The metaverse, a collective term for persistent, interconnected virtual worlds where users interact through digital avatars, has rapidly evolved from a science fiction concept into a commercially significant reality. Platforms such as Decentraland, The Sandbox, and Roblox now host millions of users who buy, sell, and create digital goods, attend virtual events, and conduct business transactions with real economic value. Major brands including Nike, Gucci, and Samsung have established virtual storefronts and experiences, signalling that the metaverse is not merely a gaming phenomenon but an emerging commercial frontier.
Yet this rapid expansion into virtual spaces has created a complex web of intellectual property challenges that existing legal frameworks were never designed to address. From the ownership of digital collectibles to the unauthorised use of well-known trademarks on virtual goods, the metaverse is forcing lawmakers, businesses, and IP practitioners to reconsider fundamental assumptions about how intellectual property rights operate when the boundaries between the physical and digital worlds dissolve.
Digital Collectibles, NFTs, and Virtual Property
Non-fungible tokens, or NFTs, emerged as one of the most visible and controversial innovations associated with the metaverse economy. An NFT is a unique digital token recorded on a blockchain that can represent ownership of a digital asset, whether artwork, music, video, virtual real estate, or in-game items. The global NFT market surged to billions of dollars in transaction volume, creating new revenue streams for creators and brands while simultaneously raising fundamental questions about what exactly buyers acquire when they purchase an NFT.
A critical distinction that many participants in the NFT market overlook is the difference between owning a token and owning the intellectual property rights in the underlying work. Purchasing an NFT typically grants the buyer ownership of the token itself and, depending on the terms of sale, certain limited rights to display or use the associated digital asset. However, the copyright in the underlying artwork, music, or other creative work generally remains with the original creator unless explicitly transferred through a separate assignment agreement. This misunderstanding has led to numerous disputes where NFT buyers assumed they had acquired rights they never actually received.
Virtual real estate presents similar complexities. In platforms like Decentraland, users purchase parcels of virtual land as NFTs, building virtual structures and experiences on them. While the blockchain records ownership of the token, the legal status of these virtual property rights remains largely untested. Questions about whether virtual land constitutes property in any legally recognised sense, what happens when a platform shuts down or changes its terms of service, and how disputes between virtual landowners should be resolved remain without clear answers in most jurisdictions.
The MetaBirkin Case: Trademarks in Virtual Worlds
Perhaps no case better illustrates the collision between traditional trademark law and the metaverse economy than Hermes International v. Mason Rothschild. In this landmark dispute, Rothschild, a digital artist, created and sold a series of NFTs depicting fur-covered handbags he called "MetaBirkins," clearly evoking the iconic Hermes Birkin bag. Hermes sued for trademark infringement, arguing that Rothschild's use of the "Birkin" name and the distinctive trade dress of its handbag confused consumers and diluted its famous mark.
Rothschild defended his work as protected artistic expression under the First Amendment, arguing that the MetaBirkin NFTs were commentary on fashion, consumerism, and the fur trade. A jury ultimately found in favour of Hermes, and a US federal judge permanently blocked Rothschild from selling or marketing the MetaBirkin NFTs. The court's decision was significant because it confirmed that established trademark rights extend into virtual and digital spaces. The ruling made clear that the mere act of creating an NFT does not transform commercial activity into protected speech, and that trademark owners can enforce their rights against unauthorised uses in the metaverse just as they would in the physical world.
The MetaBirkin case has become an essential reference point for brands seeking to protect their intellectual property in virtual environments. It establishes that the principles of likelihood of confusion, dilution, and unfair competition apply regardless of whether the infringing goods exist as physical products or as digital tokens on a blockchain.
Avatar Identity and Celebrity Likeness
The metaverse also raises important questions about the use of personal identity, celebrity likeness, and well-known characters in virtual spaces. Users routinely create avatars that resemble real people, fictional characters, or incorporate elements of well-known brands. While some degree of personalisation is expected in virtual worlds, the line between innocent customisation and actionable infringement becomes blurred when avatars are used commercially or in ways that trade on the goodwill associated with a celebrity or brand.
The case of Rihanna v. Arcadia Group (Topshop) provides an instructive analogy. Although decided before the metaverse era, the UK High Court found that Topshop's unauthorised use of a photograph of Rihanna on a t-shirt constituted passing off, as consumers were likely to believe the singer had endorsed or was associated with the product. Applying similar reasoning to the metaverse, the creation and sale of avatars, virtual clothing, or accessories that closely replicate a celebrity's likeness or a brand's distinctive features could give rise to claims of trademark infringement, passing off, or violation of personality rights.
As metaverse platforms increasingly incorporate virtual fashion, digital wearables, and branded experiences, the potential for disputes over avatar identity and character likeness will only grow. Brands and celebrities will need proactive strategies to monitor and enforce their rights across multiple virtual platforms.
Malaysian IP Framework and Virtual Worlds
Malaysia's intellectual property framework, while robust in many respects, was not drafted with virtual worlds in mind. The Trade Marks Act 2019 protects marks registered in connection with specified goods and services classified under the Nice Classification system. A key question is whether trademark registrations covering physical goods, such as Class 18 for leather goods or Class 25 for clothing, extend to virtual versions of those same products sold in the metaverse. In theory, a brand seeking comprehensive protection may need to consider additional registrations in classes covering digital goods and services, such as Class 9 for downloadable digital files and Class 42 for software-related services.
Similarly, the Copyright Act 1987 protects original artistic and literary works, which would encompass original digital artwork, 3D models, and other creative content created for or within virtual environments. However, the Act's application to user-generated content within metaverse platforms, where assets are often created using platform-provided tools and are subject to the platform's terms of service, raises questions about the interaction between statutory copyright protection and contractual arrangements.
Determining the rightful owner of virtual creations is particularly challenging in the metaverse context. When a user creates a virtual building using a platform's construction tools, built on virtual land represented by an NFT, incorporating textures licensed from a third-party marketplace, the resulting creation involves multiple layers of rights that may belong to different parties. Untangling these overlapping claims requires careful analysis of platform terms, licensing agreements, and applicable copyright principles.
Adapting Legal Frameworks for the Virtual Economy
The rapid evolution of the metaverse demands that legal frameworks adapt to balance the promotion of innovation with the protection of intellectual property rights. Several approaches are being explored globally. Some jurisdictions are updating their trademark classification systems to explicitly accommodate virtual goods. Others are considering new regulatory frameworks for NFTs and digital assets that address consumer protection, disclosure requirements, and the relationship between token ownership and IP rights.
For Malaysian businesses and creators engaging with the metaverse, the current period of legal uncertainty creates both risks and opportunities. Those who move early to establish strong IP foundations, including comprehensive trademark registrations covering digital goods, clear licensing terms for virtual content, and robust monitoring of unauthorised uses across platforms, will be best positioned to protect their interests as the legal landscape evolves.
Key Takeaways
- The metaverse raises unprecedented IP challenges involving NFT ownership, virtual property rights, and the application of trademark law to digital goods.
- Purchasing an NFT does not automatically transfer the copyright in the underlying work; buyers and sellers must clearly define the scope of rights conveyed.
- The Hermes v. Rothschild (MetaBirkin) ruling confirmed that trademark rights apply equally in virtual spaces, and creating NFTs does not shield commercial activity from infringement claims.
- Avatar identity disputes and unauthorised use of celebrity likeness in virtual worlds may give rise to trademark infringement and passing off claims, as illustrated by cases like Rihanna v. Topshop.
- Malaysian businesses should consider registering trademarks in classes covering digital goods and services to ensure protection extends to virtual environments.
- Legal frameworks globally are evolving to address virtual world IP issues, and early movers who establish strong IP foundations will be best positioned as the law develops.