Client Alert 03 Aug. 2023

The Challenge of a Legal Metaverse

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The concept of “Metaverse” is intrinsically linked to that of Web3, i.e., an evolution of Web1, the Internet or worldwide web, and Web2, characterized by social media, which invokes the idea of the creative participation of content and virtual worlds made by, and for, users. The attraction of the Metaverse is not yet fully expressed due to technical limitations, such as computational efficiency, and is related to the idea of convergence of multiple services and the feeling of reality conveyed by virtual simulation.

The idea of virtual simulation itself has been evolving for decades, and the metaverse can coexist not only as virtual reality (“VR”) technologies, through which the virtual “replaces” the real, as in many movies like Matrix, but also as augmented reality (“AR”) processes, where the virtual adds to, i.e. “augments” the information perceivable through the five senses.

To give an idea of the relevance of the topic, a study by Ecorys, an international consulting and research firm, estimated a market value of the VR/AR sector, in the European region alone, at €9.6 billion in 2021, and growth between €35 billion and €65 billion in 2025.

However, by the very nature of the metaverse, as an immersive, persistent, real-time environment, the problems we have already experienced with Web1 and Web2 are replicated and amplified: cyberbullying, sexual harassment, catfishing, hate speech, deepfake technology, intellectual property protection, competition protection, invasive and misleading advertisements, etc.

Problems in relation to which previous legal rules, including definitions, have major application difficulties. Suffice it to say that at this point in history there are (and there likely will be) a large number of different metaverses, each potentially with a specific hardware-software configuration; other difficulty-increasing factors are the absence of universal technical standards, and of the very concept of territoriality in a totally virtual environment.

In particular, infringement detection in virtual worlds will be an additional complexity of the metaverse(s), especially in relation to trademark and copyright protection, for which the application of artificial intelligence now appears to several experts to be the most likely solution.

And, once detected, the application of penalties itself will be heavily debated in relation to the transnational and cross-border nature of the metaverse, to the liability of the metaverse provider(s), and to the complex nature of the anonymity granted to natural person users by respective avatars (real or fake).

From a legal point of view, Web3, even before its full development, already presents a long series of challenges and complexities to be managed, closely tying in with other sectors being attentively addressed by the European legislator, such as AI, whose draft regulation (No. 2021/206) has already received an initial approval of the European Parliament on June 14th, and crypto-assets, whose regulation, so-called “MiCA” (EU Regulation no. 2023/1114) has been finally approved and published in the EU Official Journal.

Currently, no industry-specific regulation in major economic areas has already been approved, however the development of technologies instrumental to metaverse is being closely watched and the applicability to the latter of the current law framework is being put in question.

On the above, though by no means the only one, Europe has taken a forward-looking stance, and, on July 11th, following a public call for evidence and a public report released in June, the EU Commission adopted a communication, stating that several pieces of legislation already in force would directly apply “to several aspects of the development of virtual worlds”, including the Digital Services Act and the Digital Markets Act, for accountability and obligations of online platforms in relation to the content hosted, the Data Act in relation to data-sharing and data generated by connected devices, and the General Data Protection Regulation, in relation to the processing of personal data in virtual worlds.

The same communication lays out the benefits that these developing technologies may bring to many industries, and establishes the actions to be taken in future to reach a number of listed goals, including supporting the development of citizens’ skills for virtual world technologies, improving EU’s attractiveness for highly skilled specialists from non-EU countries, supporting research on the impact of virtual worlds on people’s health, supporting and guiding the development of useful applications of metaverse technologies available to the public.

The next 5 years will be critical for the industry development, especially on the augmented reality side, and it remains to be seen how many jurisdictions around the world will position themselves in relation to metaverse technologies, which, if nothing else, have clearly the potential of a great impact on our societies.

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 19 offices in the United States, Latin America, Europe, the Middle East and Asia. Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.

Curtis, Mallet-Prevost, Colt & Mosle LLP attorneys are well positioned to navigate the ever-evolving regulatory framework in today’s digital world. Our lawyers help clients comply with their data protection obligations worldwide, with a team that advises on both U.S. and European data protection regimes. The firm’s global platform allows us to tackle the inherent multijurisdictional nature of the digital assets industry and advise on the overlapping regulatory framework and regimes at the state, federal, and international levels.

For more information about Curtis, please visit www.curtis.com.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.

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