The metaverse may seem like a new techie game, but it is a real and growing digital world that raises a host of financial, business and legal issues. For those who want to take advantage of the opportunities it may offer, consulting knowledgeable professionals will be essential to help make well-informed decisions and minimize risks. It is also important to have a good understanding of the basics.
The metaverse refers to a virtual world where people can interact, socialize, play games, buy and sell things and attend events. Individuals appear as digital avatars of themselves. Currently, there are a number of platforms that provide this experience such as Decentraland, The Sandbox and others. Some incorporate non-fungible tokens (NFTs) and cryptocurrencies allowing users to own items within the platform.
The metaverse is the next level in computers. “It’s about being within the computer rather than accessing the computer,” according to venture capitalist, Matthew Ball.
The idea is to create real-life environments in the metaverse. Within this world, brands and technology companies can reach consumers in many of the same ways that they do in real life. Companies that have already entered this area or have plans to include Samsung, Walmart, McDonalds, fashion brands in Decentraland’s Fashion Week, Meta (Facebook), Sotheby’s and JP Morgan. Other businesses are buying virtual property on Decentraland and Sandbox to advertise and sell products and services.
How existing laws may affect the metaverse is an evolving question. However, some key legal areas affecting commercial activities in the metaverse have emerged, including intellectual property, data privacy and criminal law. Anyone looking to participate in metaverse commerce should consider laws in these three areas.
Brands have filed trademark dilution and infringement cases involving metaverse goods and services. For example, Hermès sued Mason Rothschild for trademark infringement for his creation and sale of “Metabirkins,” NFTs attached to digital images depicting bags resembling Hermès’ Birkin bags. The case is still pending in the Southern District of New York. In denying Rothschild’s motion to dismiss, Judge Rakoff considered Rothschild’s argument that the NFT Metabirkins are artistic creations protected by the First Amendment. Judge Rakoff held that these NFTs likely were artistic productions protected under the higher standard applicable under the Second Circuit precedent of Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). However, Judge Rakoff denied the motion to dismiss based on a plausible allegation of misleading branding. The Court also noted that the result might have been different if Rothschild were selling virtually wearable bags.
Another area of concern is how to trademark products that only exist in the metaverse. Copyright and patent claims are also likely to rise.
Behavior in the metaverse can reveal extensive information about people’s interests and behaviors, and even biometric data that otherwise would not be available to businesses, particularly when virtual reality headsets are used that track head and eye movements. This raises concerns about what data companies can collect, who owns it and how it can be used. Existing privacy and consumer protection laws may not adequately address these issues and data collection in the metaverse raises jurisdictional questions that make it difficult to know which data protection laws apply. For example, the European Union’s General Data Protection Regulation, the UK Data Protection Act and the California Consumer Protection Act all have jurisdictional components that may not extend into the metaverse. The metaverse also raises the possibility of humans interacting with artificial intelligence without disclosure, allowing new types of data collection. Companies will need to rethink consent and data protection mechanisms in these new environments to minimize risks around improper data collection.
There have already been allegations of criminal acts in the metaverse, including crimes associated with the physical body such as sexual harassment, assault and even rape, among others. Meta (formerly known as Facebook) responded by adding a safety feature to its Horizons World metaverse that prevents an avatar from coming within a certain proximity of another’s avatar. . It is probable that the greater human interaction in the metaverse will lead to crimes, requiring a redefinition of some crimes and new ideas about prosecution of metaverse criminal activity.
The metaverse has the potential to offer lucrative business opportunities. However, as an evolving area, it is critical that companies speak to an attorney before entering into a venture. Contact Romano Law to discuss your matter.