October 13, 2022

Intellectual Property Enforcement in the Metaverse, Part 2

Metaverse Properties On the Blockchain
Holland & Knight Masters of the Metaverse Blog
Andrew N. Choi | Cynthia A. Gierhart
Masters of the Metaverse Blog

In Part 1 of this three-part blog series, we examined how intellectual property (IP) rights online are normally enforced and how that model may translate to the metaverse. In Part 2, we focus in on the implications for IP enforcement of certain metaverse properties linked to the blockchain.

Enforcement on the Blockchain

Things get more complicated when we move to metaverses that purport to be "decentralized" and provide something akin to land ownership on the blockchain. In metaverses such as Decentraland and The Sandbox, parcels of land are associated with non-fungible tokens (NFTs), where the non-fungibility of the NFT and association with a spatial location mimics the characteristics of real property. Because metaverse property is identified by coordinates (similar to a radio frequency), the Uniform Domain Name Dispute Resolution Policy (UDRP) process as applied to domain name disputes is not likely to apply to the metaverse, because metaverse lands do not use a naming convention such as a URL that would include a trademark.1

As land NFTs are stored on a decentralized blockchain (either Ethereum or another blockchain), the metaverse is in some sense decentralized since ownership of land is not determined by a single entity, but rather based on the purchase and transfer of land NFTs in the marketplace. Moreover, many metaverses are governed (or intend to be governed) by a Decentralized Autonomous Organization (DAO), whereby the metaverse is managed, not by a single corporation, but instead by a voting system, where matters relating to the metaverse are determined by a vote. Participants in the metaverse are allotted votes based on a rule, oftentimes involving ownership of lands and currency.

Even here, however, a closer look at Terms of Service clauses suggests that enforcement of intellectual property in the metaverse is still fairly traditional. The Sandbox, for instance, prohibits users from uploading or displaying user content that violates intellectual property rights and gives The Sandbox the right to moderate and review user content for intellectual property infringement. Under The Sandbox Terms of Service, The Sandbox also has the right, in its sole discretion, to accept and reject any assets and/or games that might so infringe. As with YouTube and Meta, The Sandbox Terms of Service allows Sandbox to terminate the accounts of persons who engage in infringing activity. Notably, while The Sandbox has previously stated plans to implement a DAO, as of the time of this writing, The Sandbox has not yet implemented one.

In contrast with The Sandbox, Decentraland does have a DAO in operation. Does this change the way in which intellectual property (IP) rights are enforced? Decentraland also appears to prohibit the violation of IP rights in its Terms of Service, although it does so via a DAO-approved Content Policy. Claims of IP infringement are handled by the Foundation, a nonprofit entity, purportedly independent of the founders of Decentraland, to which notices of infringement can be sent. In the case that the purported infringer challenges the notice of infringement, the DAO determines whether the subject content must be removed. As discussed earlier, this is done via a vote, where metaverse participants have votes in proportion to each participant's ownership of land or cryptocurrency (in this case, Mana). However, the Decentraland Terms of Service also appears to give the Foundation the power "at its sole discretion" to block offending content and suspend user accounts for violating intellectual property rights, "to the extent technically possible" for the Foundation to do so. So, even with an operational DAO and the existence of decentralized land ownership, the enforcement of IP rights appears to be similar in many ways to traditional enforcement.

How Will a DAO Vote?

Whether a DAO would ultimately vote to remove content that infringes is not entirely obvious. The DAO's determinations are presumably affected by a number of factors, including 1) who has voting power in the DAO, 2) how many votes they have in the DAO, and 3) who can be mobilized to vote on any particular issue. The relevance of this third factor has been demonstrated in at least one prior instance. In November 2021, a vote to ban the name "Hitler" in Decentraland passed by majority vote, but did not reach a high enough threshold of Voting Power to pass – indicating that getting sufficient interest in voting may itself be a bar to the effectiveness of a DAO. The relevance of the first two factors is not hard to see – especially in the case that motivating voting is not easy. If entities with a mutual interest in protecting intellectual property rights bought up a sufficient amount of land and cryptocurrency and voted consistently on intellectual property disputes, they could very well create an environment that looks a lot like the one outside of the metaverse. If, moreover, Decentraland's Foundation has the power to determine disputes in the metaverse and an interest in making good faith determinations over intellectual property, then enforcement may de facto be just like enforcement outside of the metaverse.

We will conclude in Part 3 with a bigger-picture analysis of the future of IP enforcement in the metaverse as a whole.


1 Note, however, at least in some metaverses, landowners can name and rename their parcels of land, and trademark infringement could occur in that scenario, but it is not a fixed identifier similar to a URL.

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