The term “metaverse” first appeared in Neal Stephenson’s dystopian novel Snow Crash in 1992. Two decades later, the metaverse has evolved from a concept in print into an interactive and immersive reality. Its hyper-realistic nature has appealed to businesses and individual consumers alike looking more and more to leverage the wealth of opportunities that the metaverse presents. Still a relatively emerging technology, what challenges and legal considerations are associated with exploring these opportunities?
In this roundup of key takeaways from Morgan Lewis’s annual Technology Marathon and Asia Technology Innovation webinar series we provide a brief primer on the metaverse and highlight important intellectual property (IP) and antitrust considerations, in addition to some considerations for the Asia market, for those operating or looking to engage in the metaverse.
1. Metaverse 101
2. IP Considerations
3. Developing Global Antitrust Regulations
4. Asia and the Metaverse: Opportunities and Challenges
“Metaverse” is used to generally describe any virtual world where users can interact using digital avatars. There are seven layers to any metaverse: infrastructure, human interface, decentralization, spatial computing, creator economy, discovery, and experience (such as games, social interactions, esports, theater, and shopping). Users create an avatar and can then enter existing metaverses through a virtual reality headset or from a computer, tablet, or phone.
What Should Businesses Consider Before Entering the Metaverse?
- Choose a metaverse in which to house your business.
- Will it be in a decentralized metaverse, such as Sandbox or Decentraland, with many companies collaborating and housing their businesses? This type of metaverse is attractive because the decentralized aspect provides users with more ownership, control over their spaces, and the ability to create content on the “land” that is owned.
- Or will you choose a centralized metaverse, where there may be more users present but the company has less ownership and control over its virtual space?
- Determine if metaverse “land” needs to be acquired, developed, and managed. While the parcel of land is under a user’s ownership, rules within the metaverse where it lies will need to be followed.
- Business opportunities in the metaverse include higher education, virtual events, retail, enterprises and collaborations, and social media.
In our recent Technology Marathon presentation, “An Introduction to the Metaverse,” we discuss the metaverse – what it is, why you should be paying attention to it, and what legal issues you should be on the lookout for.
The nascent nature of the metaverse leaves certain IP rights largely unsettled. As users can buy and sell goods, services, and property in the metaverse, questions of IP protection, licensing, and enforcement will grow increasingly more complicated, particularly regarding how users will be able to transition across different platforms in the metaverse. Despite the above, below are some patent, copyright, and trademark considerations that owners should be wary of to protect their IP in the metaverse.
Metaverse technologies are wide ranging, triggering a unique set of patent concerns for companies looking to protect their IP in the metaverse. With technology-spanning headsets, controllers, software, user interfaces, networked servers, power, processors, network bandwidth and latency, artificial intelligence and machine learning, and blockchain transactions, it is important to think holistically about your company’s metaverse technology and inventions. As other companies in this space are actively pursuing similar patents at an increasing rate, many early adopters are looking to carve out their protected assets.
- There are several unique issues that must be addressed to protect IP in the metaverse, particularly when dealing with utility and design patents.
- Metaverse forerunners such as SGI Reality Centers, Second Life, and Pokémon Go should be considered when attempting to patent technology related to the metaverse.
- Given the visual nature of the metaverse, design patents will likely play a crucial role. Some of the latest trends in industrial designs that are coming into play in the metaverse and future design-filing strategies include:
- Unwritten United States Patent Office (USPTO) rule practice and examiner preferences that are not paralleled in utility filings.
- The need to tie brands to user interfaces (UIs) and products to ensure brand identification.
- Increase in paywalled and freemium content within proprietary platforms and environments.
- Rise in employee mobility between competitors, which accelerates adoption of design styles by others.
- Uncertainty of utility patent protection, which may require alternative protective strategies, including layering on design patent protection.
- Consumer ability to view and test products in the virtual world prior to purchase.
- Protection challenges/risks given that designs for digital products are still required to be tied to an article of manufacture.
- Increase in prior art rejections for UIs, including pushback for applicants who were claiming what the USPTO considers to be basic geometric shapes.
- As the metaverse is adopted, there are exciting opportunities and developments to watch, including:
- Creation and enforcement of IP laws within the metaverse.
- Updates to the article of manufacture requirement for design patents.
- Adoption of standard interfaces/interoperability.
- Applications that integrate physical and virtual worlds in many areas, including education, military, laboratory, medical, arts, and performance.
Trademarks and Copyrights
For brands that will be active in the metaverse, or promoting and selling digital goods (i.e., high-end, retail, gaming, and entertainment brands), you should consider new filings. Otherwise, this may be a good opportunity to review trademark portfolios and IP licensing agreements to ensure that you have adequate breadth of protection to cover your IP in a virtual world.
Nonfungible tokens (NFTs) are unique blockchain-based digital assets that are associated with images, artwork, videos, games, or other creative content, all of which are generally copyrightable. NFTs often include trademarks as well. While NFTs provide opportunities in the digital marketplace, there are many legal considerations to keep in mind, including the following:
- Ensure that you own or have all rights to your own NFTs.
- Consider making US and international trademark filings to cover your NFT and metaverse plans.
- Consider how you will mint your NFTs (and how many), and whether you will sell them, give them away, or have an auction.
- Decide whether you will use an established NFT marketplace or set up a specialized website to “drop” your NFTs.
- Consider how you will coordinate your NFT promotion and metaverse presence with your social media campaigns.
- Consider how “gas” (network fees) might affect your blockchain activities.
- Be aware that third parties might mint infringing versions of your NFTs and/or use your trademarks and copyrights to promote their NFTs.
In our recent Technology Marathon presentation, “Trademark and Copyright Issues for NFTs and the Metaverse,” we navigate evolving trademark and copyright issues related to NFTs and the metaverse.
Developing Global Antitrust Regulations
Certain jurisdictions are considering legislation and updated regulatory guidelines that are focused on competition in the digital space. While the metaverse has certainly been a hot topic in tech and gaming, regulators are still wrapping their heads around what it is and what competition looks like in this arena.
The United States
Since the US Congress’s 2020 report on its investigation of competition in digital markets, antitrust legislation has been introduced that, if passed, may influence how the metaverse evolves and the types of antitrust issues that may emerge.
Moreover, both the US Federal Trade Commission and the US Department of Justice aim to modernize their merger guidelines to help assess the competitive effects of proposed deals relating to digital markets.
The United Kingdom and the European Union
- The existing competition law framework—Treaty on the Functioning of the European Union Article 101 on anticompetitive agreements and Article 102 on abuse of dominance—as well as the equivalent national provisions of EU member states and the United Kingdom apply to the metaverse.
- Similar to the United States, there are currently no specific competition law rules in Europe drafted with the metaverse in mind. However, the EU Commissioner for Internal Market, Thierry Breton, said recently that the EU Digital Markets Act (DMA) provides the appropriate framework and necessary tools to tackle issues concerning the metaverse.
- The DMA—agreed upon in March 2022 and expected to come into force sometime in 2023/2024—is a major tool for European competition enforcement in the digital sector, adding to the existing competition law framework under Articles 101 and 102.
- The United Kingdom has set up a Digital Markets Unit (DMU) within its antitrust authority, which will be the regulator responsible for implementing and enforcing a new pro-competition regime for digital markets. In May 2022, the UK government published its response to a consultation on the new regime, which will apply in addition to the existing competition law rules under Chapter I and Chapter II of the Competition Act 1998—much like the DMA in the European Union.
- As the metaverse landscape continues to take shape, regulators will need to strike a fine balance between ensuring a competitive environment and not inhibiting innovation in this rapidly evolving area. Likewise, organizations involved in the metaverse should take note of existing and emerging legislation before taking projects forward.
In our recent Technology Marathon presentation, “Competition in the Virtual World,” we discuss antitrust considerations in the metaverse – including recent commentary from antitrust regulators across the world – and potential impacts of proposed antitrust legislation on metaverse platforms.
Asia and the Metaverse: Opportunities and Challenges
With a Bloomberg analysis projecting the metaverse could be an $800 billion market by 2024, and approximately 60% of the world’s population residing in the Asia-Pacific region, could Asia be a driver for the metaverse’s growth and development?
China’s Regulatory Outlook
Like many jurisdictions globally, China recognizes the importance of developing its digital economy amid rapid developments around the world. Although it does not reference the metaverse directly, China’s Plan for Development of the Digital Economy includes terms and covers concepts that would be applicable to the metaverse, such as blockchain and virtual reality.
- There are significant concerns regarding money laundering and the potential impact of the metaverse on China’s financial markets, its currency stability, and foreign exchange, among other areas. For these reasons, China has a particularly robust stance on cryptocurrencies, which have been effectively banned in China since September 2021.
- China’s Banking Association, Securities Association and Internet Financial Association issued a set of guidelines for the NFT industry, which include stating that underlying assets of NFTs should not include bonds, insurance, securities, precious metals, or other financial assets, and obligations for platforms to verify identities on NFT issuance, sale, and purchase, among others.
- Despite restrictions, certain NFT markets remain strong, such as the digital art collectibles market, which operates on permissioned blockchains, with transactions conducted in Chinese Yuan and not any cryptocurrencies. With many new digital collectible platforms launching every month since early 2021, the buoyant trend seems set to continue well into 2022.
Singapore’s Regulatory Outlook
- There has yet to seen any targeted legislation addressing the metaverse; however, there are some regulations that would affect offerings made therein. For example, Singapore’s Remote Gambling Act explicitly prohibits online gambling. If online gambling operators set up a casino in the metaverse, they will need to consider steps to disable access by Singapore users to avoid contravening the law.
- With the explosion of cryptocurrency offerings, some casino games in the metaverse may conduct these games with utility tokens for rewards. If these tokens are not considered “monies worth,” then the Singapore law will not treat those as gambling activities. However, if these tokens are exchangeable for fiat currency or other “monies-worth” items, these would be prohibited.
- Operators who offer tokens exchanges on the metaverse may be conducting digital payment token services, and these activities are regulated under the Payment Services Act and the Financial Services and Markets Act of Singapore. Again, those operators in this space may need to explore restricting access from Singapore users to adhere to the laws.
Looking Ahead in Asia
In five to 10 years, it is very likely that there will be additional legislation from the region relating to the metaverse and a possible convergence of approach as more is revealed as to what the metaverse has to offer and how it operates. It is also worth noting that “real-world” regulation, particularly in the financial services space, would likely be sought to be replicated in the virtual metaverse space.
In our recent Asia Technology Innovation presentation, “An Introduction to the Metaverse,” our international team provides an overview of the metaverse, takes a look at how it is being regulated in China and Singapore, and highlights key considerations for engaging with and stepping into the metaverse.
There are opportunities at each of the multiple layers of the metaverse—from developing and advancing its infrastructure to tapping into the creator economy to new types of discoveries, experiences, and advertising networks. However, similar to the internet when it first was developed, new technology comes with few rules and regulations. The foregoing issues are just a handful of legal considerations, as other key issues will come to the forefront as metaverses are developed and more people begin to interact within them.