Companies jump into the metaverse: what legal issues do they need to consider?

The virtual parallel world created with the metaverse is quite a challenge from a legal point of view. This article breaks down the legal implications of the metaverse from the different angles of business law.

Let’s start at the beginning: what is the metaverse?

Andrea arrives at work on Monday morning and directly puts on the virtual reality glasses to attend a meeting with the 17 people of the international team. Rob says that he had a bad night, but his avatar looks so fresh. Carla’s is wearing a Gucci jacket and Andrea wonders how much it cost. Pierre recommends a book on the bitcoin pattern and the history of money. Andrea buys it while she confirms some new appointments on her agenda and lets the others share stories from their weekend, in 17 different countries. When they get tired, she reviews the meeting agenda, and the interventions begin.

Thomas takes stock of the state of execution of the construction works of the Bogotá metro. The 17 check  in situ  how the foundation is and how advanced the project is. They talk to the site managers and encourage them to keep up the good work. In addition, they confirm that the security measures are robust and work.

In the next item on the agenda, an improvement of the product catalog offered by the company is proposed. Xinyi, a marketing expert, joins the meeting, explaining how to implement response measurement systems for each individualized product using electronic meters connected by 5G. Affable and didactic, she enters the meeting from her office at Peking University. As a thank you for her deference, Andrea gives her a NFT (non-expendable asset), with a copy of her corporate notebook.

The meeting has been very productive. Andrea proposes to move to the virtual cafeteria and Gianni (Rome), Lesia (Warsaw) and Kim (New York) accept. Kim says that that night she is going to attend a concert by the Global Symphonic Orchestra, made up of the best instrumentalists in the world, who will meet in the opera palace of a metaverse. Each of the musicians is in a different location on the planet. The entry is an NFT that was bought with cryptocurrencies issued (in an ICO) by a   virtual fast food startup that launched earlier this year, and which is proving to be quite a success: on the NFT exchange it trades at a price several times higher than the starting price and a multinational is going to buy it through a virtual takeover bid on the metaverse stock market.

Andrea takes off her glasses just as her children arrive from school to eat. Everything is quiet in the house. “This afternoon I think I’ll go to the office,” she thinks.

Andrea’s day is not science fiction. It is a reality, virtual, yes, but reality after all. What is happening to Andrea is already happening and it will be more and more common to listen to it and, shortly, to experience it.

But what is the metaverse? It is about updating the internet technology with which we have been living for more than 20 years, to which improvements and advances have been incorporated. If we add artificial intelligence, immediate communication, distributed databases, geolocation, virtual reality, augmented reality, digital identity and cryptocurrencies to the Internet of the year 2000, we already have a metaverse.

In other words, the metaverse is a virtual world in which one can interact with full identification capacity, and can carry out transactions, both virtual and real, in real time and with real or virtual economic values. This allows people to develop any type of day-to-day activity, from leisure (video games,  e-sports , entertainment, cultural events) to business (investments, acquisitions of companies or properties, transactions), through social interaction .

We see, then, that the metaverse is a set of technologies put in order and coordinated, that build a virtual world, but that, on occasion, can have repercussions in the real world. And, in this interaction with the real world is, perhaps, where we can analyze the most interesting legal aspects, since there is no specific legislation applicable exclusively to the metaverse, but rather we have to attend to these situations with the regulations and within the legal system. from the real world.

A world of possibilities in terms of industrial and intellectual property

From an intellectual property angle, the metaverse presents a huge opportunity for businesses, including a new channel for the sale of new digital products and services whose scarcity can be guaranteed by  mining  non-fungible tokens ,   or NFTs. There are many companies that have already marketed unique (or at least scarce) digital products, using these certificates of authenticity that are used to buy and sell virtual land on  Decentraland , collect works of art on platforms such as  OpenSea or individualize our avatars with luxury garments, such as the Dolce & Gabbana virtual collection which, by the way, reached a sale price of almost 6 million euros for 9 garments on the  UNXD platform . In the end, what seems to be clear is that the logic of the market also governs the different platforms that populate the metaverse, which does not escape the laws of supply and demand.

As it could not be otherwise, the attraction of NFTs has also led to the  unauthorized mining  of works protected by intellectual and industrial property rights, citing, as an example, the paradigmatic case of the  metabirkins  minted by the artist Mason Rothschild without authorization of Hermes. The artist launched 100 NFTs “inspired” by the French  maison  ‘s iconic bag  on the OpenSea marketplace  which, after the lawsuit filed by Hermès, proceeded to withdraw it. However, the legal battle of the  metabirkins in the United States it is far from over since the artist, who has not willingly accepted the withdrawal of his NFTs, intends to rely on the first amendment of the US constitution -freedom of expression- in order to continue marketing his interpretation of the listed Birkin .

Along with the media acquisitions of digital works of art and the collection of luxury products, we cannot neglect the possibilities of the industrial metaverse, where “practical” applications involve building replicas of the real world or “digital twins” to test devices and /or processes that allow their testing before their manufacture in the real world. It is not science fiction. Porsche is already immersed in the creation of digital twins of its listed sports cars that allow preventive maintenance thanks to the combination of  big data  and artificial intelligence. Just like  Minority Report ‘s pre-crime units (2002) sought to prevent crime before it occurs, Porsche’s digital twins seek to prevent breakdowns before they occur thanks to preventive maintenance. For its part, BMW has also turned to component simulation digital twins to optimize its manufacturing processes, allowing it to shorten production times and reduce material and energy use.   

In this context, there are many challenges that arise in terms of intellectual and industrial property since, far from what many think, the activity in the metaverse is subject to the rules that govern the real world and the consequences that are arising from unauthorized use of third party rights are far from imaginary. It will be necessary to carry out certain adjustments, for example, the adaptation of trademark strategies, a more creative and sophisticated use of copyright or losing the fear of seeking the protection of computer-implemented inventions through patent applications. It is necessary, therefore, to carry out an adaptation process not only to explore the possibility of entering the metaverse but, at the same time,

In any case, there are many unknowns that remain to be cleared up, and it should not be rushed. We still have to see which platforms will win the favor of the general public and what their conditions of use will be and, most importantly, the way in which interoperability between them will be allowed, which, in our opinion, is one of the the key factors to ensure that the “goodness” of the metaverse ends up permeating society. To this is added an incipient commercial battle to know which device or devices will be chosen so that the immersion in the metaverse passes the threshold of the so-called  early adopters  and become objects of great consumption that allow the popularization of the metaverse. We certainly live in interesting times.

Privacy, data protection and opportunities to investigate

From the point of view of personal data protection and privacy, the metaverse brings us a large number of issues to resolve. In the first place, if the interaction in the metaverse takes place as a mere virtual representation of a real physical person in the  offline world , all the information attributed to that person in the metaverse will constitute personal information. Just like an  email address it is personal data if it allows a specific person to be identified, the virtual representation of that person will also be considered personal data. Therefore, the entities with which someone is related in the metaverse will have the corresponding role of data controllers (or, where appropriate, data processors), when they receive and use that personal data, even if they are virtual, and These entities will have to fully comply with the regulations that apply to the processing of personal data (in Europe, the RGPD and other privacy regulations).

Since the metaverse exists on top of the old internet layer, all existing internet privacy risks apply to the metaverse. Thus, navigation tracking technologies, behavioral profiling, geolocation, etc., will also have to comply with data protection regulations.

On the positive side, the information generated in a metaverse could be invaluable in many ways. In the economic sphere, information on the activity of an individual in the metaverse is an asset of enormous quality for companies and economic operators. From the point of view of data as a social asset, the information from the metaverse could be used to carry out sociological and even health research, making it possible to make available to a large number of researchers relevant information that, otherwise, would only be accessible to a few. Entities such as Fundación 29 are already developing projects of this type.

In short, as occurs with any processing of personal data in the digital world, the key for the metaverse to overcome the barrier of success and legal certainty is to gain the trust of users, in such a way that accessing a metaverse is not perceived as a risky activity, but as a safe activity.

The importance of the issuance and rating of crypto assets, the ‘blockchain’ and cybersecurity

One of the levers on which the metaverse is being promoted is the development of  blockchain technology  and the possibilities it provides, taking advantage of the decentralized structure and the immutable nature of information offered by block technology. The possibility of being able to connect a metaverse or part of it to a  blockchain appears , so that this technology can be used to perform registry functions, issue cryptoactives in the form of  ordinary tokens  or NFTs, or establish smart contracts that generate effects in the metaverse itself or also  offline. These crypto assets, which can be cryptocurrencies, can be listed on markets in the metaverse itself or on other digital markets.

One of the fundamental aspects is the legal qualification of the cryptoactives that are used in the metaverse to access goods or services. Despite the great proliferation of crypto assets in recent years, the regulation on the matter is still incipient, to the point that the legal classification of the different crypto assets is still complex and entails a high degree of legal insecurity.

At the community level, the first draft of the proposed Regulation on the crypto-asset market, known as the “MiCA Regulation” ( markets in crypto-assets ), was published in September 2020. After almost two years of negotiation between the community partners, on March 14, 2022, a new draft of the Regulation was published with substantial modifications, now continuing with its ordinary parliamentary procedure.

The proposed MiCA Regulation basically establishes three different categories of crypto assets:

1. ‘Utility token’ or service token . It is a type of cryptoactive whose purpose is to provide digital access to a good or a service, available through decentralized registration technologies, and accepted only by the issuer of the token in question.
2. ‘Asset-referenced token’ or tokens referenced to assets . Their purpose is to maintain a stable value, for which they are referenced to several legal tender currencies, one or several raw materials, one or several crypto assets, or a basket of those assets. The objective is that the holders of the tokens referenced to assets use them as a means of payment for the purchase of goods and services and as a store of value.
3. ‘Electronic money tokens’ or electronic money tokens .  They are those crypto assets whose main purpose is to be used as a means of payment, for which their value is stabilized by referencing them to a single fiduciary currency. Its function is very similar to that of electronic money.

Linked to all of the above, and as a great threat to the entire metaverse, it is essential to take into account cybersecurity risks. Let us bear in mind that a cyberattack aimed at stealing information from a metaverse can have catastrophic effects in certain cases, since the  hacker  could access, or even steal, not only the information about the activity carried out in the digital environment, but also the data itself. profiles, avatars or virtual “people”. An avatar hijacking could occur, which would be nothing more than theft of information representative of people in the metaverse.

Or imagine, for example, a  ransomware attack  on the metaverse, encrypting all information and preventing any activity, including access to the metaverse. It would be like the end of that virtual world, if that encryption of an entire metaverse couldn’t be prevented or reversed.

For all these reasons, the security of networks and systems is a necessity to provide the metaverse with sufficient guarantees and avoid risks for both users and the platform itself.

Within the European Union there are different regulations in the digital field, some already in force and others in advanced processes of legislative development, which will be applicable to the metaverse from different fronts of those mentioned: cybersecurity regulations, regulation of cryptoactives, regulation of digital intermediation services, regulation of the use and treatment of personal and non-personal data, platforms and digital markets, etc.

Labor relations in a parallel world

In the legal-labor field, there is also a lot of expectation generated by the metaverse. What will the world of work be like in this new virtual reality? Will work in the metaverse simply be a 3D evolution of current telecommuting or will there be a real, but virtual, parallel life? Will there be hybrid forms of face-to-face work and meta-work? Will it be possible to receive the salary (all or part) in cryptocurrencies or NFT?

Given that the metaverse and, in particular, the world of work within the metaverse are under construction, it is still early to anticipate the depth of the legal implications that may arise from having a meta-work.

To begin with, it will be necessary to clear up the question of where the employment contract will be signed: in the reality we know today or in the new virtual world? Is it signed by the avatar or the physical person who handles it? If the avatar does not have its own legal personality, and is simply an “animation” of said natural person, the person who should sign the employment contract is such a natural person in the real world.

On the other hand, do we have to establish rules for the characteristics that the avatar must have? Is it stated in the contract? Will there be legislation in this regard, company policy (such as those related to clothing or use of social networks)? Can it be forced (and if so, who can do it?) that the avatar has to be created in the image and likeness of the natural person who directs it? Or could a man decide to use a female avatar or vice versa, or gender fluid or unspecified, or a different race, age, etc.?

It may seem like a banal game of no consequence (why wouldn’t I be able to create a cool avatar  that  I like?), but if work relationships are going to be maintained in the metaverse where real-world labor rights and obligations apply, the dissonance between the characteristics and condition of the avatar and the physical person who handles it could lead to pure metaconflicts, which are not a mirror of the real world, but exist only in the metaverse. For example, it could be the case that situations of discrimination of an avatar are generated due to a different race or sex than that of the person who manages it. Could it then be understood that a right of the natural person has been violated through the avatar that they have decided to create?

This leads us to the next two questions. On the one hand, will the application of labor legislation be transferred from the real world to the virtual world or will there be a labor meta-legislation, with its collective agreements included? We could anticipate that rather the first, although it will have to continue advancing and adapting to the new realities (even virtual ones) that will arise. On the other hand, will there be a social metajurisdiction where labor conflicts that arise in the metaverse are resolved? Will they be parallel or interconnected worlds? Will the metaverse be one more tool or a real world, but virtual, and what happens there has to be resolved there?

To continue, related to the above, it will be necessary to determine if there could be a single metalegislation and metajurisdiction or there will have to be as many metalegislations and metajurisdictions as countries in the real world from where individuals access the metaverse with their avatars. We anticipate that it would have to be the latter, for in life as we now know it there could be no meta-universal legislator or judiciary. This will in turn generate that in the same metateam the avatars that make it up may have different working conditions, depending on the country where the person who manages the avatar is located and also different solutions to legal conflicts that arise, counting on the competent jurisdiction and the applicable law are determined by the place from where the natural person handles the avatar.

And we close for now (but it does not end here, since everything is yet to be defined, there are multiple open variables and they will continue to be opened) with the question of where the people who work in the metaverse will contribute. With the logic of the world as we know it now, it should be quoted in the place where the natural person resides and from where the avatar manages, as it is the place where, in principle, they will enjoy social security benefits. There may be companies that only employ in the metaverse, and have to register with the social security of the different countries from where the workers manage the avatars to go to the metawork.

It will be curious to see if the opening to the metaverse, which blurs the borders of the world of work, can evolve, for example, the regulation of unemployment benefits, when it is required that a person, in the real world, prove availability to actively seek employment: will this job search span the metaverse?

This has only started; We will have to be very aware of the progress and the opportunities that the metaverse offers us.

Litigation and conflicts also reach the metaverse

From a litigation and arbitration point of view, peeking into the metaverse in these early stages of its development is exciting. Imagine how the judiciary will perform its role in this parallel universe, how compliance with the law will be guaranteed, how citizens and economic operators will go to the courts of justice or arbitration to obtain protection of their rights… How do legal operators and lawyers will we defend the rights and interests of our represented in the metaverse? Will membership be necessary or, to imagine, should our avatars request a kind of homologation of qualifications to be able to practice the profession? At the moment it is still an exercise in imagination…,

We will have to think about questions of jurisdiction (it is already beginning to be called  meta-jurisdiction ), of objective and territorial competence (which courts and tribunals will hear what matters or controversies in the metaverse?). Will the evidentiary law that we know be transferable to the metaverse or will new regulations or an adaptation of the current ones be necessary? How will the contribution to the judicial process of the evidence of the metaverse be? The classic debate on sources and means of proof, on the consideration of public or private document that has to be attributed to the documentary contributed to the procedure will be obligatory.

Added to the foregoing are the important challenges that, both from a legislative and interpretative perspective, suppose the prosecution of criminal acts in the metaverse. It is not easy to imagine how we can respond to criminally sanctioned acts or behaviors in the real world when they take place in the metaverse. Although there are socially reprehensible behaviors whose performance in the metaverse would not prevent their sanction through the current wording of the Penal Code (making an analogical interpretation of the provisions contained in our Penal Code for those commonly known as cybercrimes) the truth is that the majority It would require, at the very least, a legislative modification that accommodates the specialties that the commission of these behaviors in the metaverse presents.

The difficulties associated with crimes against life, physical integrity or sexual freedom seem quite evident and many have already been raised, even with reports of sexual assaults committed by avatars. However, much more frequent will be other behaviors that entail important interpretive challenges associated mainly with the ability to identify the physical person with their avatar in the metaverse. The so-called “right to pseudonymity” is an obvious and important obstacle, and not only when it comes to allowing the author of the crime to be identified, but also for the purpose of assessing when it should be understood that the avatar holds, in the metaverse, the same rights that physical persons. To give an example: can we speak of a right to honour,

New world… same taxes?

As we have seen throughout this article, top-brand jackets or concert tickets are sold in the metaverse, NFTs are delivered “free”, workers are hired (and fired) to provide their services or even to sue someone and receive the relevant compensation, all through transactions in the corresponding cryptocurrency, of course.

If any of these activities were carried out in the real world, we would have no doubt that VAT would have to be charged on the operations subject to said tax and that the person who obtained the income would have to pay their personal tax, if applicable. The question that arises, obviously, is if the fact of carrying out these activities in the metaverse changes something.

The answer, although obvious for the treasury of each country (which will not hesitate to tax any possible manifestation of economic capacity, whether it takes place in a virtual or real world), is not easy, given the peculiar characteristics of action in the metaverse. If before we talked about the “right to pseudonymity” hindering the identification of perpetrators of crimes, it also makes it difficult to verify transactions with tax implications.

To this must be added that tax regulations are usually based on concepts defined in other branches of law, which are always based on “real” transactions, as opposed to virtual transactions that take place in the metaverse. This lack of specific definitions can give rise to very relevant questions and practical problems, such as, for example, would the transfer of a “parcel” in the metaverse have the nature of real estate according to article 334 of the Civil Code, or would it be a piece of furniture? And, in any of these cases, would you pay the Tax on Onerous Property Transfers? And if it were taxed, which autonomous community would be responsible for demanding the tax?

Another question, relevant for the purposes of Value Added Tax, refers to whether the economic operations that take place in the metaverse (for example, the “purchase” of a jacket of a certain brand) should be considered supplies of goods (for “acquire” a good) or as provision of services (for enjoying only the license to use a digitized good), and based on said consideration, determine where they would be understood to have been carried out. In addition, if they were considered to be the provision of services, would the rule of “services provided electronically” be applicable?

These are just two examples, but very relevant, in which the taxation of the operation will depend largely on the legal qualifications that other branches of Law grant to the so-called “digital goods”.

To these examples can also be added practical problems of “location” between jurisdictions: where should a transaction that occurred in a metaverse be taxed? In the country of location of the parties involved or in the country of tax residence of the company promoting the metaverse? What should prevail? The taxing capacity of the State of the consumer or that of the State of residence of the company in question? These are, as we know, old issues related to the taxation of classic digital services (on which the OECD and the European Commission have been working for several years), and that take on a new life in the metaverse.

All this, in any case, will not prevent, as we said, that the national treasuries try to tax the manifestations of economic capacity of the taxpayers, something that they can try to find out, for example, through the operations (purchases, sales or exchanges) with cryptocurrencies or requests for information to legal entities in the real world that are behind the businesses in the virtual world.

In short, new worlds, new issues, but same taxes? In the coming years we will see if national tax legislators have the same adaptability as our virtual avatars.