Legal implications of the metaverse
More regulation on the horizon for developers
The press in the second half of 2021 had a flurry of stories around the metaverse. Major tech companies such as Meta (née Facebook), Microsoft and Alibaba have been repositioning themselves by focusing efforts either by developing tools for the metaverse or their own metaverse. Major fashion companies including Nike, Balenciaga and Ralph Lauren have announced digital fashion lines on popular virtual worlds like Roblox, Fortnite and the Sandbox to extend their brand to difficult-to-reach demographics. Investment has grown considerably with Epic Games completing a $1 billion round of funding for the development of the metaverse and has pioneered digital concerts like Ariane Grande's Rift Tour or Travis Scott's Astronomical.
But what is the metaverse? In sci-fi literature a metaverse is a convergence of physical, augmented and virtual reality (VR) in which users can interact with a computer-generated environment and other users. This definition can lead readers to believe that a metaverse is synonymous with VR, but it is much more than that – and many companies are heading in different directions in pursuing their own vision of a metaverse.
Characteristics of a metaverse
Matthew Ball, a venture capitalist who wrote a collection of influential essays on the metaverse in 2020, set out key characteristics of a metaverse, namely:
- Scaling – the ability to increase the size of the metaverse.
- Persistence – removing technical limitations to improve the metaverse's immersive nature and allow a continuous virtual world.
- Interoperability – the merging of different virtual worlds and systems.
- Economy – an independent economy allowing for trading across the metaverse.
- Identity – evolving current online identities for avatars for a stronger connection to the user.
- Digital and physical – spanning across many aspects of life.
- Multiple contributors – content will come from all stakeholders, from individuals (user generated content) to commercial organisations (licensed content).
These characteristics show that the concept of a metaverse is a complicated one. It is nothing less than an embodied internet where you can experience a living virtual world with a digital personality tailored by you, using an independent economy and allowing you to create and experience things differently.
While the perfect metaverse has yet to be realised – this will take time – there are already early signs of the metaverse all around us. These early-stage metaverses, or "proto-metaverses", take many forms, including games embracing blockchain technology and online games hosting non-game social events, such as fashion shows and live musical performances, through to brand-driven virtual worlds. The early metaverse is here, and the sector (and its underlying technology) is attracting considerable investment.
Regulatory regimes
Many companies looking to develop or enter a (proto-)metaverse will need to be alive to a number of different legal issues, especially given the raft of EU regulation that has been implemented in the last 20 years with much more on the horizon that focuses on different aspects of the internet.
From a technology standpoint, the ability to scale up/down the metaverse requires the elastic capabilities of cloud computing. A cloud-based system calls up issues around territoriality, and regulatory regimes in several jurisdictions could come into play.
Data
Creating tailored digital identities raises legal issues around data protection, privacy and cyber security. These risks may need to be managed through developing technologies such as decentralised identification networks. Furthermore, the management of such vast amounts of data is only likely to be feasible with the implementation of artificial intelligence – an area for which the EU is already preparing draft regulations.
IP
From the content providers' perspective, intellectual property (IP) is going to be a major concern, especially if they are moving from a physical to digital business model. Many early adopters of proto-metaverses are advocating the use of blockchain technology to serve the metaverse's economy and manage digital assets. Non-fungible tokens, in particular, raise challenging issues for IP enforcement. In addition, rightholders will need to consider sufficient trade mark and design right protection carefully before venturing into the metaverse.
Advertising
The metaverse may also change the way content providers will advertise: perhaps favouring more organic methods, such as influencers. However, businesses will need to be mindful that where sponsored advertisements are made, they need to use appropriate signposting so as not to fall foul of the rules set by regulators. Other factors will also increase the risk profile for ads, such as when they are aimed at minors.
Online safety
As metaverses become more immersive, interactive, and collaborative, providers will need to think about policing these virtual worlds and keeping users, children in particular, safe from bad actors and online harms. Legislators and regulators in Europe are putting a growing emphasis on the responsibility of platforms to protect users in this context.
Carbon impact
Finally, as businesses explore entering the metaverse, there are environmental concerns around some of the underlying technologies. Businesses looking at the metaverse as a potential opportunity will need to be mindful about entering the metaverse in a responsible way that will be less damaging to the environment. While many providers of technologies engage in substantial carbon offsetting, it is worth properly vetting these service providers to ensure the partners chosen properly engage in such practices.
Connect with one of our experts
Nick Kempton, Lead author Senior Associate, UK nick.kempton@osborneclarke.com +44 207 105 7333
Konstantin Ewald Partner, Germany konstantin.ewald@osborneclarke.com +49 221 5108 4160
Felix Hilgert, LL.M. Partner, Germany/US felix.hilgert@osborneclarke.com +1 650 462 4020
Tom Harding Partner, UK tom.harding@osborneclarke.com +44 117 917 3060
Julia Darcel Senior Associate, France julia.darcel@osborneclarke.com +33 1 84 82 45 42