What approach should you have to the world of NFTs when you produce one of the most sought-after wines in the world? What are the principal risks that prestigious estates face if they allow intermediaries to use their name to create NFTs and operate in the metaverse, the new virtual world poised for exponential development in the years to come? After a first analysis in January 2022, Guillaume Marchais (a partner in the law firm Marchais & Associés) and Guillaume Jourdan (specialist in brand identity for prestigious wine estates) together answer these questions, explaining that NFT strategy needs to be highly selective as “the big risk for fine wines is the total absence of guarantee for the consumer when dealing with NFTs that are not created by the estate itself. The facility with which third parties, holding authentic bottles that they have purchased, can create NFTs without the agreement of the estate can not only jeopardize a wine brand but can also weaken the position of the owner who in the end is no longer in control of their own distribution.”
Does the profuse number of NFTs being created around the world represent a potential risk for fine wines?
From January 2022 we forecast the emergence of an irreversible trend for luxury brands, and others, to turn to NFTs. This trend is growing, and all brands, particularly in the world of luxury, but also wine, are preparing for it, with increasing numbers now active in the world of NFTs and the Metaverse. From a legal standpoint the dangers are legion, and whilst it’s true that it is too soon to have any certainty, it’s clear that the risks need to be anticipated. So, what are the risks? As far as intellectual property rights are concerned, the news in recent months demonstrates the recurring and growing problem of counterfeiting. Take the legal action undertaken in the United States by the pioneer Hermès (who incidentally are also envisaging entering the world of the Metaverse) against the artist Mason Rothschild for infringing its copyright on the Birkin bag. The affair has not yet come to judgement, but the decision is eagerly awaited as it will provide more clarity around sanctions that apply in the virtual world and enable brands to adapt their legal protection strategies. Will “classic” law, as applicable to “physical” counterfeits be enforceable as it stands when faced with counterfeits in the Metaverse? Will some countries take a different stance to others? How can businesses in the world of luxury and wine create the right conditions to ensure their legal security? Such are the issues that future legal actions face. In the meantime, it is vital to anticipate as the risk of counterfeiting is great and the fact that the Metaverse is a virtual universe multiplies the number of counterfeits that are possible, whilst at the same time rendering their detection and eradication ever more complex. Another major risk for fine wines is of course the total absence of guarantee for consumers when dealing with NFTs that are not created by the estate itself. The facility with which third parties, holding authentic bottles that they have purchased, can create NFTs without the agreement of the estate can not only jeopardize a wine brand but can also weaken the position of the owner who in the end is no longer in control of their own distribution (unlike luxury brands which dispose of physical networks). Traceability is therefore essential for prestigious wine brands who, with NFTs and the blockchain, can trace each bottle and verify both NFTs and their corresponding bottles when they are finally delivered.
What should estates do to avoid this danger from the Web3?
Luxury and wine brands are actively preparing. Over recent months, big brands have registered trademarks, particularly in the United States and Europe, to protect their own NFTs and activity in the Metaverse. For example, Nike, Clinique cosmetics, McDonald’s and Red Bull, but also Gucci and Victoria’s Secret, have specifically registered trademarks for their respective virtual products and their activity in the Metaverse. There is effectively some doubt concerning the applicability of classic trademark law, that covers physical products and real services, in the event of virtual counterfeiting. Can a traditional trademark registration in class 18 (leather goods) or 25 (clothing), for example, be used to challenge unauthorized use of the brands for virtual bags, clothes, or bottles? Although, a priori, the answer would appear to be affirmative given the apparent similarity between them, the answer uncertain, if only because of the difference in their nature (object vs downloadable file). So, pending a possible new “Metaverse” class that could be used in the future for the international registration of products and services under the aegis of the World Intellectual Property Organization, these companies have opted for the security of registering virtual trademarks, mainly in class 9 for NFTs defined as downloadable files, and in class 35 for the virtual sale of products. Fine wine estates should be no exception to these preventive registrations, at the risk of losing their competitive advantage at the same time as their control over distribution. Targeted trademarks allow them to react more effectively against unauthorized use in the Metaverse and other potential virtual universes.
Is the Metaverse the big new challenge (in terms of both risk and opportunity) facing fine wine estates in relation to the management of their brand image?
With the arrival of NFTs and the Metaverse we are witnessing a shock comparable to the birth of the Internet at the end of the nineties. The wine world will not be spared, combining tradition and innovation in its approach to distribution and brand image. The Metaverse offers several advantages to wine brands, particularly the big names, for apart from the creation of an immutable collector’s item, the NFT itself, this virtual universe will also greatly improve brand image and enable wine estates to expand their customer base. There is also another major consideration, mentioned above: that of guaranteeing the traceability of bottles for prestigious wine estates. Counterfeiting remains a huge thorn in the side of the wine sector and so the traceability of an NFT is a great advantage. Wine forgers make a fortune, and it is estimated that counterfeit bottles represent over 20% of the international wine trade, and 50% in China. NFTs, with the protection of targeted trademarks, are therefore one of the best ways of fighting this problem, resulting in increased sales for the wine estates and regained control of distribution. Once again, in terms of image, their presence in the Metaverse can only be positive, on condition that all necessary precautions are taken, and that strategic partners are carefully chosen.