in virtual reality? Part of the answer can be found in the specific types of applications that companies are filing. 

A brand looking to trademark something has two options. A so-called 1A application is for “actual use,” and requires the company to provide evidence to the government that it is using whatever is being trademarked. For example, fashion brand Coach filed a trademark application this month based on actual use in December, when it sold virtual handbags and other NFT-backed multimedia. 

The other option is called a 1B application. Coach’s fashion peers Gucci and Prada filed for this type, which theoretically signals an “intent to use” the trademark in the future. 

According to Kondouis, however, in practice the company can delay the actual use of the trademark for up to four and a half years. That can buy time for firms wanting to defend their brand against digital copycats but which don’t yet have a specific plan to launch NFTs. He also says this is the most common type of NFT trademark application he’s been seeing so far. 

This approach can backfire, warns Kondouis. If a company files a 1B application but can’t show evidence in court that they have a “bonafide intent” to use the trademark, they may have their application rejected. “We see a lot of companies filing and overreaching,” he said.