A Leap of Faith
Brands can become infatuated with new technology trends, but they need to take it slowly before embarking on a long-term relationship with the latest market darling, finds Muireann Bolger.
With the allure of emerging trends often hard to resist, many brands flirt with the idea of pursuing a new conquest that seems to be setting the marketplace aflame.
Non-fungible tokens (NFTs), the metaverse, cryptocurrency—all of these have been simultaneously described as the next big thing or dismissed as passing fancies that will disappear over time.
But how can brand owners decide whether to dally briefly with a trend before calling it quits or to make a meaningful commitment? And what are the consequences of making the wrong decision?
Honeymoon Phase
According to Veda Cruz, associate general counsel, Gearbox Software (US), brand professionals must approach new technology trends with caution.
“It’s easy to become infatuated with an idea that has the prospect of making a lot of money or changing the world, but careful skepticism is crucial during this honeymoon phase,” she explained. “Often we become so enamored with all the positive potential of a particular form of tech that we fail to analyze the consequences of it years down the road.”
In her view, brands often face a difficult dilemma.
“The consequences for getting it wrong can be devastating on either end of the spectrum. If a brand is behind the curve, they might phase out like Blockbuster did when Netflix came on the scene,” cautioned Ms. Cruz.
Conversely, she warned that if a brand overestimates the value of a tech trend, it might put a lot of money into an idea that the world is simply not ready for, citing Nintendo’s Virtual Boy as a salutary example.
Released in 1995, Nintendo marketed the video game console as the first console capable of displaying stereoscopic “3D” graphics. But the company’s foray into 3D proved both a commercial and critical failure, as the 3D graphics were monochrome and only offered colors in red and black.
According to Gabriella Liu, chief partner at Beijing IParagon Law Firm (China), the most challenging yet rewarding part of practicing intellectual property (IP) is learning about new trends in technology and business.
“But it is essential that IP professionals, including brand professionals, have no significant blind spots when advising on how IP can protect and facilitate businesses, “she cautioned.
In her view, the jury is still out on the long-term impact of tech trends such as the metaverse.
Defined by the Oxford English Dictionary as a “virtual-reality space in which users can interact with a computer-generated environment and other users,” the metaverse is a network of 3D virtual worlds focused on social connection encompassing communications, finances, game worlds, personal profiles, and NFTs.
“If a brand is behind the curve, they might phase out like Blockbuster did when Netflix came on the scene.”
Veda Cruz, Gearbox Software (US)
“Since it was first defined 30 years ago, the metaverse has been an evolving world,” noted Ms. Liu. “The advent of new tech has provided many possibilities for the metaverse to develop a person’s ‘second life’ and new business opportunities. But even tech experts are divided on its future, with some viewing it as a potentially huge new marketplace while others trash this notion.”
The main issue with emerging tech trends is that many brands do not have an acute understanding of them yet, according to Karl Mutter, partner, CMS Rodriguez-Azuero (Colombia).
“For example, before entering the metaverse, one has to have a clear understanding of what the metaverse really is,” he cautioned. “Companies should really have a purpose and a clear goal before getting involved with trends such as the metaverse. Otherwise, it is easy to lose control of the use of the brands in certain scenarios.”
He said IP attorneys, in addition to brands, need to be properly informed on what the tech entails, or “we will not be able to properly advise our clients.”
For example, the metaverse poses several challenges concerning jurisdiction, emphasized Mr. Mutter, noting: “Territoriality is an issue. IP rights are related to a specific jurisdiction, so where exactly is the metaverse? And what about enforcement? Enforcement efforts are generally conducted by an authority. Who is the sheriff of the metaverse?”
Fools Rush In
Given the numerous questions, it is better to be armed with the right answers than for a company to be the first on the scene, according to Caleb Green, associate, Dickinson Wright (US).
“Being the first to adopt a new technology does not always yield dividends. Taking the time to understand emerging technology and how it may enhance your company, products, or services is a far better strategy than yielding to a fear of falling behind,” he urged.
And, Mr. Green opined, “The waiting game can lead to finding the one trend that leads to long-term success.
“It gives you an opportunity to learn from the mistakes of other professionals and companies that dive into these technologies without sufficient due diligence or to analyze how they pivot unsuccessful projects in the space. You can get a free education and save yourself from failure if you wait and observe.”
For example, he believes that the market’s current fixation with NFTs is likely driven by a residual “fear of missing out,” rather than any sustainable strategy.
He explained that the rise of NFTs occurred on the heels of historical increases in Bitcoin and other cryptocurrency and meme stocks, defined by Investopia as “the shares of a company that have gained a cult-like following online and through social media platforms.”
“Companies should have a purpose and a clear goal before getting involved with trends such as the metaverse.”
Karl Mutter, CMS Rodriguez-Azuero (Colombia)
“Industry professionals must be careful not to fall prey to fads and follow a prudent due diligence process,” Mr. Green declared. Determining customers’ preferences married with the right timing can mean the difference between success and failure, noted Urfee Roomi, partner at Chaudhri IP (India).
“It is important to understand the consumers’ point of view and whether they deem the technology as a development or a hindrance,” he said, citing, for example, publishing houses’ skepticism about selling their books as NFTs “owing to the lack of enthusiasm among consumers.”
When weighing the pros and cons of investment, Mr. Roomi noted that different business models function differently.
“Consequently, their considerations of deciding the ‘right time’ to adopt a trend would also be different. Whether a business should be an early adopter or if it should simply observe the trend before joining the bandwagon would depend on the type of business and brand development and expansion.”
Taking it Slow
Taking a new trend seriously requires stepping back and analyzing whether the tech will help or hurt the brand both in the short term and the long term, agreed Ms. Cruz.
“We should not be swayed by popular trends before performing a careful analysis of where the industry is currently, and where the industry is headed. What may seem like the next hottest thing that everyone is buying into may just be careful marketing and a high advertising budget lacking in solid evidence of value,” she argued.
But the danger in playing it cool could mean missing out on unique opportunities.
Consequently, it is crucial for brands to develop a comprehensive trend management strategy to minimize negative consequences of miscalculating trends, according to Yvonne Draheim, partner, Hogan Lovells (Germany).
She noted: “Brand professionals should prepare a branding strategy to react appropriately to the fast-moving trends. It is important to precisely identify one’s own target group and brand strategy.”
Based on this plan, the market should be closely monitored and various micro trends analyzed, Ms. Draheim said. “By identifying similarities and differences in relation to previous trends, an attempt can be made to make a future forecast from the current trend.”
“Brand professionals should also anticipate how their business will grow, develop, and evolve, and work closely with the most forward-looking and visionary parts of a business,” agreed Mark Biernacki, partner at Smart & Biggar (Canada).
In his view, a brand should “take new tech trends seriously as soon as they have any potential to materially affect the underlying business, and plan ahead to clear and secure rights before they are needed.”
Again, Ms. Draheim flagged the merits of moving forward but treading with caution. “Depending on the situation, it may be reasonable to initially invest only on a small scale and then observe the further developments of the tech trend first. As a next step, depending on the development of the trend, investments can be made to a greater extent,” she suggested.
“You can get a free education and save yourself from failure if you wait and observe.”
Caleb Green, Dickinson Wright (US)
Time and Place
Another key consideration for brands concerns the legality of new technology in some jurisdictions. “Given the lack of guidance on their legitimacy, we cannot be sure whether the new technology is considered legal, and even if so, if the technology will continue to remain legal,” noted Mr. Roomi.
For example, in November 2021, the government in India revealed plans to ban private cryptocurrencies to avoid the risks involved in such transactions. The proposals, featured in a Parliamentary Bulletin, included a paragraph on “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.” To date, the government is yet to take a formal position regarding the legal recognition of these developments, added Mr. Roomi.
Elsewhere, in China, there are unique regulatory features governing new technology not seen elsewhere, observed Jin Ling, commercial director, Lusheng Law (China).
China banned the use of cryptocurrency in September 2021, meaning that all NFTs need to be distanced from such currencies and are referred to as “digital collectables.” In addition, it is illegal to resell an NFT more than once.
According to Ms. Ling, there are qualification requirements and limitations imposed on market players, particularly around the minting and distribution of NFTs, and “care must be taken to use qualified partners.”
Moreover, Chinese NFTs are traded on state-backed blockchain networks to prevent cryptocurrency usage and money laundering in the country. These operate outside of the global systems, meaning brands need a specific technology solution for China. In another strong stance, the China Patent and Trademark Office has refused all trademark applications containing the word “metaverse” (Yuan Yuzhou in Mandarin).
Businesses should note that non-compliance with any regulation leads to fines from the Chinese government, and marketing campaigns potentially pulled, both of which can lead to negative publicity for the brand, warned Ms. Ling.
“Brand professionals should approach tech trends from the perspective of anticipating and managing the challenges associated with these dynamic assets,” she declared.
Dutch Courage
Another conundrum for brands is that there are few “metaverse-ready” products as the marketplace waits to see what form the metaverse actually takes, noted Robert Reading, head of content strategy, IP Group, Clarivate (UK).
“We currently lack clarity on issues such as what ‘jurisdiction’ means in a virtual world, how proof of use can be substantiated, and how virtual items will be classified by IP offices.”
“We lack clarity on what ‘jurisdiction’ means in a virtual world, how proof of use can be substantiated, and how virtual items will be classified by IP offices.”
Robert Reading, Clarivate (UK)
In his view, the current system of centralized trademark registration might need to be completely overhauled to match the needs of technology that has not been developed yet.
“New tools will be required, new registers may be necessary, and brand owners will be under ever more pressure in terms of resources and budget,” he predicted.
And while the metaverse has the potential to change the way consumers interact with brands by making the experience richer, Mr. Reading warned that it also opens a “Pandora’s box” of potential counterfeiting and infringement that current technology may not be able to properly monitor and police.
In the case of NFTs, he draws parallels with the fascination with these tokens and the “tulipmania” that engulfed the Netherlands in the 17th century. During that infamous market bubble, contract prices for some bulbs of the newly introduced and fashionable tulip reached extraordinarily high levels, with a major acceleration starting in 1634, followed by a dramatic collapse in February 1637.
“NFTs may ultimately be a form of bubble-like Dutch tulipmania, when it comes to protecting unique items with a temporary high value. The high price of an NFT may be related to scarcity, but scarcity seldom really equates to value,” he cautioned.
With any new idea, Mr. Reading contended, there will be early adopters who forge the path at the beginning of the journey. “But often it will be those who take their time and make a move when the position is more firmly established who are ultimately more successful,” he forecast.
A Leap of Faith
Ultimately, while it is imperative that brand owners carry out in-depth research and due diligence, they may also have to depend on instinct and sheer luck.
“Creating and maintaining a brand with value is a long-term development. But there are no precise time schedules or rules for distinguishing temporary and sustainable tech trends, only indications,” said Ms. Draheim.
And even when due diligence and careful consideration is carried out, brand owners and their advisors need to rely on a certain degree of intuition, agreed Mr. Mutter.
“A leap of faith is required. If you believe in the new trend, if your team considers that it would be convenient for the positioning of the brand, then you may be seen as a pioneer—you could even fall into the category of trendsetter,” he said.
Mr. Mutter explained: “As with anything in life one has to evaluate the risks and benefits of the decision, asking whether it could affect the reputation of the brand beyond repair and whether the investment is too expensive without a good expectation of a clear return”.
Depending on the answers, he surmised, brand owners should consider whether to venture down the aisle of no return, before potentially sacrificing a brand’s goodwill on the altar of speculation and passing fads.
Video courtesy of Envato Elements / linnikovm
Wednesday, May 4, 2022
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