Virtual Reality and Augmented Reality: A New Reality for Brand Owners?

Development and Growth of VR and AR Technology

Virtual reality is a computer-generated, immersive 360-degree digital space presented visually in 3D and/or audibly in multidirectional surround sound. VR uses software and external devices to display images, as well as introduce other sensations such as “taste” and “scent,” to replicate real or imaginary environments while mapping the user’s presence within the environment.

Early computer software developed for 3D modeling of aerospace, engineering, and architectural projects eventually led to the golden age of 3D gaming in the 1990s. PC-based 3D applications such as the video game Castle Wolfenstein and online virtual worlds such as Second Life gave way to present-day VR devices and content. In 2012, Oculus VR designed a VR headset to be later acquired by Facebook as the Oculus Rift. Google Cardboard and other head-mounted devices (HMDs) arrived in 2014 and a new View-Master in 2015, both enhanced by VR-3D-360-degree handheld photographic and video applications. In recent years, Sony, Valve, HTC, Samsung, Microsoft, Facebook, and many smaller companies have entered the VR commercial space.

VR is intended to completely replace the real world with sensory simulations, currently with visual and audio content. The immersive experience requires the use of VR hardware including a headset, handsets or controllers, and headphones or earbuds. With the use of VR apparatuses, reality is to be substituted with the virtual. VR takes the user away from reality and into another environment altogether.

Although VR devices have most commonly been known as a way to watch videos and play games, VR technology is expected to go beyond pure entertainment. Social VR and retail VR are on the verge of acceptance by most businesses and the average person.

There are many notable examples of brand owner VR/AR advertising initiatives, including McDonald’s, Starbucks, Häagen-Dazs, Marriott, and beauty and fashion purveyors providing the ability to virtually apply or try on products. One compelling impetus for this article was the 2016 launch of the world’s first VR department store by eBay Australia in partnership with Australian retailer, Myer. Consumers can browse thousands of products using their “shopticals” and add purchases to their cart using eBay Sight Search™. Once the shoppers select their areas of interest, the store is custom built around these needs, with the most relevant products visible first. As shoppers move through the store, the smart technology suggests other products that might be desirable or interesting, based on what the store knows about them. Using eBay Sight Search, the shoppers view a product in the store; by holding their gaze on it, the product is selected and automatically floats toward them. Top products appear in 3D, with thousands more available for viewing in 2D. When the shoppers lock eyes on information icons, full product specifications, as well as price, availability, and shipping details, appear. By holding their eyes on the “Add to Basket” icon, the product may be purchased via the eBay app.

Augmented reality is a computer-generated VR experience mixing the virtual space with the real space. AR supplements the real world by adding 2D and/or 3D computer-generated images overlaid onto various real objects, as well as by introducing sound, video, graphics, etc. AR applies object recognition to data drawn from the physical environment surrounding the user and may also add virtual (as opposed to real) data, which may include people, art, music, or fantasy, to our environment to yield a seamlessly merged mixed reality experience.

In 1992, Karma AR software enabled a visual graphical manual overlay to be used while performing a task. Around the same time, artists incorporated AR into their creations, and video games such as ARQuake were able to turn any physical environment into a first-person shooter battlefield. By 2012, Google’s Project Glass marked the debut of Google Glass, eyewear that optically displayed overlay information along with many smartphone functions. AR devices range from mobile devices such as phones to windshield displays to HMDs, with an increasing trend toward larger video screens and billboards.

These days, AR technology is commonly available and AR imagery is frequently seen, such as during sporting events. AR phone apps provide information about a physical location, whenever or wherever it may be; mobile games such as Ingress and Pokémon GO are AR-centric; AR has found medical therapy applications; and applications such as Microsoft’s HoloLens—an AR office, desk, workspace, theater, or playground—are gaining traction.

A hybrid emerging technology is mixed reality (MR), which is a variation of AR that merges reality and AR in real time. MR is significantly different from VR and AR in its ability to manipulate a space and information, moment by moment, by using holographic and other technologies within a physical environment. For example, Microsoft’s HoloLens enables users to interact with both the real world and digital content simultaneously. In this case, differentiation between the real and the digital becomes seamless and practically negligible. Meta 2, Magic Leap, and ZapBox are expected to be viable MR devices for the mainstream user. MR devices could soon begin to replace phones and tablets as the next wave of digital mobility.

Brand Promotion in the Virtual Realm

Any flat surface can function as a platform for an advertiser to digitally cover the space as it is perceived by the AR user. Given the limitless ability to place AR branded advertising on, over, and/or adjacent to physical advertising, trademarks displayed as such could be infringed or diluted just as they are online—such as placement of a trademark in a virtual world in conjunction with an “unsavory” locale or activity, or placement of a trademark in an augmented world over a competitor’s mark. Further, the ability to deliver local content overlaid on the physical world in real time using an optical display and geolocation facilitates a unique user experience and creates new ways to position brands. But again, this creates brand protection challenges, such as how brand owners can monitor use and placement of their marks, how to identify and pursue infringers given that VR users log in from all over the world, and how to account for each particular jurisdiction’s laws.

In the VR/AR realms, merely including another’s mark is unlikely to constitute trademark infringement; the mark owner would still have to establish use in commerce, such as through the sale of virtual products bearing the mark. However, more nuanced are situations where virtual characters/avatars/people don, e.g., apparel bearing a trademarked logo, which apparel could be sold virtually to other characters, including using virtual currency. In addition, issues arise from questions of protectability with respect to virtual renderings of tangible products where the mark owner’s rights cover only tangible goods, or where only virtual renderings are sold with no quantifiable impact on sales of the protected, tangible product. Moreover, representations of physical products in the shopping setting—such as through eBay’s VR department store—raise questions such as the trademark impact with material differences between the “real” thing and the virtual product. In such instances, where damages are speculative, reliance on common law principles of passing off—claiming consumer confusion arising from the association of the trademark for the real goods with the virtual world goods—might be the best (or only) recourse.

An interesting question arises if a virtually represented good is sold online, and its corresponding physical form is substantially different from the virtual representation sold. Could the physical product be deemed counterfeit? More likely, the representation could be deemed misleading and, therefore, potentially fraudulent or unfair activity. Further, is such a misleading representation the responsibility of the brand owner, the virtual store, the creator of the 3D imagery, and/or others? The virtual misrepresentation can be deemed equivalent to the misrepresentation of a product in a photograph on eBay or similar retail websites. The same laws should be applied to virtual misrepresentation as those generally applicable to product misrepresentation in other forms of advertising. The interaction with the virtual product could be considered similar to photographs showing different angles of a product on sale to allow for a consumer’s full appreciation, and therefore should be subjected to the same laws.

Finally, the ability for brand owners to use AR to permit consumers to enhance their physical or virtual product, such as with motion or sound, raises challenges to trademark prosecution.

Infringement Problems Created by Virtual Products

The goal of AR/VR developers is to create as real of an experience as possible, to duplicate the real world as accurately as is feasible. Therein lies the double-edged sword of bringing a positive impact of brand marketing to the consumer, while guarding against unauthorized uses of marks, logos, likenesses, etc., which may be manipulated with harmful content and nefarious intent.

AR/VR technology has the capability to intersect with all aspects of life and business from gaming to education to industrial applications to home and marketing, implicating physical world laws governing every aspect of society including privacy, litigation, civil and criminal procedure, patents, copyright, and trademarks; these remain the touchstones for guidance in how brand owners must maneuver these newer technologies. Depicting a real world object digitally in AR/VR can easily be construed as real: AR/VR engages the user with brands, information, and other real-data-based digital content in an immersive way, integrating digital content into real life in a personalized and seamless manner. Accordingly, applying real world laws to the AR/VR world can be expected, at least for the foreseeable future.

To date, use of protected trademarks in the AR/VR marketplace solely by and for an individual’s enjoyment does not qualify as infringement. It can be said that the AR/VR use of owned intellectual property will continue to require permission from the owner, unless it constitutes “fair use” of the original. Consequently, whether or not a particular use falls under the fair use exception, each instance will still require the same analysis of the facts and circumstances as if it were in the real physical world.

Likewise, if a protected trademark or logo is imported into an AR/VR world, use of the virtual item bearing the mark in commerce could constitute infringement. Even where the sale of the item is to be conducted with virtual currency, sold only in the VR world and never intended for the real world, or traded for other virtual goods and services only, the intent for commercial purposes remains clear and evident. Similarly, for virtual goods for sale, taking a real world object and transforming it into a VR/AR digital representation may constitute infringement. That is, commercial digital recreation of a real world trademarked product could implicate anticounterfeiting laws, but this area remains unsettled given the hurdles of showing such infringement where the product is intangible.

And, as with trademarks in the real world, AR/VR platforms can be held secondarily liable for trademark infringement committed by users, even where the users themselves are not, depending on the nature of the infringement. Generally, platforms have the same safe harbor protections from liabilities caused by infringing user-generated content where the platform does not materially contribute to the content, does not control the content, applies its policies against IP infringement such as by terminating an infringing user’s account access, and does not receive direct financial gain from the infringing content.

Perhaps the most illustrative example to date concerns the trademark and design patent dispute involving TurboSquid, a digital media company that sells stock 3D models to a variety of industries, including computer games, architecture, and interactive training. TurboSquid acquired 3D virtual models of BMW cars created by various digital artists. These 3D models replicated BMW car designs and were branded with the BMW logo, and were offered for sale by TurboSquid through its website.

BMW sued TurboSquid alleging infringement of BMW Group’s design patents, trademarks, and trade dress.¹ The case was ultimately settled before a court opinion or ruling was issued, and therefore no precedent or jurisprudence was established on this matter. However, this case raised the issue of whether trademarks registered to brand physical goods should (or should not) need to be protected in a specific digital goods class in order to be effectively enforced in the digital world. The digital representation of a car is still perceived by consumers as a physical car, just as it would be when seen on a TV commercial or a static billboard, even if the physical object is not itself present. Therefore, consumers likely would associate the digital representation of BMW’s models with the physical cars themselves.

Although TurboSquid did not suggest any affiliation with BMW on its website or elsewhere, and is certainly not in the business of selling physical vehicles, it could reasonably be argued that it is making commercial use of BMW’s protected marks in the 3D virtual car models. Furthermore, all BMW-related models could be found in TurboSquid’s website simply by typing BMW into its search bar, thereby indicating that TurboSquid was aware that the virtual models replicated well-known designs belonging to BMW. However, regardless of the final use of the virtual models, TurboSquid used or attempted to use BMW’s designs and trademarks commercially.

That said, it is arguable that trademark infringement related to the contents of the digital files (the 3D virtual models of BMW cars) is foreclosed by Dastar Corp. v. Twentieth Century Fox Film Corp.,² given that the 3D models do not constitute the material good that should inform confusion analysis. Likewise, any post-sale confusion might be barred by Rogers v. Grimaldi³ because an argument can be made that the expressive rights of the video game (or other media creators, designers, artists) would prevail over BMW’s rights to protect its famous name and brand. However, one could also argue that an unfavorable portrayal of a BMW branded car would constitute a direct reference to BMW and therefore should be considered misleading. TurboSquid’s models’ relation to BMW’s physical cars and brands is certainly not ambiguous, and post-sale use, even if limited to an expressive work, could be deemed to be an explicit and direct misrepresentation of the original rights owner that misleads and generates confusion, thereby harming its reputation. This line of argumentation could be offset with the precedent set in E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc.,⁴ as it is quite possible that no consumer would believe that the infringing goods emanate from the trademark owner, or that the video game or media producer using virtual models of BMW’s cars is affiliated in any way with the said owner, as BMW is certainly not known in relation to the video game producing business or related media.

Notwithstanding other legal limitations, the Lanham Act ought to be sufficient to provide brand owners protection in such circumstances. As such, brand owners will want to consider whether expansion of registration classes for their products is warranted if there is a significant threat that their products will be co-opted in the virtual realm, but the facts and circumstances of the “infringing” use will remain critically important—just as in the real world.

Ownership of Digital Content

Some virtual worlds have grown so complex as to be considered not merely “games” or educational/informational interfaces, but complex programs containing virtual “goods and services” that may be bought and sold with virtual currency. That virtual currency can itself be traded for actual physical money in the real world. This means virtual assets may become cashable/valued in real currency and transactions involving them are subject not only to in-game/in-program rules governing the virtual world, but also to “real world” law.

The Bragg v. Linden Research, Inc.⁵ court case materialized this scenario: a “player” (or “participant” or “inhabitant”) in Second Life, an online virtual world similar to massive multiplayer online role-playing games, sued the program for eliminating his Second Life account, and with it the assets he had acquired during his participation in the online virtual world. These assets, despite being virtual and not physical, had an actual value in physical currency. Second Life alleged that the user had infringed on the virtual world’s regulations and had been sanctioned accordingly. The case ultimately settled in “real world” terms, and the user’s account was restored.

Copyrighted creations may easily be used to enhance a virtual world and make it more attractive (or “real”) to users. The same could be said of virtual sales of trademarked goods that, as in the case of Second Life, could be purchased with virtual money that is then exchangeable for real currency, therefore generating actual sales and profits. For example, consider who owns the IP rights in a logo-emblazoned piece of apparel designed by a user for his or her avatar. The owner of the logo would consider that it owns the trademark rights in the logo on the virtual clothing. Both the VR/AR platform operator and the user might need permission to use the logo virtually. And, most VR/AR platforms will have terms of use where users agree to assign their rights to the intellectual property created by them to the VR platform and, potentially, license it back to the platform operator. However, that will not trump the logo owner’s rights (but it does point to the difficulty for brand owners in finding out about such infringement and policing it), nor does it necessarily account for the fact that a particular jurisdiction may have laws overriding the terms of use agreement between the user and the platform operator. The logo owner’s best recourse likely remains the Digital Millennium Copyright Act and trademark notice and takedown rules, which still appear adequate at this point to combat the illegal use or sale of virtual goods in those worlds.

Dilution and Confusion

As with other forms of infringement, the use of trademarks in VR/AR could lead to a dilution of the mark or consumer confusion. As logos and trademarks—which, by their nature, are meant to appear in a consistent way whenever displayed—can easily be used as a trigger to display augmented content, trademark owners will face the major challenge of enforcing rights effectively in a virtual scenario. For example, following the BP/Deepwater Horizon oil spill, an AR app appeared which created a gushing oil pipe when the user’s phone pointed to a BP logo. Other scenarios might be if, for instance, Coca-Cola were to substitute its logo for that of, say, Pepsi, when a user viewed a Pepsi ad through his or her HMD. Trademark owners might also face similar problems as with keyword advertising and sponsored advertising on the Internet and mobile applications, where the visual recognition technology in a VR/AR world allows third parties to display their own trademarks (or negative statements about another’s mark) whenever a specific mark is visually recognized. Or, consider the VR/AR virtualization of a shop design, such as an imitation of an Apple Store, which potentially infringes a business designation. As with most other e-commerce scenarios, the platform owner does not necessarily place the dilutive/confusing content in the app. As a consequence, trademark owners may also face significant problems determining who is responsible for a misuse of the mark and in halting its spread.

Conclusion

Although many of the principles are similar in the digital and physical worlds, laws surrounding VR/AR will surely continue to evolve. More specificity will certainly be needed to balance the legal concerns about AR/VR applications with the vast opportunities for brands to take advantage of the technology; however, recourse to existing unfair competition, trademark infringement, and/or counterfeiting laws likely (for now) provide adequate assurances for brand owners.

Endnotes

1. BMW of N. Am., LLC v. TurboSquid, Inc., No. 2:16-CV-02500 (D.N.J. filed May 3, 2016).

2. 539 U.S. 23 (2003).

3. 875 F.2d 994 (2d Cir. 1989).

4. 444 F. Supp. 2d 1012 (C.D. Cal. 2006).

5. 487 F. Supp. 2d 593 (E.D. Pa. 2007).