July 09, 2015

Virtual Reality Creates Potentially Real Legal Issues

11 min

The next technological wave is bringing with it legal implications for its users, service operators, and platforms. New and upcoming virtual reality ("VR") products are increasingly garnering excitement and attention, and they are stirring up legal issues for individuals using VR ("Users") as well as the service providers and platforms providing VR (collectively, "Platforms"). Some of the key legal issues that these stakeholders, along with brands and other advertisers sponsoring and providing VR programs and campaigns ("Brands"), should consider relate to intellectual property rights, such as trademark and copyright ("IP"), and right of publicity. Generally, these legal issues are the same across the virtual and real worlds, but VR creates interesting twists in how the existing laws may apply. We highlight some of them here.

Real World Legal Rights in VR

When VR stakeholders import or incorporate music, photographs, names or likenesses of people, or brand names or logos into a virtual experience, the traditional laws of trademark, copyright, and right of publicity apply. This means that such use may require permission from the owners of the applicable rights. Whether permission is required depends on the nature of the use and the stakeholders involved.

If a User uses a real world logo on a t-shirt that the User created in VR, although the trademark rights to that logo are owned by someone else, such use may not constitute a trademark infringement, because the User is not using the logo "in commerce," which is an essential element of an infringement claim under United States trademark laws. If, however, the User starts selling the t-shirt in VR to other Users, even if the sale is conducted in virtual currency that can be used only in the User’s VR world with no equivalent value in the real world, it would be harder to argue that the User is not using the logo "in commerce."

Similarly, if a User were to create an avatar in the likeness of a real world celebrity, it is questionable whether there could be liability against the User if the User wasn't using that avatar for a commercial purpose from a right of publicity perspective. Without establishing some economic value in a person’s identity in VR, it would be difficult to argue that the User infringed on the celebrity's publicity rights. However, using the likeness of a real person, celebrity or not, could result in potentially bigger liability for the User, based on, for example, false light and defamation arising out of the User's impersonation of a real world person. Of course, if the VR experience is solely for the User's own enjoyment and is not shared with another person, there would be no such liability for the User.

Unlike trademark and right of publicity laws, copyright infringement does not require a commercial tie-in. Any reproduction, public display, public performance, or distribution of another's photograph, video, music, etc. in VR is sufficient for a copyright infringement. However, copyright protection is not absolute, and use of certain copyrighted material in VR is likely to generate vigorous discussions on fair use, a legal doctrine that specifically permits use without permission from the copyright owner. For example, if a User uses the characters from the Harry Potter book series and gives them different identities and creates an alternate world, all within the User’s VR experience, does such use constitute a copyright infringement? The answer is most likely yes, since one of the exclusive rights of the copyright owner is a right to create derivative works. In fact, someone might license the rights from J. K. Rowling to create a VR experience for legions of Harry Potter fans. But what if a VR Platform allowed Users to visualize and experience what is in their heads and a User imagined Dobby and other house elves from the Harry Potter series meeting the stately and regal Elves from The Lord of the Rings series? Would such use of existing characters from the two different book series constitute a copyright infringement? As in the real world, determining whether a particular use in VR falls under the fair use exception will require an extensive analysis of the applicable facts and circumstances in each instance. Moreover, given the novelty and enormous potential of the VR technology, it will probably take several court cases (and maybe even a further amendment to the existing copyright laws) to establish the scope of copyright protection in VR.

Neither the current laws nor potential litigants regard Platforms in the same way as Users. Platforms can be held liable for infringements committed by Users, even where the Users themselves are not sued, by virtue of a doctrine called secondary liability. Platforms can shield themselves to some extent from secondary liability in the contexts of trademark and copyright, depending on the type of infringement alleged, by applying appropriate enforcement policies pursuant to constructs that already exist in the User Generated Content ("UGC") space – e.g., secondary liability and the standard defenses, such as the Digital Millennium Copyright Act (DMCA), Community Decency Act (CDA), etc. These constructs generally shield a platform from liability where the platform (1) did not materially contribute to or induce the infringement; (2) did not receive direct financial gain from the infringement; and (3) did not continue to provide its service to a person or entity that it knows or has reason to know is engaging in infringement. It is not entirely settled whether an internet service provider, including a VR Platform, could be held secondarily liable under a right of publicity claim, but that appears to be the case in at least some jurisdictions, based on cases that have been decided to date.

In addition to secondary liability for infringements committed by Users, Platforms and/or Brands can be held primarily liable for creating or enabling a VR experience that uses IP from the real world. One of the many applications of VR that is currently under development is allowing a User to experience an actual sporting event as if the User were at the stadium, or watching a film as if the User were in the film. These applications rely heavily on existing IP to provide the VR experience and would require the provider of the VR, such as the Platform or Brand, to obtain the necessary licenses from the appropriate rights owners.

Similar to the real world, in many ways, Brands may face the greatest liability when sponsoring or providing VR experiences. Specifically, because (i) any use by a Brand of existing IP or a person’s name, likeness, or other manifestation of a person’s identity will be deemed to have a commercial purpose; (ii) Brands usually have deep pockets; and (iii) Brands do not typically want to engage in any activity that could harm their reputation, rights owners are more likely to bring a claim against a Brand than against a User, even if the law ultimately may be on the side of the Brand based on established exceptions. Moreover, unlike a VR Platform, which is likely content neutral as long as Users are drawn to the technology, a Brand using VR for marketing or promotional purposes will want to create a more controlled VR environment, even dictating what content the Users should create. Thus, if an airline invites Users to plan and experience a "dream vacation" and the User listens to illegally streamed music and carries a virtual designer handbag on the "trip," the Brands involved could face legal claims, given their degree of involvement in, profit from, and direction over the creation of content. Furthermore, use of third-party IP within a sponsored VR experience, even when driven by the User, could create a false association between the Brand and the third party, which might be actionable under trademark law.

Virtual Rights in the Real World

When it comes to the creation of content in the real world, whoever creates content owns it, unless certain narrow exceptions apply or ownership is changed by contract. However, the default ownership is not so clear in VR, where Users direct creation but the underlying code enabling the creation of images, virtual property, or other content was created or otherwise is controlled by the Platform. Thus, as between the User and the Platform, ownership may be disputed. However, if today's social media sites and content-sharing platforms ("UGC Platforms") provide any guidance, ownership will largely be addressed in the Platform’s terms of use or participation agreement. UGC Platforms generally provide that users own the content that they create or upload to their sites. Interestingly, if VR Platforms follow this approach, it could create a sticky legal situation surrounding ownership and entitlement to the property.

Specifically, if a VR Platform, like Second Life, one of the main pioneers in VR, represents to potential Users that they can own property within a world that exists only in VR and encourages Users to invest in such property (monetarily or otherwise), would the User have any rights against the Platform or any other recourse in the event the Platform terminated the User's right to use the Platform (including, for example, due to an IP infringement or fraud) or if the VR world imploded altogether? Even if the terms of use or participation agreement clearly stated the Platform’s right to terminate the User's account or the VR world itself, it is feasible that such termination would probably carry at least some risk of false advertising, fraud, and unfair competition-type claims, based on existing laws that have general application. Given existing legal frameworks, it is possible that User rights will evolve in VR such that Users get to own and control virtual property analogous to IP protected by copyright and trademark regimes; however, ownership and control will be meaningless unless there is an established value of VR property in the real world or VR that transcends just a single platform. As VR becomes more commonplace and more people participate in VR economies with significant investments at stake, the law will need to catch up with the technology, and there may eventually be legislation to regulate property rights and investments in VR.

Assuming Users own IP they create in VR, and want to assert rights to that IP in the real world, it is likely that copyright and trademark laws will apply in a manner similar to how they apply to IP created in the real world, with a few twists. One twist under trademark law is whether a User creating virtual products, such as virtual apparel, could satisfy the "use in commerce" requirement for trademark registration and obtain trademark protection for such virtual apparel. It remains unclear whether a trademark used on such apparel could qualify for real world classification as a good. If the apparel is not used as apparel in the real world, the User may be limited to seeking classification as a service, which could limit the User's ability to compete and protect against real world apparel that is similar to the virtual goods the User controls. Another twist relates to copyright. Copyright law protects original works of authorship, and it's questionable what is original and capable of copyright protection in VR if some of the work is based on real world IP.

Publicity rights also present an interesting challenge for Users because laws protecting the right of publicity protect natural persons only. Users that create avatars that become famous or otherwise valuable in a particular VR context would therefore be unable to take advantage of real world publicity rights, unless such avatars become specifically associated with a real person. Even without publicity rights, however, the name, likeness, and other indicia of identity of a VR avatar would likely merit protection under the same IP laws that protect well-developed fictional and graphic characters.

Brands and, to a lesser extent, VR Platforms may also have an interest in real world use of property created in VR. Brands are always seeking ways to engage in more meaningful ways with their customers, and VR opens up unprecedented possibilities for communicating with customers about the Brands’ products and services and building brand loyalty. Also, Brands could use VR for focus group testing and getting customer feedback, and content companies like movie studios, production companies, producers, and networks (as well as Brands and Platforms) can use VR to source content, similar to how the Internet is currently used to source UGC. These companies will all want to own, control, or at least have a license to use all or part of the IP created by Users. As in the real world, this can be accomplished through terms of use or participation agreements that expressly allocate such IP rights to the Brands, and allow flexibility in the Brands' use of IP created by Users (e.g., in the Brand's advertising, in product development, or for internal purposes). As with any online service, it is important to have enforceable terms of use and participation agreements governing use. In recent years, there has been some suggestion that certain portions of online terms of use, particularly portions affecting legal rights or remedies, are not enforceable unless a user has affirmatively assented in some way. So, it is essential that Brands that seek to use User IP ensure that Users complete click-through or click-to-accept agreements that clearly state the ways in which a User’s IP might be used by the brand.


Legal practice and advice pertaining to VR will evolve as we see where each stakeholder's imagination takes this trend, but in the meantime, at least with respect to trademark, copyright, and publicity issues, we can anticipate some of the legal risks inherent in VR by looking at VR Products currently in use and applying the law as it stands today. In this article, however, we've only just scratched the surface of the legal developments that will come with the advancement of VR, and we look forward to reporting back in the weeks and months ahead as we get a better sense of where VR is going, and the challenges our client industries are facing as a result.