Written By Richard WeeFatin Ismail and Kimberly Chan.

Assisted by Lim Chaw Zen

Introduction

This article is a summary attempt to understand the legal challenges of the new digital phenomenon, the Metaverse.

The term “Metaverse” was first coined in the 1992 novel by Neal Stephenson “Snow Crash” where people use digital avatars of themselves to navigate through a virtual world to escape the real world, much like the 2018 movie directed by Steven Spielberg, “Ready Player One” set in the year 2045, where users escape from the real world to the virtual reality of “the OASIS”. Soon, the fictional world in “Ready Player One” could come true.

Many individuals and corporations have different ideas of what the Metaverse is. To put it simply, the Metaverse is a form of cyberspace — it’s a network of multiple 3D virtual spaces or worlds that are linked together to form a virtual universe where users worldwide can enter and navigate through the Metaverse, and interact with others with the use of digital avatars through Virtual Reality (“VR”) and Augmented Reality (“AR”) technology from the comfort of their own homes. 

Just like our physical world, the Metaverse is persistent and will continue to exist even when users are not logged in through their devices. Furthermore, a virtual/digital economy also exists in the Metaverse where transactions involve the exchange of cryptocurrency and/or non-fungible tokens.

Potential Legal Issues in the Metaverse

As the Metaverse is such a new and foreign concept, there are bound to be unique and novel legal issues and challenges.

Data privacy infringement is already a contentious issue for conventional internet users, and these AR/VR wearables to enter the Metaverse will certainly lead to an increase in intrusive data harvesting carried out by the Metaverse operators. This in turn poses substantial risks to human rights and privacy infringement to the Metaverse users. 

A wide range of data can be derived and accessed from the usage of such AR/VR wearables and/or other devices. For example, users logging onto the Metaverse may be susceptible to leaks of their location or personal information, which may be required in order to gain entry to the Metaverse. 

Furthermore, biometric data, such as movements and expressions can also be derived from AR/VR technology that has been developed to include eye-tracking cameras and even brain wave sensors. This allows for the collection of data on, amongst others, where a person moves in the physical space, how they feel, whether they merely glance at a product or focus on it. 

As users spend more and more time in the Metaverse, the patterns and habits of individuals are tracked and the collection and analysis of such data gives rise to a better and deeper understanding of consumer’s behaviour, and thus, may constitute an infringement of personal privacy.

There is a lack of clarity on who bears the responsibility for the collection of such data and what regulations or policies are required to be put in place for the protection of the same. There is also a cause for concern where minors are involved as the issue of consent arises.

The issue of intellectual property is also prevalent and an important point of discussion. Virtual creations can be generated in the Metaverse from the interactions of the digital avatars in the virtual space. This begs the question of who owns the intellectual property rights and what protection is provided to the creators?

In addition, the issue of governance and regulation also comes into play as it is difficult to regulate and monitor copyright infringement in the Metaverse. For example, can a company take legal action against users who infringe their intellectual property rights in the Metaverse? At this juncture, most (if not all) contracts and agreements relating to intellectual property, especially concerning their rights and licences will need to be reviewed and reassessed to provide for the right to use such property in the Metaverse.

Financial crime and anti-money laundering activities have always been an issue in cryptocurrency transactions, and it is foreseeable that it will take place in the Metaverse as well. Criminals may shift their money derived from illegal activities, converting it to virtual or cryptocurrencies and spending it on the goods and services in the Metaverse. 

Then, assuming that the Metaverse will be created and owned by the private sector, another interesting question that would arise is, does the “Metaverse operator” owe a legal duty to oversee financial activities or transactions that take place in the Metaverse? Who will be responsible for regulating and overseeing financial activities or transactions in the Metaverse? There is no scrutiny when the money moves from the physical world to the Metaverse realm. Although cryptocurrency is not anonymous, unlike fiat currency, transactions involving cryptocurrency are hard to trace. Furthermore, the boundless nature of the internet and the Metaverse world makes it even more difficult for the authorities to trace these illegal transactions. Hence, criminals are set free to commit crimes and tend to get away with the authorities. 

There also exists some problems relating to user identification, which makes it extremely easy for criminals to set up their criminal enterprise in the Metaverse. What kind of authentication mechanism will be used to verify the identity of users in the Metaverse? Will the mechanism be deployed a thorough one? The identities of users should be digitally secure and verifiable, and to further ensure that their identity will not be easily tampered with by any anti-money laundering criminals or cyber thieves, it is suggested that users’ identities should be backed by biometric proof of life (i.e. fingerprint) and linked to the government’s identity database. This of course is not totally foolproof.

Late last year, it was announced that apparel giant, Nike had filed seven trademark applications in preparation for its entrance into the Metaverse. The trademark application was for, inter alia, downloadable virtual goods, retail store services featuring virtual goods and entertainment services featuring virtual footwear and clothing for use in virtual environments. Brands and corporations setting up shop in the Metaverse will have numerous implications to the market / economy as the Metaverse gives rise to many new and interesting opportunities for trade, commerce and entertainment-related activities/events without the need for physical presence. 

The purchase of a property works differently in the Metaverse. In the physical world, the ownership can be attributed to the actual physical property. With digital/virtual  items and properties in the Metaverse, the buyer may own the property, but not its intellectual property and its true ownership may still lie with its true owner, ie. the creator. 

This is the case for (most) non-fungible tokens (“NFTs”), and therefore, would apply to properties in the Metaverse which have become NFTs, including real estate in the Metaverse. In relation to real estate, there are unanswered questions such as whether the intricacies of land law will apply and if so, which? How does one go about purchasing real estate in the Metaverse? Would the procedures of the physical world apply? Is there an authoritative body that regulates the sale, purchase and use of land?

To enjoy an immersive experience in the Metaverse, wearables such as AR/VR headsets and glasses are necessary to help Metaverse users to achieve the intended result. AR/VR wearables can also be used for medical and educational purposes. It has been widely used to assist autistic people in their learning process, and the visually impaired person to see things in real life. The Metaverse with these AR/VR wearables might actually provide disabled persons with a “second life”. However, since the AR/VR wearables are inseparable from the concept of the Metaverse realm, it poses an obvious legal issue arising from the use of wearables: whether the manufacturer of these wearables poses a legal duty towards the AR/VR users using their devices, and what is the extent of their duties?  

It is unclear what laws should apply to police the interactions of users and interactions between users in the Metaverse. In the real world, criminal actions such as assault and battery are punishable under the Penal Code. However, in the Metaverse, we do not know whether digital avatars possess a legal persona and as such, can sue or be sued. 

In addition, such actions committed in the Metaverse are argued to fail the requirement of an ‘actus reus’ as it lacks the physical element of actual harm. There have been a handful of cases where individuals have been sexually harrased on the Metaverse. Although such an act does not require physical contact, are our existing laws adequate to address these cases and protect victicms of sexual harrassment that occurs in the virtual world?

Conclusion

To conclude, the Metaverse is taking the world by storm — rapid growth and development in this uncharted territory will see the rise of many new legal issues. Like Christopher Columbus voyaging across the Atlantic to discover new continents, the Metaverse will open up a whole new area of law and provide opportunities for new experts to arise. 

 On a parting note, another major issue to consider would be the issue of governance and jurisdiction that users of the Metaverse will/should submit to. Being so widespread and accessible by users across the globe then begs the question that: if any legal issues arise within the Metaverse, what laws would prevail and which Courts’ jurisdiction would the matter fall within?  Ideally, it would be great to have a single authoritative body governing the metaverse, although this would be challenging to implement.

These issues will be discussed in a future article.

Published on 18 February 2022

Photo by Steve Johnson on Unsplash

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