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  • Pranav Nayar & Vivek Kumar

Expanding the Meta: Exploring the Legal Ramifications of the Metaverse

Introduction

In October 2021, Mark Zuckerberg rebranded Facebook as Meta in his pursuit of the metaverse. The once beloved idea of a virtual world parallel to the physical world has now transitioned into the mainstream by the tech giant’s rebranding. With millions of users spending multiple hours a day in virtual social spaces like Roblox, and more people leaning towards digital ownership of non-fungible tokens (NFTs) and cryptocurrencies, for better or worse the metaverse is becoming a part of our lives. With exponentially growing online communities, the metaverse endeavors to increase the overlap of our social and digital lives in aspects like socialization, productivity and wealth, by making use of virtual reality (VR), augmented reality (AR) or simply on a screen. However, the pursuit of this futuristic frontier of tech raises significant questions about data privacy, antitrust and intellectual property rights (IPR) violations, which need to be explored to fully understand the viability of this technology.


A new world of privacy concerns?

Facebook has been in the limelight for its privacy breaches, and now the metaverse might follow suit as per Facebook whistle-blower Frances Haugen, who in an interview said the virtual reality world could give the company another monopoly online and steal even more personal information from users. While Facebook states that the platform will be developed gradually by collaborations with other tech companies, experts and consumers remain skeptical about the safety and privacy implications of the metaverse, owing to the company’s recent privacy violation scandals. Even though Zuckerberg said his company is working with outside experts to ensure future metaverse products are designed for safety and privacy, he ultimately has the say on whether to act on recommendations by such experts.[1] This can be seen by Facebook’s response to Civil rights group Access Now’s recommendations aimed at its collaboration with Ray-ban for developing smart glasses. The top recommendation of “alerting bystanders that they are being recorded” was ignored by the company. 


Haugen further told the Associated Press, the metaverse will require people to put “many, many more sensors in our homes and our workplaces.” This development is not very appealing as it would give these sensors unprecedented real-time insight into the psychological and biological processes of humans. A theoretical VR setup would not only act as a supercharged Alexa-like system, but added gears like headsets or AR glasses would also be major privacy threats by serving as cameras and microphones inside homes and offices. With more advanced systems that could monitor movements and dimensions, online advertising and personal information harvesting systems pose greater consumer risk than anything that has been seen to date. The issues concerning privacy breaches in this virtual world can be highly complex but thankfully, the platform owing to its own complexities will take a decade or more to take shape. This gives sufficient time to enact regulations and legal frameworks that can keep up with this increasing overlap of the physical to the virtual world, as envisioned by Meta and others.


Managing IP in the metaverse

The advent of the internet brought new challenges to owners and users of protected content in the areas of authorization, monetization, and enforcement, fracturing existing models of IPR. While most of these issues had relief in modern regulations and IP frameworks, the metaverse will challenge these principles in aspects not known to most of us. The metaverse will pose questions such as whether its information landscape and virtual creations qualify for legal protection and ownership at all. Copyright protection in India is conferred on all “Original literary, artistic, musical or dramatic, cinematograph and sound recording works.” While the metaverse presents certain benefits for copyright owners like leveraging the first-mover advantage for the use of copyrighted software, it also poses new challenges. Policing the metaverse for piracy of copyrighted works can be challenging and if the use of the copyrighted work is de minimis, the copyright owner may have difficulty proving infringement.


While VR and AR have allowed brand owners to extend their reach to a growing new industry and consumer base, issues for owners and users of trademarks have cropped up, especially in the gaming sector. A common issue with the intersection of the virtual and real worlds has been the use of real-world, third-party trademarks in video games that simulate the real world, as was seen in the case of E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc. Games like Second Life give users the ability to build an online business presence and sell their products in the real world. However, with these opportunities also come the risks of unauthorized use of third-party trademarks and possible brand dilution. Thus, trademark owners should also be wary of the risks presented with the use of brands in these “virtual worlds”, since the position of law in this regard is mostly unsettled and still developing.


Non-Fungible Tokens and the illusion of ownership

Non-fungible Tokens, or NFTs, are one-of-a-kind digital assets that represent real-world objects such as paintings, music, videos, or even tweets. As opposed to fungible tokens such as cryptocurrency, or even fiat currency, where all tokens have the same value and are mutually interchangeable, these assets are “non-fungible” which means they are unique and are not mutually interchangeable, or replaceable. For example, every 1$ note is interchangeable with every other 1$ note because they all have the same value; however, an NFT cannot be interchanged with any other asset, even if that asset is an identical copy of the NFT. NFTs operate with the help of blockchain technology which stores information about the NFT such as with regards to its original owner, current owner, price, royalties, etc. Since blockchains that store NFTs are generally public, anyone can access and verify information regarding an NFT.

There is no specific regulation yet regarding NFTs, but the carefree attitude of early adopters should not serve to elude reality. With transaction volumes growing online, there will be more scrutiny by regulators and authorities under amended taxation laws, securities laws, and consumer protection laws.


Metaverse: the death of Antitrust?

The application of existing laws in digital spaces such as the metaverse has stirred up much debate, due to the assumption that the legal status quo will become redundant owing to the peculiar workings of such digital spaces. Antitrust is an area of law that is facing an existential crisis ever since the metaverse has been conceptualized.


The main concern which arises vis-à-vis the application of antitrust in the metaverse is that although most of the anticompetitive practices that occur in real-world can also take place in the metaverse in some form, the fundamental nature of the metaverse and the blockchain would make it hard to catch and punish these activities, leading to firms engaging in such practices with impunity. Discussions relating to metaverse inevitably lead to the mention of two disruptive innovations, which need to be understood in order to make sense of the mechanism that makes metaverse feasible, namely, – blockchain technology and smart contracts.


Blockchain technology: the ledger of the future

Blockchain technology has been the cause of excessive optimism with regards to its application to our digital as well as the physical world. Blockchains are most closely associated with cryptocurrencies such as Bitcoin and Ethereum; however, cryptocurrencies are just one aspect of this majestic technology that is still in its infancy, the potential of which is still being explored. In brief, blockchain works as a ledger, which records transactions (or any other information) and keeps it stored for future reference.


However, this record of information is permanent and immutable, which means once the information is fed into a blockchain, it cannot be deleted (permanency) or changed (immutability) without a consensus mechanism. This makes this technology extremely secure, since no single user can alter the information without the consensus of other users on a blockchain. Another important characteristic feature of blockchain technology is pseudonymity, which basically means that the real-life identity of a user cannot be known even if one knows his virtual identity. This feature is a double-edged sword as on one hand, it makes blockchain highly functional and secure for its users; on the other hand, it would be a nightmare for law enforcement as it would make it practically impossible for authorities to pin liability on people for wrongful conduct in the metaverse.


Smart Contracts: a double-edged sword

Smart contracts are programs encoded on a blockchain that automatically execute themselves once a predetermined condition has been met. Smart contracts are self-executing, which removes the need for an intermediary, such as a court, to enforce the contract. Smart contracts can allow transactions between entities without a central authority, such as a bank. In the metaverse, smart contracts will facilitate transparent, secure, and permission-less transactions which will lead to more efficiency and reduced costs; along with the blockchain technology, smart contracts will lay the foundation for an ownership economy that will make the metaverse a viable public good.         


The implications of smart contracts on antitrust in the metaverse can be grave. Such contracts can promote collusive behavior in the digital space by providing a foolproof method to collusive firms to enter into and maintain a cartel, and can also help punish deviant firms that diverge from the pre-agreed conduct of the cartel. The way smart contracts can allow such conduct is by allowing such firms to enter into a smart contract with money as consideration which will automatically be withdrawn when a firm deviates from its commitments to the cartel. This can also render ineffective leniency provisions, which promote deviant behavior by cartel members by giving them an incentive of a lighter punishment than other members of the cartel.


Thus, three major concerns arise for antitrust law vis-à-vis the metaverse:

Firstly, traditional antitrust definitions cannot apply in the metaverse. For instance, section 2(s) of the Competition Act, 2002 defines Relevant Geographic Market which means a geographic boundary within which conditions of competition remain homogenous. However, in a digital space such as the metaverse, such delineation can be excessively difficult. Thus, antitrust authorities will need to formulate new definitions that better apply to the metaverse. Similarly, the delineation of relevant products market would also be equally difficult since digital products do not necessarily share the same characteristics as real-world products.


Secondly, the fundamental nature of blockchain technology will make it excessively hard for competition authorities to find and punish firms that engage in anticompetitive conduct. Blockchain creates a technical fortress and protects the activities carried out inside the blockchain. For instance, as already explained above, the pseudonymity offered by the blockchain can elude authorities by hiding the real identity of entities that indulge in anti-competitive conducts. 


Thirdly, anti-competitive firms can share commercially sensitive information, such as information related to pricing, amongst themselves using private or permissioned blockchains, which can only be accessed by users who have the permission of the blockchain owner. Such blockchains will prevent authorities from accessing these exchanges and subsequently punishing such conduct. This comes in direct contrast to the current scenario where the authorities can simply conduct dawn raids at companies’ facilities to gather evidence.  


Conclusion

While disruptive innovations such as VR, AR, blockchain, etc. hide huge potential in their application, their impact on existing legal mechanisms gives rise to reasonable skepticism. While it is true that regulation of these technologies would be difficult and a comprehensive revamp of existing legal systems might be needed; however, solutions can be found in the very nature of these technologies. A new approach referred to as “law is code” is proposed by scholars as a possible solution to this conundrum. The law is code approach involves coding or integrating the legal requirements into the technology itself which would govern how people interact or exist in cyberspace. This would allow law enforcement authorities to bypass the technical barriers created by technologies such as blockchain and infiltrate them; which would lead to effective law enforcement on these otherwise impenetrable technologies. However, while such an approach would lead to effective law enforcement in the cyberspaces, authorities have to be prudent in their application of this principle and tread carefully so as to not over-regulate these technologies and hinder innovation.

 

[1]Kate O’Flaherty, Why Facebook’s Metaverse Is A Privacy Nightmare, Forbes (Nov. 13, 2021, 06:30 AM), https://www.forbes.com/sites/kateoflahertyuk/2021/11/13/why-facebooks-metaverse-is-a-privacy-nightmare/?sh=769e71f16db8


This article has been authored by Pranav Nayar, Senior Editor, and Vivek Kumar, Associate Editor at RSRR. This blog is a part of the RSRR Editor’s Column Series

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