New Year New World? -Legal Issues in the Metaverse

  • Arthur Caplin, solicitor at law firm at BLM

  • 23.03.2022 09:00 am
  • #insurance #risk #commercial #law

Arthur Caplin, solicitor in BLM’s corporate and commercial advisory team, discusses the ever-changing metaverse space and the legal issues that need to be addressed as business opportunities in the virtual world continue to accelerate at such a rapid pace.

If, as Daniel Bell (1980) wrote “Technology, like art is a soaring exercise of the human imagination”, then the metaverse is the next masterpiece being created. 

The metaverse was originally coined by Neal Stevenson in his 1992 dystopian sci-fi novel Snow Crash, where he crudely expounded, “if you live in a shithole, there's always the metaverse”. The present-day metaverse is an online digital environment which utilises virtual reality, and alternate reality to create spaces for personal interaction mimicking the real world. You can walk around the online space and interact with other peoples’ avatars (think a character in a computer game). The online space itself is a virtual 3D landscape able to be changed and adapted depending on the developers wants and needs. 

In its current form, the metaverse seeks to disrupt all areas of life ranging from business to gaming, and has garnered serious support and investment from companies such as Facebook and Microsoft.  While the metaverse seeks to usher in a new internet age, there are several legal issues facing both individual users and businesses that must be addressed by those looking to become pioneers of this new age technology. 

Scope for business in the metaverse:

While the metaverse may sound like a bit of a game, it isn’t. Multinational companies such as Facebook have invested billions into development and there is huge scope for business opportunities and development. 

Opened to the public in February 2020, the Decentraland metaverse serves as a traversable 3D virtual space, where users buy virtual plots of land as Non Fungible Tokens (NFTs) using the platform’s digital cryptocurrency, MANA. 

Some may wonder how lucrative virtual plot sales can really be? Well, not only are there virtual estate agents, such as metaverse Properties, but a recent 500m2 plot of Decentraland real estate sold for $2.43 million last year. This has opened the door to other service industries engaging with and embracing the metaverse – it is only a matter of time until we see metaverse law firms offering virtual consultations.

Virtual events such as concerts, conferences, exhibitions, and e-sports, can all be held on metaverse platforms and become monetized, with fans paying nominal fees to attend the virtual event, via their avatar. Business meetings are also an area the metaverse could impact through the implementation of virtual conference rooms. Microsoft recently announced a virtual reality update for Teams. The education sector could also see students attending online classes held in the metaverse.

With the pandemic forcing people to change habits in relation to computer literacy and technology, mass adoption of the metaverse and integration into everyday life is a serious possibility. 

Legal issues:

As with any new platform seeking mass adoption there is always going to be legal issues, and the metaverse is no exception. Some of the biggest issues that are left to be resolved include concerns around GDPR and data protection, intellectual property (IP) and jurisdiction.

Intellectual property is arguably the most important legal issue when it comes to the metaverse, especially when it comes to infringement, licensing, protection, trademark and copyright. Questions will be raised as to whether the metaverse’s information landscape and creations qualify for legal protection and ownership, and whether content built on layers of third-party information fall within the excepted understanding of derivative works. 

Consideration will need to be given to updating and implementing appropriate technology licenses. Licensor’s will need to understand the potential scale of the metaverse, specifically paying attention to the fact that it is easy to limit a licensee’s rights based on territory. However, a virtual world with no borders may create some unforeseen issues. 

Content creators, for example, may face such issues. If a creator is relying on existing licenses to create digital content for the metaverse, the current licenses may not cover the use of the copyrighted work within the metaverse. Rights-holders will equally need to calculate the level of unauthorized digital goods or creations they are willing to tolerate, as policing the metaverse for piracy of copyrighted works will be challenging. 

Additionally, it is worth addressing the litigation surrounding celebrity likenesses in videogames. In the 2019 US case of Champion v. Take Two Interactive Software, Inc, celebrity basketball entertainer, Phillip Champion, sued the developer of the video game NBA 2K18 alleging violation of his right to privacy for the use of his name and likeness. It is highly likely that such issues and disputes will be applicable to virtual avatars in the metaverse.  

Moving away from IP disputes, GDPR and data protection is a further legal issue that needs addressing. Platforms will be able to track social interactions on a much more detailed and nuanced level, and entirely new types of data will need to be processed, such as personal avatar gestures and reactions. 

The cameras, microphones and virtual reality (VR) glasses used in the metaverse will also create a range of user data, specifically in relation to their private environment in the real world. It will be necessary for data processors to appropriately consider the principles of data minimisation and purpose limitation. Companies in the metaverse will need to consider how to make the processing information clear to the users. A rethink of tedious and wordy privacy notices will be in order. The issue of which data protection responsibilities are shared by platform operators and companies will also need to be taken into consideration.

This all leads to the problem of jurisdiction – a particularly tricky issue. The metaverse is run on a decentralised system, meaning that it is not owned or controlled by any one single entity, and is not governed by any one nations law. It will therefore become increasingly difficult to know which laws apply, especially where social and economic transactions take place between users from different jurisdictions.

What next for the metaverse space?

The metaverse brings true meaning to what film director, Godfrey Reggio, said when discussing technology - “it’s not that we use technology, we live technology”. The potential impact the metaverse could have on numerous business sectors is vast. While we are still in the early stages of the metaverse, there are certainly legal concerns, such as data protection and IP, that need to be addressed before mass adoption and societal integration is to take place; regulation and transparency will be equally be required. Despite its current complexities and deficits the metaverse is shaping up to be the next stage in online communication and interaction. The new year has brought with it a new world. 


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