2023: The good, the bad faith and the metaverse

The Supreme Court is due to hear the long-running case of Sky v SkyKick in June. 

The hearing will revolve around SkyKick's challenge to Sky's trade mark registrations – in particular, SkyKick's argument that, when Sky applied for its trade marks, Sky did not intend to use the mark for the wide range of goods and services listed in the specification. As a result, SkyKick argues that Sky acted in "bad faith" as its motivation for applying for such a broad range was to prevent others from using the mark and to distort competition. 

In the initial High Court decision, Sky's trade mark registrations were invalidated in relation to some of the goods and services; the Court of Appeal then reversed this decision in July 2021. SkyKick was given permission to appeal this decision to the Supreme Court in July 2022. 

In addition, the Court of Appeal will hand down its decision on another case involving bad faith – Lidl v Tesco – the hearing for which took place in February. By contrast, this case is not concerned with the specification of goods and services, but with the actual marks. 

Lidl alleges that Tesco has infringed its trade marks; it relies on two registrations featuring its circular yellow logo mark – one includes the word "Lidl" in blue text, and the other mark features no text. In response, Tesco alleges that Lidl applied for the latter mark in bad faith as, according to Tesco, it was never intended to be used by Lidl. 

Why is this important?

Trade mark applicants and owners need to be aware of the developing area of bad faith when it comes to their filing and maintenance strategy. The registrations involved in these cases are sometimes many years old so, if they are invalidated on the basis of bad faith, what might have seemed a legitimate (and commonly recommended) strategy at the time of filing, may now be under much closer scrutiny. Hopefully the decision of the Supreme Court – as the top court in England and Wales – will help to clarify some of these outstanding questions on the scope and application of bad faith. 

The doctrine on exhaustion of rights is a key part of European Union ("EU") legislation (also applying to the European Economic Area ("EEA")) to maintain and allow for the free movement of goods. For the most part, once a product protected by intellectual property rights has been put on sale in an EU/EEA country by or with the permission of the rights-holder, they have 'exhausted' their rights and, subject to certain limitations, the product can then be freely sold between other countries within the EU/EEA. 

When the UK left the EU, although the UK agreed that it would consider rights in goods placed on the EU/EEA market to have been 'exhausted' in the UK, the EU did not agree to reciprocity. This means that right-holders may be able to object to free movement of goods within the EU/EEA if only approved for distribution in the UK. As many UK-based companies (who are not necessarily the right-holders) also have operations in the EU/EEA, this has the potential to create considerable difficulties across many sectors (including retail, manufacturing, technology, and healthcare). 

The UK Intellectual Property Office ("UK IPO") is due to provide policy recommendations to government ministers by April, so that a decision can be made as to whether the UK will maintain its current practice, or move to a different exhaustion regime to resolve the asymmetrical position which has arisen following Brexit. 

This will no doubt be impacted by The Windsor Framework, a proposed post-Brexit legal agreement between the EU and the UK designed to address the problem of the free movement of goods between the European Single Market ("ESM") and the UK, addressed at present in the current Northern Ireland Protocol.

Why is this important?

It seems possible that, as part of The Windsor Framework (or otherwise), the EU might agree to address the asymmetry by treating rights in goods authorised for sale in the UK as being exhausted throughout the EU. 

Given that its aim is to restore the free movement of goods between the ESM and the UK, The Windsor Framework might be seen as incompatible with other potential exhaustion regimes which the UK might have otherwise adopted. 

• National exhaustion (exhausted in the UK alone): this could cause difficulties in the sale of EU-approved goods within and across the UK. Importers, agents, distributors and resellers are likely to require changes in contracts across the EU and the UK, and there is potential for raised costs for businesses who operate across both regions.

• International exhaustion (exhausted if approved for sale anywhere globally): This could see an influx of parallel imported goods from across the globe, which could make items cheaper for consumers. However, it is generally perceived to weaken the rights of right-holders.  

Following a 2022 consultation seeking views about current design protection in the UK, the UK IPO is due to provide the UK government with legislative proposals on potential reform suggestions to the design system. 

Since leaving the EU, the UK government and Intellectual Property Office have been considering the options for updating the UK design registration system, and sought views regarding its complexity, adaptability, and the user-experience. This included considering the introduction of an examination process for design applications. 

There is also suggestion that the protection regime for unregistered design rights in the UK may require simplification given that, after Brexit, the UK protects designs through three different unregistered rights – continuing unregistered design, supplemental unregistered design and unregistered UK design right (albeit that continuing unregistered design will no longer protect new designs from 1 January 2024). 

Why is this important?

Adding examination to the design process (similar to trade mark applications) could lead to an increase in costs for filing design applications, which are currently a relatively cheap and effective way for right-holders to protect their designs. 

The success of enforcing particularly effective designs has been demonstrated earlier this year (see our comments on the M&S v Aldi case here). As a result, more designers may seek to rely on unregistered design rights – meaning that simplification of those regimes becomes more desirable. 

Also on the list for the Supreme Court is the case of Stephen Thaler v Comptroller General of Patents Trade Marks and Designs, which was heard in March. The hand down date of the judgment has not yet been announced. 

The case concerns whether or not a non-human can be identified as the inventor on a patent application. Dr Thaler sought permission to appeal the decision made by the High Court (upheld by the Court of Appeal) that his artificial intelligence ("AI"), DABUS, could not be legally named as the inventor on patents for inventions that it created. 

The generally accepted position until this point is that the inventor of a patent must be a person, and therefore cannot be an AI. Although the Court of Appeal upheld the finding of the High Court, Birss LJ gave a dissenting judgment stating that Thaler's genuine belief that DABUS is the inventor could fulfil some of the requirements set out in the Patents Act 1977. 

Why is this important?

Due to the quick development of AI, and the growing capabilities of AI to act akin to 'inventors' of potentially patentable inventions, it is important to have clarity on the position of an AI being recognised (or not) and how companies or individuals deriving title from an AI should apply for patents. Such cases may also require changes to legislation.

There are, however, complex legal, political, commercial and ethical queries around whether non-human endeavour via AI should be rewarded by the grant of monopoly rights that patents provide. Dr Thaler continues to explore these issues in many court and Intellectual Property Office systems globally, and it seems evident that the answer will not be consistent between jurisdictions. 

The issue of AI is likely to impact discussions on copyright protection over the coming year. 

Many have remarked on the capabilities of ChatGPT, an AI chatbot and large language model developed by OpenAI that is, apparently, capable of generating 'original' content, including explaining complex topics, writing emails, generating and fixing computer code, producing poetry and answering exam questions; it can even make up its own jokes. Another example of AI software is 'text to image' generators, such as DeepAI, which can, purportedly, create entirely 'novel' images from scratch. 

AI clearly has the potential to substantially change the way we communicate, access information and create 'works' which might otherwise qualify for copyright protection. However, the current wording of the Copyright, Designs and Patents Act 1988 is not particularly clear where copyright would, or should, vest. The 1988 Act states in relation to computer generated works that "the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken". Based on the law's current position, an AI cannot own anything as it is not a person. 

Why is this important?

The increasing ability of AI to generate 'original' content raises important questions regarding copyright ownership – particularly where such content is proposed to be commercialised. Even if AI could be the owner of copyright, it cannot enter into contracts for the commercialisation of the right, so what would be the benefit?

Furthermore, concerns are being raised by existing right-holders about how these AI tools are being trained. Recently, Getty Images issued proceedings in the High Court against Stability AI, alleging the developers of 'brazen infringement' for using more than 12 million of its stock images to train its artificial intelligence image generator, Stable Diffusion.

In July last year, the UK Government announced proposals for the regulation of AI technologies, which included measures to use AI responsibly whilst reducing the burden of compliance on businesses. One such proposal was a change in copyright law which would have allowed text and data mining (currently allowed for non-commercial research only) for any purpose; however this proposal was scrapped earlier this year following staunch resistance from the creative community, who emphasised not only the economic harm this would have, but also the erosion of intellectual property rights on the industry as a whole. 

Nevertheless, various interested parties continue to lobby for broader exceptions to rules on text and data mining, as well as greater clarity on AI and intellectual property ownership – particularly in light of the Spring Budget announcement of significant investment in AI and technology (read more here). Clearly, there is a balance to be struck between technical innovation (and the benefit to the economy) and the rights of intellectual property owners. 

Late in 2022, the European Union Intellectual Property Office ("EU IPO") provided guidance on seeking trade mark protection for non-fungible tokens ("NFTs") and virtual goods in the metaverse – a virtual shared space where users can interact with digital objects in an immersive environment.

In particular, the metaverse offers opportunities for holders of intellectual property rights to monetise their assets in a virtual environment, such as licensing their trade marks for virtual goods and services, or indeed using the metaverse to advertise or showcase them. 

In addition to an expected influx of filings for marks covering these virtual goods and services, it is anticipated that there will be more instances of enforcement of various intellectual property rights (copyright, designs and trade marks) against potential infringements in the metaverse. 

For example, NFTs can represent of a wide range of things – including images, music and audio-visual content – which are ordinarily protected by copyright, but may also be items such as t-shirts, hats and shoes, which might bear trade marks or be protected by designs. 

Given the usual tests for infringement of these rights refer to 'application to goods', or 'incorporating a design into a product', it is not clear whether these are fit for purpose when it comes to intangible products in a virtual space. Complicated questions arise, for example:

• Is clothing that can only be worn in the metaverse 'similar' to the real-life physical product?

• Are all virtual goods 'similar' to one another – in the sense they will come from the same source, are arguably substitutable as electronic items, and are targeted the same limited public (participants within the metaverse)? 

• Can an electronic product ever create the 'same overall impression' as a three-dimensional physical product? 

• Where should rights against infringements in the metaverse be enforced? Is Meta required to help or intervene?

Although intellectual property law, arguably, is one area which is regularly tested and found capable of adapting to advancing technologies, there are still many issues which remain yet to be resolved when it comes to operating in the metaverse. 

Why is this important?

Given this is a rapidly developing area of technology, there is likely to be no precedent for some of the issues facing right-holders when it comes to protection, infringement and enforcement. This may deter some right-holders from trying to enforce their rights.

This is potentially exacerbated by the nature of the metaverse where right-holders may struggle to identify where the potential infringers are located, and whether they have rights in the relevant jurisdiction which they can enforce. In time, it may become necessary for the metaverse to adopt a new kind of enforcement and/or mediation or arbitration mechanism, whereby disputes involving intellectual property infringement or misuse in the metaverse can be resolved and effectively enforced.