Fashion law meets tech: NFTs, wearables and the metaverse

Introduction

Which would you choose – a Hermès Birkin or a Birkin NFT? When earlier this year the Hermès ‘Baby Birkin’ NFT (non-fungible token) sold for USD 23,500, the choice became that much harder to make.

No wonder other fashion giants including Burberry, Gucci and Dolce and Gabbana have also ventured into the world of combining NFTs and fashion.

Opinions remain divided on the role of NFTs and the metaverse in our daily lives. To the average consumer they can appear to be the latest fad or con. Nevertheless, this trend is being taken seriously by many in the fashion industry, especially in the creation of both ‘wearables’ and online games. This in turn throws up some significant financial and legal concerns which we explore below.

Wearables

These are digital items of clothing that solely exist in this form and can be bought and sold as NFTs. Digital clothing exists for NFT avatars (digital self-forms within the metaverse) or for social media applications. The collaboration between Balenciaga and computer game Fortnite produced a range of clothes available both digitally to game-players and in real life in Balenciaga stores.

NFT enthusiasts can purchase virtual items of clothing, often in an avant-garde form which is then edited so perfectly into their social media images it is hard to tell that the virtual design is not in fact a real piece of clothing.

Dolce and Gabbana has taken a somewhat different approach through launching NFT wearables of its clothes with a platform called Polygon. This format enables the items to exist and be traded across the metaverse. They have also launched an initiative for the items to be available as both physical and digital pieces to combine the virtual world with reality.

BoohooMAN has also run its Black Friday marketing campaign set in an augmented reality which engages virtual spaces within fast fashion as well as luxury fashion houses.

Online games

Fashion brands that are engaged with the metaverse are mostly producing wearables rather than their own online games within the metaverse. Louis Vuitton, however, launched a collection of 30 exclusive NFTs within its own game which can exclusively be discovered by players. Unlike usual NFTs, these only exist within the game itself and are not able to be sold and traded.

Burberry has also partnered with Blankos to produce their own online game within the metaverse based on a character called Sharky B.

But what could go wrong financially?

The currency of choice in the metaverse is cryptocurrency and, most commonly, Ethereum with many sites including OpenSea (the most popular NFT marketplace) favouring the coin. However, Burberry’s does not run on Ethereum and instead uses a private blockchain model which involves the use of less energy and as such is more environmentally friendly.

With Ethereum or any other cryptocurrency, the key issue worrying traders is volatility. Both NFTs and cryptocurrency trading itself are highly unstable and most NFT sales rely heavily on the stability of cryptocurrencies.

The surge of online support for the emergence of NFTs from celebrities to financial commentators as well as NFT investors and collectors keeping a close eye on the next popular NFT trend to boost their presence in the community or make a quick profit is going to do little to ensure market stability. The anticipation of investors can be likened to when cryptocurrencies first entered the market. The world of NFTs does not come without a financial health warning.

And what could go wrong legally? Protect your IP

As with any new country or land (whether real or virtual) one of the first questions is how do we protect property? In the case of the metaverse, fashion brands want to ensure that the protection which they have in the real world also exists in the virtual world.

Considerable discussion is also taking place concerning the protection afforded to NFT artists and designers. How can the rights of creators and collectors be protected to stop the copying of these often one-of-a-kind tokens?

Intellectual property rights do not have the fluidity of the metaverse and as such, rights can only come within set categories. As a result it is likely that trade mark protection will be the right most frequently relied upon by fashion brands when involved with NFTs. This can be seen in practical terms through the number of applications for registration of trade marks by brands and the plethora of trade mark classes in which registration is being sought.

Bored Ape Yacht Club for example has attempted to capitalise on its success as one of the most sought after NFT projects by applying to register ‘APE’ as a trade mark in the United States. This adds to its current collection of registered trade marks as well as venturing further into merchandise and music.

Certainly NFT creators may be able to seek trade mark protection of the digital forms of their art which are often used as avatars by purchasers for their social media personas. Many NFTs are sold in themed releases such as those produced by Bored Ape Yacht Club which all feature a digital image of an ape wearing different clothes and accessories. This may lead to a brand attempting to capitalise on brand recognition in the real world through physical products requiring additional classes of trade mark and design protection.

NFTs can be displayed and used in a range of ways within the metaverse. This allows digital artwork and clothing to be displayed and unique avatars to be used across a range of platforms such as Decentraland and Roblox.

Indeed it is possible that where NFTs are put on display, such as in a virtual fashion show, within the metaverse, this may even fall under class 41 for educational or entertainment services given that the NFTs are being exhibited.

Separately, as in the real world, a failure of fashion brands to adequately set out the terms on which they are collaborating can result in problems, so too in the metaverse. A failure by a fashion brand to address the terms on which it is collaborating with a NFT vendor may result in:

1. the NFT vendor using the brand beyond the purposes which had been intended by the brand owner; or
2. the brand owner being unable to use a digital product in the future in a way in which it might otherwise have chosen to do so; or
3. both.

As in the real world, the answer for the fashion brand is to ensure that any collaboration agreement involving the brand reflects its intentions.

Take home points

Imagine if an influencer could buy a brand new outfit at the touch of a button with zero waste or you could attend an entirely virtual fashion show and feel as though you are there. This is now reality. No wonder therefore that the metaverse is said to be ‘the future of the internet’ and fashion brands are increasingly involved in this new world.

But as with any new world, failure to take care of the brand by putting in place adequate trade mark protection will only result in third parties seeking to take advantage as they engage in trade mark piracy and other forms of brand degradation in the virtual world.