Branding the Future: Advertising Law, the Metaverse, and NFTs – Part 1

In his 1992 sci-fi thriller Snow crash, writer Neal Stephenson allowed his characters to escape from a dystopian Los Angeles into a completely virtual realm he called the Metaverse. Thirty years later, in an age of the internet, apps and social media, fantasy has become reality. Companies are introducing new technologies such as virtual and augmented reality, cryptocurrency and non-fungible tokens (NFT) at an ever-accelerating pace.

These companies are ready to welcome us as we move more of our lives online each year. The most famous of these is, of course, Meta, Inc. (formerly known as Facebook), but a phalanx of others, ranging from Web3 companies like Coinbase, Autograph, and Decentraland to more traditional brands like Volkswagen, Roblox, and even HSBC, are working to take advantage of the public’s newfound enthusiasm for all things metaverse, and current cutting-edge marketing and branding experiences.

For example, last year Yahoo, Selfridges, Pokemon and fashion designer Charli Cohen developed a metaverse experience known as ElectricCity, which allowed consumers to buy real and digital copies of the same garment at the same time using an interoperable virtual avatar. These branding campaigns have grown so ubiquitous that industry publishing AdAge keeps a continuously updated list of how brands are using NFTs.

Below we discuss some of the legal issues that may arise in this ever-evolving space as more brands enter the metaverse and begin using NFTs for advertising, branding and promotional opportunities.

What are the legal implications of advertising in the metaverse?

While the metaverse may open up an exciting new universe of marketing opportunities, few of the laws that will apply are new. In fact, many of us have applied federal and state advertising laws to new media and technologies several times over the past 20 years—first with the widespread use of the Internet, then the introduction of social media (in various formats), advances in mobile advertising, and so on. .

In fact, we have been discussing how to apply these laws to “virtual worlds” since the launch of “Second Life” in 2003. Moreover, the Federal Trade Commission (FTC) made it clear in truth in advertising guidance such as “.com Disclosures: How to Make Effective Disclosures in Digital Advertising,” which is currently being updated for the third time in two decades, that regardless of the technologies involved, many of the concerns will be the same.

• Ensure that your advertising is truthful and not misleading and that all disclosures are made in a clear and conspicuous manner
• Acquire the necessary intellectual property rights (IP).
• Recognize and disclose endorsements
• Follow the rules for campaigns, where applicable, including the law on prize campaigns and gift laws
• Ensure contractual issues are addressed, including terms of use and privacy issues

Advertisers still have to worry about running afoul of federal advertising statutes (such as the FTC Act and the Lanham Act) and state consumer protection laws that prohibit deceptive advertising in the metaverse. And the same regulators and industry watchdogs, such as the FTC, the Consumer Financial Protection Bureau, state attorneys general and the National Advertising Division, continue to pursue bad actors there. That said, new (or rarely seen) players, such as the Securities and Exchange Commission, have pursued actions involving claims by celebrity endorsers to invest in cryptocurrencies, taking the position that they should be regulated as securities. In addition, there are certain types of requirements that may have a higher risk of regulation.

What does false advertising look like in the metaverse?

Metaverse and NFT legal issues are drawing significant attention from both regulators and class actions. For example, a class action lawsuit was filed against online retailer StockX in the US District Court in Miami, alleging, among other things, that StockX misled customers about its NFT products. In particular, plaintiffs alleged that StockX made false and misleading statements regarding the availability of the products that customers were supposed to be able to redeem for their NFTs, and the authenticity of the products themselves. Those actions, according to the plaintiffs’ complaint, violated Florida’s Deceptive and Unfair Trade Practices Act.

Similarly, in January 2022, rapper Lil Yachty filed federal and state false advertising claims against Opulous and Ditto LTD in the US Central District of California. In that case, Lil Yachty alleged that Opulous used his image, name and trademarks without his consent in various advertisements and promotions for an NFT by Opulous, falsely representing that the NFTs being advertised were endorsed by Lil Yachty and that purchasers would be could purchase Lil Yachty’s copyrighted work.

These types of claims are emerging with increasing frequency as companies try to quickly pivot to take advantage of the perceived profitability of the metaverse.

Be sure to read Part 2 of our series, “Branding the Future: Advertising Law, the Metaverse, and NFTs.” We will discuss competitions, endorsements and intellectual property in the metaverse.