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The metaverse represents a paradigm shift in the way people experience the internet. The once-beloved idea of a virtual world existing parallel to the physical world is now becoming a reality. However, the metaverse’s growing popularity and adoption raises significant concerns about data privacy, user protection, intellectual property rights violation, etc. These concerns need to be explored and solved to fully understand the possibility and sustainability of this technology. Let’s read about the metaverse legal implications you may want to consider in launching a metaverse platform.
The security and privacy of users’ data will be among the most significant metaverse legal implications that platform owners will face. While these concerns are not new to tech companies, Facebook being a very popular example, data in the metaverse will be exponentially more valuable than it already is. Technologies will become closely integrated into almost all users’ lives.
“A virtual reality world,” as Frances Haugen explains, “will require people to put many, many more sensors in their homes and workplaces.” The sensors would have real-time insight into the lives of humans. Gears like AR glasses and headsets can particularly bring major privacy threats by serving as mics and cameras inside homes and offices.
Behavior in the metaverse can reveal intrusive information about people’s interests, including biometric data and head and eye movements. A proper corporate guideline explaining data storage, data collection, asset ownership, and asset transfer doesn’t exist for a metaverse technology.
Since the metaverse aims to be a global environment, it would be difficult to know which data protection laws apply.
Users can generate virtual creations in the metaverse by interacting with the digital avatars of other users or brands in the virtual space. This raises the question of who owns the intellectual property (IP) and what protection is provided to the creators?
To quote an example, it may become difficult to conclude the identity of a given work’s creator(s) in the metaverse, especially when the work results from a decentralized collaborative process by users hiding behind avatars.
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Since users may generate, post, sell, and/or provide their own items to other users, the issue of copyrights will definitely arise. This can happen when:
The metaverse has already seen litigations regarding celebrity lookalikes used in video games. These disputes may increase exponentially in the metaverse, especially considering that some avatars can create commercial value.
Related article: How to build a metaverse virtual world?
The metaverse can also experience issues with trademarks. Companies in the metaverse use real-world brands, such as Nike, Gucci, CU, etc., to create and sell items/accessories for avatars. Circumstances can arise when:
If a trademark is registered in any such product, infringement may occur. Hermès sued Mason Rothschild for trademark infringement for creating and selling Metabirkins—NFTs attached to digital images depicting eerily similar to Hermès’ Birkin bags.
IP also issues concerns about design rights. There may be situations wherein:
In such cases, the items are likely to be similar, thus raising infringement issues.
As more and more companies begin to offer digital assets and services for sale, the metaverse legal implications related to financial technology will increase. Brands distribute digital goods in the metaverse by either selling identical goods to many users or selling rights or indicia of ownership to individual goods.
Those who buy the latter can acquire such goods as an investment or add them to their personal collection that may go as far as displaying them in a virtual environment. Also, businesses use the blockchain to verify the authenticity of the art.
It is only natural for legal questions relating to the proper verification of ownership or possible infringement to arise. As more and more individuals acquire digital goods, platform operators will face challenges in ensuring the safety of digital assets.
Whatever form the metaverse may take, its absolute success will ultimately call for massive capital investments across digital content, assets, infrastructure, and hardware to generate virtual spaces.
Related article: How to launch a metaverse gaming platform?
Venture capital has already poured into the sector, with the gaming, AR, and virtual worlds collectively raising more than $10 billion last year. Major tech companies will continue to scale up their metaverse activities through M&A. This is happening globally, and cross-border deal-making calls for navigating metaverse legal implications more closely.
Virtual assets such as NFTs in the metaverse are likely subject to traditional financial regulatory regimes like banking, security, commodity laws, and money transmission.
How some blockchain-based assets are created and sold may classify them as investment contracts which, by extension, subjects them to securities laws. Applying these laws can trigger a complex set of regulations on trading, sale, and other activities relating to digital assets.
Related article: The Inevitable Role of Blockchain in the Metaverse
The use of cryptocurrency and tokens will undoubtedly be prominent in the metaverse. Organizations like the SEC are already struggling to find a suitable application of securities laws to tokens and cryptocurrencies.
Securities laws may also apply to NFT projects, especially those offering fractionalization or a revenue stream to the holder(s). In addition, virtual currency trading, exchange, issuance, lending, and other activities may trigger certain regulatory regimes such as banking, money transfer, etc.
The implication of gambling and lottery laws on metaverse projects that feature chance-based opportunities to win prizes may also become necessary.
For example, some metaverse games have loot boxes and virtual unopened treasure chests that users discover or buy and open to receive a randomized selection of different virtual assets.
The regulation of these loot boxes as a form of gambling is already causing inquiries in several jurisdictions.
Another major legal issue staring the metaverse in the face includes the legal limits of conduct in the metaverse. When users interact through their avatars, situations with some altercations may occur. Any wrong committed in the real world can potentially occur in the metaverse.
Imagine if one avatar assaults another. Would we be able to apply criminal laws of assault to this situation? How can we make an avatar responsible for their actions in the metaverse?
This is not an imaginary scenario. Sexual predators are already emerging in the metaverse, using avatars to hide their identities. The metaverse has witnessed incidents of groping.
While sexual harassment laws do not require physical contact to constitute sexual harassment, it is important to consider if the existing laws are adequate to deal with such issues. Who in the VR and gaming environment is responsible for ensuring user safety?
Digital assets, when purchased and/or sold, may be subject to different taxes like income tax, sales tax, etc. For example, the metaverse allows users to buy virtual land and build settlements or purchase NFT versions of real-world objects needed to construct their world. The growth of Web3 has also created an opportunity for people from all over the world to work together on new business ventures with their own rules.
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The metaverse is giving rise to a blossoming layer of e-commerce, as it is called by Jeffery Saviano, which is already giving rise to taxable events. The speed and complexity of the metaverse are likely to increase the tax problems experienced by digital economies.
While there are no set regulations defining the documents an organization should have before launching a metaverse, drafting and implementing the ones mentioned above will greatly help.
A term of service (ToS) document sets rules that users must agree to to use your website, application, software program, etc. The umbrella of ToS covers multiple things including, but not limited to:
The ToS document of The Metaverse Insider provides the best example for this scenario. Their agreement lays down clear guidelines on copyright, service marks, limited license and permitted use, advertisers, third-party content, unlawful activity, and more.
Related article: Legal considerations for launching an NFT marketplace
Another example is the popular metaverse platform, The Sandbox. The terms of usage of Sandbox lay down rules for asset and game creation, purchase and edition of virtual land, sale of assets and games and the corresponding payment structure to be followed, ownership of the platform’s native content, ownership of the users’ assets and games, as well as the governing law and forum that will take precedence in case of any issues.
The clauses of the ToS will largely be influenced by the nature of the service a brand intends to provide in the metaverse. The first step is to gain a rudiment understanding of the general structure and nature of these rules.
Organizations contemplating selling branded virtual goods and services in the metaverse should file trademark applications immediately. Brands like Nike, Converse, Elvis Presley Enterprises, Jerry Rice, Walmart, Hot Wheels, and Vanity Fair have led the way.
The best way to protect your brand in the metaverse is to trademark the name, logo, designs, and/or slogan you use to promote your virtual products and services. Products that can be included in a trademark application can include:
While the laws around the metaverse aren’t yet finite, it would make sense to apply for a trademark under the existing categories of the law. The more applications the authorities examine, the more likely standardized guidelines will be implemented.
Since the metaverse aims to create a virtual existence, it is only natural to have community standards in place. These will help users understand the behaviors that are acceptable as well as protect them in case of problems.
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The metaverse combines practically all the aspects of life—work, leisure, shopping, banking, etc.- across the world. Therefore, organizations should focus on creating community standards that value everyone’s voice, are non-discriminatory, and respect different values and beliefs, especially from communities that might otherwise be marginalized or overlooked.
The community standards laid down by Roblox are something that brands can consider to gain a thorough understanding of the concept. The platform has organized its community standards into 4 sections—safety, civility and Respect, fairness and transparency, and security and privacy. Within these categories, it addresses a wide range of issues:
As discussed above, user privacy is a growing concern of the metaverse. Therefore, organizations must draft and implement privacy policies that clearly outline the intention and scope behind collecting and using users’ personal information.
Decantraland’s privacy policies provide a good reference for this. It mentions the personal information the platform collects, its usage, possible platform changes and updates that affect these rules, and the privacy rights users enjoy.
The metaverse is anticipated to have its economy, implying that businesses will inevitably tax the virtual goods and services users buy. We’re already seeing the release of policies around the taxation of virtual digital assets.
Activities such as renting, buying, or selling virtual land, running an e-commerce business, etc., are some activities that are liable to taxation. Organizations working around these or similar activities should clearly mention their users’ taxation policies to use these services.
In addition to the metaverse legal implications and documentation already discussed above, organizations would benefit from paying attention to the following considerations before launching or entering a metaverse.
The U.S. Trademark and Patent Office have experienced an exponential increase in the number of trademark applications to protect goods and/or services in a virtual space. For anyone involved in the metaverse, it is crucial to understand and consider the Intellectual Property Rights associated with this virtual world.
IP assets protected in the metaverse can vary from logos, brands, and slogans to dresses, accessories, and design patents. Companies should consider registering and protecting their trademark(s) in the metaverse for both legal and commercial reasons:
Related article: How to launch an online store in the metaverse?
The metaverse brings novel opportunities to create, modify, and interact with content. You will most likely fill it with content created by users who can be individuals, companies, institutions, or governments.
Content owners should prepare themselves for content manipulation and its unexpected utilization. For instance, users might decorate their metaverse property with a copyrighted image they don’t own.
It is, therefore, imperative to consider content control and/or moderation while entering the metaverse. The grant of any content licenses for the metaverse should clearly specify who can use or modify your content and in what possible ways.
Another aspect to consider includes content interoperability across different metaverse platforms. Technological advancements make it possible for virtual identities and digital goods to travel across metaverse platforms.
To cater to this, content owners should consider the scope of license needed to allow content distribution on other platforms, if and how the license transfers with the content, and how such licenses will be enforced and monitored. Ensuring that the content is delivered to the desired platform securely and used accurately and appropriately is also imperative.
The metaverse will likely have its own native economy where users can earn, spend, and invest real money in digital goods and services. Also, different metaverse platforms may accept different currencies or link to different existing payment gateways.
In addition, the native economy of a metaverse, including the goods and services within it, is expected to have enormous potential value. Therefore, risk mitigation strategies are considered to protect your digital assets.
Related article: How to build and launch a metaverse marketplace?
Content owners must especially protect digital goods and services that move across platforms. NFTs present one possible solution to this. They are unique digital assets, and you can easily track their ownership and trade history on an immutable blockchain.
However, at least for now, NFTs can only help track the token aspect of the asset. The content owners will still need to track and protect the use of the content with presently available digital rights management tools.
Moreover, the metaverse presents many possibilities for businesses across industries. So a variety of metaverse legal implications will need to be addressed for it to succeed. As the platforms mature and user adoption increases, these issues will only become more relevant.
We cannot predict the exact course of the development and evolution of the metaverse legal implications. But having structured documents and policies will benefit the organizations in the long run. So paying close attention to the abovementioned issues and drafting possible solutions can help enterprises excel in the metaverse.
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