How Regulations Will Affect the Metaverse
Although still in its development phase, the metaverse is expected to play a large role in the future of the internet. Companies seeking to take part in the opportunities provided by the technology would be wise to stay informed of any progress.
For instance, issues of privacy, safety, taxation, antitrust, copyright, trademarks and patents are likely to be subject to regulations — whether they are adapted from current regulations or created specifically for the metaverse. So, what impact will this have both on the metaverse and the companies that are part of it?
What Is the Metaverse?
The metaverse, a version of the internet featuring persistent 3D virtual environments accessible through VR headsets, augmented reality (AR) glasses, smartphones, personal computers and game consoles, is populated with digital avatars that people can use to interact, visit locations both real and imagined, and buy and sell goods. It is one of several burgeoning technologies, including blockchain, cryptocurrency and non-fungible tokens (NFTs) that underlie Web3, the developing vision of a decentralized internet.
The concept is not new. In 1992, Neal Stephenson published a novel called "Snow Crash," which was a dystopian story about a metaverse-like environment that included virtual real estate accessible through VR goggles. Fast forward to 2011, when Ernest Cline published the book "Ready Player One," a science fiction novel set in a dystopia in 2045.
Today, we're still miles away from the fictional virtual reality world alluded to in books and movies, but the foundation of the metaverse is nevertheless being created. The largest social network, Facebook, changed its name to Meta in 2021 to better align with its future goals in the metaverse. The company already owns Oculus, which manufactures one of the most popular VR goggles.
VR goggles are useful, but not required, to access the metaverse. Other devices might include a head-mounted apparatus with a camera, such as Microsoft's HoloLens augmented reality (AR) glasses, or some new hardware that has yet to be invented. These devices amplify the experience and help to integrate all of the elements and display the objects that can be interacted with in the virtual world.
If it all comes to fruition, some expect the metaverse will change the way we live our lives as we interact, work, make purchases and view entertainment in this virtually enabled environment. That will come with business opportunities for companies across all sectors, from retail and gaming to manufacturing and construction.
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Privacy in the Metaverse
That growth also comes with challenges. There's already commerce happening in the area of non-fungible tokens, or NFTs. As buying and selling increases, privacy is going to become a big issue in the metaverse and, as with Web 2.0, regulations will soon follow, said Andy Rogers, senior associate of IT compliance firm Schellman.
“Currently, non-fungible tokens which, similar to digital currency, are tied to digital files, photos, videos and audio are actively being sold in NFT marketplaces," he said, citing the grumpy cat meme as an example.
Although the mechanisms of the metaverse are likely to change how companies collect data, current privacy regulations provide a valuable preview of what to expect when it comes to consumer interactions with companies in the metaverse. A great way to think of the regulations that will go into effect is how GDPR has drastically changed how organizations handle data.
"You must take great care with PII [personally identifiable information] to ensure that you, as the organization, don’t take more than you need and have a reliable way to destroy it, recover it and manage it without accidentally divulging it or crossing the boundaries of misuse," said Rogers.
He expects many of the digital privacy and security restrictions will be expanded to cover metaverse-related information, although it may be some time still
Julie Rubash, chief privacy counsel at software company Sourcepoint, said there can also be potential privacy issues relating to biometric data such as facial photos, voice recordings and images of fingerprints. “Biometric data will play a much more prominent role in the metaverse, and regulation may need to adjust to reflect expanded, more intimate use of biometric data and potential harms that may result,” she said.
As with other legal aspects of online commerce and transactions, the basis for the privacy regulations in the metaverse are likely to stem from the same reasons why we have privacy regulations both in the brick-and-mortar world and online. “The fundamental principles underlying why privacy matters today will remain applicable," Rubash said.
For example, information about an individual's eye movement could be collected to understand where the person is looking. “However, eye movement can reveal a lot more about me than just what I want to look at in a given moment, so it would be important for me to understand and agree that my eye movement will be used to understand my interests, my emotions, my hunger and potentially even my sexual desires, particularly if that information will be used beyond a given interaction,” she said.
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Potential Legal Challenges in the Metaverse
There are several challenges that could cause organizations to hesitate to join the metaverse. Most will get ironed out over time, but three may require legal intervention.
The internet has caused a multitude of copyright issues for musicians, movie studios and the software industry, and the metaverse is likely to come with its own set of copyright issues. Copyright protection in the United States applies to “original works of authorship fixed in any tangible medium of expression,” according to US law. There are many aspects of the metaverse that are likely to be copyrighted, such as software, graphics, video and audio recordings.
While the metaverse will probably offer protection to copyright holders, there are potential risks and challenges. The piracy of copyrighted works is likely to be an issue, and copyright owners may have a problem when it comes to proving copyright infringement when the use of the copyrighted work is minimal. Additionally, content creators must ensure that existing licenses in underlying works cover the use of those works within the metaverse. A good example would be the use of stock photos, which is fine on Web 2.0 but may not be acceptable in the metaverse.
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Trademarks will likely also be valid in the metaverse. A trademark is a type of intellectual property that consists of a word, phrase, slogan, design or logo that identifies products or services from a particular source and distinguishes them from others. Trademark law protects against the unauthorized third-party use of a trademark in any way that may dilute the trademark.
Consider a virtual world that simulates the real world, complete with stores, restaurants and coffee shops. If someone created such a virtual world and included the logos of Starbucks, Applebee's and Dick's Sporting Goods, the trademark owners of those brands would have reason to litigate against the entity that created the virtual world because it would cause a reasonable person to believe that the trademark owners own or sponsor those virtual businesses.
A patent is a type of intellectual property granted by the U.S. Patent and Trademark Office to the inventor of a product or solution to exclude unauthorized entities from making, using or selling the invention. Typically, a patent lasts 20 years from the date of filing.
Owners of patented inventions used in the metaverse may have to deal with challenges in policing infringement because the use of a software patent may not be visible in the metaverse. It may also involve revealing the source code of the application in order to prove the patent infringement, which could spark a whole new debate.
The metaverse opens limitless opportunities for new forms of immersive entertainment, including games, movies, music, concerts and festivals. This means the application and reinterpretation of laws and regulations concerning intellectual property rights is likely to occur.
For instance, if a company launches a virtual art gallery where users expose their unique creations without the limitations of physics, who will own the rights to those creations? The user who created them or the company that developed the virtual art gallery? The lines to what is real become blurred when it comes to virtual and augmented reality.
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An Evolving Marketplace in the Metaverse
In May 2021, law firm Reed Smith published the "Reed Smith Guide to the Metaverse," in which the firm suggested that in order for the metaverse to reach its true potential, a number of key attributes must exist:
- It must be persistent (it remains in place whenever a user logs in or out).
- It must provide live, synchronous experiences.
- It must be interoperable.
- It must create value.
Whether the metaverse will ever reach its full potential remains to be seen. One thing is sure: commerce will continue, purchases will be taxed, and security will be paramount.
"Current frameworks in place have given way to assumptions on the regulations that will define the metaverse, although it is unclear how they may evolve,” said Julie Rea, vice president of compliance and risk at e-commerce company Digital River when asked about the implications of the regulation of commerce in the metaverse.
“In terms of commerce, we know that purchases will still be taxed and tied to a physical location outside of the metaverse, as all e-commerce goods are regulated. The physical location will dictate which taxing jurisdiction to apply to transactions, meaning that brands selling in the metaverse will need a way to ensure accurate taxation and collection."
Rea said now is the time for companies to become more familiar with cross-border regulations and compliance, largely because at least initially, transactions in the metaverse will parallel those in the current Web 2.0 environment. "Because brands will be selling in an uncharted virtual reality, investing in compliance should also be top of mind," she said. "With the added complexities and security threats that come from selling in the metaverse, understanding compliance obligations will help brands ensure that all regulations are abided by."
Additionally, the metaverse presents an opportunity for companies looking to sell globally, meaning that a familiarity with cross-border regulations must be factored in as well. This includes export, international taxes, duties and tariffs; all back-end processes that ensure customers receive their purchases efficiently.
The metaverse will provide opportunities for companies to connect with their customers in a new medium. It is likely to open up unprecedented avenues for doing business. But along with these new opportunities will come new challenges, and companies will have to comply with privacy regulations while being compliant with copyright, trademark, patents, piracy and taxation regulations.