Protecting Brands While the Law Catches Up
“Unlike Korea, although China is keen to become a leading country in the metaverse space, it has not yet created new subclasses for virtual goods and services. As such, most U.S.-based metaverse descriptions are almost guaranteed to be rejected.”
As the concept of a unified “metaverse” is gaining traction, savvy brand owners are shifting their focus to securing rights in this emerging sector. In pursuit of intellectual property (IP) rights, individuals and corporations are turning to metaverse trademark filings to provide protection for goods and services in the virtual world. As of the summer of 2022, the China National Intellectual Property Administration (CNIPA) has received more than 16,000 applications that either contain the word “METAVERSE” (in English or its Chinese translation: “YUAN YUZHOU,” or both) or that include descriptions of goods and services in the virtual world, or both. These applications were filed by individuals as well as companies (big and small, both foreign and domestic). The rejection rate for traditional trademark applications in China is typically high, around 60-70%, at least in the first instance. However, the rejection rate for these new metaverse applications is even higher, hovering around 80%.
The primary refusal ground is that this type of application is likely to “mislead consumers.” CNIPA, as always, falls short on providing further explanations and context regarding this refusal ground and therefore leaves the grounds open to interpretation. Some contend that this is rooted in the belief that the general public may be confused regarding the use cases of such goods and services (virtual world vs. physical world); others believe that the CNIPA’s refusal ground is justified, especially when the underlying products and services have nothing to do with metaverse use. Either way, the bottom line is that this type of trademark application is very likely to encounter two stages of refusals, with the first stage centering around a prima facie consideration of the “allowable” descriptions of underlying goods and services (whether the description is “standard” under China’s practice) and the second stage relating to substantive examinations, which are mostly related to the absolute ground discussed above.
This article focuses on the first stage of refusal and answers three questions: (a) Have there been new subclasses and subgroups created in China to accommodate this type of goods/service description?; (b) What are the key subclasses under China’s Trademark System that are most likely to cover goods and services offered in the metaverse?; and (c) What is CNIPA’s approach to “non-standard” metaverse descriptions?
Leading the Way
The United States and Korea both have been leading the way to approve descriptions relating to virtual goods and services. Take Korea as an example: since November 2011, the government has announced a detailed five-year plan with the goal to build itself as one of the foremost metaverse jurisdictions. With the support of the government, the Korea Intellectual Property Office (KIPO) has provided specific guidance relating to the “Examination of Trademark Applications Covering Virtual Goods” (“Guidance”); this Guidance became effective as of July 14, 2022. According to this Guidance, general descriptions such as “virtual goods” are not allowed (no surprise there) as the description must be detailed and specific. The exact subclass classification of the virtual services is largely dependent on the existing classification of such services in real world analogs—as such, “concert/entertainment services in the virtual world” is classified under Class 41, and “retail store and online retail store services relating to virtual goods, digital assets and digital collectibles in the field of technology, sport, arts, entertainment, and popular culture” falls under Class 35. In a departure from the CNIPA’s approach in China (discussed below), the exciting development in Korea is that KIPO has actually created new subclasses so as to accommodate this type of goods and services – most of which fall under Classes 09, 35 and 41. The Korean courts have generally adopted the principle that although there might be differences between the exact goods in the physical world versus the virtual world (in other words, coverage in the physical world may not extend to coverage of the same goods in the virtual world), there might nevertheless be similarities between the virtual goods, so long as such goods are generally held as similar in the physical world under the Korean subclass system.
Lagging Behind
Unlike Korea, although China is keen to become a leading country in the metaverse space, it has not yet created new subclasses for virtual goods and services. As such, most U.S.-based metaverse descriptions are almost guaranteed to be rejected (except for a known few instances, discussed below). Similar to traditional trademark applications, an applicant does not have much leeway in arguing why a specific description should be accepted, even by providing (extensive) use materials. Instead, the CNIPA uses a take-it-or-leave-it approach; if the applicant fails to convert the description to “standard” descriptions under China’s practice, the entire application will be rejected in full without a second chance to address the issue or the opportunity to advance to the substantive review stage. As a result, descriptions such as “electronic wallet created with blockchain-based software technology and smart contracts” and “electronic products for use in online virtual worlds” should either be deleted or be amended to the standard China description in the relevant class – in this case: “downloadable software” under subclass 0901 of Class 09.
In light of CNIPA’s general reluctance to add new subclasses for these types of goods and services, the preferred approach to date is to identify the core subclasses based on the underlying identification as if they were in the real physical world. For example, products relating to “downloadable mobile images authenticated by non-fungible tokens (NFTs)” will be perceived as “downloadable software” which will be classified under subclass 0901. At the moment, virtual products largely fall under Class 09; services in the virtual world are mostly captured by Classes 35, 41 and 42 – specifically, subclasses 3501-3503, 4105, and 4220.
Since early 2022, the Chinese government has issued a number of regulations that are aimed to discourage the zeal for the metaverse space. For example, in February 2022, the China Banking Insurance Regulatory Commission issued an alert discouraging fundraising activities in the metaverse (for example, real estate investment in the virtual world). Despite the government’s cautious approach, there’s no denying that the metaverse craze is likely to stay (at least for a while). The good news is that we’ve already seen positive (and informal) movement in the CNIPA’s examination standards, including the rare acceptance of descriptions that deviate from the “standard” Chinese descriptions such as “computer hardware for use in online virtual worlds, recorded computer software to download virtual goods.” In fact, in Class 42, although there’s no new subclass or subgroup created specifically for the services in the virtual world, descriptions such as “Design and development of virtual reality software” are generally acceptable.
Encouraging as this may be, the CNIPA examiners are notoriously not bound by precedent. Just because a description is accepted in one application does not mean the same will be so in future applications. However, it is a welcome sign that CNIPA is open to non-standard descriptions of goods and services in the virtual world even though the authorities have not yet taken affirmative steps to create new subclasses and subgroups like Korea did.
Strategies for Now
Arguments can be made that before new categories are created, companies should not invest resources in seeking coverage in this space; after all, if a brand’s house mark already covers sufficient subclasses, the new filings are not likely to “gain” additional coverage even though new descriptions are being allowed – after all, the rare instance of an accepted non-standard description will still only provide coverage for the same subclasses as standard descriptions. Conversely, arguments can be made to support additional filings at the moment because otherwise brand owners would need to depend on China’s Unfair Competition law to address unauthorized trademark uses in the virtual world. In countries where the trademark systems traditionally follow the “registration is king” principle, relying on common law rights is not only expensive but also unreliable, and may even result in loss of rights. So, if budget-permitting, new applications are likely the safest course to protect a brand use in the virtual world; if budget is limited, relying on existing coverage is not a bad idea either, so long as the registration covers the necessary and appropriate subclasses.
Image Source: Deposit Photos
Image ID: 32963547
Author: panama555
