Looking Beyond the Hype – Legal Conundrums in the Metaverse and Connected Technologies

When legal recourse is required for transactions in the metaverse, the current legislative and judicial system may come across as inadequate to address any such disputes

In this digital age with several existing and emerging technologies playing a significant role in all aspects of human life, life without technology is unimaginable. In fact, with the help of a multitude of emerging technologies, we are moving to a new level where interaction of the physical and virtual world is elevated to seamlessly move from virtual to physical and vice-versa, providing a new way of commerce on the internet with digital and traditional economies merging into one. Currently, such emerging technologies are collectively referred to as "metaverse" and leverage several technological innovations including Virtual Reality (VR), Augmented Reality (AR), the Internet of Things (IoT), 5G, Artificial Intelligence (AI) and many others. With the metaverse and its related technologies, i.e., blockchain, non-fungible tokens (NFTs), and cryptocurrencies often stealing the limelight in the tech and financial areas, policymakers and regulatory authorities around the globe are working ceaselessly and proactively to formulate and provide a legal framework to govern these decentralised modern technologies. From being a gaming platform to a virtual retail store, a virtual classroom, or creating a new gateway to digital experiences, the metaverse can turn into anything one can imagine. Policymakers have come to the realisation that the decentralised platforms cannot forever remain without a central element for its governance – decisions such as the inclusion of crypto under the scope of financial legislation gives the State a seat at the table in deciding the future of these digital financial assets and prepares them to respond to the rapid developments in these sectors, to regulate them in the same manner as the traditional financial services sector.

Although the makers of these decentralised systems would not have had the objective of coming under governmental regulations (hence, the decentralised system in the first place), it is inevitable to ensure the longevity and viability of these systems. Besides, disputes are bound to occur within any system and legal recognition of the assets within the system helps in making the case to address these disputes by the pre-existing legal recourses. As with any tangible or intangible object that holds value, the nature of transactions that involve the asset would tend to evolve over time. From the traditional marketplace system of buying and selling, to going to the extent of offering NFTs as a collateral in cryptocurrency based lending, the transactional space in digital asset markets has seen substantial growth. When legal recourse is required for these transactions, the current legislative and judicial system may come across as inadequate to address any such disputes.

Practical Applications of the Metaverse and Corresponding Legal Challenges

Fintech/Commerce:

Web 3.0 technologies are being used to build the fully immersive metaverse including cryptocurrencies, blockchain and non-fungible tokens (NFTs), etc. Many companies have started accepting cryptocurrencies as a mode of payment for goods and services. Many companies are selling and distributing various virtual goods and other digital assets in the metaverse itself, either by selling the identical goods to the users or by selling the ownership rights of the same to the users. The buyers of such virtual goods then, may keep such virtual goods and assets as an investment or use such virtual items / digital collectibles in their virtual space or digital hangouts/channels. In such a scenario, certain legal issues relating to ownership, authenticity and further transfer of such virtual assets may arise.

Entertainment:

There has been explosion in the online video games industry with respect to metaverse. Online video games like Fortnite, Roblox, Minecraft, etc. provide users the chance to interact with other users/players in the virtual world using VR (Virtual Reality). Games like Pokemon Go use AR (Augmented Reality) to catch virtual fictional creatures on the user's mobile phone. Many music artists including Ariana Grande, Lil Nas X, and Travis Scott have successfully held concerts in the virtual space within the platforms of online games such as Fortnite and Roblox, etc.

Education:

The pandemic has opened up avenues for online learning with the potential to create learning experiences that are rich and meaningful. Virtual classrooms are only at a nascent stage which would eventually evolve into an experience that would allow educators and students to have an enriching learning experience. Educators would also be able to incorporate aspects of the metaverse into class projects. Furthermore, as the metaverse expands and develops, it will also improve the ways in which students and teachers would learn, talk and plan in a virtual world together.

Data Privacy and Security

The most significant issues encountered by platform owners mainly consist of digital security and privacy. These issues are critical for tech companies which are subject to heavy scrutiny from regulators as well as users. The data that comprises the metaverse will become valuable over time and technology will become heavily ingrained into various aspects of users' lives. The increasing evolution of technology and its integration in users' lives will stress/test existing laws which will in turn pressurise the regulators towards advancement of existing laws or framing laws that address these challenges exclusively. The users' information is pertinently at risk of exploitation or being missed on account of vulnerabilities that are involved when data is ported from one application to another. Additionally, the platform owners would require extensive agreements that would govern data transfers, information security standards and subsequent responsibility for compliance.

Regulation of Conduct and Addressing Legal Offences in Metaverse

Major issues like online harassment, stalking, etc. are serious concerns in the metaverse. Recently, Roblox filed a suit against a content creator who was allegedly indulging in online harassing activities with other users within the online game platform (Roblox).

Additionally, a beta tester of Meta's (known as Facebook earlier) VR platform Horizon World made allegations that she was virtually groped in a virtual Horizon World meeting space called the "Plaza", to which Meta responded by noting that users can block each other, however, it did not address the potential legal concerns of such actions, which may require the novel application of laws designed specifically to address such kind of misconduct in the physical world. Legal regulations should foster Code of Practice that is applicable for responsible interactions by users of Metaverse.

Since a great portion of the metaverse revolves around the creation of digital assets, often in the form of artworks alike, questions of intellectual property rights are also sought to be addressed. A primary consideration would be to assess whether the existing IP standards are sufficient to govern the decentralised collaborative process to create the work performed by the users who are avatars. Whether the digital assets qualify as 'goods' with regard to trademark laws is of prime importance, and the question of liability in case of infringement is difficult to address due to the likely anonymous nature of the infringer.

Various criminal offenses including murder, culpable homicide, kidnapping, assault require a human to physically commit such crimes. However, there could be instances where physical harm can still be induced by actions in the virtual world, offences like abetment of suicide, stalking, online harassment, outraging the modesty of a woman may be committed by an avatar in the metaverse (by way of gestures, words, etc.). Therefore, it cannot always be said that such crimes cannot be committed by an individual since, in the metaverse, the user does not carry his/her real body.

As such, with the increase in interactions through the avatars created by the users, it will be interesting to see across the globe as to how, upon whom and to what extent the liability for illegal acts in the virtual space would be pinned. Essentially because avatars are not auto controlled in the strictest sense but are managed by users to whom such avatars belong to. Legislatures are on their way to give formal recognition to financial assets in the form of cryptocurrencies, with events as recent as the British Lower House of Parliament voting for bringing crypto under the regulation of the Financial Services and Markets Bill in October 2022.

It is in pursuance of this objective that the High Court of Singapore recently recognised NFTs to come under the legal definition of 'property', which gives the domestic legal system the jurisdiction to handle matters involving blockchain, its currencies, and assets such as NFTs embedded within them. The Court issued an injunction to protect the equitable proprietary claim over an NFT of the claimant, barring the sale and transfer of the Bored Ape NFT (Janesh s/o Rajkumar and Unknown Person ("CHEFPIERRE"), [2022] SGHC 264, High Court of the Republic of Singapore). The decision is a breakthrough for the industry since judiciaries across the world previously considered themselves to be ill-prepared or lacking guidance to hear and issue rulings on these matters or dispose of such cases.

Though the decentralised nature of the blockchain system poses difficulties in determining jurisdiction, benches of the judiciary have started to take the onus to provide a forum for dispute resolution, by using a connecting factor of lex situs (a place where the property is situated). At present, it is difficult to predict the extent to which the most far-reaching visions of the metaverse will materialise. Despite numerous advances in technology, supporting a virtual reality environment requires an enormous amount of energy and bandwidth. Even if technological requirements for a metaverse were readily available, the users in such a framework may not be aware of the drawbacks and harms that could be caused to an individual at the risk of immersing themselves in the virtual world. This issue is exacerbated by the lack of concrete legal mechanisms which can provide much-needed structure to the evolving metaverse.

Navigating the Way Forward

No doubt, the metaverse would open doors to new opportunities and digital experiences. However, addressing the challenges and issues related to the legality of the avatars and their liability in the virtual space still remains a question mark. The infringement of intellectual property rights, data privacy & security, and other compliance-related issues in the metaverse requires a lot of planning and governance. The metaverse holds its implications for almost every other industry and many implications will remain industry-specific. Although there are positive impacts of the metaverse on different industries, the limitations including privacy issues and other criminal or illegal acts remain a highlight. Therefore, it is important to create a safe space for everyone and not another social web. Any legal implications which may arise as a result of the fusion of the physical world with the virtual world require to be suitably addressed by existing legislation by way of amendments aligned towards the dynamic nature of the metaverse or by way of introducing metaverse-specific legislation which can govern different kinds of interactions as well as transactions. Hence, it is clear that the metaverse and jurisdiction surrounding it will still take years to fully evolve but it is indeed the next big thing.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.