Resolution of Legal Issues in Metaverse

At the end of October, at Connect 2021, Mark Zuckerberg relaunched Facebook as Meta in October 2021, in quest of the metaverse. The once-loved concept of a virtual world parallel to the actual world has now been mainstreamed by the internet giant’s makeover. Gradually, the metaverse is becoming a part of our lives, with millions of users spending several hours a day in virtual social spaces like Roblox, and more individuals gravitating toward digital ownership of non-fungible tokens (NFTs) and cryptocurrencies. With rapidly developing online networks, the metaverse aims to improve the overlap of our social and digital lives in areas such as socialising, productivity, and prosperity by employing virtual reality (VR), augmented reality (AR), or just a screen. However, the pursuit of this futuristic technology has also posed substantial concerns regarding data privacy, antitrust, trademark infringement, etc, all of which must be investigated in order to properly grasp the technology’s potential.

• Data Protection Law

Participation in the Metaverse will necessitate the collecting of humongous amounts and types of personal data. Organizations can now learn how people travel around the Web or browse an app thanks to smartphone applications and websites. Gather information on individuals’ physiological responses, movements, and maybe even brainwave patterns in the Metaverse tomorrow, allowing them to have a far better insight into their customers’ cognitive processes and behaviors. Users that participate in the Metaverse will most likely be “logged in” for a lengthy period of time. This means that patterns of behavior will be constantly watched, allowing the Metaverse and the companies that participate in the Metaverse to understand how to serve customers in an incredibly targeted way.

As a result, in the Metaverse, a user will no longer be required to proactively submit personal data as required in current Data Protection Regime. Instead, while individuals go about their virtual lives, their data will be collected in the background. At the moment, India does not have data protection legislation, and the Data Protection Bill, 2021, which is still in the works, does not address several aspects/issues connected to data as required by the metaverse. The Metaverse’s nature creates a variety of questions with regard to compliance from a regulatory perspective and only time will tell, how this development evolves.

• Competition law

The Metaverse also presents various concerns related to the Antitrust Law. For instance, typical competition law definitions do not apply in the metaverse. Section 2(s) of the Competition Act, 2002, defines a relevant geographic Market as a geographic boundary within which conditions of competition remain homogenous. However, the very boundlessness of Metaverse prevents clear demarcation of geographical boundaries. Thus, there is a need to formulate new definitions that better apply to the metaverse.  Similarly, defining the appropriate product market would be problematic because digital items do not always share the same features as physical ones.

Furthermore, anti-competitive enterprises can communicate commercially sensitive information, such as price information, amongst themselves using private or permissioned blockchains, which can only be viewed by individuals who have the blockchain owner’s permission. Such blockchains will prohibit authorities from accessing these markets and, as a result, penalize such behavior. This comes in direct contrast to the current scenario where the authorities can simply conduct down raids at companies’ facilities to gather evidence.

• Trademarks 

While VR and AR have enabled brand owners to expand their reach to a developing new industry and customer base, challenges for trademark owners and users have arisen, particularly in the gaming sector. The use of real-world, third-party trademarks in video games that replicates the actual world has been a recurrent concern with the intersection of the virtual and real worlds, as evidenced in the case of E.S.S. Entertainment 2000, Inc. v. Rock Star Videos. Games like “Second Life” allow players to create an online business presence and sell their items in the real world. These benefits, however, come with the hazards of unlawful use of third-party trademarks and possible brand dilution. Thus, trademark owners should be mindful of the hazards associated with the use of brands in these “virtual worlds,” as the legal situation in this respect is mostly unresolved and evolving.

• Non-Fungible Tokens

NFTs, or Non-fungible tokens, are one-of-a-kind digital assets that reflect real-world items like artworks, music, films, or even tweets. In contrast to fungible tokens such as bitcoin or even fiat money, where all tokens have the same value and are interchangeable, these assets are “non-fungible,” which implies they are unique and cannot be interchanged or replaced. For example, every one-dollar bill is interchangeable with every other one-dollar bill since they all have the same value; nevertheless, an NFT cannot be interchanged with any other asset, even if it is an identical duplicate of the NFT. NFTs use blockchain technology to record information about the NFT, such as its initial owner, current owner, price, royalties, and so on. Because blockchains that contain NFTs are typically open to the public, anybody may access and verify information about an NFT. In India and across the world, there is currently no formal rule governing NFTs.

Another interesting legal issue associated with NFTs is that there is still no conclusive determination as to its nature. NFTs derive value from the underlying value of the asset. For instance, Thor’s hammer or baseball cards of famous baseball players. This makes it difficult to classify NFTs as securities and keeps trading of NFTs outside the ambit of Securities law.

Conclusion

As aspects of the Metaverse materialize, so too will other legal issues that cannot be yet foreseen. We may expect Metaverse players to cope with the whole range of additional challenges that would apply in any trade, such as anti-money laundering issue, sanctions, and technology export limitations, financial services legislation, and so on. When the Internet initially became available, regulators took considerable time determining how existing legal concepts applied in that setting. The Metaverse will be no different. The primary problem posed by the Metaverse will not be whether or how such principles apply, but rather how to balance corporate economic imperatives against legal and compliance obligations.