IP Protection for Virtual Goods in the Metaverse: Challenges and the Way Forward

13 hours ago
6 min read

Introduction

The Metaverse has rapidly evolved from an imaginative science-fiction construct into a functioning digital environment where users interact, trade, and participate in virtual economies. Platforms such as Fortnite, Roblox, Meta’s Horizon Worlds, Decentraland, and Sandbox allow users to purchase and showcase virtual clothing, digital artworks, music tracks, avatar accessories, and even virtual plots of land. These assets—commonly referred to as virtual goods—often involve real monetary value and can be acquired with fiat currency or cryptocurrencies.

The expansion of virtual goods raises crucial legal questions for intellectual property (IP). Traditional IP frameworks were built with physical markets or early web platforms in mind, not immersive, decentralized digital spaces. As companies, creators, and brands engage in the Metaverse, questions surrounding ownership, infringement, and enforceability are becoming more prominent. This article examines how IP laws apply to virtual goods, highlights the key legal challenges, and discusses potential policy responses.

Understanding Virtual Goods

Virtual goods are digitally created items intended for use in online, augmented, or virtual reality environments. Common examples include:

Avatar clothing and character skins
Digital fashion accessories
Virtual homes, buildings, or land plots
Soundtracks, audio effects, and musical loops
Artistic 2D or 3D models
NFT-based collectibles

These items can involve different branches of intellectual property law:

Copyright protects artistic and creative works, including digital art and 3D models.

Trademarks safeguard branding elements such as names, logos, and logos used on digital items.

Design rights may apply to the unique appearance or configuration of digital objects.

Thus, virtual goods operate at the intersection of several overlapping IP regimes.

Applying IP Law to Virtual Goods

IP law can theoretically extend into the Metaverse, but practical enforcement becomes complex in borderless digital environments.

3.1 Copyright

Digital artwork and illustrations
3D avatar models and animations
In-game cinematics and soundtracks
Software code

If a designer creates a unique 3D backpack for avatars, that creator owns copyright over the design. Unauthorized copying, distribution, or adaptation of these digital items constitutes infringement. Since digital objects can be duplicated infinitely without degradation, infringement can scale quickly and harm original creators.

3.2 Trademark

Major consumer brands are increasingly entering the Metaverse. The Trademark law is designed to preclude confusion with regard to the origin or approval of goods. Examples include:

Displaying branded sneakers on avatars without permission
Selling NFT images bearing famous logos
Using real-world brand names to promote virtual goods

Such misuse can mislead users and dilute brand identifiers. Companies like Nike, Gucci, and Balenciaga are already licensing digital products for virtual platforms, reinforcing trademark relevance.

3.3 Design Rights

Design rights protect the unique visual features of products, including shape, pattern, and ornamentation. Although rarely invoked in Metaverse disputes so far, design rights may become more relevant as digital fashion, NFT art, and virtual collectibles gain market importance.

4. Key Legal Challenges in the Metaverse

As virtual economies expand, several unresolved legal problems emerge.

4.1 Ownership vs Licensing

Purchasing a virtual item does not necessarily translate to full ownership. Most platforms rely on Terms of Service (ToS) or End-User License Agreements (EULAs) that grant a limited license to use digital goods.

This means:

Users rarely obtain property rights
Virtual goods may be non-transferable
Resale is often prohibited
Platforms can unilaterally restrict usage

This clash between perceived ownership and contractual licensing creates confusion for users and complicates IP protection.

4.2 Jurisdiction and Enforcement

IP rights are typically territorial—they apply within national borders. The Metaverse, however, operates across multiple jurisdictions simultaneously.

Key enforcement challenges include:

● Identifying applicable law

● Determining where infringement “occurs”

● Coordinating cross-border remedies

● Collecting evidence from decentralized servers

Traditional legal systems struggle to adapt to environments where geographic boundaries are irrelevant.

4.3 Virtual Counterfeiting and Trademark Misuse

Counterfeiting in virtual worlds is increasingly common. Examples include:

Unauthorized virtual handbags with luxury logos
Fake digital sneakers sold on gaming platforms
NFT images mimicking well-known fashion houses

Such actions can confuse consumers and dilute brand value. The risk increases in decentralized ecosystems where anonymity and cryptocurrency transactions reduce traceability.

4.4 Copyright Infringement

3D models and visual assets can be extracted, copied, and redistributed with minimal technical skill. Easy access to modeling software and capture tools leads to:

● Rapid duplication of protected assets

● Difficulty in detecting original sources

● Lack of platform-level reporting mechanisms

This creates a challenging environment for artists, developers, and publishers.

4.5 NFTs and Smart Contract Misunderstandings

Some virtual goods are tied to NFTs (Non-Fungible Tokens) stored on blockchain networks. Although marketed as “ownership”, NFTs typically only prove that a buyer owns a digital token, not the underlying IP. Buyers may assume copyright is transferred when in reality only a display license is granted. This mismatch between perception and legal reality has already resulted in disputes.

Illustrative Case Developments

Real-world cases help illustrate how courts view digital IP disputes.

**Hermès v. Rothschild – The MetaBirkin Case*^[1]***

An artist sold “MetaBirkin” NFTs featuring fur-covered Birkin bags. Hermès claimed trademark infringement and dilution. A U.S. jury ruled in favor of Hermès in 2023, holding that virtual goods can infringe trademarks when they mislead consumers regarding endorsement.

**Nike v. StockX*^[2]***

StockX issued NFTs linked to Nike sneakers without Nike’s authorization. Nike alleged trademark infringement and false association. The case underscores uncertainty surrounding NFT-linked products and highlights the need for trademark clarity in virtual markets.

These disputes confirm that courts can and will extend trademark and copyright principles to digital environments when confusion or misappropriation is involved.

The Indian Legal Context

India currently lacks Metaverse-specific regulation, but existing IP and cyber laws can apply indirectly:

The Copyright Act, 1957 protects digital artwork, music, and software.
The Trade Marks Act, 1999 prohibits unauthorized brand usage that causes confusion.
The Information Technology Act, 2000 governs electronic transactions and cyber conduct.
The Consumer Protection Act, 2019 can address misleading digital commerce.

India’s gaming, Web3, and NFT communities are growing rapidly. As adoption expands, issues such as cross-border enforcement, licensing norms, and classification of digital property may require legislative guidance.

Policy and Industry Recommendations

To support innovation while safeguarding IP in the Metaverse, reforms could focus on:

Recognition of Digital Assets: Clarifying whether virtual goods are treated as property, licenses, or intangible assets.

Standardizing NFT Licensing Terms: Encouraging transparent token sale agreements clarifying IP and ownership.

Strengthening Platform Accountability: Requiring takedown and reporting mechanisms similar to online copyright enforcement.

International Cooperation: Establishing cross-border mechanisms for IP enforcement.

User Awareness: Educating consumers about the difference between token ownership and copyright ownership.

These steps could create a more predictable environment for creators, consumers, and brands.

Conclusion

Virtual goods have become integral to emerging Metaverse economies. Brands, developers, and consumers are investing real resources into intangible digital products that carry social and commercial value. While existing IP frameworks offer a foundation for protection, important gaps remain around ownership, jurisdiction, and enforceability. Addressing these challenges will require a combination of legislative updates, platform-level solutions, and international cooperation. A balanced regulatory environment will ensure that creativity and innovation can thrive while protecting legitimate rights holders in the evolving virtual landscape.

Author: - Rishabh Jain, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.