The “Novel” Metaverse Poses Legal Challenges for Companies

Published on 3 February 2023

Technology is any tool that facilitates tasks for human beings. Thanks to the digital revolution brought about by the Internet, we see how supposedly disruptive technological advances emerge almost on a daily basis. They shake up our society and promise to solve all our problems.

One of these alleged advances are the so called metaverses. Yes, plural, because there is not just one metaverse, there is a multitude of metaverses. The metaverse (mainly Meta’s, formerly Facebook) is on everyone’s lips as the latest revolution, something we must not miss out on and something we should all be part of. But there is nothing new under the sun.

The term “metaverse” was coined by the novel Snow Crash by Neal Stephenson and refers to a cyberspace populated by avatars. The aim is to connect people from all over the world and have them interact with each other as if they met in “real” life. As a permanent and infinite space, it gives reality to virtual reality. It aims to reinvent interpersonal relationships, to become a palpable 3D Internet.

But the world of metaverses is not so new. For years, there have been these virtual worlds where users are interconnected and interact socially and economically via avatars. We used to call them video games.

The Metaverse Is Not New, but the Current Situation Brings It Back to Us Renewed

So why all the fuss now? For one, because technology makes it possible, but the real trigger has been the coronavirus pandemic, which has changed the ways in which people interact. As we all know, the pandemic has accelerated digitalisation (working from home) and has increased online sales exponentially, but it has also made more and more people fans of so-called e-sports.

According to its advocates, in the Metaverse, everything is possible (business, entertainment, social interaction, etc.) but at a higher user level, since through our avatar we experience a fusion of the real and the virtual world.

However, it is less clear how these avatars will enable us to live and feel as we do in our everyday lives. Despite the current surge in investment and the hype, all technologies depend on other enabling technologies. 5G will make a contribution, but it will not create a 100% immersive world, where we can interact as we do in reality. We will have to generate technology such as virtual contact lenses or elements that allow us to feel. This is the key point: being able to see is not enough, we must be able to feel.

We will see whether the metaverse takes root or ends up being a passing fad like other technological inventions. It is worth mentioning that there are examples of failed metaverses, such as Second Life.

Legal Considerations Surrounding the Metaverse and Its Consequences for Businesses

Now what are the legal considerations I have to take into account and how can this new scenario affect my company? At this point, it must be mentioned that these virtual worlds have their own economy and usually their own currencies. Companies will have to consider whether they want to participate in a particular metaverse, create their own metaverse or whether they are interested in creating non-fungible tokens (NFT) of their products.

We have all heard that the legislator always lags behind technology, but in this case, our opinion coincides with that of the European Commission, which is that the metaverse per se should not be regulated. The law regulates situations and their consequences, not specific scenarios. The current legal system must be interpreted by analogy. At least from a legal point of view, the metaverse and NFTs are not as disruptive as some believe, since virtual worlds and digital objects are already more than two decades old after all.

Notwithstanding the above, it should be noted that these metaverses come with numerous challenges, both on a social (e.g. addictions or ecological sustainability) and a legal level. These legal challenges affect practically all branches of law, e.g. in corporate law the incorporation of companies in the metaverse, in tax law taxation and money laundering, in criminal law crimes such as sexual harassment, threat, defamation of character, etc., in civil law the question of ownership of the assets created, etc.

Issues are also emerging regarding industrial property and data protection and privacy. They are, however, accompanied by opportunities (patents protecting the technology that makes the metaverse work or enhances its immersiveness, protecting trademarks for use in the metaverse or protecting them within the metaverse, etc.).

The Metaverse: A Breeding Ground for Infringements of Industrial Property Rights

The very features that make the metaverse attractive to users (anonymity and lack of a central governing authority) are seen by trademark and design owners as enabling widespread infringements of industrial property rights.

The main problem remains the same: territoriality. Industrial property rights are protected only in the countries where they are registered. This clashes with the global nature of the Internet and consequently of the metaverse. Adding to that the anonymity of the metaverse, we see that the biggest challenge is to determine who is responsible, where they are located and where they can be prosecuted.

This does not mean that no actions can or should be taken against offenders. On the contrary: Trademark owners must defend their rights against this type of infringement, as failure to do so would implicitly legitimise the act and probably create a pull effect.

In this regard, some brands are already fighting back proactively. For example, Nike filed a lawsuit against StockX, arguing that the virtual trainers the latter was selling through the metaverse as NFTs infringed Nike’s intellectual property rights. Similarly, Hermès brought legal action against Mason Rothschild stating that the “MetaBirkins” infringed its iconic Birkin handbag brand.

It also remains to be seen what happens to industrial property rights once you leave the metaverse. It is not very clear how they can be “carried” outside the metaverse and how it can be made sure that, once outside, they are not used by third parties without consent or how perpetrators are prosecuted in the event of infringements.

Let’s Not Forget Privacy, Minors and Liability

In terms of privacy, the use of the metaverse can be very intrusive, as this virtual environment is fully datafied by design and allows for a very broad spectrum of information on users’ tastes and characteristics to be processed.

Since the metaverse requires additional elements to be really attractive (wearables such as neural sensors or suits etc.), these elements will be of crucial importance and involve new categories of data (avatars identify or make a person identifiable, new biometric data, etc.). Due to the vulnerabilities of such wearables, individuals might become objects of mass surveillance, discrimination, fraud, or identity theft, etc.

In the same vein, these aspects become especially relevant if this type of technology and wearables is used by minors, as they enjoy special protection and we do not know to what extent the established requirements for processing this type of data and the systems’ security against attacks are fulfilled.

Another problem with respect to attacks will be determining liability. Since the metaverse requires a decentralised network where an infinite amount of data is stored and distributed, the question arises, who is liable for security breaches in a decentralised server network. Who knows?

In short, we will see how the different metaverses will develop in all their aspects and thus see if they are really the future that they are trying to sell us all or just one more application among many on our computers that we only use occasionally.