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Many of the legal issues that arise (or will arise) in connection with virtual reality are tried and true intellectual property issues that are not unique to VR, but many have a unique spin given the unexplored U.S. legal terrain of the technology.
1. Issues Relating to Disputes Over Ownership of VR IP. As evidenced by the recent $500 million verdict against Oculus in favor of Zenimax, disputes over ownership of the underlying VR IP technology are going to be frequent and hotly litigated, as billions of dollars can ride on the outcome. Set out below is a summary of the various theories that will be litigated, and the Zenimax v. Oculus case involved almost all of them.
- a. Patents. Under U.S. patent law, the first person to apply for a patent that is subsequently granted for a novel, non-obvious invention has a monopoly on that invention for twenty years. Unlike copyright law (discussed below), it does not matter if the later infringing invention is independently created. There will be endless disputes over whether a particular VR patent is being infringed by other VR technology, particularly given how fast VR technology is evolving since it will be difficult to tell a “novel” invention from a mere modification of an existing one. To add to the fun, in 2014 the Supreme Court in Alice Corp. v. CLS Bank International held that software implementation of an escrow arrangement was not patentable because it was an implementation of an “abstract idea.” You can bet that whoever is being accused of infringement of a VR patent will claim that the patented invention is a non-patentable implementation of an “abstract idea.”
- b. Copyright. Under the U.S. Copyright Act, anyone that creates an original work in a tangible medium (including technical drawings and software code) is entitled to prevent anyone else from copying or using that work for ninety-five years (for a work made for hire) or life plus seventy years (for an individual creation). A work does not need to be registered to be entitled to protection, but it needs to be registered to initiate a lawsuit. Unlike patent law, the Copyright Act does not prevent similar (even identical) works if the second work was independently created without knowledge of the original work. If there is some copying, the courts typically look to whether the allegedly infringing work is “based upon” or “substantially similar to” the original work, and third parties are allowed to use the “ideas” contained in the original work as long as they don’t copy the “expression” of those ideas from the original work. As with all other copyrighted works, there will be mountains of litigation over whether copyrighted VR IP is being infringed, and indeed the jury in Zenimax v. Oculus found that Oculus was liable for $50 million for infringing Zenimax’s copyrights in its VR software.
- c. Trademark. Trademark law protects against the unauthorized use of a trademark in a manner that would cause a reasonable consumer to believe that the trademark owner either (i) was the source of the goods or (ii) endorsed or sponsored such goods. Thus, you can’t sell sugar water using the name Coca-Cola. The jury in Zenimax v. Oculus found that the defendants had engaged in trademark infringement (although it was not clear what Zenimax trademarks Oculus was supposedly using), but oddly assigned no damages for this claim.
- d. False Designation of Origin. A concept related to a trademark is a claim for false designation of origin of the goods. This claim is usually thought of as similar to a trademark claim (i.e., one competitor can’t sell its products using the name or trademarks of another), but the jury in Zenimax v. Oculus held the defendants liable for $250 million on this claim, apparently on the basis that Oculus held itself out as the creator of the invention and did not attribute ownership to Zenimax.
- e. Contract. Another potential claim is good ol’ breach of contract. Binding contracts can be written, oral, or implied-in-fact by course of conduct. For example, if a contract says (or is interpreted to say) “thou shalt not take our IP,” and the IP is taken, there is going to be a contract claim in addition to any other causes of action. In Zenimax v. Oculus, one claim that prevailed (to the tune of $200 million) was based on a written contract clause that basically said: “thou shalt not disclose our IP to others.” In the film world, it is quite common to see contract claims based on implied-in-fact contracts: “By using the idea I submitted to you, we formed an implied-in-fact binding agreement that you would pay me the fair value of it.” It is an absolute certainty that this kind of claims will crop up in VR litigation.
- Another key fight that will be fought in the contract arena is who owns VR rights under existing contracts that were drafted before VR was even contemplated. This issue will be similar to the battles over who owns video on demand rights under contracts that were drafted before those rights existed. For example, if a studio granted video game rights to a gaming company, the gaming company may be able to claim ownership of VR rights depending on how the contract is drafted. Going forward, it will be critical to draft contracts with scalpel-like precision to allocate exactly who owns what VR rights.
- f. Theft. Theft claims come under many different names, including conversion, misappropriation, unjust enrichment, and implied-at-law contract, but the claim always boils down to “You took something that belonged to me.” The jury in Zenimax v. Oculus found that the defendants were not liable under any theft theories, which seems strange given the size of the verdict on other claims.
- g. Other Claims. There are a number of other potential claims too numerous to cover here, including interference with contract, interference with prospective business advantage, and unfair competition. Most of them can be summed up with “We don’t like what you did, and we don’t know what else to call it.”
2. Issues Relating to the Content of VR. The next set of legal issues are claims relating to the content of the VR itself. What can and can’t be included in the VR content? Most of the claims will fall into three categories - copyright, trademark, and right of publicity.
- a. Copyright. As discussed above, the Copyright Act protects the owner of an original work from third parties copying that work. Critically, there is a defense called “fair use” that in theory protects some copying based on weighing certain factors set out in the statute, but in practice it all comes down to what a particular judge or jury thinks is “fair,” so there is usually little comfort in relying on the fair use defense. Importantly for VR that incorporates cityscapes, owners of the buildings that appear in the VR cannot make copyright claims for such use.
- If a user, and not the VR company, inserts unauthorized copyrighted material into a metaverse, only that user should be liable for infringement and not the VR company, as the VR company should be protected by the safe-harbor provisions of the Digital Millennium Copyright Act (DMCA), and third parties can use the takedown notice provisions of the DMCA to have the copyrighted material removed.
- b. Trademark. As discussed above, trademark law protects against the unauthorized use of a trademark in a manner that causes a reasonable consumer to believe that the trademark owner either (i) was the source of the goods or (ii) endorsed or sponsored such goods. What if the VR experience lets you drive a Ferrari or wear a Bijan suit, as will surely happen? Will you think that Ferrari or Bijan either created the VR experience (unlikely) or sponsored the VR experience (maybe)? This is a far cry from seeing a Ferrari drive across the screen in a movie, and while a number of brands have sued for such use in films, they have all lost because the audience would not think that Ferrari had produced or endorsed the movie. The brands should find much better traction if the VR company allows the user to interact with the product in VR, particularly if the user has to pay virtual or actual cash to use that product. The outcome, in that case, should be no different than the sale of toy Ferraris, which requires a license from Ferrari.
- What if the user, and not the VR company, imports the trademarked item into a metaverse where other users can see it? Indeed, what if the user can sell the trademarked item they imported for virtual or actual cash? The safe-harbor provisions of the DMCA do not protect VR companies from trademark claims, but by analogy to general trademark infringement cases (such as Tiffany v. eBay), the VR companies should be protected from contributory infringement claims as long as they either are not aware of the conduct or take actions to remove the infringing content if they become aware of it. The difficulty here is that once a VR company becomes aware of use of a trademarked item that is imported by a user, the VR company will have to make a determination of whether the user’s use of the trademark in the VR experience is itself trademark infringement, which as discussed above is not a simple question.
- c. Federal Trademark Anti-Dilution Act. Under the Federal Trademark Anti-Dilution Act, nationally known brands can sue if the use of their trademark by others in advertising or branding a product “tarnishes” or “blurs” the trademark. This Act applies whether or not consumers are confused as to the source of the goods, so it is more analogous to a copyright claim than a trademark claim. Thus, VR companies would be wise to not include any images of nationally known brands in their advertisements, such as on-line trailers, teasers, or opening web pages.
- d. Right of Publicity. The simplest way to conceptualize the right of publicity is to assume that, putting aside defenses (discussed below), there is a prima facie case anytime anybody uses anyone else’s name, likeness, or voice (referred to herein as “persona”) for any reason. Note the breadth of the action: Anyone can be a plaintiff, not just celebrities. Also, the right applies to any use, not just a commercial use. It does not even require the use of the plaintiff’s actual persona; liability can be based on the use of the plaintiff’s nickname or a “look-alike” or voice imitation. The case law is hopelessly muddled on defenses, which vary from state to state. One defense is if use of the persona is fleeting or “incidental,” but the most important defense for VR is reliance on the First Amendment, and unfortunately, there is at least a three-way split of authority on this issue: (i) some states give complete protection for any form of entertainment, art, or other expressive work other than advertising (referred to herein as “expressive works”), which would include VR, (ii) some states (including California) give protection for expressive works only if use of the persona is “transformative” (a rather slippery concept in practice) or the person is dead, and (iii) yet other courts give protection to expressive works only if the predominant purpose of the use of the plaintiff’s persona is to make a comment about the plaintiff, such as a parody directly relating to the plaintiff, as opposed to a predominant purpose of merely exploiting the commercial value of the plaintiff’s persona. So whether a VR company can use a celebrity’s persona in the VR experience may depend on the state where the lawsuit is brought. At a minimum, the persona should be made to be “transformative,” since it will then meet the protection given by states that give complete protection for expressive works and states that give protection only for transformative works.
- As with the other causes of action, the issue will arise as to the potential liability of the VR company if the user, and not the VR company, imports a third-party’s persona to the VR experience, particularly in a metaverse. As with trademark claims, the safe-harbor provision of the DMCA does not apply to protect on-line hosting companies against right of publicity claims, and there is a split of authority on whether the Communications Decency Act protects on-line hosting companies from such claims. Thus, the safe assumption is to assume that the VR company may be subject to such claims, in which case the best course of action is for the VR company to stop any obvious use of third-party personas, such as celebrities, by users.
3. Claims by Users Against VR Companies. There are going to be numerous claims by users against VR companies, particularly for personal injuries. Most VR requires the use of an HMD so the user cannot see the actual environment they are in. If they attempt to walk around at home, they could trip and possibly fall down stairs or through a window. There are dangers even without an HMD; several car accidents occurred from distracted drivers using Pokémon Go. VR can be so real and scary that 30% of participants could not make it across a room with a VR simulated tightrope walk between the twin towers, so there may even be a few heart attacks. VR can also cause significant nausea to the point of vomiting when the visuals do not align with body movement. Some people may become addicted to VR, and some may be traumatized by events that occur in VR. Without question, there are going to be suits for negligence and product liability against VR companies and the suppliers of any hardware, software, and content.
Even beyond physical injuries, there will be the standard boatload of class actions for violating privacy or data mining laws or for damages after the inevitable hacking of personal or credit card information. The privacy claims will be particularly acute since some VR companies will scan the user’s face and body dimensions, know what they like to look at with eye tracking, and sell that information to advertisers.
To limit potential liability for claims by users, it will be important for VR companies to have thorough binding terms of service for users that cover all these issues, including mandatory arbitration and class action waivers. Under the case law applicable to on-line contracts, the user must be required to open and click-through acceptance of the terms of service in order for those terms to be binding.
4. Claims by Third Parties Against VR Companies. Pokémon Go is causing a number of claims by third parties due to intrusive conduct of users, including private landowners and churches where the characters are placed. There are also claims by third parties injured in car accidents with distracted users. The claims will probably be based on theories of negligence, nuisance, and aiding and abetting trespass by users. The test under most claims will be whether the VR company knew or should have known of the possible consequences of its user’s actions, and any terms of service will not be binding on third parties.
5. Claims by VR Companies Against Users. VR companies are going to have some claims of their own against wayward users who hack their systems, steal data, violate digital protection anti-circumvention laws, or breach the terms of service. Most of these claims will fall under one of the categories of theft (e.g. conversion and misappropriation), liability imposed by statute, or breach of contract based on the terms of service.
6. Claims by Users Against Users. My favorite category, and thus saved for last, will be claims by users against other users for various nefarious misdeeds done in a virtual world. Every imaginable crime and tort that can be committed in the real world can be committed in a virtual world, particular in a metaverse with multiple participants. There are already reported cases of theft of virtual items that can be traded for virtual or actual cash and of sexual groping by one avatar of another, which cause genuine emotional harm to the person who was playing the groped avatar. What would be the outcome if one avatar raped another, and a user suffered post-traumatic stress syndrome as a result? What if it was a repeat offender and the VR company knew it? Such questions are not far off in our brave new VR world.