Damir Khabirov - stock.adobe.com

A legal minefield called the metaverse

Will the metaverse create a $1tn revenue market? Who knows? How long will it take to reach this lofty potential? Who can tell? Will people invest across this emerging landscape of speculative riches? You bet

The metaverse – or metaverses, to account for competing offers from a growing number of companies – is emerging and no one can truly foretell what the final shape of this new digital landscape will look like, let alone what the market structure will be. One aspect that tends to see insufficient attention is the legal situation, however. The new world of virtual opportunities, augmented realities and hybrid solutions will create unique, novel and unforeseeable legal questions and regulatory challenges.

In 2010, Intel began to explore the meaning and implications of the concept of a “personal digital persona”. It had become clear that people were moving online and that they are establishing a presence in this virtual world – the question was how expansive such a presence could be and what the commercial, societal and legal implications would be. A topic that emerged was horizon scanning – an approach to identify developments that will affect the business environment in the future. It essentially provides a way to identify emerging commercial forces that will shape tomorrow’s markets.

Intel endeavoured to develop an understanding of what the concept could entail and what it would mean in the context of different industries and applications. Representatives from the automotive, defence, telecommunication equipment, trade and software industry were invited to share their thoughts and highlight concerns.

Interestingly, most of them did not see immediate implications and looked at personal digital personas as extensions of real-world personalities with some quirks related to online environments. Granted some saw new marketing opportunities, and others foresaw virtual collaboration potential. In the end, personal digital persona meant many different things to different industries.

But representatives from the defence industry, in particular, indicated unease related to a range of security challenges. They foresaw the potential for criminal impersonation, particularly the ability to gain access to restricted areas. Other concerns revolved around legalities in the online world and how law enforcement would address issues in the non-physical world.

The personal digital persona concept looked at digital environments very comprehensively and included, for instance, questions related to what is now known as e-governments. Nevertheless, many of the concerns and implications directly addressed challenges that the emerging metaverse will have to face – challenges that many industry participants ignore addressing and many policy-makers are not aware of.

Regulatory concerns were expressed across a wide range of legal concepts in practically all corners of the metaverse environment. At the time of the meeting, many possibilities remained speculative. Today, many of these issues are becoming real and should be the centre of attention for policy-makers and users of metaverse-related applications.

There is an intuitive – although simplified – overview of the developing metaverse landscape that unfolds across two axes: the type of reality and the intended application. Will a company’s metaverse be virtual reality (VR) or augmented reality (AR)? Will it serve mainly productivity or entertainment purposes? The sectors that such a division establishes are not mutually exclusive and many overlaps exist – companies are likely to start to compete but also collaborate across sectors.

Productivity solutions will include spaces to collaborate on design and prototyping tasks, for example. Entertainment environments will include sandbox games and concert events. On this spectrum, many marketing and shopping applications will fall in between productivity tasks – such as purchases and service fulfillment – and entertainment uses, such as attending fashion events.

Virtual worlds will ‘bleed over’

Similarly, some virtual worlds will “bleed over” to augmented applications. The various sectors will create unique legal issues that require addressing. Some legal questions will apply to the entire realm of emerging metaverses; others will be specific to reality type and application. Some of the regulatory needs relate to administrative processes; other legal concerns will involve organised crime and felonies. All of these issues will require deliberate consideration and policy-makers’ actions.

There are already some clear legal issues that will emerge as the metaverse world takes shape. Here we will look at four different areas of legislative needs in more detail – the list of legal questions is not comprehensive by any means, but nevertheless offers an idea of how diverse and perplexing legal issues can become in virtual and hybrid environments. The areas that certainly deserve attention are the persona of individual actors, their behaviours and that of their companies, ownership considerations, and finally the metaverse landscape as a whole and how it will embed in real-life environments.

Various considerations relate to the persona of individuals in extended realities (XR) – particularly in virtual environments. It is only natural that gaming applications should afford players a wide range of possibilities to design their avatars – after all, creating mystical beings might be the point of the game. But how far should you be allowed to change the features of your representations in productivity and work collaboration environments? Should you be allowed to change the way you look by changing your sex, race or age to appear more employable in certain situations?

Perhaps, because the law in the US makes discrimination according to these traits illegal anyway. The law also protects against discrimination related to religion. But would it become morally reprehensible if someone appropriated other cultures’ customs and traditions? More to the point, could an individual design his or her avatar to look the way other individuals look in real life?

Should you be allowed to change the way you look by changing your sex, race or age to appear more employable in certain situations?

In general, where does the separating legal line lie between avatars as creative freedom and false representation or even illegal impersonation? What aspects need to be authentic? And here the line between entertainment applications and productivity solutions is crucial. This line will probably be blurring as, over time, gaming applications will merge with design and collaboration tools – in fact, gamification applications could deliberately mix such worlds.

Will different environments then require different rules of disclosure? Can avatars only move between environments if they adjust features depending on specific environments’ policies? Also, who would be allowed to alter someone’s avatar? Should only the individual that is represented by the avatar have such rights? Should legal owners be allowed to do so?

In this case, the owner of an environment – such as Meta Platforms and Microsoft, which own Horizon Worlds and Minecraft – would have the right to make adjustments to avatars. Can third parties intervene in the looks and features of someone’s avatars? And, very obviously, who will have to prosecute and regulate impersonations or wrongful adjustments? Who will enforce policies of virtual environments and how will responsible parties address policy violations?

Related to this, can avatars become legal representations for collaboration efforts, even negotiations and deal making? Then, what requirements will emerge to make the results of such meetings legally binding? And, again, what aspects and features of negotiation partners’ avatars need to be authentic representations of real-world aspects? Also, could someone have to use and embody an avatar that they don’t agree with? For instance, could non-binary individuals be forced to take on a male or female representation in environments that do not provide diverse representations?

What behaviour is permissible?

Then there is the question of what behaviour and conduct should be permissible – or even desirable – in virtual and augmented realities. Where does liability lie for damage and criminal acts? And who will enforce rights? The question of what constitutes damage or crime will become an intriguing dilemma.

In gaming environments, the goal of an attack initiative might be to steal an object or a flag. In the process of doing so, destroying bridges or enemies’ weaponry is par for the course. But in work environments, similar behaviour arguably should constitute a crime. For instance, in collaborative design environments, stealing code or blueprints will certainly not support trust in these environments.

But where will gaming environments end and work environments start? Perhaps such environments might mix and overlap? Also, when will legally binding interactions emerge and how should they be structured?

Obviously, many inacceptable real-world behaviours will occur in virtual environments as well. Will there be acts comparable to “street crimes” such as vandalism, tagging of territories, indecent exposure or virtual groping? What environment will allow for what behaviours? After all, many virtual environments will explicitly cater to behaviour that is impermissible in the real world. For example, Rockstar Games’ Grand Theft Auto game series revolves around conducting criminal acts as part of the gameplay.

Some elements of virtual or augmented worlds can have problematic effects in the real world. Accessing areas with strobe-lighting effects could cause epilepsy in some users, for example. And exposure to violent imagery – or even engaging in representation of violent acts – might result in post-traumatic stress disorder similar to the way that social media moderators’ constant exposure to abhorrent imagery has become an area of concern.

Drawing the line between vigilantism and self-defence

Finally, where will the line be drawn between vigilantism and self-defence? Will individuals in virtual environments be allowed to take matters into their own hands or will they be required to notify the operator of the particular metaverse or official law-enforcement agencies? In other words, are users, platform providers or law enforcement in charge of prosecuting fraud, indecent exposure or assaults?

Ownership of virtual elements, physical real estate and intellectual property are also grey zones of what actions will be beneficial, problematic and illegal. In a July 2021 article on virtualising reality, I highlighted concerns related to augmenting real-world locations and objects with various types of information and the question of who should be allowed to monetise such information.

An example from more than a decade ago illustrates potentially contentious behaviour that would affect owners of virtual and even real-life properties. After the accident involving BP’s oil rig Deepwater Horizon in 2010, artist Mark Skwarek created an app that changed the appearance of the company’s logo to an image of an oil-pipe leak on users’ screens. BP’s physical gas stations – as well as its intellectual property – suddenly became political statements against the company.

Also, what kind of private information could be attached to unaware people’s homes? What are the regulations for real estate squatting or the general use of real (AR) and virtual (VR) locations? Also, what are the rights for digital and virtual assets? Who will own data created in virtual spaces and how will intellectual property be accounted for?

How will taxes be levied on capital, income and products and services in augmented and virtual realities?

On the bureaucratic side, how will taxes be levied on capital, income and products and services in augmented and virtual realities? More problematically, what rules for privacy and data leaks should become workable standards?

Finally, very serious concerns will emerge as virtual environments embed into and connect to physical systems and networks. Hacking could extract information about facilities and plants as virtual environments make use of data from digital twins of machinery and building. Worse, ransomware and even killware could emerge in virtual and augmented worlds.

Overarching legal considerations relate to the overall novel environments that augmented and virtual realities will create. The most obvious question to ask is what types of XR environments represent fictional worlds and which ones are real-world extensions? Therefore, different laws may apply to different types of virtual world. Some worlds might require disclosures, others might need warning labels to ensure that users understand if they will be exposed to problematic content, how their data will be leveraged, or what legal obligations they might incur.

A general question that requires answering is: in what jurisdictions will virtual interactions take place? Where and how will users and third parties engage in legal actions? Finally, from a societal perspective, new norms and standards might arise in AR and VR. The question then will be: will XR policies have an effect on real-word regulations?

Read more about virtual reality

Many legal issues exist, and they have complex interactions – they interconnect and some of them represent nested problem areas that require unfolding first to consider meaningful policies and regulations. The provided list is likely to only scratch the surface. Many issues will emerge that are impossible to envision at this early stage. Over time, novel issues that relate to the specifics of extended realities will create regulatory needs that no one can foresee today.

There are currently more legal questions than answers. Such a regulatory vacuum is not uncommon. In the 1990s, when the internet started becoming the communication, information and entertainment powerhouse we know today, legal frameworks required adjustments to the new realities. There was simply no precedent to fall back onto in many cases; in other situations, it was not clear whether existing laws would apply at all.

It is worthwhile looking at the infant days of the commercial internet: many lessons can be learned to avoid the predictable issues in the metaverse. Looking back to the internet’s early days also shows how long it can take to solve legal issues in new circumstances.

Cyber squatting – the practice of registering brand names or related, often misspelt, names as internet domain names – emerged as early as online commercial activities showed business potential. In the 1990s, individuals would register still-available brand-name domains to extract payments from brand owners. The practice now continues with misspelt or related brand names or domains. Individuals also grab domains whose registration has slipped because of administrative mistakes. A 2009 Computer Weekly article listed examples of various cyber squatting events.

The issue of sales taxes occupied courts well into the 2010s – more than 20 years after Amazon.com started its operations. On 21 June 2018, the Supreme Court of the United States ruled in South Dakota versus Wayfair that states can collect sales tax from out-of-state retailers even if they do not have a physical presence within that state. The court decision settled the question of tax collection. Amazon.com, for example, had challenged such taxability, although the company had already started collecting such taxes by 2017. Legal cases can take decades to find resolution.

Developments in South Korea

Decision-makers should also monitor developments in South Korea to gain an early understanding of potential legal developments in the metaverse. There the government is taking a very proactive role and many early policy and legal decisions will emerge in that country.

In May 2021, South Korea’s Ministry of Science and ICT created the Metaverse Alliance, declaring: “The public-private partnership’s members would work together to establish the Metaverse Hub. It is a digital space based on augmented, virtual and extended reality content, where users could carry out everyday entertainment activities, economic tasks, and more.” The alliance looks at the use of metaverse technologies and applications in the six crucial industries: construction, education, manufacturing, medicine, retail and national defence.

At the end of 2021, Seoul introduced its proactive stand with the headline “First Local Gov’t to Start New-Concept Public Service with Metaverse Platform”. The Seoul metropolitan government will “create a metaverse ecosystem for all areas of its municipal administration, such as economic, cultural, tourism, educational and civic service”. The expectation is that “avatar public officials in the metaverse will provide convenient consultations and civil service”.

Although not all legislative rules that will emerge in South Korea will suit other countries’ legal structure and commercial needs, lessons nevertheless can be learned about what issues are at stake and what resolution avenues might exist. No doubt, augmented and virtual realities will lead to complex legal issues and many legislative needs will only become obvious as metaverse environments form, gel and connect.

But despite the many concerns, benefits are likely to outweigh nefarious uses and legal challenges, similar to the way the internet has changed most people’s lives for the better. Decision- and policy-makers have the opportunity to start proactively monitoring developments and envision emerging problem areas right away to avoid the most obvious legal pitfalls.

Martin Schwirn is the author of Small data, big disruptions: how to spot signals of change and manage uncertainty.

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