[The Viewpoint] The Metaverse: Legal conundrums

On any platform where individuals interact, legal disputes are inevitable. This poses the big question: who governs the Metaverse?
Mohit Kapoor
Mohit KapoorUniversal Legal Advocates

With rapid innovation in the realm of virtual reality, the Metaverse has evolved from an empyrean term used in a science fiction novel to the next big thing in the technology industry.

Defining the Metaverse, however, is harder than one might expect. It refers to a network of computer-generated, virtual worlds which provides a platform for social interaction through digital avatars. Looking at the interest shown by tech giants like Meta, Google and Microsoft in developing the Metaverse, ordinary people have started to invest heavily in digital assets to transition into this virtual ecosystem. This calls for governments around the globe to take notice and prepare for the impact that it will have on our future, as the law needs to constantly catch up to technological developments to maintain its certitude.

The Metaverse poses many legal questions that our current legal system is incapable of answering. This article will present the different legal challenges that lie in the wake of the Metaverse and analyse the applicability of existing Indian laws to them.

On any platform where individuals interact, legal disputes are inevitable. This poses the big question: who governs the Metaverse? Considering that it is being used by people from different countries with contrasting data protection laws, it would be difficult to apply the same rule to everyone. A similar problem was faced during the advent of the internet; however, it is exacerbated in the Metaverse, which is far more interactive. While curating websites to conform to a country's regulations is possible, it would be much harder to implement this in a shared virtual space. There has been talk of creating a single overarching privacy policy through a user and merchant agreement; however, this might receive pushback from countries with strict data protection policies.

The interoperability of different virtual worlds on the Metaverse will also be a contested issue. As users interact in the Metaverse with similar hardware devices like virtual reality (VR) headsets and controllers, tech companies would need to agree to certain standards to enable users to interoperate between different virtual worlds. This would create a monopoly over the industry, as any competitor would have to comply with the technological constraints built-in by its predecessors and might also need to license another company's underlying system. The creation of new antitrust regulations would be necessary to maintain competition and prevent monopolies.

Considering the number of people who are expected to jump onto the Metaverse, these platforms will collect immense amounts of sensitive personal data. For example, Oculus, a subsidiary of Meta which produces VR headsets, mentions in its privacy policy that it will collect data such as "information about environment, physical moments and dimensions when you use an XR device." This would be defined as sensitive personal data under the Information Technology Rules, 2011, as it involves the collection of biometric information.

Further, the Metaverse also allows its users to pick clothes for their avatars. A simple option such as this could have a deep impact in the following matter: all data about the users' choices is stored in the company's servers and can be used to create a fashion profile of the user. The metadata collected through this exercise predicts the user's preference and would allow its owner to dominate its competitors in the fashion industry. This would impede the government's efforts to maintain a fair and competitive market, and new legislation would need to be implemented to promote competition.

Another legal issue that the Metaverse would pose is maintaining competition in trademark protection. Since the inception of the Metaverse, the market for virtual accessories has been steadily growing. With the increased association between avatars and users, people are willing to spend real money on virtual fashion items for their avatars. In fact, a virtual Gucci handbag was sold on Roblox, a virtual game, for a whopping $4,100, which was astonishingly more expensive than its physical counterpart. To meet this demand, several companies have started producing virtual accessories and non-fungible tokens (NFTs). As it is extremely easy to replicate virtual items, the Metaverse has had to deal with a plethora of trademark infringement cases. This has left companies wondering if their trademarks on real world products would also cover their virtual counterparts. As there is no clear answer to this question yet, companies like Nike have chosen to file separate trademark registrations for their virtual goods to ensure that they cannot be copied. Even if companies are able to claim trademark protection, enforcement of the same would be difficult in a virtual world.

With the sale of virtual goods on the Metaverse, companies want to increase their visibility on the platform and buy land in areas with "increased virtual footfall". Last year, virtual land was sold for 4.3 million dollars on Sandbox, making it the costliest land to be sold on the Metaverse. Additionally, Sandbox has mentioned that land can only be bought on its platform through cryptocurrency. This opens another Pandora's box, considering the precarious nature of the legality of cryptocurrency itself within India. The decentralised nature of the Metaverse raises genuine concerns about virtual assets being used to launder money as they operate in a legal void.

As individuals purchase property on the Metaverse, defining what "owning" a virtual property truly means is essential. Would the substance of property law in the real world also apply to the Metaverse? Would users be punished for trespassing into private property through their Avatars? If so, who would enforce such regulations? Considering the amount of money that has been invested into buying property in the Metaverse, these are questions that need to be answered by virtual world creators and governments around the world.

The Metaverse has revolutionised virtual social interactions between users by making use of virtual and augmented reality devices. The most significant selling point of the Metaverse is how real it feels; however, this can give rise to unforeseen problems. In December last year, a female user of Horizon Worlds claimed that a male avatar groped her. This presented the question: can a person claim damages for an offence committed against their virtual avatar? Under Section 354 (A) of the Indian Penal Code, physical contact is not necessary for an act to amount to sexual harassment; however, whether an act committed against an avatar can amount to an offence against its user is still unclear. The legal identity of an avatar needs to be ascertained for any law to be applied in such cases. These incidents will only increase until a conversation around regulating the Metaverse is initiated.

It is clear that there exists an absence of laws in India to effectively regulate the Metaverse, which increases the vulnerability of its users because of this legal void. Considering the Metaverse is still in its nascence, it is imperative for regulators to act before the technology develops, else it will prove challenging to regulate it once there is a deeper level of user dependency.

Mohit Kapoor is Founder & Senior Partner, Universal Legal. The author would like to thank Shuban Sheth for the assistance rendered for the article.

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