The Intersection of NILS, NFTS, AI Creations, Big Data, and the Metaverse

What is at the intersection of name, image likeness rights (NILs), non-fungible tokens (NFTs), artificial intelligence (AI) creations, big data, blockchain and the metaverse? Intellectual property, of course, because IP is connected to everything. New technologies necessitate updating intellectual property laws and regulations to address these advancements.

Digital computing is advancing at warp speed, including AI, big data, transformative multi-media platforms and social media platforms. Governing laws and regulations are often obsolete, among them data privacy, but at the center of the intersection are intellectual property rights—copyrights, patents, trade secrets, rights of publicity, data rights, and trademarks.

The technology and related legal issues are becoming more prevalent, as evidenced by recent court decisions and guidance statements/ request for comments issued by the Copyright Office and the U.S. Patent and Trademark Office (USPTO).

For example, Hermes International SA, a luxury brand women’s handbag, won a lawsuit at a federal district court against a digital artist behind the “MetaBirkin” NFTs. Hermes was awarded $133,000 in damages. The defendant, Rothschild, created and sold 100 MetaBirkin NFTs that are linked to digital images depicting Hermes’ iconic Berkin handbag, but covered in colorful, cartoonish fur instead of leather. Another intersection is seen in Thaler v. Perlmutter, where the U.S. District Court for the District of Columbia decided that AI can’t be an author nor can the creator of an AI tool. Additionally, in Thaler v. Vidal, the Federal Circuit decided AI cannot be listed as an inventor on a patent application.

Another intersection was demonstrated when the Copyright Office on March 16, 2023, issued a statement of policy to clarify its practices for examining and registering works that contain material generated using AI technology. In summary, the Copyright Office said that while “it is well-established that copyright can protect only material that is the product of human creativity” — that “does not mean that technological tools cannot be part of the creative process.” The above makes it apparent that these issues are here to stay.

For definitions of terms in the article, please click here.

NILs, NFTs, AI, Big Data, and the Metaverse Intersecting: Hypothetical

A highly recruited high school basketball star planning to play Division 1 basketball for a top-ranked program develops their brand based on their nickname, Sky-Freeze.

The senior trademarks Sky-Freeze for sports apparel and establishes a social media following by posting workouts and highlight reels. Sky-Freeze seeks NIL-based endorsements and creates limited edition NFTs from highlight reels illustrating signature moves, with game and workout footage. Sky-Freeze establishes an avatar on a metaverse platform and seeks NIL-based agreements for the avatar on the metaverse platform. The avatar wears Sky-Freeze branded apparel in the metaverse and sells it to other avatars for cryptocurrency. The NFTs are also sold to those external to the metaverse. The sales are under a smart contract, and ownership is tracked on a blockchain ledger.

AI on the metaverse platform creates real-world-like basketball games where Sky-Freeze’s avatar competes against other avatars based on AI analyzing big data of video footage of actual games. The statistical performances of the avatars are analyzed using big data analytics to predict the avatars’ performance and every move on the court. These interactions generate a new set of virtual-world highlight reels, which Sky-Freeze also seeks to leverage using NIL agreements on the metaverse platform for the avatar and NFTs for the metaverse-created AI-based highlight reel.

Sky-Freeze wears certain brands and styles of sneakers when prowling the hardwood. He wants his avatar in the metaverse to sport the same style of sneaker with fanciful color combinations like polka dot patterns, which don’t exist for the real-world sneaker design, but otherwise look generally the same as a well-known branded sneaker. Also, some of the real-world video footage used to create an NFT includes footage from a local media outlet broadcast and contains images of other players as well as images of Sky-Freeze’s high school logo and that of the school of the opponents. You get a picture of this “not-so-serendipitous” intersection.

What are some legal questions?

• Right of publicity in the metaverse – does it apply to an avatar?
• If Sky-Freeze doesn’t own real-world video footage, can Sky-Freeze leverage as an NFT?
• Should you redact the brands and images of others?

Let’s examine some of these legal questions through the lens of a few technologies at the intersection and explore some predictive legal solutions.

Name, Image and Likeness (NIL)

Sky-Freeze can clearly leverage their NIL in the real world under the normal standards for the right of publicity. Further, it is clear that one should leverage their NIL through NFTs in the real world. When the NCAA removed restrictions for monetizing NIL, college and college-bound high school athletes signed lucrative NIL deals, which often included NFTs. Those monetizing their NIL will inevitably use NFTs of their captured content, in the real world and potentially in the metaverse. The popularity of purchasing NFTs has grown. The NBA and the NFL establishing NFT platforms evidences the growth. NIL collectives also create their own NFT communities for raising funds for athletes.

Sky-Freeze posts on social media and free video-sharing platforms to leverage their NIL. The content includes daily activities and scripted workouts of Sky-Freeze’s moves on the hardwood. However, the posts may include content from actual games, for example, highlight reels. In either case, the athlete must be careful not to include NIL of others without prior written approval. Further, the athlete must be careful not to include the branding, trademarks, or copyright of others in the content without prior written approval. For example, media outlets will often record portions of or the entirety of a high school basketball game. Now that high school athletes are leveraging their NILs, more comprehensive agreements and policies are needed between the schools, the athletes, and media outlets. Can Sky-Freeze have a parent or friend capture portions of a game and post the content without blurring the image to avoid showing other athletes who may also leverage their NILs or the branding of others? Can an athlete repost video of their game if they didn’t record the video or have someone record the video? For example, an NFL player should not take a video clip from footage owned by a media outlet under contract with the NFL and sell the footage as an NFT for leveraging their NIL without a written agreement. An athlete must not infringe on the intellectual property rights of others.

It is only a matter of time before growth occurs in the metaverse as seen in the real world, particularly as AI on a metaverse platform becomes more sophisticated. Who will own the NIL and any related NFTs in the metaverse? Certainly, ownership of original metaverse content and NFTs stemming from that should be determined by terms and conditions governing a real-world individual’s access to and operation in the metaverse. If access to the metaverse platform is fee-based; if the metaverse platform is simply a tool that allows a real-world individual to create an avatar and to operate and interact in the metaverse; and if all content generated in the metaverse is a result of a real-world individual interacting through a user interface to navigate within the metaverse; then the real world individual should not have to relinquish any rights to their NIL and/or NFTs stemming from metaverse content of metaverse interactions. However, one must not infringe on the intellectual property rights of others in the metaverse. Clearly, the leveraging of NIL in the metaverse intersects not only with the metaverse platform, but also potentially intersects with the associated AI, big data, big data analytics, NFTs, and blockchain and at this intersection are intellectual property rights.

If the AI on the metaverse platform generates much of the digital content, without the need for substantial user interaction, then the terms and conditions may lean towards the owners of the metaverse platform and associated AI, having more rights in the NILs and the NFTs from the metaverse content. However, such right should be granted by way of an agreement. For example, if a video animation of Michael Jordan is created that clearly intends to represent Michael Jordan, such video animation should not be made without Michael Jordan’s permission, and ownership of any NFTs stemming from the video animation should be by way of agreement. The same should apply to the metaverse. NFTs in the metaverse are akin to a product or good in the trademark sense.

Non-Fungible Tokens (NFTs)

NFTs can be owned and sold as the digital file itself, the secure token, or the right of presentation of the digital file that can be perceived in some matter – visually, audibly, tactilely, gustatorily, or olfactorily. The owner of the original content from which the NFT stems typically retains all intellectual property rights and may restrict how the NFT can be perceived or shared by a purchaser, but likely the owner allows a purchaser to resell the NFT.

What if an NFT is created from a metaverse-based NBA highlight reel taken from two NBA star avatars competing in a metaverse-based NBA championship where the actual play-by-play interaction is controlled by AI that has analyzed mounds of digital data from real-world footage of the two real-world individuals competing? The NFT is unique to this AI-generated metaverse-based content. In this instance, the NFT, although original to the metaverse, is based on the NIL of the basketball star, and therefore still requires an agreement. By way of illustration, the NBA, through its contracted media outlets, has the ability to broadcast and rebroadcast entire games, portions of games and highlight reels. However, by way of agreement, the media revenue generated is shared with the team and is passed through to the players via contract. A similar structure could exist for the metaverse.

Therefore, Sky-Freeze, seeking to leverage their NIL by using NFTs, shouldn’t use content in their NFT unless they own the content or have a written agreement to use the content. Ideally, they should use content that they captured or commissioned to capture on their behalf. This includes those seeking to leverage their NIL in the metaverse by also using NFTs whose content stems from and resides in the metaverse. For example, they can have an avatar on a metaverse platform, where the avatar clearly resembles the real-world basketball star. Content stemming from the avatar engaging and interacting in the metaverse can be captured for NFT content.

As noted above for Hermes International SA litigation, the defendant in the case, Rothschild, created and sold 100 MetaBirkin NFTs that are linked to digital images depicting Hermes iconic Berkin handbag, but more fanciful. The jury decided that Hermes’ trademark/trade dress rights were infringed by the MetaBirkins and do not fall into the exception of a work of art and free speech. It is clear that, though different in appearance, the NFT is leveraging the brand recognition of Berkin to financially benefit. A major brand should be able to maintain its brand in the real world and in the metaverse and to benefit from the financial gain. Therefore, if Sky-Freeze  wears branded shoes in a polka dot pattern that doesn’t exist in the real world, but looks the same as the real-world shoe, permission to wear the shoe is required.

Time to Update IP Laws

NILs, NFTs, AI creations, big data and the metaverse will inevitably intersect. Intellectual property laws will be one traffic cop at this intersection critical to managing traffic. Each of these technologies will impact the real and virtual worlds. State and federal legislatures and the legal community must revamp laws to deal with these technologies, particularly in the area of intellectual property law.

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