“Get a Life” Trademarks in a Virtual World

e t u t

i “Ge t a Li f e” Tr a d e m a r k s in a Vi r t u a l Wo r l d

s t Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers’ Association, 14 Vesey Street, New York, NY

n scheduled for November 1, 2010.

P r o g r a m Ch ai r : Dyan Finguerra-DuCharme, Counsel, White & Case LLP

P r o g r a m Co -Sp o n s o r : NYCLA EMIPS Committee

F ac u lt y : David Stimson, Chief Trademark Counsel, Eastman Kodak Company; Barry Werbin, Partner and Chair of the Intellectual Property/ Technology Group, Herrick, Feinstein LLP

2 TRANSITIONAL and Non-transitional MCLE CREDITS: NYCLA-CLE I This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours; 2 Professional Practice.

In addition to being accredited in the State of New York, this program has been approved by the Board of Continuing Legal Education of the Supreme Court of New Jersey for 2 hours of total CLE credit. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal trial law, workers compensation law and/or matrimonial law.

Information Regarding CLE Credits and Certification

Get a Life! Trademarks in Virtual Worlds Monday, November 1, 2010 9:00 AM – 11:00 AM

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Get a Life! Trademarks in Virtual Worlds Monday, November 1, 2010 9:00 AM – 11:00 AM

AGENDA

Program Co-sponsor: NYCLA’s Entertainment, Intellectual Property & Sports Law (EMIPS) Committee

Panel: Dyan Finguerra-DuCharme, Counsel, White & Case LLP ; David Stimson, Chief Trademark Counsel, Eastman Kodak Company; Barry Werbin, Partner and Chair of the Intellectual Property/Technology Group, Herrick, Feinstein LLP

8:30 AM – 9:00 AM Registration

9:00 PM – 9:10 PM Welcoming Remarks

9:10 AM – 11:00AM Panel Discussion Trademark Basics Trademark Infringement Dilution Introduction to Virtual Worlds Trademarks in Virtual Worlds Legal Issues in Virtual Worlds Copyright Issues Remedies Caselaw Limited How Brand Owners are dealing With Virtual Worlds

11:00 AM Questions and Answers

New York County Lawyers’ Association Continuing Legal Education

Get a Life! Trademarks in Virtual Worlds Monday, November 1, 2010 9:00 AM – 11:00 AM

Program Co-sponsor: NYCLA’s Entertainment, Intellectual Property & Sports Law (EMIPS) Committee

Table of Contents

Outline 1

Introduction to Virtual Worlds 2

Bibliography 3

INTA Bulletin: Trademarks in Virtual Worlds 4

Faculty Biographies Get A Life! – Trademarks in Virtual Worlds November 1, 2010 Sponsored by NYCLA EMIPS Committee

Dyan Finguerra-DuCharme Counsel, White & Case LLP David Stimson Chief Trademark Counsel, Eastman Kodak Company Barry Werbin Partner and Chair of the Intellectual Property/Technology Group, Herrick, Feinstein LLP

Outline

1. Welcoming Remarks / Introduction of Panel Trademark Basics 2. Trademark Basics A. What is a Trademark? i. A word, symbol, slogan, product or packaging design that identifies a specific product and distinguishes it from others in the marketplace B. Functions of a Trademark i. Indicates the source or origin of goods or services ii. Assures consumers of the quality of goods bearing the mark iii. Creates business goodwill and brand awareness C. Federal Registration i. Requirements: 1. Use in Interstate Commerce 2. Use with Product or Service ii. Benefits: 1. Constructive Notice of Ownership Rights 2. Nationwide Constructive Use 3. Prima Facie Evidence of Validity and Ownership 4. Incontestability after 5 Years 5. Federal Jurisdiction 6. Basis for Foreign Country Registration 7. Recordal with US Customs 8. Treble Damages and Attorneys Fees 3. Trademark Infringement A. Goal: prevent consumer confusion B. Lanham Act standard: Prohibits the use of a trademark in commerce which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with a trademark owner, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by the trademark owner C. Usual factors considered for likelihood of confusion

i. the similarity in the overall impression created by the two marks (including the marks' look, phonetic similarities, and underlying meanings) ii. the similarities of the goods and services involved iii. the strength of the plaintiff's mark iv. marketing channels for the goods v. any evidence of actual confusion by consumers vi. the intent of the defendant in adopting its mark vii. the degree of care likely to be exercised by the consumer viii. the likelihood of expansion of the product lines. 4. Dilution A. Definition: Dilution is the whittling away of the value of a famous trademark when it is used to identify products which are different from those sold under famous trademark. B. TDRA Standard: Prohibits the use of a mark that is likely to cause dilution. i. Blurring ii. Tarnishment C. Does Not Require Likelihood of Confusion D. Does Not Require Competition 5. Introduction to Virtual Worlds A. Definition i. Online computer-simulated 3D fictional worlds ii. Avatars B. Genres i. MMORPG ii. Virtual non-game computer-generated worlds iii. Education / philanthropic / political C. Distinguish from social networks D. Economic models i. Subscription fees ii. In game/world commerce payments iii. Micro-payments E. Policies and Terms of Use F. Second Life i. Commerce: SL promotes “making money” ii. Linden dollars tied to US dollars iii. SL marketplace iv. Branding guidelines

6. Trademarks in Virtual Worlds A. Use of trademarks by trademark owners themselves in the virtual world B. Use of real world marks by SL users in UGC and “search’ results C. Trademarks/trade dress that exist only in SL 7. Legal issues in Virtual Worlds A. Registering Trademarks – in virtual worlds and the real world i. "Virtual" trademark offices and registration ii. PTO ID Manual includes descriptions for virtual worlds in Classes 9, 35 and 42 iii. USPTO has issued registrations for virtual world computer services 1. U.S. Reg. No. 3,531,683 for AIMEE WEBER avatar 2. U.S. Reg. No. 3,483,253 for the mark SexGen B. Trademark Infringement Analysis i. Is there "use in commerce"? 1. Marvel v. NCSoft ii. Is there a likelihood of confusion? iii. Secondary liability for providers 1. Eros LLC v Linden Research, Inc. C. Dilution Analysis i. Is there Blurring or Tarnishment? ii. Defenses 1. Fair Use 2. Non-Commercial Use 3. Free Speech / Parody / Comment D. Jurisdiction i. Federal or State Court? ii. Personal Jurisdiction 1. State Long Arm Statutes 2. Due Process: Sufficient Minimum Contacts iii. Internet Jurisdiction Categories 1. Active Business -- Jurisdiction 2. Information Exchange -- Possible Jurisdiction 3. Passive Websites -- No Jurisdiction 8. Copyright Issues A. Scope B. Protection / Registration C. DMCA take down procedures

9. Remedies A. Take down notices B. Damages -- conversion from Linden dollars? C. Injunctions D. Licenses E. Correct advertising 10. Caselaw limited A. Eros LLC v. Leatherwood B. Eros LLC v. Simon C. Taser International v. Linden D. Minsky v. Linden 11. How Brand Owners are Dealing With Virtual Worlds A. Third Party Requests to Use Owner's Trademark B. Permissions C. Licenses i. Coca Cola D. Use of Own Trademarks i. Aeron chairs ii. Gibson guitars iii. Storefronts / Islands iv. Contests v. Colgate script E. Brand Awareness F. Product Sales G. Marketing and Cross-Promotion H. Viral Marketing I. Similarities to Social Media Advertising J. What to Tolerate 12. Q&A

Get A Life! – Trademarks in Virtual Worlds November 1, 2010 Sponsored by NYCLA EMIPS Committee

Dyan Finguerra-DuCharme, Counsel, White & Case LLP David Stimson, Chief Trademark Counsel, Eastman Kodak Company Barry Werbin, Partner and Chair of the Intellectual Property/Technology Group, Herrick, Feinstein LLP Bibliography

Cases

1. Eros LLC v. Leatherwood, Case No. 8:2007 CV 01158 (M.D. Fla. 2007) 2. Eros LLC v. Simon, Case No. 1:2007 CV 04447 (E.D.N.Y. 2007) 3. Eros, LLC v. Linden Research, Inc., Case No. CV 09 4269 (N.D. Cal. 2009) 4. Marvel v. NCSoft, 2005 U.S. Dist. LEXIS 8448 (C.D. Cal. 2005) 5. Bragg v. Linden Research, 487 F. Supp. 2d 593 (E.D. Penn. 2007) 6. Taser International v. Linden, Case No. 2:09 CV 00811 (D. Az. 2009) 7. Minsky v. Linden, Case No. 1:08 CV 819 (N.D.N.Y. 2008) 8. MDY v. Blizzard Entertainment, 616 F. Supp.2d 958 (D. Az. 2009) 9. Hernandez v. Internet Gaming Entertainment, Case No. 1:2007 CV 21403 (S.D. Fla. 2007) Articles

1. Sally M. Abel & Adrienna Wong, Is There A Second Life for Trademarks in Second Life? (Mar. 17, 2010) 2. Bettina M. Chin, Regulating Your Second Life, 72 Brook. L. Rev. 1303 (2007) 3. Candidus Dougherty & Greg Lastowka, Virtual Trademarks, 24 Santa Clara Computer & High Tech. L.J. 749 (2008) 4. Robert D. Hof, My Virtual Life, Businessweek (May 1, 2006) 5. Sean F. Kane & Benjamin T. Duranske, Virtual Worlds, Real World Issues, 1 No. 1 Landslide 8 (Sept./Oct. 2008) 6. Elkia Manglona, An Avatar’s Parody: Considering a First Amendment Right to Parody Real World Trademarks in a Three-Dimensional Virtual World, 19 Alb. L.J. Sci & Tech. 183 (2009) 7. Elizabeth Olson, Marketing Fanciful Items in the Lands of Make Believe, The New York Times (Sept. 6, 2010) 8. Susan Rector et. al, Second Life – Brand Promotion and Unauthorized Trademark Use in Virtual Worlds, WIPO Magazine (2007) 9. Lynda E. Roesch et al., Welcome to the Metaverse: Trademark Issues in Second Life, 2009 Trademark Administrators Conference 10. Beth Seals, Real-life Trademarks in Virtual Worlds, Lexology (May 19, 2010) 11. C. Blake Sorensen, Crafting the Laws of A Virtual World, Law 360 (Aug. 26, 2010) 12. Barry Werbin, Trademarks in Virtual Worlds, 64 INTA Bulletin 22 (Dec. 1, 2009)

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I. Introduction to Virtual Worlds.

A. What are an online “virtual worlds”? Online computer-simulated 3D “virtual” fictional worlds, often lavishly designed, in which end users participate through fictional stand-ins of their real world selves called “avatars.” Avatars explore their surroundings, travel within the virtual world in various ways (walk/run, swim, fly, teleport), interact with other avatars (representing either real people with their own avatars or computer generated avatars) and engage in virtual commerce, and in more interactive “game” variations engage in battles, quests, team up with other avatars in groups, earn points and rise through play levels. Virtual worlds are dynamic and allow for millions of players worldwide to participate (“multiplayer”) in a shared space in real time. Often, creating social groups (clubs, teams, guilds, etc.) is encouraged Many are influence by fantasy and science fiction. Paid subscription and free models are available.

(1) Popular examples include Second Life, Farmville and Mafia Wars (Facebook users only, described as “social games”), World of Warcraft, Everquest and Anarchy Online. For kids: Disney Toontown and Club Penguin.

(2) http://secondlife.com/: “Second Life is a virtual world service consisting of a multi-user environment, including software, websites and virtual spaces.”

B. Several genres:

(1) Massively multiplayer online games (“MMORPG”). E.g., Age of Warcraft, Everquest, Anarchy Online. More akin to computer games with player goals and levels. Entire “world” and user (player) settings are fixed by provider’s computer code but with numerous user options. MMORPGs typically involve fictional role playing in existing game designed worlds with goals to rise up through levels, accumulate points as rewards for accomplishing things like quests and battles, and using points to “buy” virtual things in-game such as more effective armor and weapons, land, houses and furnishings, spells, healing powers, apparel and the like.

(i) No user-generated content (“UGC”).

(ii) Trademark issues generally limited to game owners protecting their own brands and copyrights in software, interfaces, imagery, avatars/characters, storylines/text and the like.

(iii) “With more than 12 million subscribers as of October 2010, World of Warcraft is currently the world's most-subscribed MMORPG, and holds the Guinness World Record for the most popular MMORPG by subscribers.” http://en.wikipedia.org/wiki/World_of_warcraft

(2) Virtual non-game computer-generated worlds that focus more on exploration and socializing, with no preset goals.

(i) The unique, highly detailed, virtual world of Second Life allows extensive UGC that actual creates and continuously expands the virtual world and much of what’s in it. IMVU.com also allows users to create content (“Make your own designs and sell them on IMVU. Create fashion, furniture, rooms and more. Express yourself!” http://www.imvu.com/).

(ii) Virtual worlds such as Second Life and IMVU.com both allow users to retain IP ownership in UGC.

HF 6119126v.2 #99999/0070 10/27/2010 (iii) Participants can engage in virtual “commerce” by buying virtual goods and services.

(iv) Trademark and copyright issues arise both in protecting users’ own generated designs and in-game fictional brands, and for real world brand owners whose trademarks and designs are used in connection with virtual goods they have not authorized.

(3) Educational/philanthropic/political. Some virtual worlds have been set up or used for educational, charitable and political uses.

(i) See, e.g., Active Worlds Educational Universe http://www.activeworlds.com/edu/awedu.asp (3d virtual classrooms).

(ii) Second Life has been used for this purpose as well with colleges and companies setting up dedicated virtual classrooms. See http://cp2ndlife.wordpress.com/.

(iii) Zynga recently raised over $1 million to build a school in Haiti from in-game donations through its Facebook based Farmville and other games. See http://www.zynga.org/ (“Social gaming can unleash the power to make a significant impact. With over 180 million players a month, the combined activities of users in a Zynga game can be astounding. Through Zynga.org, we are thrilled to be able to offer our players the opportunity to take part in change that makes positive contributions globally.”)

C. Distinguished from social networks. “A social network service is an online service, platform, or site that focuses on building and reflecting of social networks or social relations among people, e.g., who share interests and/or activities. A social network service essentially consists of a representation of each user (often a profile), his/her social links, and a variety of additional services.” http://en.wikipedia.org/wiki/Social_network_service

(1) Social networks (Facebook, MySpace, LinkedIn, Twitter) facilitate online user interactivity in the real world. Often include UGC such as photos.

(2) Virtual worlds may be accessible through social networks like Facebook. Zynga has created very popular Facebook-specific virtual world games like Mafia Wars and Farmville (no UGC).

(3) Worlds like Second Life and even MMORPGs have elements of social networking in virtual worlds through collective groups like guilds or teams. Virtual worlds typically allow avatars to communicate with each other by speech and action.

D. Economic Models.

(1) Participants pay recurring game subscription fees (such as in the popular World of Warcraft game) or engage in virtual commercial transactions within a virtual world (as in Second Life or the Swedish owned venture Entropia Universe). Free game play is often offered as an inducement to subscribe, sometimes in exchange for users viewing in- game advertisements, as in the Anarchy Online “Free Play” option.

(2) In game/world commerce payments.

(i) Typically fictional currencies or points accumulated through accomplishments, quests, battles and the like in MMORPGs.

2 HF 6119126v.2 #99999/0070 10/27/2010 (ii) Second Life (owned by Linden Labs) created a true virtual “currency” called Linden dollars tied to actual U.S. dollars. Linden Dollars are purchased for fractions of real dollars and are subject to currency exchange fluctuations. They can be purchased and redeemed for U.S dollars and foreign currency through a LindeX Exchange. As of Oct. 25, 2010, the exchange rate was about 262 Linden Dollars (“L$”) to one U.S dollar. There is even an online market data index for exchange rates posted by Linden Research, Inc., the parent of Linden Labs, at http://secondlife.com/statistics/economy-market.php. On Sept. 15, 2010, for example, over 120 million L$ were bought or sold/spent.

(iii) “THERE” (there.com)- another interactive virtual world launched by Makena Technologies in 2003, also utilized a fictional currency tied to real dollars called “Therebucks.” There.com shut down in March 2010 from lack of real world revenues. http://www.there.com/info/announcement.

(iv) “Entropia Universe” (www.entropiauniverse.com) claims to be “The first virtual universe with a real cash economy.” Entropia is a collection of different virtual planetary worlds with no subscription fees that is a “blend of online-based entertainment, e-commerce and social interaction where participants from all over the world can meet and participate in a variety of activities that provide them with the potential for earning money while they play.” http://www.entropiaplatform.com/platform/3d-internet/. It uses “Project Entropia Dollars (PED) that [are] pegged to the US Dollar and MindArk [Swedish corporate owner] guaranteeing the value.” http://www.entropiaplatform.com/platform/entropiaplatform/.

(v) Micro-payments as in Farmville and Mafia Wars.

(vi) Second Life also charges fees for virtual land parcel maintenance and for certain in-world search listings. SL also has a “premium” membership plan, which is required to purchase and “own” virtual land, which is then “taxed” monthly. Subject of new class action filed: Evans v. Linden Research, Inc. (filed April 15, 2010, E.D. Pa.).

E. Policies and Terms of Use.

(1) Always protect the software/platform owners’ IP rights - copyrights (code, images, scenes, characters, interfaces, etc.), trademarks and service marks.

(2) In virtual worlds with UGC, ownership of IP in any UGC can be transferred to the company or, more typically, retained by the user and licensed to the company. After settling a novel lawsuit in 2007 involving ownership of virtual land parcels, Linden Lab revised its terms of service so that virtual property would no longer be owned by participants, who now receive a “limited license.”

Examples:

(i) Second Life Terms:

3.2 You agree to use an Account Name in Second Life that is not misleading, offensive or infringing. You may not select as your Account Name any name that Linden Lab determines may cause deception or confusion; may violate any trademark right, copyright, or other proprietary right or mislead other users regarding your identity or affiliation....

3 HF 6119126v.2 #99999/0070 10/27/2010 7.1 You retain any and all Intellectual Property Rights in Content you submit to the Service.1 In connection with Content you upload, publish, or submit to any part of the Service, you affirm, represent, and warrant that you own or have all necessary Intellectual Property Rights, licenses, consents, and permissions to use and authorize Linden Lab and users of Second Life to use the Content in the manner contemplated by the Service and these Terms of Service. Because the law may or may not recognize certain Intellectual Property Rights in any particular Content, you should consult a lawyer if you want legal advice regarding your legal rights in a specific situation. You acknowledge and agree that you are responsible for knowing, protecting, and enforcing any Intellectual Property Rights you hold, and that Linden Lab cannot do so on your behalf. 7.2 You grant certain Content licenses to Linden Lab by submitting your Content to the Service. 7.3 You grant certain Content licenses to users of Second Life by submitting your Content to publicly accessible areas of the Service….. 7.6 Linden Lab owns Intellectual Property Rights in and to the Service, except all User Content, and in and to the Linden Marks…. 7.8 You agree to respect the Intellectual Property Rights of other users, Linden Lab, and third parties. http://secondlife.com/corporate/tos.php#tos7 (emphasis added)

(ii) IMVU.com:

YOU RETAIN OWNERSHIP OF ANY COPYRIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS APPLICABLE TO ANY WORK OF AUTHORSHIP OR INFORMATION YOU CREATE AND SUBMIT TO IMVU, SUCH AS YOUR SUBMISSIONS. You further agree that you will not upload, post or otherwise make available on this Site any material protected by copyright, trademark, or any other proprietary right without the express permission of the owner of such copyright, trademark or other proprietary right owned by a third party, and the burden of determining whether any material is protected by any such right is on you. You shall be solely liable for any damage resulting from any infringement of copyrights, trademarks, proprietary rights, or any other harm resulting from any Submission that you make.

You represent and warrant that: (i) you own all Submissions posted by you on or through this Site, or that you otherwise have the right to grant the licenses to IMVU set forth in this section, and (ii) the posting of your Submissions on or through this Site does not violate the privacy rights, publicity rights, trademark rights, copyrights, contract rights or any other rights of any person or entity. http://www.imvu.com/catalog/web_info.php?topic=terms_of_service

F. Focus on Second Life to Exemplify Trademark Issues.

(1) Intro. demo at: http://secondlife.com/whatis/?sourceid=0909-sergoog-slSecondLife- wisl&gclid=CNjg646dtp8CFchn5QodL0Pg3A

(2) Commerce: SL promotes “making money”: http://secondlife.com/whatis/?sourceid=0909-sergoog-slSecondLife- wisl&gclid=CNjg646dtp8CFchn5QodL0Pg3A#Make_Money. Sales of UGC in game.

1 Under paragraph 4.1 of the SL terms, “Content” is defined as " any works of authorship, creative works, graphics, images, textures, photos, logos, sounds, music, video, audio, computer programs, applications, animations, gestures, text, objects, primitives, scripts, and interactive features.” This does not include virtual “land” that is “sold” by Linden Lab to a user to develop under paragraph 6: “Virtual Land is the graphical representation of three-dimensional virtual world space. When you acquire Virtual Land, you obtain a limited license to access and use certain features of the Service associated with Virtual Land stored on our Servers.”

4 HF 6119126v.2 #99999/0070 10/27/2010 Virtual goods/services can only be sold for use within the Second Life virtual world, not the real world.

(3) Linden Dollars tied to actual U.S. dollars.

(4) SL “Marketplace” - https://marketplace.secondlife.com/?lang=en-US. Allows web- based purchases for in-world use. SL charges fees and collects commissions from sellers of virtual goods. SL posts a detailed Marketplace Policy: https://marketplace.secondlife.com/listing_guidelines.

(5) “Branding Guidelines” https://marketplace.secondlife.com/listing_guidelines#branding-guidelines: “Branded items may be listed or sold only by the brand or intellectual property owner or its authorized agents. A "branded item" is an item that:

* contains or uses a brand name or logo; * replicates or closely imitates the appearance of a real-world physical product of a brand owner (for example, items that replicate the appearance of brands of cars, jewelry, or shoes that are available in the real world); * replicates or closely imitates the appearance of a celebrity, famous person, or fictional character from a copyrighted work (for example, avatars that replicate the appearance of movie stars or characters from a book, film, television program, or game); or * replicates or uses an artistic or creative work that is the subject of copyright (for example, virtual artwork that replicates artwork available in the real world or a sound clip that includes part of a song recording)….. Be careful not to make comparisons to a brand name or say that your item is "like," "inspired by," or "based on" a brand name because this can be misleading and can lead to intellectual property infringement…. If we receive a complaint from a brand or intellectual property owner, or if we believe in good faith that your listing violates these Branding Guidelines or intellectual property law, we reserve the right to remove your listing and content (including content in Second Life associated with the listing) and in severe or repeat cases revoke your SL Marketplace and Second Life privileges. You are responsible for ensuring that your listings and content comply with applicable intellectual property laws. Please be aware that your compliance with these Branding Guidelines does not guarantee your compliance with all intellectual property laws. For general information about intellectual property and our intellectual property complaint procedures, please go here. If you need advice on intellectual property law, we suggest you contact an attorney.

II. Trademarks in Virtual Worlds

A. Demonstration of Second Life. Examples of user generated “brands,” real world brand names/logos likely used without permission, and real world brand owners with in world virtual stores.

(1) Use of marks by real world brand owners.

5 HF 6119126v.2 #99999/0070 10/27/2010 (i) Dozens of well known brands have opened shops or their own virtual “islands” within SL, such as Adidas, BMW, Cisco, CNET, Dell, Mercedes, Nissan, Pontiac and Reuters. Companies have also used SL to promote product launches or film debuts. The American Red Cross has held fundraising events in Second Life by auctioning off donated virtual goods.

(ii) 2007 – Furniture designer Herman Miller attacked Second Life knockoffs of his furniture designs (especially its iconic “Aeron” chair) with its “Get Real” campaign, under which it started offering a collection of furniture pieces for L$300- L$850,(approximately U.S. $1.40 - $3.50 at the time), but users that bought knockoffs get the new pieces for free if they delete the knockoff from their inventories. It set up a SL virtual store. The company decided it needed to protect its in-world distinguished designs and brand name in light of the growth and importance of virtual worlds.

(iii) Brand owner virtual areas. Gibson Guitars: Created its own “Gibson Island” in Second Life I 2008 (no longer up): http://www.gibson.com/en- us/Lifestyle/Features/enter-a-virtual-3d-world-with/.

(2) Use of real world marks by SL users in UGC and “search” results. [Demo]

(i) Search for “Fender” or “Gibson” guitars,” for example, brings up virtual music stores promoting these real world brands, with their famous trademarks and trade dress protected designs on display, and selling virtual guitars. Search for “Gucci” brings up in-world stores selling virtual apparel and accessories branded with real world famous designer names.

(ii) Users loyal to brands set up their own brand promotion and educational areas. Can be powerful marketing tool for brand owners.

B. Trademarks/trade dress that exist only in the virtual world.

(1) SL policy expressly limits in-world goods to virtual ones (“Listings for Real-World Goods or Services. The SL Marketplace is only for digital content and services that are designed and intended for use with the Second Life virtual world technology. We expressly prohibit the listing or sale of any and all goods or services designed or intended to be delivered in the real world, for example, delivered in person or mailed or shipped to a physical address.” https://marketplace.secondlife.com/listing_guidelines#listings-for- real-world-goods)

(2) Also SL Terms of Use (paragraph 8): “Linden Lab reserves the right, but is not obligated to use technological measures designed to prohibit the copying, transfer, or distribution of Content outside the Service when we in good faith believe that such copying, transfer, or distribution would or might violate the Intellectual Property Rights of our users, Linden Lab, or third parties.” http://secondlife.com/corporate/tos.php#tos7.

6 HF 6119126v.2 #99999/0070 10/27/2010 III. Trademark Infringement Analysis

A. "Use in commerce." In the U.S., because trademark rights arise only from use “in commerce,” an open issue is whether use of a fictional brand solely in a virtual online game is use “in commerce.”

(1) Arguably, the “commerce” element is present where virtual goods and services can be bought and sold for fictional currency purchased in the real world and tied to real dollars, as in Second Life.

(i) SL entails detailed pricing formulas for commissions for buying/selling Linden dollars, land “maintenance” fees, “premium” membership fees, See http://secondlife.com/corporate/pricing.php.

(ii) SL in-world searches also employ key words for “advertisers” to steer users to their own virtual marketplaces.

(2) More difficult situations are where (i) UGC-fictional brands are merely passive and not involved in any purchase or sale transactions online; and (ii) real world brands are incorporated into virtual goods and scenery (e.g., in-world billboards) but are not sold. Is the latter nominal fair use?

B. Likelihood of Confusion. Courts weigh multiple factors such as similarity of the marks, the relevant markets and channels of trade, similarity of goods/services, good/bad faith of the alleged infringer, strength/fame of the subject mark, and ability of the mark owner to bridge the gap into other markets.

(1) Is confusion more likely now because more trademark owners have an authorized presence in Virtual Worlds than before?

(2) Early case: Marvel v. NCsoft (C.D. Cal. 2005). Marvel sued NCsoft and Cryptic, makers of the MMORPG "City of Heroes," for copyright and trademark infringement. Players in the game were able to create superhero characters to engage in game missions that looked, for example, like Wolverine or the Incredible Hulk. Marvel alleged the game’s creators were liable for contributory infringement. Case settled.

(3) In September 2009, creators of virtual erotic goods and clothing filed a class action against Linden Research in California, alleging piracy of their brands runs wild in Second Life. Eros LLC, one of the plaintiffs, sells erotic products in Second Life from which it reportedly has earned over $1 million in revenues through its “SEXGEN” brand of SL virtual goods. The complaint alleges plaintiffs’ brands and copyrights have been infringed by virtual counterfeit goods that are sold to other players. Case is pending.

Eros owns a USPTO 2008 service mark registration for SEXGEN for “Providing temporary use of non-downloadable software for animating three-dimensional virtual characters.” (Emphasis added.) This is the actual Eros PTO specimen of use filed:

7 HF 6119126v.2 #99999/0070 10/27/2010

(4) In 2007, Eros filed what may have been the first-ever virtual brand infringement suits in New York and Florida against individuals who allegedly sold counterfeit Eros goods in Second Life. The former action ended with a consent judgment and the latter by a default judgment. (See http://www.iptoday.com/articles/2008-5-vern.asp)

(5) Taser International Inc. v Linden Research Inc. (filed D. Ariz. 2009). Taser alleged infringement of its trademarks through sales of virtual stun guns. Case was voluntarily discontinued and settled in July 2009.

C. Contributory Infringement and Vicarious Liability. Unfair competition law includes two types of secondary liability. Potential liability of providers like Linden Labs (Second Life) is unclear but faces significant legal hurdles.

(1) Contributory infringement: “includes all those contributory infringers who knowingly cooperate in illegal and tortious activity.” 4 McCarthy on Trademarks and Unfair Competition § 25:17. In Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 511 (S.D.N.Y. 2008), the court held that a finding of contributory infringement against eBay for sales of counterfeit goods by third parties required more proof than just “generalized” knowledge by eBay that unauthorized goods were being sold but, rather, that a contributory trademark infringer must be shown to have supplied its services “to one whom it knows or has reason to know is engaging in trademark infringement.” Generalized knowledge of counterfeiting by eBay was found insufficient to impose contributory liability despite its earning of revenues from sales on its auction site.

(2) Vicarious liability: “Requires a ‘finding that the defendant and the infringer have an apparent or actual partnership, have authority to bind on another on transactions with third parties or exercise joint ownership or control over the infringing product.’” Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 591 .Supp. 2d 1098, 1113 (N.D. Cal. 2008). Unlikely that virtual world providers would be held liable due to a lack of control over their customers’ creation of any infringing UGC.

(3) Is a virtual world provider’s disclaimer and a voluntary “take down” policy for trademark infringement claims (such as those posted by Linden Labs) sufficient to avoid liability?

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D. Virtual world infringements are now a global concern. WIPO Standing Committee on the Law of Trademarks, Industrial Designs and Geographical Indications (for 24th Session, Geneva, Nov. 1 - 4, 2010): “Practices such as the unauthorized use of trademarks…on virtual objects that are traded in virtual worlds, constitute clear challenges to the traditional application of trademark law.” This new WIPO report dedicates an entire section to “Trademark Infringement in Virtual Worlds and Social Media.” (Annex I, pgs. 12 - 18).

IV. Copyright issues generally:

A. Scope. Copyright provides protection for any “fixed” (tangible) expression of original authorship. Codified in U.S Copyright Act, 17 U.S.C. §101, et seq. This can include original content created in virtual worlds such as designs of virtual goods (furnishings, apparel, etc.), in- world art and graphics, avatars as protectable “characters,” landscapes, buildings, sounds, music, computer programs, animations etc.

B. Protection/Registration. Copyright protection comes into existence from the moment of creation of a work otherwise within the scope of statutory protection. In the U.S., registration with the U.S. Copyright Office (or a rejected application to register) is still required as a prerequisite to sue for infringement in the U.S. except as to a non-U.S. protected work (one created outside the U.S.) under the Berne Convention.

C. Statutory DMCA (“Digital Millennium Copyright Act”) “take down” procedures apply. See, e.g.: http://secondlife.com/corporate/dmca.php and http://www.zynga.com/about/terms-of- service.php. Service providers like Second Life are normally not liable for primary or secondary infringement if they fully comply with the “safe harbor” provisions of the DMCA. See, e.g., SL policy at: http://secondlife.com/corporate/dmca.php.

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December 1, 2009 Vol. 64, No. 22

Trademarks in Virtual Worlds

Barry Werbin, Herrick Feinstein LLP, New York, New York, USA, INTA Bulletin Features—Policy & Practice Committee

The rapid pace of development in virtual online worlds is breathtaking, and trademark law is having to move fast to keep up. This article looks at the most recent trends in how brands are used and abused in this parallel universe.

Realism and social interaction in computer gaming have been greatly enhanced in recent years by advances in software technology, computer hardware and bandwidth. This is perhaps most evident in online “virtual worlds,” where large numbers of players from around the world can simultaneously log on to a “massively multiplayer online role-playing game” (or MMORPG) and interact in real time with other players, often through their own fictional “avatar” stand-ins. These worlds depict richly detailed virtual environments and, with ever-increasing frequency, both fictional and real-world brands.

Adding realism and higher levels of interactivity enhances game play and entices more players to join online games and virtual worlds. This leads to revenue generation. Players either pay recurring game subscription fees (such as in the enormously popular WORLD OF WARCRAFT game) or engage in virtual commercial transactions within a virtual world (as in SECOND LIFE or the Swedish-owned venture ENTROPIA UNIVERSE). In another business model, free game play is offered in a MMORPG in exchange for users viewing in-game advertisements, as in the ANARCHY ONLINE “Free Play” option.

This in turn creates a vast captive marketing audience for setting up virtual marketplaces in which real-world companies can infuse their real-world brands into the games in order to market their goods and services. In virtual worlds like Second Life, unlike a traditional game where all content is created by the game developer, participants themselves create enormous amounts of content, including their own “virtual” brands for goods and services that exist solely in the virtual environment. Under the Second Life terms of service, user-generated content and associated intellectual property rights are retained by their creators.

High levels of realism in games often require game designers to replicate material objects with which we interact in the real world, including branded products and services. For example, game designers creating urban landscapes by necessity may want to use images of real cars and building structures with recognizable names or designs (including protectable trade dress) to enhance realism. Licenses may be required from brand owners depending on whether such uses would likely create confusion as to the source or sponsorship of such marks or trade dress in the game or otherwise dilute the distinctiveness of the brand, or, alternatively, whether such uses would be deemed a descriptive or nominative fair use if, for example, they were relegated to fleeting background imagery.

In the United States, constitutional concerns may also arise because of the artistic nature of many game designs. The First Amendment to the U.S. Constitution grants a broad right of free speech and freedom of expression, particularly applicable to creative arts. For example, in E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095 (9th Cir. 2008), the U.S. Court of Appeals for the Ninth Circuit examined whether the depiction in the game “Grand Theft Auto: San Andreas” of a real Los Angeles strip club, including the club’s logo and exterior design, as part of a virtual world depiction of a dark urban environment, infringed the strip club owner’s trademark rights. The court held that such use did not infringe the actual club’s trademark and trade dress rights even in the absence of nominative fair use, because it was protected by the First Amendment and because “[n]othing indicates that the buying public would reasonably have believed that [the club owner] produced the video game or, for that matter, that [the video company] operated a strip club.”

From a commercial perspective, 3D virtual worlds in particular present the opportunity for real- life companies to promote their own brands in a rich interactive environment to millions of potential viewers worldwide. Virtual world markets also allow gamers to create user-generated brands that acquire goodwill and economic value among players. This is perhaps best illustrated by the highly popular Second Life, as well as other popular 3D virtual world MMORPGs, such as IMVU.com and There.com.

In Second Life (operated by Linden Labs), virtual goods are widely created by users and can be sold or traded in online markets using fictional money called “Linden Dollars,” which is purchased for fractions of real dollars in the real world. Linden Dollars even are subject to currency exchange fluctuations and can be purchased and redeemed for U.S. dollars and foreign currency through a LindeX Exchange. At the time this article was written, the exchange rate was about 260 Linden Dollars to one U.S. dollar. There is even an online market data index for exchange rates posted by Linden Research, Inc., the parent of Linden Labs, at http://secondlife.com/statistics/economy-market.php.

This infusion of the concept of real commerce into the virtual environment raises the more difficult question of whether such use of virtual brands, not otherwise found in the real world, can be protected under existing trademark law if other users engage in acts that in the real world would constitute infringement. Under Second Life’s terms of service, ownership rights in user- created content remain with the content creators to the extent such rights exist “under applicable law,” thus empowering content creators to protect their own brands from misuse.

In the United States, because trademark rights arise only from use “in commerce,” an open issue is whether use of a fictional brand solely in a virtual online game is use in commerce. Arguably, the “commerce” element is present because virtual goods and services can be bought and sold for fictional currency purchased in the real world and tied to real dollars. A more difficult issue is whether protection under U.S. law can exist for fictional brands that are merely passive and not involved in purchase or sale transactions online. Whether such virtual brand owners have enforceable trademark rights is about to be tested. In September 2009, two creators of virtual erotic goods and clothing filed a class action against Linden Research in California, alleging that piracy of their brands runs wild in Second Life. One of the claimants, Eros LLC, sells erotic products in the game and has reportedly earned a million dollars in revenue over the last five years. The complaint alleges that Eros’s brands and copyrights have been infringed by counterfeit goods that are sold in the game to other players. In 2007, Eros filed in New York and Florida what may have been the first-ever virtual brand infringement suits, against individuals who allegedly sold counterfeit Eros goods in Second Life. The former action ended with a consent judgment and the latter by a default judgment. (See www.iptoday.com/articles/2008-5-vern.asp.)

Some virtual world players have even obtained trademark registrations for their “branded” avatars. For example, the pictured image of the popular Second Life avatar named “Aimee Weber,” whose real-world owner creates virtual designs and products in the game, was registered in 2008 with the U.S. Patent and Trademark Office in Class 42 for “computer programming services, namely, content creation for virtual worlds and three dimensional platforms.” (Reg. No. 3531683, Nov. 11, 2008.)

The line between virtual reality and the real world is getting ever thinner. Over the past few years, many major consumer companies have embraced virtual worlds by injecting their own brands into the gaming environment. For example, in July 2008, Gibson Guitar added a virtual island in Second Life, where it “encourages consumers to participate in this new and exciting virtual world, complete with digital luthiers, instruments, and guest stars.” www.gibson.com/en-us/Lifestyle/Features/enter-a-virtual-3d-world-with/. Dozens of other well-known brands, such as Adidas, BMW, Cisco, CNET, Dell, Mercedes, Nissan, Pontiac and Reuters, have opened shops or their own virtual “islands” within the game. Companies have also used Second Life to promote product launches or film debuts. The American Red Cross has even held fundraising events in Second Life by auctioning off donated virtual goods. Indeed, Second Life offers its own “Brand Center,” which “provides guidance on how to promote your contributions to the Second Life world without implying that Linden Lab is endorsing them or otherwise affiliated with them.” http://secondlife.com/corporate/brand/index.php.

But what happens when a player in a virtual game creates merchandise or content that itself is fictional but is branded with real-word marks or trade dress of well-known brand owners? With major companies now marketing their brands in virtual worlds, the likelihood is increased that consumers will be confused into believing that such brand usage anywhere in a game has been undertaken or sponsored by the brand owner itself. Brand owners thus may have stronger infringement and dilution claims against such potential virtual counterfeiters today than they had several years ago. This is especially true as to dilution claims under U.S. law that do not require proof of consumer confusion but still require some use in commerce. Where there is unauthorized use of real brands on virtual goods or services that are actually bought and sold in virtual worlds, the “use in commerce” element should be satisfied.

In an early 2004 test case, Marvel Enterprises, Inc. sued online computer game publisher NCsoft(R) Corp. and game developer Cryptic Studios in California federal court, alleging that their MMORPG, City of Heroes®, permitted players to create their own avatars modeled after famous superheroes to which Marvel owned the rights. The game’s user agreement prohibited players from creating potentially infringing characters. In March 2005, however, the court dismissed several of the claims, including those for contributory trademark infringement respecting users’ creation of characters and character names, on the ground that the alleged infringing names and characters “were not used in commerce to identify the goods or services” but were “used to identify characters in a recreational game.” In December 2005, the remaining claims were settled.

More recently, in April 2009, Taser International Inc. filed suit against Linden Research for allegedly permitting rampant sales of unauthorized TASER branded virtual stun guns. The lawsuit also named a third party that was selling such products in the game. In July 2009, however, Taser voluntarily withdrew its complaint before Linden Labs answered, reportedly as a result of a settlement.

Times have changed dramatically over the last few years for virtual worlds, which are growing exponentially along with significant real-world revenues. According to the New York Times, virtual world transactions are “estimated at between $1 billion and $2 billion a year in real dollars.” www.nytimes.com/2009/10/22/fashion/22Avatar.html?scp=1&sq=%22second%20life%22&st=c se.

Virtual world marketing and branding consultants have even emerged, such as KZero and Market Truths Ltd. KZero predicts that the number of virtual worlds will grow from about 150 in 2009 to 900 by the end of 2012. www.kzero.co.uk/blog/?cat=34. While the level of monetized transactions in virtual worlds was rather de minimis early in the decade, leading brand owners to perhaps ignore potentially infringing uses of their marks because the prospect of recovering damages was nil and any harm was negligible versus the cost of litigation, today the stakes are a lot higher. Companies now infuse their brands into virtual worlds, and a robust virtual economy entices players to create detailed goods and services that are actively traded among millions of players worldwide.

While often projecting images of quasi-utopian worlds, virtual gaming is creating significant marketing and commercial opportunities that are beginning to lead to not-so-utopian results. Inevitably, we will see court decisions addressing these issues on the merits. In the words of Aldous Huxley, it’s a “brave new world” … well, at least a virtual one.

Barry Werbin Partner; Chair, Intellectual Property/Technology Group New York Phone: (212) 592-1418 Fax: (212) 545-3401 www.herrick.com/bwerbin

Although every effort has been made to verify the accuracy of items carried in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest. © 2009 International Trademark Association, 655 Third Avenue, 10th Floor, New York, NY 10017-5617 USA phone +1-212-642-1700 | fax +1-212-768-7796 | www.inta.org | [email protected] Faculty Biographies

Dyan Finguerra-DuCharme is Counsel at White & Case LLP where she focuses her practice on all aspects of trademark and trade dress litigation and enforcement including managing large scale vigilance programs and litigating claims in federal court and before the U.S. Trademark Trial and Appeal Board. Ms. Finguerra-DuCharme also prosecutes trademarks globally and provides opinions regarding the availability of trademarks in the United States. In addition to her trademark practice, Ms. Finguerra-DuCharme has also successfully handled litigations involving copyrights, patents and trade secrets. She has represented clients in a variety of industries, including pharmaceuticals, luxury goods, consumer products, biotechnology, power equipment, computer software, financial services and e-commerce. She attended Hamilton College and Brooklyn Law School.

David Stimson is Chief Trademark Counsel for Eastman Kodak Company in Rochester, New York with worldwide responsibility for Kodak’s trademarks and copyrights. He is a graduate of Hamilton College and the University of Cincinnati College of Law. He has served as President of the International Trademark Association and currently is a member of its International Amicus Committee. He also has served as a member of the Trademark Public Advisory Committee to the U.S. Patent and Trademark Office. He has taught courses on trademark law and internet law at Syracuse University College of Law and the University of Cincinnati College of Law. In his spare time he is the drama director at a local high school

Barry Werbin is a Partner at Herrick, Feinstein LLP and the Chair of its Intellectual Property and Technology Group. Barry concentrates his practice in intellectual property and Internet issues (including trademarks, trade dress, copyrights, unfair competition, false advertising, publicity and privacy rights, trade secrets, domain name issues and ICANN dispute resolution proceedings, digital rights protection, trademark and content licensing, Internet and traditional marketing and sponsorship agreements, publishing, due diligence and exploitation rights) and technology issues (including software and technology licensing and development, IT support agreements, web-site development and hosting, IT outsourcing, and data and computer security breaches). Barry handles infringement and other complex commercial litigation and a broad variety of IP-related transactional matters. He graduated magna cum laude from City University of New York, Queens College and received his J.D. degree from Fordham University School of Law where he also was on the Law Review.