The Metaverse: legal challenges and opportunities

What do bicycle group rides and conference room meetings have in common? Thanks to today's technologies, both of them can be experienced without participants leaving their homes. Zwift, an online training platform, allows users to train on stationary bikes while watching their avatars ride through digital landscapes. Horizon Workrooms, a software offered by Meta (formerly Facebook), will enable users to interact virtually in 3-D meeting rooms using VR-goggles. And if Mark Zuckerberg's vision of the Metaverse is anything to go by, the time we spend in such virtual realities will only increase.

Defining what the Metaverse actually is, however, seems more difficult than one might expect. The name was coined in the 1992 novel "Snow Crash". It described a virtual reality people could explore through their avatars. To some, this may be reminiscent of Second Life, a virtual world which, at its peak, attracted tens of thousands of simultaneous users. More recent iterations have taken this concept to a new level. Fortnite, an online game, virtually hosted a live concert in 2020 that was attended by millions. While attendance was free of charge, each virtual world typically also facilitates in-game purchases through their own virtual currency (which can be converted into real money, of course). MANA, the currency used in Decentraland, has a market capitalization of more than USD 3 billion. At some point, the virtual spaces are expected to become interconnected. Users could then switch between realities and transfer purchased items from one to the other. The Metaverse, it has been argued, is to these different virtual worlds what the internet is to websites. 

Whether the Metaverse will really turn out to be Silicon Valley's next big thing remains to be seen. Sure enough, a growing number of established brands have already taken the plunge. Adidas, among others, set out to virtually raise consumer awareness and bought digital land on The Sandbox, another virtual world. At the beginning of this year, The Economist reported soaring virtual-property prices in SuperWorld, yet another virtual reality. But businesses might also face real challenges even without setting up their own virtual presence in the Metaverse. This is because virtual third-party activities can nevertheless affect others in the real world - just as negative online reviews may harm a firm's reputation even if it does not operate a social media account. Below, we discuss some of the opportunities and challenges that lie ahead.

Brands

An aspect that has already made waves among the legal community is brand protection in the Metaverse. With consumers identifying increasingly with their avatars, it no longer seems far-fetched for them to spend real money on virtual accessories and fashion items. In fact, such items are already changing hands with considerable price tags attached to them. A virtual Gucci handbag, for example, has reportedly been sold within Roblox, a virtual game, for USD 4.100 (i.e. more than the bag sells for in the real world). This has enterprises wondering whether their trade marks registered for real-world products are automatically protected also against third-party use for virtual goods. Admittedly, some of the legal issues involved are not entirely new. There is some previous case law dealing with "interdimensional" infringements based on the earlier virtual realities. And further cases are likely to be added to the list quickly: Hermès has filed an infringement claim in the U.S. against a third party offering digital assets branded as "METABIRKINS" showing digital representations of the famous Birkin bag.

Some brand owners, such as Nike, Abercrombie & Fitch as well as Urban Outfitters, prefer not to take any chances and have applied for trade mark registrations specifically in respect of downloadable virtual goods. Again, this is something we have already seen shortly after the turn of the century, in particular with companies setting foot in Second Life. From an EU perspective, trade marks registered specifically for virtual items may enable their owners to invoke a so-called double identity attack against virtual counterfeits (i.e. identical marks for identical products). In case of a conflict, the brand owner could go after virtual infringers without having to show a likelihood of confusion on the part of the relevant public. The details, as always, might be a bit more complex. Additional questions of international jurisdiction, the (in-) applicability of exhaustion rules and right-preserving use in the Metaverse await further down the line. 

Copyright and data protection

From a copyright law perspective, non-fungible tokens (NFTs) are at the centre of recent discussions - not only since an NFT of the digital artwork "Everydays: The First 5000 Days" by the American digital artist Beeple was sold by the famous auction house Christie’s for USD 69.3 million in March 2021. Harnessing the advantages of blockchain technology, NFTs are unique digital assets that can be traded easily and securely (e.g. works of art or other collectibles). 

NFTs serving both as title of ownership and certificate of authenticity created a huge market for digital content (which, as such, can easily be copied). NFTs include a variety of metadata making it unique and not interchangeable. If the digital asset underlying the NFT is, for example, a digital artwork, such metadata could be: the name of the digital artist, the title of the work, the number of copies, and its size. Furthermore, NFTs are governed by (smart) contracts defining how the buyer of the digital asset may use it, i.e. the specific copy of the digital asset that is represented by the NFT. These license agreement, as always, have to be carefully drafted to make sure both parties – seller and buyer – know which rights they have sold or acquired. The seller might want to grant a non-exclusive license and/or restrict the right of use to certain use-cases, while the buyer is often interested in getting an exclusive license in the digital artwork represented by the NFT. Consequently, NFTs will be fundamental in the Metaverse where users buy and sell digital assets, including digital content (e.g. artwork) which they want to enjoy and present in their virtual home and, perhaps, after some time resell to another user, while ideally making a profit.  

Exciting questions and challenges also arise from a data protection law perspective: Technology like VR-goggles allow for a real-life experience in a virtual reality. Avatars mirror the user's gestures, facial expressions and behaviour. At the same time, the technical equipment used for users to experience virtual realities without stepping outside may track data from each user's most private environment – their home. The user will want to know how this data is used, by whom and for what purposes. Hence, the current data protection law will somehow have to adapt to the new use-cases in the Metaverse. If one starts to think about what will be needed in this context, the list of open questions goes on.        

Patents

The Metaverse is also expected to be subject of discussions with regard to patents. It will be crucial for its economic success that, for example, interfaces are standardized and that an exchange can take place between the various virtual worlds. Although the surrounding Metaverse will essentially be based on software, technicity-related aspects cannot be avoided – which are a general requirement for patent protection. The increasing number of computer-implemented patents granted by the patent offices around the world shows that this is not really an obstacle anymore. 

That said, classic implementation inventions will also play an essential role and are already subject of numerous applications. Most recently, for example, it was reported that Disney has obtained a patent in the U.S. for a "virtual-world simulator." Facebook (now Meta) has also filed a large number of patent applications relating to a wide variety of aspects in the context of virtual worlds, according to press reports. The same is true for a lot of other players, large and small, who intend to participate in the Metaverse. 

Apart from the technology directly related to creating and "living" in virtual spaces, challenges in the real world are also expected to attract the interest of patentees. To maintain globally networked virtual worlds, it will be inevitable to have a tremendous quantity of hardware in place in form of data centers, servers and power sources. Especially in the high-tech sector, such hardware is regularly subject of various patents and patent applications. A successful injunction against the operation of certain hardware components is likely to pose considerable problems for the operators of virtual worlds. It can therefore be assumed that particularly this sector will also bring players into the game who try to participate in the expected economic success of the Metaverse.

Interesting times are surely ahead.