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IP Pitfalls in Virtual Worlds: Issues to Consider During Development

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The market for Virtual Reality (VR) and Augmented Reality (AR) technologies has been projected at $150 billion in 20201 and $209.2 billion in 2022.2 As VR/AR technologies are developed, there are important intellectual property (IP) issues that should be considered to avoid or mitigate legal risk that could derail the profitability of VR/AR systems. This article provides a brief overview of IP issues relevant to VR/AR, including real-world IP rights in VR/AR, virtual IP rights in the real world, patent rights, copyrights, and the right of publicity.  Given how new VR/AR technologies are, these issues largely involve open questions as to how IP law written for the “real” world might be shaped to fit the virtual world.

Defining VR/AR. Terminology can be confusing for these new technologies, so a brief definition of VR and AR is useful in any discussion relating to them. For purposes of this article, VR consists of a three-dimensional, virtual world that allows users to immerse in, interact with, and navigate through different environments. This immersion into an environment is a perception of being physically present in the virtual world while being generally unaware of the outside world. VR systems typically use headsets and tracking sensors to provide the immersive environment. These environments often provide a 180-degree or 360-degree field of view, are self-contained, and do not allow users to interact with the real world around them. Examples of existing VR systems include the Oculus Rift and the HTC Vive systems. In contrast, AR, also known as Mixed Reality, contains a live view of the real world and superimposes virtual, computer-generated elements on top of the live view. The superimposed elements can include text, sound, graphics, or video. Examples of existing AR systems include Pokémon Go and photo filter apps like Snow, Masquerade, BOO!, Camera360, and Face Swap Live.

Real-World IP Rights in VR/AR. Who owns the IP rights to a virtual phone created by a user that includes a trademark (e.g., a famous logo)? Or who owns the IP rights to a virtual bottle of soda with a famous logo on it? The logo owners likely think that they own the copyright and trademark rights in the virtual phone logo or soda logo. Yet a hurdle the IP owner may face is whether the scope of its trademark covers only real goods or could be extended to cover those intangible, virtual goods. For example, Marvel Enterprises sued NCSoft (the maker of the City of Heroes virtual world) for providing development tools to its players to design superhero costumes for their avatars that allegedly infringed trademarks and copyrights in well-known superheroes like Spiderman, the Incredible Hulk, Wolverine, and Captain America.3 The court rejected Marvel’s trademark claims on the bases that the players did not use the marks in commerce and the use of Marvel superhero names by players within the game was not an infringing use.4 Another hurdle the IP owner may face is proving damages from the use of their IP in a virtual platform. If sales of the tangible, trademarked goods are not impacted by the virtual goods, how can the IP owner then show damages? Brand owners seeking to avoid this problem may consider entering into contracts with the manufacturer of a VR/AR system to license and clearly establish IP rights in any logos or trademarks used in the systems. For example, brand owners could work with a VR platform to provide a license for virtual products that use their IP and allow users to virtually incorporate those trademarked or copyrighted products into their virtual experiences.

Virtual IP Rights in the Real World. Does a user of a VR system who creates virtual content using that VR system own the IP rights in her creation? Generally, the author or inventor of a work owns the intellectual property in it, unless that author or inventor expressly assigns her intellectual property rights in a written agreement. VR systems allow for the creation of virtual worlds and virtual products (e.g., houses, cars, phones, etc.) that conceivably could have associated protectable IP rights. Consequently, a clear agreement on who owns the IP is very important for both the creators and users of any VR platform. The company owning the VR platform could require terms of use where users assign their IP rights to the VR platform. Alternatively, the terms of use could let users keep the IP rights in their creations but require in return a license to use any IP created in the VR platform. A good starting point for developers in creating these terms of use may be current best practices adopted by other game and app ecosystems, such as Steam, Google Play, and iOS. VR platform providers should also keep in mind that users of VR platforms may come from many different countries, each of which may have laws governing the ownership and use of IP. On a separate but related note from an AR perspective, can an owner of a famous building stop a user or platform owner from identifying its building in a negative manner? In other words, who owns the rights to superimpose information on real world locations? Although this is currently unclear, an AR platform may benefit from terms of use allowing the removal or alteration of superimposed information. 

Patent Rights. VR/AR technologies are rapidly maturing, and the patent landscape in this field is becoming increasingly crowded. In 2017 alone, there were 11,307 VR/AR patent filings globally, which represents more than a 400% increase from 2012 (2,650 VR/AR patent filings).5 Because the VR/AR patent landscape is becoming increasingly crowded, stakeholders need to carefully consider how to mitigate the risk of patent infringement while still protecting their contributions. Options for risk mitigation and protection with regard to this growing landscape include performing patent clearance studies, whitespace studies, and patentability searches.   

Copyrights. VR/AR environments provide countless options to display creative text, images, music, and videos with the potential risk of infringing a copyright, such as the infringement of the exclusive rights of reproduction and alteration.6 By including copies of artwork, music, videos, or other copyrighted material in an AR/VR environment, the exclusive right of reproduction is straightforwardly implicated. Even further, AR/VR software and environments allow a user to modify or change those works, such that there is a potential for creating derivative works by simply taking pictures or videos of surroundings and overlaying virtual elements on those surroundings. The fair use doctrine may protect some of these uses. Fair use is meant to ensure that some uses of copyrighted material do not require permission or payment, such as teaching, scholarship, research, news reporting, comment, and criticism. When faced with claims of copyright infringement, an alleged infringer may claim the statutory defense of fair use that requires weighing four factors:

  1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
  2. the nature of the copyrighted work;
  3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
  4. the effect of the use upon the potential market for or value of the copyrighted work.7

Courts have clarified the first factor and found that a “transformative” use, where the source work is used in completely new or unexpected ways, is a fair use.8 Examples of transformative fair uses include parody 9 and new technologies.10 If faced with a claim of copyright infringement, VR/AR platform providers and users may analogize to the Kelly v. Arriba-Soft case 11 and claim a transformative fair use because the use is not merely retransmitted in a different medium but serves a different function by improving access to information. However, the outcome of a fair use defense is unpredictable because the defense requires a flexible, case-by-base analysis where no single factor is decisive. It remains to be seen how copyright protection and enforcement will play out in virtual worlds.

Right of Publicity. Individuals generally can control how their likeness, image, and persona are used commercially under right of publicity claims. Many states recognize right of publicity tort claims based on common law, state statute, or both. The elements of a right of publicity claim vary, but common elements include: (1) use of someone’s name, identity, likeness, or persona; (2) through which use the defendant received a commercial advantage; (3) the use was made without the person’s consent; and (4) injury to the plaintiff.12 This right of publicity can include recognizable attributes or mannerisms, such as voice, signature, gestures, biographical information, and many others.13 Just like marketers must obtain permission for real people to appear in their advertising, virtual marketers should obtain permission for any commercial use of an individual’s publicity rights in the virtual world.

Conclusion. Because of the rapidly changing VR/AR technology and legal landscape (including a lack of substantive case law in some areas), intellectual property rights in your virtual world should be carefully considered and protected on an ongoing basis.

1 Tim Merel, Augmented and Virtual Reality to Hit $150 Billion, Disrupting Mobile by 2020, TechCrunch (Apr. 6, 2015), https://techcrunch.com/2015/04/06/augmented-and-virtual-reality-to-hit-150-billion-by-2020/.

2 Forecast augmented (AR) and virtual reality (VR) market size worldwide from 2016 to 2022, Statista, https://www.statista.com/statistics/591181/global-augmented-virtual-reality-market-size/ (last visited Jun. 29, 2018).

Marvel Enterprises, Inc. v. NCSoft Corp., No. CV 04-9253, 2005 WL 878090, at *4 (C.D. Cal. Mar. 9, 2005).

4 Id.

5 Garrett Padilla, Transformational technology: A look at the virtual reality patent landscape, Derwent Innovation, (Feb. 6, 2018).

6 17 U.S.C. § 106.

7 17 U.S.C. § 107.

8 Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994).

9 Id. (holding that 2 Live Crew’s use of the opening tag and the words (but not the melody) from the first line of the song “Pretty Woman” (“Oh, pretty woman, walking down the street”) was transformative where the rest of the lyrics and the music were different); Leibovitz v. Paramount Pictures Corp., 137 F.3d 109 (2d Cir. 1998) (holding that a movie company’s use of a photo of a naked pregnant woman onto which it superimposed the head of actor Leslie Nielsen, which was a parody of a famous photo taken by Annie Leibovitz of the actress Demi Moore for the cover of Vanity Fair magazine, was a transformative fair use because it imitated the photographer’s style for comic effect or ridicule).

10 Kelly v. Arriba-Soft, 336 F.3d 811 (9th Cir. 2003) (holding that search engine’s use of thumbnails of copyrighted images was transformative fair use because the search engine’s use created a different purpose for the images, i.e., the search engine used smaller, lower-resolution images to improve access to information and not for artistic expression).

11 Id.

12 See, e.g., Eastwood v. Superior Court for Los Angeles Co., 149 Cal. App. 3d 409 (1983); see also Cal. Civ. Code § 3344(a); N.Y. Civ. Rights Law § 51.

13 Ind. Code § 32-36-1-7 (“As used in this chapter, ‘right of publicity’ means a personality’s property interest in the personality’s: (1) name; (2) voice; (3) signature; (4) photograph; (5) image; (6) likeness; (7) distinctive appearance; (8) gestures; or (9) mannerisms.”); Hart v. Electronic Arts, Inc., 717 F.3d 141 (3d Cir. 2013) (holding that the college football player’s likeness (including his biographical information) in a video game was not a transformative use that would escape his right of publicity claim).

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