There’s no doubt that by now your agency has been asked by a brand client about marketing in the metaverse or creating or using NFTs in its marketing.

Even if the client (or your agency) isn’t yet ready to apply either of these strategies, conversations about them are occurring, and it’s important to at least know “what you should know” about them. Because clients will ask you soon if they haven’t already.

Let’s start with some quick background:

What’s an NFT?

A Non-fungible Token (“NFT”) is a digital file consisting of a unit of data stored on a blockchain (a form of digital ledger), that can be sold and traded. Generally, this unique unit of data represents some real-world tangible or intangible asset like art, music, videos, and in-game items and these can typically be purchased with cryptocurrencies.  Unlike cryptocurrencies, NFT’s are non-fungible (non-interchangeable) because they are each unique, with their own digital fingerprint and verifiable ownership – this is why some are changing hands at such astronomic prices.

What’s the Metaverse?

The metaverse can be described as an immersive, digital environment populated by virtual avatars representing actual people that engaged in social experiences through augmented and virtual reality technologies.  There are several versions of the metaverse with their own boundless and persistent virtual worlds in which users can interact.  Some of the more popular metaverse platforms include Decentraland (where users can explore and buy and sell digital real estate); Roblox (an online platform and storefront where users go to play games); and Sensorium Galaxy (a virtual reality social platform).  In these platforms, and others, participants can use cryptocurrencies to buy, sell and exchange digital assets like avatars, virtual clothing, NFTs and event tickets.

Because the metaverse is all about virtual social interaction, it’s a new frontier for branding, marketing and advertising opportunities – as has been made clear during the pandemic.

But caution is appropriate.  The metaverse is still in its infancy and development stages.  Some eventually foresee a metaverse where all the different platforms will connect and where there’s an actual physical infrastructure that supports the millions of users it will eventually need to sustain.  But as with new technologies, lagging regulations and legal frameworks to address emerging legal issues, such as security and privacy, may leave some vulnerable.  Nevertheless, for now it looks like the metaverse is here to stay as well as all of the marketing opportunities it can provide.

 How are Brands engaging with the Metaverse/ NFTs?

Essentially, Brands are investing in metaverse marketing to expand their reach, tap into new audiences and generate goodwill.

One way Brands are engaging with the Metaverse is through the creation of virtual experiences users can explore.  Samsung’s virtual world Samsung 837X on the Decentraland platform features a building modeled after their flagship building in New York City where users can engage in digital adventures through Samsung proprietary technology and earn 837X NFT badges.  Another famous example is Gucci’s launch of its “Gucci Garden” on Roblox, a multimedia virtual exhibit where users avatars absorb elements of the exhibits as they navigate through the different rooms, creating a unique mannequin avatar at the end.

Another way Brands are marketing on the Metaverse is through the creation of unique NFTs and listing them on NFT marketplaces like Rarible and Opensea.  Famously, Taco Bell created digital taco art NFTs which are listed for sale on Rarible, with proceeds going to The Taco Bell Foundation.   Coca-Cola similarly auctioned its first NFT, the Friendship Box (a collection of 4 NFTs), with proceeds benefiting Special Olympics International.  The winning bidder of the Friendship Box also got a physical Coca-Cola branded SMEG refrigerator stocked with Coca-Colas.

Brands are also creating unique experiences by cooperating with artists and content creators.  For instance, Ray Ban partnered with Berlin-based artist Extraweg to create an NFT glasses artwork, which will also be auctioned on Opensea.

Hyundai, with an aim to attract younger consumers, has launched a number of digital experiences which can be accessed through the Roblox platform where participants can explore and experience Hyundai Motor products, and play role-play games.

Beyond marketing directly to consumers within the metaverse or through NFT platforms, Brands also engage in traditional social media campaigns to create buzz for their NFTs and metaverse projects (Twitter appears to be the most popular platform for NFT owners to promote their own NFTs).

Ultimately, the possibilities for marketing on the metaverse abound, including:

• Marketing with NFT influencers that relate to a brand’s services or products
• Organizing a NFT giveaways as part of an upcoming collection
• Using NFT’s to authenticate branded goods
• Selling digital items such branded avatar accessories
• Giving a sneak peak of physical items on the metaverse before they launch in the real world

All of this has the potential of translating into big money, and given its current sense of novelty and lower costs of entry, some believe now is the time to start investing in metaverse marketing.

One alternate view is that NFTs and doing business in the metaverse are environmentally costly. They require energy-hungry technologies that result in a large amount of carbon emissions.  Therefore, using them may not yet be in line with a brand’s sustainability culture.

OK, so this is a law firm’s article – what about the legal implications of all of this?

Good question! Here we go:

What legal considerations should marketing agencies consider when engaging in metaverse and NFT marketing?

• Intellectual Property Licensing

Intellectual property laws will generally apply to NFT and metaverse marketing campaigns in the same way they do in the real world.

For instance, just as a fine artist retains ownership rights to their work when they sell it to a buyer, the owner of an underlying work that is represented by an NFT will retain the copyright of that work when the NFT is later sold or transferred.  Buyers of NFT’s do not obtain any copyrights in the underlying work and NFTs themselves are not copyrightable (as they are merely data stored on a blockchain).

Therefore, if your client is considering creating an NFT of any digital art or music to include in a marketing campaign, they will need an appropriate copyright license to use the underlying work for such purpose.  As a rule of thumb – if you didn’t create the underlying work, do not use that work to create an NFT unless you have written permission to include the work in the NFT.  Otherwise, you are likely infringing on the intellectual property rights of the underlying work’s owner.

This applies to trademarks as well – a brand should not seek to create (mint) NFTs that include any other brand’s trademarks or they might risk getting sued. In one such case, Nike is suing StockX, an online NFT marketplace, for launching NFTs based on Nike shoes.

• Intellectual Property Protection

On the other hand, if your agency or its client is the original author of the underlying work, that original work is protected by copyright law (or trademark law where the work is a trademark) and federal registrations should be considered in order to best protect it.

Similarly, if your agency is involved or planning to get involved in NFT marketing, you may want to ask whether your agency’s trademark registrations are broad enough to include NFT-related services.  A new trademark registration may be even be appropriate to ensure a similarly named brand doesn’t register their own confusingly similar NFT based trademarks.

Additionally, agency owners must keep in mind that if your agency is creating original work that will be used to create an NFT, unless there is an external agreement between you and your client providing for the transfer of ownership of the intellectual property rights to that work from your agency to the client, your agency will remain the copyright owner of the work.  Agency owners and their clients will want to address ownership rights to such creative works in their client services agreements.

User Terms & Data Privacy Concerns

Review the platform, software, game, or metaverse service’s user agreements when planning to launch a marketing campaign in the metaverse or selling NFTs on any particular platform.  You’ll want to watch out for any tricky language that provides that uploaded works or other business done on their platform belongs to them.

Additionally, you’ll want to see if the platform can execute a takedown in the event there is any trademark or copyright infringement of your (or your client’s) intellectual property, since finding the infringer may not be feasible given the global nature of the metaverse.

You will also want to ensure that your client services agreement disclaims all liabilities and warranties connected to NFT or Metaverse marketing.  As the metaverse marketing field, and the legal liabilities and risks associated with transacting on the metaverse, are evolving, it may not yet be possible to fully appreciate the risks associated with it.

Another key aspect your client services agreements must disclaim is liability relating to user and consumer data protection.  As with other internet-enabled platforms, privacy issues are another developing area of concern.  With the metaverse’s ability to collect vast amount of personal data from participating individuals (including biometric data such as facial expressions, vocal inflections, and vital signs in real time) companies will be able to gain a deeper understanding of users’ behavior – an advertiser’s goldmine.  This amount of data collection has attracted the scrutiny of privacy regulators across the globe and it is still unclear how metaverse platforms will protect user privacy and security.

Other Contractual Considerations:

When considering a marketing scheme that involves the minting of NFTs or launching an ad campaign on the metaverse, the parties should also consider the following discussion, negotiation and legal drafting points:

• If a brand is considering partnering with an artist or other brand to jointly create an NFT, brands will need proper license agreements (terms including defining responsibilities, platform selection, how IP will be used, who has what rights, credits and marketing, royalty sharing, dispute resolution, risk mitigation, and predicting the unknown)
• Who will have control of the underlying work once the NFT is minted?
• Who will be responsible for protecting underlying assets (i.e., registering them in the U.S. and/or abroad).

Ultimately, as exciting as the metaverse may seem at the moment, transacting in this virtual realm involves a number of risks, which should be discussed with your agency clients before taking the plunge.

And it makes sense to keep a finger on the pulse of use cases involving metaverse or NFT use in marketing. These are very early days for both and, as is the case always in marketing, technology will lead the change, followed by businesses who figure out a way to monetize these opportunities, and only then by the law to sort out issues like risk and liability.