Dear Expert: How to Troubleshoot Legal Issues That Relate to the Metaverse

Hello Not Versed,

Let me start by putting you at ease. The Metaverse may be today's hot topic, but aside from generic discussions, most people do not fully understand the concept or the implications of becoming involved from a legal standpoint.

Simply put, the Metaverse is the concept of interconnected virtual worlds that users can access through a variety of platforms. To do so, they utilize avatars -- virtual representations of the user. Within the Metaverse, users can interact and purchase digital assets and virtual services using digital currencies and nonfungible tokens (NFTs).

Existing virtual platforms do not yet function on an interconnected level, but that's expected to change as the Metaverse evolves. Therefore, a company would be best served by planning staged involvement with both existing virtual platforms and the presumed eventuality of interconnected worlds.

Companies can design their own Metaverse platform, participate in existing platforms, or move forward with some combination of the two. Use cases range from virtual meeting spaces, which allow for global collaboration, to differentiated customer experiences, including virtual branding opportunities, customer interactions, performance spaces and product sales. A wealth of investment opportunities in digital assets also exists. These range from virtual real estate to tokenized art.

From a legal perspective, venturing into the Metaverse is complicated. It can raise a host of concerns that relate to data protection, privacy, cybersecurity, antitrust, intellectual property protections, real estate, tax and financial regulations.

Companies seeking to establish their own virtual space within the Metaverse should develop their platform in lockstep with legal experts. Here are some considerations:

Ad Partner Integrations -- Product placements, ad sales or branded entertainment may require a company to enter licensing and trademark agreements prior to launch. Tightly crafted non-disclosure agreements are needed to protect confidential and proprietary information and avoid unintended pre-launch leaks.

Platform Rules -- Users should receive and agree to detailed rules, or community guidelines, that make them aware of prohibited interactions. The restrictions should include barring users from impersonating others using avatars and infringing copyrights and trademarks owned by third parties. In addition to outlining banned behaviors, the rules should also describe the consequences of misuse of the platform including termination of use and legal recourse options.

Intellectual Property -- Whether or not a business decides to participate in the Metaverse, it is important to take affirmative steps to protect against IP infringement by third parties acting within it. Companies should determine whether their existing trademarks adequately protect their brand in the Metaverse and whether new trademarks may be needed. Trademark and copyright infringement should be monitored across Metaverse platforms. Companies may also want to consider developing their own NFTs to protect against other parties tokenizing their works, services or products.

Privacy -- Virtual platforms will, by their nature, collect a wide range of information from their users based on their activities. However, platform owners will not be the only entities collecting this information. Businesses participating in the Metaverse through service offerings or property purchases may also collect personal information from users. Each of these entities will need to develop privacy policies that reflect their individual practices. And they should be mindful of the range of privacy laws that could apply to a global base of users.

Governing Law -- Because the Metaverse is accessible from anywhere, businesses must think about what laws apply to Metaverse users based on their geographic location -- the countries or U.S. states where they reside. Platform owners must also consider how regulated activities on their site -- such as gambling or purchases of real estate or products -- may be impacted by local, state, federal and international law. For example, which jurisdiction is entitled to tax a digital transaction in the Metaverse? The use of avatars complicates questions related to geographic location. A Metaverse platform may not be able to identify the location of a user hiding behind an avatar.

Understanding the concept of the Metaverse is only the first step in evaluating whether your company decides to venture into the commercial, social, work and gaming spaces of the future. Developing a flexible, multi-step, compliance-driven plan will provide a foundation for achieving a foothold in this still-evolving area of business.

This article was written by Rebecca Jacobs Goldman, who is a Member of the law firm Lerman Senter PLLC. She can be reached at rgoldman@lermansenter.com.

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