The Metaverse: Fashion’s New Frontier?

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Arent Fox

The fashion industry is known for taking creative risks, so it is understandable that the industry is taking its next steps—literally—out of this world. Big name labels and innovative fashion start-ups are setting their sights on the so-called “Metaverse,” a persistent, digital universe that transcends virtual borders and promises to be the next frontier of fashion, e-commerce, and advertising.

What Is the Metaverse?

The concept of the Metaverse can be traced back to science fiction author Neal Stephenson whose 1992 novel “Snow Crash” depicted an immersive, virtual reality-based successor to the Internet. And while this may still seem like little more than science fiction, the Metaverse is much closer to reality than most Americans realize.

For almost two decades, digital platforms like SecondLife and Entropia Universe have allowed users to immerse themselves in digital worlds where they can build communities, entertain themselves, and even earn money. Today, popular games like Fortnite, Roblox, and World of Warcraft are increasingly blurring the lines between virtual and non-virtual worlds, offering shared spaces and experiences that were previously only offered in person. Last year, for example, Fortnite hosted a digital concert with rapper Travis Scott that attracted more than 45 million viewers over five performances, while Roblox hosted a virtual concert experience with Lil Nas X that attracted more than 30 million viewers.

Growing numbers of consumers are also showing that they are prepared to spend big bucks on virtual goods and services. Despite being free-to-play, many of the most popular games today derive significant amounts of revenue by selling digital apparel, gear, loot, and other in-game perks. As the Federal Trade Commission (“FTC”) has noted, these microtransactions have become a multi-billion-dollar market.

While a true Metaverse that stitches together these various digital worlds is likely still a ways away, the technology arms race is well underway. Facebook announced this month that it has formed a new product team focused on the Metaverse, which will focus in part on “build[ing] the connective tissue between [digital] spaces.” Meanwhile, Epic Games, the studio behind Fortnite, recently announced it raised $1 billion in funding to support its vision of the Metaverse. The growing number of virtual and augmented reality devices on the market will make it even easier for consumers to traverse the boundary between virtual and non-virtual reality.

The Fashion Industry and the Metaverse

Big-name designers have already started to infiltrate the Metaverse, recognizing the enormous economic potential of digital goods. In one eye-catching example, a digital edition of a Gucci handbag (“Dionysus Bag with Bee”) sold for more than $4,115 on Roblox, a price of almost $800 more than the “real” bag, which typically sells for $3,400. The virtual bag was an in-game accessory that had no value outside of Roblox.

Similarly, in what was billed as the “first-ever collaboration between a global eSport and a luxury fashion house,” Louis Vuitton released a capsule collection for Riot Games’ “League of Legends.” The collection included pieces ranging in price from a $170 bandeau to a $5,600 leather jacket. Louis Vuitton also designed “skins” (i.e., outfits) that players could purchase for their characters for approximately $10 each.

In another collaboration, the video-game streaming service Twitch streamed the Burberry Spring/Summer 2021 show from London Fashion Week, drawing approximately 42,000 concurrent viewers.

And it’s not just the traditional fashion houses: virtual-only fashion houses are popping up as well. DressX, which produces digital fashion, recently raised $2 million in a seed round, while virtual shopping platform Obsess recently raised $13.4 million in Series A funding, one of many examples pointing to the influx of investing in virtual retail experiences.

Like any form of advertising, tapping into the Metaverse allows brands to reach audiences they otherwise might not and to connect with consumers in a medium where they are likely to be engaged, attentive, and spending a significant amount of time and money.

Legal Considerations

While it offers a great opportunity for brands, the Metaverse also presents complex legal questions for companies, particularly with respect to intellectual property. As many companies have learned, protecting and enforcing intellectual property rights on social media and digital marketplaces is often like a game of “whack-a-mole,” requiring active monitoring and enforcement programs, coordination with platform providers, and sometimes a court order to obtain the true identity of the online infringer. Developing similar programs for digital platforms as expansive as the Metaverse will be a challenge.

Trademark and copyright licensing will also have to be reassessed. Brands should consider whether license agreements, particularly exclusive license agreements, need to include carveouts for the Metaverse or other digital-only uses. Similarly, brands may need to re-evaluate franchise agreements to ensure that, for example, sales of digital apparel in the Metaverse by one franchisee will not violate the territorial rights of another franchisee.

Content creators may also have difficulty defining or restricting the territory of copyright licenses. Currently, the rights in and to TV shows, movies, music, and other creative works are typically doled out by territory, with viewers or users restricted by technologies like geofiltering. It’s not clear whether such location-based technologies will function in the Metaverse. If not, content creators will need to consider how to rethink rights ownership in the new digital frontier.

Brands may also have to reevaluate the relative strength of their trademark rights. Trademark rights are based largely on the territory or jurisdiction in which the marks are used and/or registered. Just as the Internet has helped obscure national borders, the Metaverse could erase them altogether, making it difficult to assess the location of the trademark use, whether yours or that of a possible infringer.

In the meantime, how can brands protect their digital assets? One solution may be to rely on Non-Fungible Tokens (“NFTs”). An NFT is similar to a unique serial number, certifying that a digital asset is unique. Just as a serial number can be physically stamped or imprinted on a physical good, an NFT is stored on a digital ledger called a blockchain, where information about the digital asset can be verified and authenticated. The value of NFTs and digital assets largely stems from the idea of scarcity and originality, allowing collectors to own unique digital assets like art, apparel, songs, or viral videos. By certifying that a particular digital asset is original, NFTs could help fashion brands verify whether digital apparel is real or counterfeit and help enforce restrictions or limitations on resale. Consumers, meanwhile, could use NFTs to verify that digital apparel is authentic before they purchase it.

Takeaways

Although there is great uncertainty as to how the Metaverse will play out, one thing is for certain: the Metaverse is coming, and it will likely change the fashion industry and e-commerce as we know it. High-profile brands have already begun to make an impact in the space, and those who wait may be left behind, losing the opportunity to reach a vast, engaged, and diverse customer base.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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