Thursday 25 March 2021 8:40 pm

The metaverse: real world laws give rise to virtual world problems

By Gregor Pryor, Co-Chair of Entertainment and Media Industry Group at Reed Smith

If there is anything we have learnt from the global pandemic, it is that people crave connection. With connectivity at the core, social media platforms are now ingrained into people’s everyday lives.

It is for the very same reason that the concept of a global metaverse becomes potentially alluring, with the capacity to transform the way we work, play and socialise.

Games like Fortnite and Roblox gives us a glimpse into the beginning of the metaverse, a persistent, shared virtual space, where gamers are able to build cities, attend concerts and meet friends.

Global technology companies see the benefits of users being immersed in a virtual world, evidenced by Facebook’s purchase of Oculus VR and Google’s ongoing investment in immersive technologies.

As such, 2020 has been a major turning point for a number of businesses and organisations embracing virtual reality (‘VR’), augmented reality (‘AR’), and mixed reality (‘MR’).

According to the International Data Corporation, worldwide spending on AR and VR is forecast to accelerate out of the pandemic, growing from just over $12.0 billion in 2020 to $72.8 billion in 2024. The sector is ready to explode into the mainstream.

Legal questions

Like many technological advances, from the birth of the internet to more modern-day phenomena such as the use of big data and artificial intelligence (AI), the metaverse will in some way challenge the legal status quo.

Whilst the growth and adoption of the metaverse will raise age-old legal questions, it will also generate a number of unique legal and regulatory obstacles that need to be overcome.

The recent Tom Cruise deepfake on TikTok has heightened awareness around the difference between truth and fiction online; actions taken in the virtual world will have real world consequences and vice versa, and this is particularly true as the two converge into a mixed reality.

Old rules applied to new tech

Whilst it may be true that the law struggles to keep up with the pace of emerging technology, this does not make existing laws and regulations redundant. Quite the opposite. A number of existing laws will apply to the metaverse and give rise to issues that companies need to consider.

Intellectual property

When a community creates a virtual world, who owns the resulting copyright in works created within the environment?

If you have a protected brand in the real world, and someone uses it in the virtual world, can you bring a claim?

Things get cloudy when users collaborate or generate content or properties based on existing properties, but fundamentally the legal position remains clear – you must get permission to use somebody else’s intellectual property.

Companies need a strategy for dealing with their intellectual property in the virtual world. They need to periodically monitor infringements of their brands or marks; and should consider the extent to which they may give permission to use content that they have created.

At board room level, consumer-facing companies need to quickly establish their own rules of the road for protection, exploitation and infringement in a metaverse environment, where the tools for creating and sharing – and the depth of creativity possible – is far in excess of what we now understand to be the case on the Internet.

Blockchain and NFTs

The recent and phenomenal rise of non-fungible tokens (NFTs) is hard to miss, particularly across the music, art and sporting industries.

Whether it is the Kings of Leon becoming the first band to release an album as an NFT; Beeple selling a piece of NFT artwork for $69.3 million piece at Christies; or Patrick Mahomes selling another piece for $3.4 million, NFTs are everywhere.

The seemingly inexorable resurgence of NFTs and virtual currencies supports the proposition that there is widespread demand for value creation and exchange across a metaverse environment.

However, as blockchain and tokenisation continue to redefine how value is stored, traded and tracked, regulatory guidance has struggled to keep up, with unclear – and often conflicting – information coming from authorities.

NFTs represent a particularly complex set of legal considerations, including the extent to which financial regulation may apply, how intellectual property may be authenticated and traded, and how contracts may be formed in a ‘smart’ manner automatically.

To use an obscure but highly relevant example, how would the Artist’s Resale Right, a law originally intended to help struggling artists benefit from the value of their art even after they had initially sold it, be managed and apply in an NFT environment?

More broadly, how will different types of tokens be recognised across the world? Could they be made illegal in some countries, like cryptocurrencies?

Real-world legal dynamics in the metaverse, with interoperable currencies and assets that can be used across different platforms, can be hard to align with the technology and user behaviour. There’s little substitute for a considered approach to risk management if brands wish to operate in this exciting area.

Data protection and privacy

The topic of protecting and managing user data online remains as hot as ever, for lawyers and companies. Achieving adequate data protection compliance will undoubtedly remain a concern for those dealing with consumers in the metaverse.

For example, AR/VR demands the processing of significant amounts of personal data – including, in some instances, biometric data (such as body-tracking data) – giving rise to considerations under data protection legislation, including the General Data Protection Regulations (GDPR). Generally, the processing of biometric data demands explicit consent where used for identifying a natural person, but there are concerns over whether consent can be freely given in circumstances where the AR/VR technology cannot be used in the absence of such processing. 

Furthermore, as AR/VR technology may be directed at children, under the GDPR, products/services should be developed with a child’s data interests in mind.

New world, new rules?

As the metaverse develops, and the more valuable it becomes, the greater scrutiny it will attract from lawmakers and regulators. This is no bad thing; much like the international banking system, rules facilitate transactions, instil confidence in investors, and offer reassurance to users that depend on the system.

Some commentators believe that we can simply apply, or update where required, existing laws or regulations to manage the virtual world. Others are of the opinion that the metaverse may require a specific legal system, with its own laws.

We may be able to draw parallels to how policy makers are looking at tackling the regulatory framework around the use of AI in Europe.

It is clear from an EU White Paper that the current intention of the EU is not to adapt existing rules to apply to AI, but to design a new regulatory framework. 

Whilst the metaverse holds great promise, and offers extraordinary business opportunity, the reality is that it will present challenging issues for the law and regulators.

What will be needed for companies to thrive in the metaverse is a careful balance between protecting the rights of various stakeholders without impeding technological growth and development, which shall be a difficult juggling act for lawmakers.

Whether it is for the metaverse or meta-worse we will have to see.

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