As London Fashion Week comes to a close, we look to the future with the return of Decentraland’s Metaverse Fashion Week, which is set to run at the end of March 2023, giving us the opportunity to reflect on how the fashion industry has moved to embrace the digital world and “Web3” so far.
What is Web3?
The term “Web3” is used to refer to the emerging version of the World Wide Web. It is defined by its decentralised nature and foundation of blockchain technologies, such as cryptocurrencies, non-fungible tokens (“NFTs”) and smart contracts.
The concept of Web3 allows for a shared and immersive virtual space, which enables users to “escape” to the metaverse, express themselves through unique avatars, and invest in limited edition NFTs. With the expansion of an interactive virtual space, along with supporting technologies, such as augmented and virtual reality technologies, comes a breadth of opportunity for the fashion industry to embrace new ways of engaging with consumers.
What is the Metaverse?
The metaverse incorporates virtual reality and gaming platforms where users can create avatars, or digital versions of themselves or fictional characters, and interact with each other in a digital space.
It offers a commercial opportunity for organisations across several sectors to monetise digital versions of their products and is proving a popular way for fashion brands to engage with consumers.
For the consumer, it enables them to own unique fashion pieces, either as standalone assets or for use in tailoring their avatar’s appearance. The assets are generally acquired by investing in limited edition NFTs using digital tokens, such as cryptocurrency.
The Metaverse Fashion Week (MVFW) was created to enable businesses to showcase their digital fashion assets, much like the real-life fashion week equivalents held around the (real) world.
The first MVFW was held in March 2022 with collections from “in real-life” (IRL) brands including Dolce & Gabbana, Etro and Tommy Hilfiger, exhibited alongside virtual-only brands such as The Fabricant. MVFW is set to return in March this year, with more well-known fashion brands anticipated to take part as the interest in digital fashion continues.
What is Metafashion?
Some fashion brands have forged a path with their early adoption of digital fashion and have embraced the opportunities presented in the interaction between physical and digital retail. Yet others have been slow, or even reluctant, to launch their own collections in the metaverse. Regardless, businesses may wish to consider how best to commercialise their products and/or defensively protect their real-life assets in the virtual space.
The cross-over with the gaming industry has allowed the commercialisation of high-end fashion brands to accelerate, with a number of recent collaborations between fashion houses and video game developers. In 2019, Louis Vuitton partnered with Riot Games to produce branded digital assets, including virtual outfits and “skins”, for the League of Legends video game; Balenciaga followed with its collaboration with Epic Games for a Fortnite collection in 2021; and, last year, Prada joined Ubisoft to launch its Linea Rossa line in the virtual world of Riders Republic.
The increased demand for the digitisation of physical fashion items in a virtual world has resulted in businesses seeking to protect their brands by way of trade mark registration in connection with new forms of digital asset, with varying degrees of success.
Luxury fashion brands including Chanel, Gucci and Prada have all secured trade mark registrations in various territories for their house brands in connection with digital assets, including items such as “virtual clothing”, as well as “avatars”, “digital overlays” and “skins”, while Burberry recently saw limited success in seeking to protect its signature check pattern before the EU Intellectual Property Office (EUIPO).
Burberry secured registration for the pattern mark in respect of items including “avatars and skins” but the EUIPO refused registration for a raft of other items, including virtual clothing, headgear and footwear, on the basis that the Office considered the pattern mark to lack distinctiveness in connection with the refused goods.
In making its decision, the EUIPO noted that, in an assessment for the basis of the registrability of trade marks related to virtual goods, examiners would consider that “the consumer’s perceptions for real-world goods can be applied to equivalent virtual goods as a key aspect of virtual goods is to emulate core concepts of real-world goods” – suggesting that examination of trade marks for virtual goods would be subject to the same examination criteria as if they were real-world goods.
Trade mark applications related to protection for virtual goods and digital assets have now become mainstream, so much so that the 12th edition of the Nice Classification, in force from the start of 2023, includes a new class 9 item of “downloadable digital files authenticated by NFTs”.
What are Fashion NFTs?
An NFT is a unique digital certificate, based on blockchain technology, which serves to authenticate a digital asset. In reference to the fashion industry, NFTs can be used to authenticate the likes of unique items of virtual clothing for avatars, digital assets for interaction with augmented reality technology, or digital twins of physical goods.
In 2019, the industry saw the first recorded sale of a fashion NFT, a digital-only dress created by The Fabricant, which was sold for the cryptocurrency equivalent of $9,500. The unique dress was not created in physical form. In order to make “use” of the asset, the dress was effectively superimposed onto a photograph of the owner’s body in a post-production process. Since then, there has been a rise in interest of collectible exclusive digital fashion items, generally seen as investment pieces with the hope that the assets will increase in value over time.
With a rise in the monetary value of branded assets, undoubtedly comes a rise in the risk of counterfeit products – and the digital sphere is no exception. While NFTs can be useful tools to help authenticate genuine articles from fashion brands, and thereby seemingly reduce the risks of counterfeit goods, they can also be used to “authenticate” infringing digital items created by a third party, which display a fashion brand’s intellectual property rights without their authorisation.
In the case of the Hermès MetaBirkin NFT, a collection of digital images featuring bags made to the design of the famous Hermès Birkin bag were “authenticated” with unique NFTs. The case saw Hermès seeking to rely on its existing trade mark rights in connection with real-world products, as applied to the virtual world, despite the brand not operating in the metaverse itself. While Hermès was successful in its infringement claim against the MetaBirkin developer, Mason Rothschild, the process for destruction of the MetaBirkin NFTs has, so far, escaped them.
What is Phygital Retail?
It is clear that bridging the physical world and the digital world in order to create a more cohesive consumer experience – so called “phygital retail” – is the future of fashion retail.
The industry has already seen a widespread adoption of phygital retail strategies with purchasing options that bridge physical and digital retail, such as click and collect, cashier-free shopping, and buy in store for home delivery, being staple service offerings of most businesses. Further technological advancements have also been well-adopted throughout the industry, such as virtual or augmented reality ‘try-on’ technology, the use of virtual models and influencers, as well as AI chatbots for use in online customer services.
The next step for phygital retail is the combination of Web3-based technologies with physical goods. Many brands, including Ralph Lauren, Burberry and Gucci, have now opened virtual stores in the metaverse, as well as branded destinations within existing platforms, showcasing virtual collections of real-world goods.
In addition to digital-only assets, NFTs are being used to authenticate digital twin versions of physical goods. One recent example of such use is, Nike-owned RTFKT’s launch of a digital collection of trainers “Cryptokicks”, where holders of RTFKT Lace Engine NFTs could redeem the digital token for a physical real-life pair of the trainers. High-street retailers including Zara and H&M have also launched digital collections that are replicated in physical twins, enabling consumers to dress themselves and their avatars in the same items. NFTs are also being increasingly used by businesses as the basis for loyalty and reward programmes, offering customers access to exclusive products, launch events, or custom fit fashion, reflective of their brand NFT portfolio.
However, the increased reliance on an unregulated digital world raises questions concerning key legal issues in respect of fashion retail.
For example, where a consumer redeems a RTFKT NFT for a pair of Cryptokicks, what consumer protection measures are in place if the goods are not fit for purpose? Or where a consumer purchases a virtual asset that is found to infringe a third party’s intellectual property rights, such as a MetaBirkin, what happens to that asset - can the NFT be “destroyed” or disconnected from the infringing artwork; can it be impounded; or can onward sales be prevented?
Where customer data is used in NFT-based loyalty programmes, what are the implications of data protection legislation if the blockchain cannot be deleted, or the connected data “forgotten”? In cases where an individual has established a valuable NFT portfolio, what impact does that have on estate planning – are the assets subject to tax consequences; can they be bequeathed to beneficiaries or held on trust?
Is this the future of fashion, or just a case of ‘the Emperor's New Clothes’?
Whether metafashion is a short-lived foray into the virtual space or is here for the long term, or whether fashion-NFTs lose or retain value over time, it is clear that the interaction between physical and digital fashion retail will continue to evolve and play a significant part in the future of the industry.
Our Beauty and Fashion team will continue to follow these future trends with interest to see how the legal framework develops and address the consequent issues.
