Virtual Property Real Liability: Intellectual Property in Metaverse

I. Introduction

The swift development of digital technologies has radically altered the design of the internet, resulting in the emergence of immersive virtual environments commonly known as the metaverse.¹ The metaverse has been enabled by advances in virtual reality (VR), augmented reality (AR), artificial intelligence, and blockchain infrastructure,² engaging users in persistent virtual worlds through avatars and interactive environments. These environments allow people not merely to consume digital content but to create, sell, and monetise it — a fundamental departure from the old-fashioned, two-dimensional internet. Virtual real estate, digital skins, digital fashion, game assets, and blockchain-certified artwork in the form of Non-Fungible Tokens (NFTs) have become important parts of a growing digital economy.³

The emergence of these digital ecosystems has created considerable legal and regulatory challenges, particularly those related to intellectual property law. The legal systems that currently govern intellectual property were largely formed in a world where physical goods are produced, their creators can be identified, and markets are geographically confined. The Copyright Act, 1957 and the Trade Marks Act, 1999 were not designed to govern immersive virtual worlds⁴ where virtual content is simultaneously created and exchanged by users across many different jurisdictions, involving intangible digital property. The decentralisation inherent in blockchain technologies further complicates intellectual property protection, enabling the transfer of digital objects across borders without centralised oversight of data flows.

These developments reflect a growing tension between established legal doctrines and the realities of digital innovation. Questions of ownership over virtual assets, brand protection in digital form, and the application of intellectual property rights in decentralised networks remain unresolved. As the virtual economy expands, the legal boundary between innovation and the protection of creators may be further strained in the absence of legislation tailored to these new circumstances. This paper asserts that the existing intellectual property system is structurally ill-equipped to address the distinctive challenges posed by the metaverse. It reviews the current legal framework governing intellectual property, examines the legal issues arising in virtual spaces, assesses regulatory responses in other jurisdictions, and offers recommendations for reforms that may strengthen intellectual property regulation within the dynamic metaverse ecosystem.

II. The Existing Legal Framework

A. Statutory Foundations and Territoriality

Traditionally, intellectual property law has aimed at promoting innovation and creativity by granting creators of original works exclusive rights over those works. These rights permit creators to control the reproduction, distribution, and commercial exploitation of their intellectual output over a finite period. In India, intellectual property protection is primarily governed by statutes including the Copyright Act, 1957, the Trade Marks Act, 1999, and the Patents Act, 1970.⁵

One of the defining features of intellectual property rights is their territorial nature.⁶ These rights are granted and enforced within the jurisdictions of individual nations. Despite international treaties — notably the Berne Convention and the TRIPS Agreement — which establish minimum levels of protection, enforcement mechanisms continue to rely on national regulations and domestic courts. Accordingly, intellectual property disputes are typically adjudicated in the jurisdiction where the alleged violation occurs.

This territorial structure is challenged by the metaverse in several significant ways. Virtual environments operate on international digital networks where users across different jurisdictions interact simultaneously. A digital image created by a user in India may be purchased by a user in another country, stored on servers in a third jurisdiction, and traded on a platform regulated by the law of yet another state. This fragmentation creates ambiguity about which law applies and which court has jurisdiction to resolve disputes.

B. The Physicality Bias in Property Law

A further weakness of traditional intellectual property systems lies in their historical association with physical creative production. Intellectual property law developed at a time when creative works were generally tangible — a book, a painting, a film, or a manufactured article. The distribution and ownership of such works were consequently more straightforward to regulate. Legal doctrines incorporating property ownership similarly followed the logic of tangible assets. The Transfer of Property Act, 1882, for example, represents a legal framework⁷ in which concepts of ownership, possession, and transfer were understood through physical control of property.

Digital assets in the metaverse, by contrast, are purely virtual — information stored on digital servers or distributed networks. These assets can be instantaneously copied, transferred internationally, and modified by different users in different jurisdictions. Traditional legal conceptions of possession and ownership are therefore ill-suited to capturing the nature of virtual assets. This tension between technological reality and legal doctrine is one of the central problems confronting intellectual property law in the digital era.

III. Challenges Posed by the Metaverse

A. Ownership and Platform Control

One of the most pressing legal questions in virtual environments concerns ownership of user-created digital content. Users routinely invest considerable time and creativity in producing digital items such as avatar clothing, virtual game worlds, and digital buildings — resources that can command significant economic value when traded in digital marketplaces.⁸

Despite this creative contribution, ownership of such assets is commonly controlled by platform operators rather than by the individual users who created them. The majority of virtual platforms govern user activity through End-User License Agreements (EULAs) that grant users only limited licence rights to view and use digital resources within the platform environment. These agreements typically vest final property rights in the platform operator, giving the company authority to alter or delete digital assets at will.

This structure creates a significant power imbalance between users and platform operators. Users generate value through their creative work yet retain no meaningful legal authority over it. Scholars have characterised this phenomenon as a form of digital serfdom, in which users remain entirely dependent on platform owners for continued access to the virtual spaces they themselves have helped to build.

B. The Dual Ownership Problem of NFTs

The advent of blockchain technology and non-fungible tokens (NFTs) has introduced a new layer of complexity to the concept of digital ownership. NFTs are cryptographic tokens recorded on a blockchain that authenticate both the existence and ownership of a particular digital asset.⁹ They offer creators the opportunity to sell digital works in a manner analogous to physical artwork, by linking digital content to a unique blockchain-based token.

Nevertheless, ownership of an NFT does not automatically confer intellectual property rights in the underlying work. In most instances, the creator retains copyright, and the buyer receives only proof of authenticity in token form. This distinction gives rise to what may be termed a dual ownership problem — a situation in which different parties hold distinct legal interests in the same digital asset.

This issue was brought into sharp relief in Hermès International v. Mason Rothschild.¹⁰ In that case, digital artist Mason Rothschild created and sold NFTs depicting stylised versions of the iconic Hermès Birkin handbag, marketing them as “MetaBirkins.” Hermès claimed that the NFTs infringed the company’s trademark rights and diluted the Birkin brand.

The United States District Court for the Southern District of New York decided in favour of Hermès, holding that trademark law applies to digital products and NFTs where there is a likelihood of consumer confusion or brand dilution. The case confirmed that existing intellectual property doctrines can extend to virtual settings, while simultaneously highlighting the complex legal questions that arise when digital properties intersect with established intellectual property rights.

C. Enforcement in Decentralised Environments

The enforcement of intellectual property rights in decentralised digital networks presents significant practical difficulties. Conventional enforcement mechanisms rely on intermediaries — such as internet service providers or content-hosting platforms — through which copyright owners may pursue takedown procedures developed under the Digital Millennium Copyright Act.¹¹

Decentralised blockchain networks, however, do not always have centralised authorities capable of providing equivalent enforcement mechanisms. Once digital content is recorded on a blockchain, it may be technically difficult or impossible to delete.¹² Blockchain transactions are also frequently pseudonymous, making it difficult to identify individuals engaged in infringing conduct.

These features limit the effectiveness of conventional legal remedies such as injunctions and takedown orders. Courts may issue orders requiring the removal of infringing material, but compliance with such orders in decentralised networks raises genuine technical challenges. Accordingly, intellectual property enforcement mechanisms must evolve to meet the realities of blockchain-based digital ecosystems.

These enforcement gaps are not unique to any single jurisdiction; legal systems worldwide are grappling with the same tensions between established enforcement frameworks and the architecture of decentralised networks.

IV. Comparative Perspectives

A. The United States

United States courts have seen a growing number of intellectual property cases involving digital property and virtual worlds. Rather than creating new legal frameworks, American courts have largely applied existing intellectual property principles to virtual goods and NFTs.¹³

The judgment in Hermès International v. Mason Rothschild is one of the clearest illustrations of this approach. By recognising that trademark law applies to NFTs and digital items, the decision established that brand owners retain legal protection against the unauthorised use of their marks in virtual spaces.

While this case-by-case approach allows courts to address disputes as they arise, it also introduces uncertainty for creators and businesses operating in digital markets. In the absence of comprehensive legislative frameworks, legal outcomes may vary depending on the interpretive approach adopted by a particular court.

B. The European Union

The European Union has taken a more proactive stance in responding to emerging digital technologies. The European Commission has initiated research and policy projects examining the regulation of virtual worlds, blockchain technologies, and digital asset markets.

European regulatory policy emphasises cross-border cooperation and the harmonisation of digital market rules. The European Union has sought to ensure that intellectual property rights are properly enforced in the digital environment through increased regulatory coordination among member states. These efforts suggest that integrated regulatory frameworks may offer a more effective response to the challenges posed by virtual economies than the jurisdiction-by-jurisdiction approach currently prevailing elsewhere.

V. Reform Proposals for the Indian Context

India’s intellectual property system has yet to establish a clear legal framework for virtual assets and immersive digital spaces. Although existing statutes can be construed to cover some digital assets, considerable ambiguity persists regarding ownership, jurisdiction, and enforcement. Four reform priorities merit particular attention.

First, India should consider developing a sui generis legal framework specifically designed to govern virtual assets and digital property. Such a framework would clarify ownership rights in user-generated content and offer protections commensurate with the realities of virtual environments.

Second, existing intellectual property legislation should be updated to explicitly address virtual goods and blockchain-based digital assets. Amendments to the Copyright Act, 1957 and the Trade Marks Act, 1999 should make clear that digital assets traded in virtual worlds are protected by intellectual property rights.

Third, policymakers should consider hybrid enforcement mechanisms that integrate both legal and technological solutions. Blockchain-based licensing systems and smart contract dispute resolution platforms may offer more effective means of resolving disputes in decentralised settings.

Finally, regulatory transparency would support the growth of India’s digital innovation ecosystem. Institutions such as NITI Aayog¹⁴ have emphasised the importance of developing enabling regulatory frameworks for emerging technologies. By modernising its intellectual property system, India can foster innovation while ensuring adequate legal protection for creators in the digital economy.

VI. Conclusion

The advent of the metaverse represents a transformative moment in the development of digital technologies and the internet economy. Virtual environments are becoming sophisticated digital ecosystems in which individuals create, share, and monetise valuable digital assets. These assets often carry substantial intellectual property value, yet the legal frameworks designed to protect them continue to operate on the basis of territorial and physically grounded conceptions of property.

As this article has demonstrated, the metaverse poses a range of challenges to intellectual property law. Questions of ownership over user-generated digital content, the dual ownership problems arising from NFTs, and the practical difficulties of enforcing intellectual property rights in decentralised blockchain networks all reveal the limits of current legal doctrine. Conventional enforcement mechanisms, built for centralised digital systems, will not translate straightforwardly to decentralised virtual environments.

Trends in jurisdictions such as the United States and the European Union indicate that legal systems are beginning to adapt to these challenges. Yet most responses remain reactive and fragmented. Without a more fundamental legislative reorientation, the growth of virtual economies will continue to generate legal uncertainty for creators, businesses, and consumers alike.

In the Indian context, these issues call for a progressive and forward-looking regulatory policy. The development of a dedicated legal framework for virtual assets, the updating of existing intellectual property statutes, and the exploration of hybrid enforcement mechanisms represent meaningful steps towards strengthening the governance of digital property in immersive environments.

The metaverse should be understood not merely as a technological innovation but as the foundation of an emerging socio-economic paradigm. Ensuring that intellectual property law keeps pace with these technological developments is essential to protecting creators, encouraging innovation, and building a healthy and sustainable digital economy for the future.

Bibliography

I. Statutes

• The Copyright Act, No. 14 of 1957 (India).
• The Trade Marks Act, No. 47 of 1999 (India).
• The Patents Act, No. 39 of 1970 (India).
• The Transfer of Property Act, No. 4 of 1882 (India).
• Digital Millennium Copyright Act, 17 U.S.C. § 512 (1998).

II. International Conventions and Agreements

• Berne Convention for the Protection of Literary and Artistic Works, 1886.
• Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1994, World Trade Organization.

III. Cases

• Hermès International v. Mason Rothschild, No. 22-CV-384, 590 F. Supp. 3d 647 (S.D.N.Y. 2023).

IV. Books

• Matthew Ball, The Metaverse: And How It Will Revolutionize Everything (2022).
• Primavera De Filippi & Aaron Wright, Blockchain and the Law: The Rule of Code (Harvard University Press, 2018).
• Graeme B. Dinwoodie & Mark D. Janis, Intellectual Property Law and Policy (5th ed. 2018).
• Mark A. Lemley, Intellectual Property in the New Technological Age (Wolters Kluwer, latest ed.).
• Lawrence Lessig, Code and Other Laws of Cyberspace (Basic Books, 1999).
• Shermin Voshmgir, Token Economy: How the Web Reinvents the Internet (2019).
• William W. Fisher, Promises to Keep: Technology, Law and the Future of Entertainment (Stanford University Press, 2004).

V. Journal Articles

• Yochai Benkler, “Free as the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domain,” New York University Law Review.
• Joshua A.T. Fairfield, “Virtual Property,” 85 B.U. L. Rev. 1047 (2005).
• Mark A. Lemley, “IP in a World Without Scarcity,” 90 N.Y.U. L. Rev. 460 (2015).
• Winston Maxwell & Arnaud de Kerviler, “Blockchain and Intellectual Property: A New Paradigm for Digital Ownership,” Journal of Intellectual Property Law & Practice.

VI. Policy Documents

• NITI Aayog, Blockchain: The India Strategy (2020).
• Mark Zuckerberg, Founder’s Letter, 2021, Meta Platforms Inc. (Oct. 28, 2021).

Footnote(S):

¹ Matthew Ball, The Metaverse: And How It Will Revolutionize Everything (2022).

² Mark Zuckerberg, Founder’s Letter, 2021, Meta Platforms Inc. (Oct. 28, 2021).

³ Shermin Voshmgir, Token Economy: How the Web Reinvents the Internet (2019).

⁴ The Copyright Act, No. 14 of 1957, § 14 (India); The Trade Marks Act, No. 47 of 1999 (India).

⁵ The Patents Act, No. 39 of 1970 (India).

⁶ Graeme B. Dinwoodie & Mark D. Janis, Intellectual Property Law and Policy 32–34 (5th ed. 2018).

⁷ The Transfer of Property Act, No. 4 of 1882 (India).

⁸ Joshua A.T. Fairfield, “Virtual Property,” 85 B.U. L. Rev. 1047 (2005).

⁹ Primavera De Filippi & Aaron Wright, Blockchain and the Law: The Rule of Code (2018).

¹⁰ Hermès Int’l v. Rothschild, 590 F. Supp. 3d 647 (S.D.N.Y. 2023).

¹¹ Digital Millennium Copyright Act, 17 U.S.C. § 512 (1998).

¹² Primavera De Filippi & Aaron Wright, Blockchain and the Law: The Rule of Code (2018).

¹³ Mark A. Lemley, “IP in a World Without Scarcity,” 90 N.Y.U. L. Rev. 460 (2015).

¹⁴ NITI Aayog, Blockchain: The India Strategy (2020).