VR/AR

Virtual Office Politics: Work and the Law in the Digital Age

 1000 648 David Hoppe
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The COVID-19 pandemic profoundly affected the way businesses operate and interact with their employees, remote and hybrid work models chief among them. The expansion of working from home has given rise to innovative solutions that help organizations maintain productivity and engagement. Among these, the use of virtual reality, augmented reality, and the metaverse have emerged as increasingly popular tools. Employers across various sectors, including video games and esports companies, are leveraging these technologies to create immersive, real-time work environments for their off-site or remote employees.

One platform lets employees control their digital avatars who work in virtual offices and attend meetings in real time. They can interact with each other as if they were physically present, engaging in water cooler chat and collaborating on projects just as they do in traditional office environments.

ERGO, a German insurance group, leverages virtual reality to train its agents and salespeople by creating individual client and prospect avatars that present their own distinct challenges and temperaments. Trainees experience various scenarios and environments to learn how to deal with people involved in car accidents, injuries, and malfunctioning household appliances.

The adoption of these advanced technologies, however, crosses into uncharted legal territory. In many cases, the law is ambiguous or fails to address the innovative use of extended reality in employee recruitment, hiring, onboarding, and training. Companies specializing in emerging technologies may be especially at risk when relying on XR and should take comprehensive measures to document their processes and mitigate their exposure to liability.

According to ARtillery Intelligence, the value of VR business applications will surge to $4.26 billion in 2023 – from $829 million in 2018, a five-fold increase from 2018. This growth is attributed to the increasing use of VR for worker training, meetings, and customer service during the pandemic. COVID accelerated remote work setups and normalized the use of VR and AR at home. A report by PwC predicts that nearly 23.5 million jobs worldwide will be utilizing AR and VR by 2030 for similar purposes.

While the adoption of VR, AR, and the metaverse has the potential to revolutionize the way workers in emerging technology sectors get the job done, it also could be the answer to legal questions across industries. As Fortune predicts, “as workspaces catapult into the future, the metaverse will help maintain the innately human sense of connection and community that so many of us crave, while enabling the kind of flexibility and balance that we’ve also come to know.

Legal & Regulatory HR Challenges in the AI Environment

1. Sexual Harassment – According to a 2021 Pew Research Center study, one-third of young women (and 11 percent of men) report being sexually harassed online. The unique nature of these digital environments, where employees are represented by avatars, often obscures their identities. This anonymity can facilitate incidents of verbal harassment and bullying, rendering traditional reporting mechanisms less effective. Such circumstances underscore the urgent need for companies, especially those dealing with emerging technologies, to reassess their current strategies and adopt robust measures to prevent sexual harassment in these virtual spaces. It is recommended that companies develop and implement comprehensive policies specifically addressing sexual harassment within virtual worlds. These policies should clearly define what constitutes harassment in these contexts, outline the consequences of policy violations, and provide a clear, secure procedure for reporting incidents. Again, technology could provide some solutions as well as contribute to the problem. AI applications can monitor and detect inappropriate online behaviors.

2. Occupational Safety – AR/VR platforms and the metaverse can provide more accessible work environments for employees with disabilities. These technologies can create inclusive spaces that cater to various physical needs, thereby promoting diversity and inclusion. Still, it is likely that these virtual environments also will create health and safety hazards that could result in criminal or civil litigation. Businesses should investigate whether it is advisable to restrict the time workers spend in the metaverse and on AR/VR platforms to reduce the risks associated with physical and mental fatigue and other health concerns. Consequently, the decision to allow employees to work remotely via virtual platforms or by using virtual reality technology should be assessed on a case-by-case basis. It is best if the specific scenarios in which employees could work remotely or offsite via virtual platforms are documented so that there is little room for ambiguity.

3. Privacy and Cybersecurity – Working in the metaverse can blur the boundaries between employers and employees, particularly when it comes to privacy. The Department of Justice (DOJ) has issued guidance on the preservation of corporate communications. The guidance states that companies should have policies and procedures in place to ensure that business-related electronic data and communications are preserved, regardless of the communication channel or platform used. This is especially important in the metaverse, where 20 minutes of activity can generate 2 million data points. Companies need to ensure that they have the ability to monitor and preserve employee communications in the metaverse in order to comply with legal requirements and conduct investigations. Moreover, current VR functionalities that track head and hand movements can identify an individual with up to 95% accuracy. Effectively, this tracking data serves as a digital fingerprint, making it challenging to maintain employee anonymity. Given these concerns, companies intending to use AR/VR platforms or the metaverse for remote work must develop robust employee privacy policies. These should clearly outline data collection practices, usage, and protection measures, and ensure compliance with relevant data protection laws.

4. Governing Law and Jurisdiction – Without specific legislation to regulate this virtual environment, the location of servers may not always be evident, leading to potential legal ambiguities. Experts suggest that in resolving disputes and determining policies, employers, including those involved in emerging technologies, enjoy some latitude to determine which employment laws and regulations will apply to their metaverse workplaces. They can decide the location of the platforms, whether local or international, and consider associated factors such as terms of use. However, the path to jurisdiction determination is not always straight. Employers must navigate a complex web of considerations, including applicable employment laws, immigration issues, tax implications, and other regulatory concerns. These factors can significantly influence which state, country, or region’s laws and regulations apply, impacting both companies and employees operating within the metaverse.

Legal Documents and Policies

Generally, employees performing their jobs in the metaverse will be represented by their avatars. Their body, clothing, identity, demeanor, and behavior will be depicted virtually, creating the need for a comprehensive set of legal documents, policies, and procedures to protect the employees in AR/VR platforms or on the metaverse. For instance, employment contracts serve as a critical tool in delineating the legal obligations and duties of employees working remotely via VR/AR platforms or within the metaverse. For companies operating in emerging technologies, these contracts are particularly valuable, providing a solid legal foundation that can mitigate potential liabilities. The contract could specify situations that might give rise to legal liability for the employer. This clarity safeguards the company and provides employees with clear guidelines on acceptable conduct within the virtual workspace. One such provision could entail a clause allowing the employer to terminate the contract if an employee engages in harassing behavior over VR/AR platforms or within the metaverse during official work hours. Other provisions may prescribe the handling of employee and customer data.

One of the pillars of the future of workplace 2023 is remote work and offsite deliverables. Since the COVID pandemic, emerging technology companies have increasingly resorted to remote work. As the laws and regulations pertaining to virtual platforms continue to evolve, so do the labor laws to consider remote work. It is best to speak to a qualified legal professional to understand and guard against the legal risks involved in resorting to virtual platforms (particularly AR / VR and metaverse) for implementing remote work arrangements. 

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Extended Reality Check: Legal Implications for the Gaming Industry

 1000 648 David Hoppe
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Extended Reality (XR), also known as ‘cross reality,’ is an emerging technology that encompasses a spectrum of experiences, including virtual reality (VR), augmented reality (AR), mixed reality (MR), cinematic reality, and other alternative realms. Each offers its unique blend of actual and virtual worlds, delivering immersive experiences that push beyond the conventional boundaries of human interaction.

The potential applications of XR technology are vast and varied. While gaming is often perceived as the most prominent use case due to its ability to deliver deeply immersive and interactive experiences, the transformative power of XR extends far beyond this realm. It is poised to revolutionize numerous sectors, from education and healthcare to architecture, fashion, and tourism, paving the way for a future where digital interactions seamlessly integrate with our physical world.

According to market observers, the demand for XR technology is set to skyrocket. The current market value of $35.14 billion is predicted to experience nearly a tenfold increase, reaching an estimated $345.9 billion by the end of the decade. This projection indicates the immense growth potential and economic impact of XR technologies.

In the context of gaming, XR is viewed as a critical component of the emerging metaverse – a collective virtual shared space that’s created by the convergence of virtually enhanced physical and digital reality. As the concept of the metaverse gains momentum, it promises to revolutionize our online leisure activities. With XR enabling more engaging and interactive gaming experiences, the global market for metaverse gaming is predicted to grow at a robust compound annual growth rate (CAGR) of 38.2% from 2023 to 2033. By 2033, the global market size is projected to reach an impressive US$1.3 trillion. Furthermore, hardware components for metaverse gaming, including headsets, haptics, and controllers, are expected to account for 48% of the global market share in 2023.

However, the rapid proliferation and adoption of XR technologies come with legal strings attached. As these immersive experiences become an integral part of our daily lives, they give rise to a new set of legal and regulatory obstacles. The intersection of XR and law is a complex area, marked by uncertainties and ambiguities that need careful navigation.

This article seeks to explore the legal implications associated with the use of XR in the gaming industry. It aims to provide a comprehensive overview of the existing legal landscape, identify potential risks, and propose effective strategies to navigate these complexities. By illuminating these critical issues, we hope to equip stakeholders with the knowledge and tools needed to fully harness the potential of XR while mitigating legal risks.

As we delve deeper into this exciting new frontier, striking a balance between innovation and regulation becomes paramount. Ensuring a secure and safe environment for all participants in the XR ecosystem is crucial.

The future of XR holds immense promise, but it also brings forth novel challenges, particularly in terms of privacy rights. Navigating this complex landscape necessitates an in-depth understanding of both technological advancements and their associated legal implications. The goal is to strike a balance between embracing the transformative potential of XR and ensuring robust legal safeguards that protect user rights and promote responsible use of technology. This equilibrium is essential to the sustainable and ethical growth of the XR industry.

Intellectual Property Rights

As users create and interact within alternative environments, they inevitably will produce a myriad of digital objects, art, computer code, music, and other creative output. The question of ownership becomes a complex issue.

Consider, for instance, a user who designs a unique virtual object within an XR environment. Who should be able to profit from the invention – the user or the platform? Perhaps even more troublesome, could artificial intelligence combine with XR to allow users to recreate real-life or digital (and copyrighted, patented, or trademarked) material in cyber arenas? How can this intellectual property be protected? What recourse do creators have if their work is stolen? Who will enforce the rules and punish the perpetrators? When user-generated content is involved, the question becomes even more enigmatic.

It is clear that a robust legal framework will be required to wade through the legal quagmire. Game developers and platforms need a comprehensive copyright policy outlining how they will handle potential copyright infringements and the steps taken to protect copyrighted material – both their own and that belonging to third parties. Executed properly, an intellectual property policy will prescribe dispute resolution methods and encourage creative freedom among users.

Privacy and Data Security

As XR technologies advance, they inherently collect and process large volumes of personal data, from basic user information to more sensitive biometric data like facial recognition, online behaviors, and movement patterns. The collection of such extensive personal data raises questions about consent, data protection, and how this information is stored and used. For instance, how can consent be requested and granted in an XR environment? What measures can and should gaming platforms put in place to ensure sensitive personal data cannot be hacked? Who should have access to it?

As XR technologies become increasingly immersive, they blur the line between reality and the virtual world, potentially allowing hosts to record digital interactions, track physical movements, and even create deepfakes of users’ activities.

To mitigate potential legal risks, gaming businesses developing or using XR should deploy comprehensive legal frameworks:

  1. Privacy Policies that clearly outline how user data is collected, stored, used, transferred (if at all), and protected. It should also detail the user’s rights concerning their personal information.
  2. User Agreements that specify the terms of use of the XR platform, including data collection practices and user responsibilities.
  3. Consent Mechanisms that assure users are fully aware of which personal data the site retains and agree to divulge that information.

These documents should be meticulously drafted and regularly reviewed and updated, preferably by a legal professional, to ensure they cover all potential legal scenarios and comply with relevant laws and regulations in the jurisdictions the gaming company or platform serves.

Physical Safety

As users navigate virtual terrains, there is potential for real-world injury or property damage. Consider a scenario where a user, while immersed in an XR experience, becomes disoriented and inadvertently bumps into an expensive vase, sending it shattering to the floor. Should that person be held liable? Can the XR platform be sued for not accurately representing potential hazards? Does the headset manufacturer bear any responsibility for not displaying the object?

To mitigate legal risks, companies leveraging XR technology should proactively develop safety guidelines, provide clear warnings for users, and post disclaimers that must be agreed to in order to participate.  In addition, they should consider incorporating safety features into their products. For instance, boundary systems that alert users when they are nearing physical obstacles could significantly reduce the risk of accidents.

Ethical Considerations and Content Regulations

Wherever people gather, there is a potential for antisocial behavior. XR environments are no different, and many people have reported incidents in which they have been subjected to sexually explicit content, abusive language, and otherwise inappropriate conduct while exploring virtual worlds. This is particularly vital for protecting children and other vulnerable users. Addressing these ethical considerations requires a collaborative approach involving legal professionals, technology developers, policymakers, and industry stakeholders.

Implementing stringent content moderation and reporting systems, enforcing age restrictions, and establishing clear ethical guidelines are essential measures. These steps will foster responsible and ethical use of XR, ensuring it aligns with societal norms and values.

Conclusion

The legal landscape of XR is vast and complex, primarily due to the absence of definitive regulation specifying what is permissible within XR environments. This ambiguity leaves room for both beneficial and potentially harmful uses of XR technology. As such, it is crucial for all stakeholders, particularly companies at the forefront of emerging technologies, to thoroughly understand and navigate this legal terrain.

Gaming companies, in particular, are encouraged to take aggressive postures that address intellectual property, privacy, safety, and ethical considerations in XR. As we continue to explore and shape the future of XR, it is imperative that we do so with a clear understanding of the legal landscape, ensuring that this exciting technology is used responsibly and ethically.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

UK Issues NFT Trademark Guidance for the Metaverse

 1000 648 David Hoppe
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The UK Intellectual Property Office (UKIPO) has recently released updated trademark guidance that aims to shed light on the intricate world of non-fungible tokens (NFTs), virtual goods, and the metaverse. This comprehensive guidance seeks to provide much-needed clarity on the appropriate classification of these digital assets in the metaverse. Coincidentally, the International Trademark Association (INTA) has also recognized the significance of NFTs and the metaverse by publishing two white papers specifically addressing trademarks within these contexts.

Given the redoubled focus on intellectual property rights (IPR) law in light of the development of Web3 technologies, the question arises whether the United States Patent & Trademark Office (USPTO) should adopt a similar approach and issue guidance on the classification of NFT trademarks within the metaverse. Such guidance would undoubtedly serve the interests of trademark owners and applicants who are navigating this emerging landscape.

By establishing clear guidelines for trademark classification in the metaverse, the USPTO would ensure that the rights of trademark owners are adequately protected and enforced within this virtual realm. Moreover, with the proliferation of NFTs and virtual goods, there is a pressing need to develop a standardized framework that reflects the evolving nature of intellectual property assets in the digital age. USPTO should embrace a forward-thinking approach similar to those of the UK IPO and INTA, thus fulfilling its role as a trailblazer in the field of trademark classification and safeguarding the rights of brand owners in the metaverse and concerning NFTs.

Background

In April 2023, the UK Intellectual Property Office (UKIPO) issued important guidance regarding the classification of non-fungible tokens (NFTs), virtual goods, and services within the metaverse. As the metaverse gains prominence and these digital assets become more prevalent, the UKIPO’s guidance provides clarity and establishes a framework for understanding their legal and intellectual property implications.

The guidance begins by defining and classifying NFTs, virtual goods, and services. NFTs are digital assets that represent ownership or proof of authenticity of a unique item or piece of content. Virtual goods encompass items or assets within the metaverse that possess value and can be bought, sold, or traded. Virtual services refer to digital services provided within the metaverse, such as the design, creation, or customization of virtual goods. UKIPO’s guidance highlights the importance of considering intellectual property rights when dealing with NFTs, virtual goods, and services. Intellectual property rights, including copyright, trademark, and design rights, may be applicable to the creation, sale, or use of these assets. The guidance emphasizes the need for creators and users to understand and respect existing intellectual property laws and obtain necessary permissions or licenses when dealing with copyrighted works, trademarks, or other protected content.

According to the guidance, NFTs will not be accepted as a classification term alone, as “without an indication of the asset to which the NFT relates, the term is inherently vague.” However, UKIPO would accept certain terminologies such as digital art, downloadable graphics, and downloadable software that is “authenticated by NFTs.” UKIPO suggests analyzing the characteristics and functions of these assets to establish whether they should be treated as digital representations of real-world assets, standalone digital assets, or entirely virtual creations. The classification can influence various legal considerations, including taxation, consumer protection, and the applicability of existing intellectual property frameworks. The UKIPO’s guidance emphasizes the need for compliance with relevant regulations, including data protection and consumer protection laws, when dealing with NFTs, virtual goods, and services. As these assets involve the collection and processing of personal data, creators, and platforms need to adhere to data protection requirements. Additionally, consumer protection laws should be considered to ensure transparency, fair trading, and appropriate redress mechanisms within the metaverse.

The guidance issued by UKIPO follows similar, albeit less extensive, guidance issued by the EU Intellectual Property Office (EUIPO) in June 2022. This guidance sets the main principles regarding goods and service classification for trademark applications covering NFTs. According to these guidelines, NFTs and virtual goods would be treated as digital content or digital visuals. However, since the sole term “NFT” or “virtual goods” does not sufficiently identify the subject of the registration, the content to which NFTs and virtual goods relate must be further specified in the application.

Aside from UKIPO and EUIPO, INTA has published two white papers about the metaverse and non-fungible tokens (NFTs), which call for harmonization of the classification of trademarks in these emerging digital ecosystems. These papers include specific recommendations to help brand practitioners keep pace in these fast-changing times. This paper recommends that the current approach of the USPTO and EUIPO of establishing Classes 9, 35, 41, and 42 as the main Nice Classifications to protect virtual goods/services should be considered when crafting filing strategies. Per this report, some stakeholders appear to be in favor of establishing a new Nice Class 46 for digital goods and services, while others have argued for virtual goods to be registered under the same classes as their non-virtual or physical goods counterparts. The report notes: ‘These possible solutions, among others, should be studied by INTA committees to identify and establish the proper approach so that INTA can advocate on behalf of brand owners. The NFT report also recommends that INTA should develop model legislation that can be adopted by countries so that they could amend or adapt their existing frameworks to facilitate the commercialization of rights through NFTs. It further recommends that a global trademark dispute resolution policy (akin to the WIPO Uniform Domain Name Dispute Resolution Policy) should be adopted in collaboration with the World Intellectual Property Organization (WIPO) for the emerging digital ecosystems of NFTs and the metaverse.

USPTO’s Approach On NFTs For Trademarks & Metaverse

The United States Patent and Trademark Office (USPTO) and the US Copyright Office recently initiated a joint study to examine intellectual property (IP) law and policy issues related to NFTs. This collaborative effort reflects the ongoing commitment of both offices to explore emerging technologies and their implications for IP rights. The study was prompted by a request from the U.S. Senate’s Subcommittee on Intellectual Property, demonstrating the importance placed on understanding the impact of NFTs within the IP landscape.

To facilitate this study, the USPTO and the US Copyright Office published a Federal Register Notice in late 2022. The notice invited public comments on various IP issues and topics concerning NFTs. These public comments have since been the subject of several roundtable discussions, allowing for further analysis and in-depth conversations.

While the outcome of these consultations remains uncertain, it is worth noting that the recent guidance from UKIPO, EUIPO, and INTA regarding NFTs and trademarks in the metaverse may pave the way for the USPTO to issue its own guidance on NFTs. Considering the US’s role as a major contributor to the development of the metaverse and its position leading NFT creation worldwide, the timing seems opportune for the USPTO to provide comprehensive guidance on the legal and IP considerations surrounding NFTs.

As the metaverse continues to evolve and gain traction, the USPTO’s guidance on NFTs would serve multiple purposes:

  • It would provide clarity on the legal framework for NFTs, enabling creators, platforms, and users to navigate the intricate IP landscape with confidence. Such guidance would help address questions related to copyright, trademark, and other IP rights in the context of NFTs.
  • It would promote consistency and coherence in the treatment of NFTs across various jurisdictions, fostering international collaboration and facilitating cross-border transactions involving these digital assets.
  • By offering guidance specific to NFTs, the USPTO would contribute to the protection of creators’ rights and the prevention of IP infringements within the metaverse. This proactive approach aligns with the USPTO’s mandate to foster innovation while ensuring fair and equitable protection for intellectual property owners.

Conclusion

It is unclear when the USPTO will issue formal guidance on trademarks in the metaverse and NFTs. Until then, the situation remains in limbo. Existing trademark holders likely would not be impacted in the near future should there be any changes in the classification. However, new registrants or applications would need to be cautious about the new categories as filing trademarks under the wrong classifications can have long-term consequences. Trademark filing under the wrong classification could hurt the reputational and commercial interests of potential trademark applications in this space. It is best to consult a qualified intellectual property lawyer with expertise in emerging technologies (especially metaverse and NFTs) before proceeding with trademark registration. Self-reliance can potentially be a costly mistake.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

China Takes the Lead in AI Regulation

 1000 648 David Hoppe
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China has established itself as the world leader in artificial intelligence regulation. In May, Beijing concluded a second cohort of rules restricting the use of deepfakes. The development is the latest in a series of Chinese government interventions aimed at protecting the public and engendering trust in AI technologies. While the rhetoric in the United States from politicians, influencers, AI innovators, and other stakeholders has spotlighted the technology’s applications and potential downsides, China has been investigating, legislating, and advocating for AI since 2017. Given Washington’s uneasy and often adversarial relationship with China, its leadership on this issue could prove troublesome for the US.

China’s head start in AI regulation gives it the upper hand in promoting rules that favor its domestic industries and its political agenda to a global audience. The nation, which in previous generations has been slow to accept and adapt to technology, now leads the change. Its latest set of guidelines mandates security assessments for creators of novel AI products or services prior to their public release.

Not Just China

While the US has only recently taken notice of the legal ramifications of AI, friend and foe alike have or are seriously considering sweeping regulation of ChatGPT and its ilk. The European Union is contemplating the implementation of a fresh legal framework for AI development and utilization. The EU’s proposed AI Act seeks to classify AI tools according to their perceived level of risk. Uses that pose “unacceptable risk” by presenting a “clear threat to the safety, livelihoods, and rights of people” could be banned in Europe. Those that could jeopardize people’s health, safety, fundamental rights, or the environment as well as those designed to influence voters would be deemed “high risk.” Before their release, these systems would have to demonstrate strong risk assessment, mitigation, security measures, detailed documentation of training data and algorithms, user disclosures, and active human oversight. “Limited risk” and “low risk” categories would be unregulated save for perfunctory transparency requirements.

The action testifies to Europe’s desire not to be left in China’s dust and hints at a desire that the Asian superpower’s interest in AI should not go unchecked. The AI Act specifically calls for banning “government-run social scoring of the type used in China.” A memorandum accompanying the proposal includes among its goals that future AI regulation “respect… Union values.”

There are also reports that the European Data Protection Board has set up a task force to unify its members’ independent research into ChatGPT which is possibly a first step toward AI privacy regulation.

Even tiny Singapore seems to have gotten the jump on the US and is in the process of subjecting AI to the same comprehensive scrutiny it gives potential online and digital threats. Singapore was also the first country to unveil an AI testing toolkit. AI Verify invites developers and owners to reveal how their AI systems perform.

The US Must Lead on AI Regulation

As artificial intelligence and generative technologies advance at an unprecedented pace, the US as a technological, military, and political powerhouse must address crucial questions about how it will regulate these transformative innovations. It is increasingly evident that the US has not yet developed an integrated approach to maintain a workable balance between consumer protection, intellectual autonomy, and entrepreneurship.

Recent developments and expert opinions strongly advocate for federal regulation of AI. Prominent figures, including Sam Altman, the creator of ChatGPT, and privacy executives at industry giants like IBM, Google, and Yahoo, have emphasized the criticality of government oversight due to the potential risks AI poses to humanity. Initially hesitant to impose regulations that might hinder AI innovation or compromise the US’s competitive edge, the government must now recognize the pressing need for federal legislation.

The introduction of AI regulation would significantly impact emerging technology companies and fundamental changes would require ongoing legal counsel to ensure compliance. Furthermore, companies providing generative AI services to the public may become responsible for the output of their systems. Strict requirements on these companies could be imposed to ensure that the data used to train their algorithms meets rigorous standards. As AI continues to advance, the accountability and responsibility of AI service providers must be clearly defined and enforced.

The Global Landscape

While the US deliberates its regulatory approach, a patchwork of regulations is emerging worldwide, leading to a significant East-West divide. A recent report by the Brookings Institution, which analyzed AI governance plans across various countries, highlighted the differing priorities and strategies. The East is primarily focused on expanding R&D capacity while overlooking traditional technology management guardrails, whereas the West places greater emphasis on establishing comprehensive safeguards. By enacting federal AI regulations, the US can play a leading role in shaping responsible AI governance on a global level.

An additional risk associated with delaying AI regulation is that AI development may complicate the US-China rivalry. While China invests heavily in AI, some argue that the United States should not restrain itself out of concerns over potential misuse. Viewing AI regulation as an impediment to competitiveness would be a misguided approach. Instead, the US must prioritize the responsible and ethical development of AI, ensuring that it aligns with societal values and serves as a force for positive change.

Given the rapid advancements in AI and generative technologies, the United States risks ceding authority to other global players unless it acts swiftly to implement reasonable and sweeping federal regulations. The support from industry leaders, growing academic consensus, and the need for societal safeguards all underscore the urgency of this matter. By establishing a comprehensive regulatory framework, the US can strike a balance between fostering innovation and ensuring accountability, positioning itself as a global leader in responsible AI governance. The time to act is now, as delayed regulation risks compromising the potential benefits of AI while exposing society and industry to as-yet-unknown risks.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Great Brain Robbery: Web3 Intellectual Property Rights

 1000 648 Amy Sanderson
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Intellectual property rights (IPRs) play a critical role in the rapidly evolving Web3 environment, protecting the creativity, innovation, and artistic expression at the heart of the world’s digital transformation. IPRs encompass a range of legal protections, including patents, trademarks, copyrights, and trade secrets, and are designed to ensure that individuals and companies can benefit from their intellectual creations.

The scope of IPRs has expanded to encompass a range of creative works and innovations, from books and music to software and digital technology. With the rise of Web3, IPRs have become increasingly important. The digital marketplace has created new ambiguities related to protecting creative works, software, and next-generation technology. Today, IPRs play a crucial role in ensuring that the digital economy remains a vibrant and innovative industry where individuals and companies can thrive and benefit from their intellectual creations.

IPRs in eCommerce

IPRs play a crucial role in e-commerce, as they safeguard the interests of brand owners and prevent their intellectual property from exploitation. However, the decentralized digital economy poses several challenges to IPRs, which need to be addressed to protect brand owners’ rights and the interests of consumers.

The proliferation of counterfeit goods widely available on various online marketplaces continues to plague e-commerce sites. Bogus goods not only harm the reputation of brand owners but also pose a risk to the health and safety of consumers. In response to this challenge, many countries have implemented laws and regulations that aim to prevent the sale of counterfeit goods online. For instance, the European Union introduced the Regulation on Preventing the Entry into the Union of Goods Infringing Intellectual Property Rights, which requires online marketplaces to take steps to prevent the sale of counterfeit goods.

The metaverse is a digital realm where individuals can interact with one another and participate in commercial activities. In this new environment, IPRs are needed to protect virtual goods, services, and experiences. These assets, including virtual currency, digital collectibles, and in-game items, have become increasingly valuable and tradeable in recent years. Due to the novelty and quick pace of innovation in digital marketplaces, brands and regulators can face difficulties in enforcing IPRs in these spaces. Commerce today operates on a global scale, and it can be challenging to identify and prosecute offenders who infringe upon IPRs, especially when digital goods are involved. Additionally, the rapid pace of technological advancement often outpaces the development of laws and regulations, making it difficult for regulatory bodies and enforcement to keep up.

Another concern is the conflict between IPRs and the freedom of expression. The internet has enabled individuals to share their opinions and ideas with a global audience. However, in some cases, these opinions and ideas may infringe upon the IPRs of others. This conflict between IPRs and freedom of expression often leads to legal disputes and creates a challenging situation for regulatory bodies to balance the human right of freedom of expression against the need to protect someone’s creative output from infringement.

Protecting Software and Digital Technology

As technology applications, creative expressions, and innovative ways of approaching problems lead us into a new digital paradigm, intellectual property is becoming the “new oil”–the resource on which businesses and governments rely. Protecting these assets through legal means is critical yet challenging, given the ever-changing nature of the industry. To address this issue, some countries have established specialized intellectual property offices that provide expert guidance and support to software and emerging technology companies. These offices can help companies to navigate the complex process of patent and trademark eligibility, ensuring that their products and services receive the necessary protection.

IPRs in the digital economy must protect trade secrets in the face of diverse methods and products designed to steal information and documents electronically. Trade secrets are often confidential business information that provide a competitive edge to companies. However, in the digital economy, trade secrets are vulnerable to theft, mainly through cyber-attacks and data breaches. Therefore, companies must take appropriate measures to safeguard their trade secrets, including implementing non-disclosure agreements, encryption, and other security measures. Failure to protect trade secrets can significantly harm businesses, including loss of market share, decreased revenues, and damage to brand reputation.

Furthermore, the issue of copyright infringement poses a significant challenge for IPRs in the digital economy. With the proliferation of online platforms and sharing networks, it has become easier for individuals to share and distribute copyrighted material. This has resulted in many copyright infringement lawsuits, particularly in the music and film industries. The widespread, unauthorized sharing of copyrighted material online poses a significant threat to the revenue streams of content creators and the protection of their intellectual property rights. Many countries have implemented copyright laws that protect copyrighted material in the digital environment, and businesses must ensure that they comply with these laws to avoid legal repercussions.

The Role of Governance to Protect IPRs

Governments have a critical role in protecting intellectual property rights. Governments can support the protection of IPRs by providing and updating specific and compelling laws and regulations, promoting education and awareness about IPRs, and encouraging innovation by creating a supportive environment for companies and individuals seeking to develop and commercialize their creative works and inventions. Companies and individuals can then preserve their IPRs by seeking expert guidance, using protective measures such as patents, trademarks, copyrights, and non-disclosure agreements, and staying informed about the latest developments in IPRs and the digital economy. Governments must ensure that IPRs are protected in the digital economy to maintain a vibrant and innovative industry where individuals and companies can thrive and benefit from their intellectual creations.

Protecting Creativity, Innovation, and Artistic Expression in the Digital Age

By updating existing IPR frameworks and implementing regulations that protect against counterfeits and unauthorized use of digital assets, it is possible to ensure that creativity, innovation, and artistic expression are covered in the digital age.

Attorneys specializing in the digital space and leading-edge technologies can help businesses employ various protective measures and navigate laws and regulations designed to protect digital IPRs.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Meta-verdict: Developers’ Liability for Avatar Misdeeds

 1000 648 David Hoppe
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We recently discussed the myriad legal issues arising out of the development of the metaverse and users’ interaction through avatars. Here, we look at some of the key legal risks that game developers, social applications, and metaverse platforms assume when problems occur in the virtual environment. Can these service providers be held liable for crimes, disagreements, or antisocial behavior perpetrated by people controlling avatars? We also propose some legal strategies for game developers and metaverse platforms to reduce their exposure to liability.

The question of liability may hinge on whether the wrongful act can be characterized as a criminal act, a tort, or a breach of contract.

Tort Liability

Torts are wrongful acts for which an aggrieved party may seek damages or a court order for the offending party to cease the harmful activity. Liability can be assigned depending on the roles and responsibilities of the entities found to be at fault: strict liability, absolute liability, third-party liability, joint liability, and others. Depending on the type of tort committed in the guise of an avatar, game developers and metaverse platforms could be deemed vicariously liable for the acts committed by an avatar controlled by an employee. Even if this “master/servant” relationship does not exist, the platform or developer may be subject to joint liability if they act as a “tortfeasor,” working in close concert with the offending party.

Criminal Liability

Liability under criminal law is largely determined on the premise of responsibility. This means that a game developer or a metaverse platform could be potentially held liable for any criminal activity committed by users as avatars if the court determines it was in the position to avert or stop the crime. Several women have claimed that their avatars were sexually assaulted in virtual worlds and explained the physical and psychological trauma it causes. While the people who committed these acts should be identified and punished, some suggest there should also be repercussions for the entities that created environments in which these deeds took place. Is it appropriate to affix accountability on metaverse platforms for criminal activities taking place in their worlds? It seems likely that there will be a comprehensive law or regulation in the near future which will deal with all aspects of the metaverse and specifically outline the liability metaverse platforms assume for any illegal activities committed there.  

Breach Of Contract Liability and Legal Constructs

Game developers and metaverse platforms may be sued for any breach of contract committed by an avatar user, provided they are a party to the contract. This relationship is outlined in the doctrine of privity of contracts which suggests that only parties to a contract can enforce the obligations or collect the benefits under that contract. Game developers and metaverse platforms can also be held liable under legal constructs such as causation as they are generally aware of the identity or the person behind the avatar. Depending on how the metaverse evolves, it may force platform providers to be aware of the real identity of the users behind the avatars that use their sites. This likely would require the expansion of the concepts of causation and foreseeability to make developers liable under negligence law and potentially responsible for acts committed in their platforms.

Product Liability

Product liability is a source of potential risk for game developers and metaverse platforms. The metaverse is projected to result in a vast market for virtual and physical products available for purchase and use by customers. Software, virtual non-tangible items, and hardware like headsets and glasses are just a few examples. Accordingly, developers, manufacturers, licensors, vendors, and others in the industry may be at risk of metaverse-related product liability claims brought by metaverse participants and users of these products. Several types of product liability claims in connection with the metaverse may arise in the future. For instance, a product liability claim may arise in a situation where an individual sustains injuries while immersed in the metaverse. Further, property damage or economic loss claims could arise where participation in the metaverse or use of related hardware gives rise to an incident that destroys property. Given the potential for a range of product liability claims in connection with the metaverse, game developers and metaverse platforms should seek legal advice on how to limit their liability and seek any other protections such as through contractual drafting, terms of use, and warnings and instructions for use.

Other Liability

Game developers and metaverse platforms can also be held liable for secondary infringement of intellectual property rights and for intermediary liability for content created by avatars. If an avatar engages in copyright piracy on the metaverse and the metaverse platform does not take appropriate action to remove the infringing material or to stop copyright piracy, it may be held liable for secondary infringement. Further, it may be held liable for intermediary liability if the avatar engages in hate speech, disparagement, child pornography, disparagement, cybercrime spamming, phishing, and others. 

Legal Protections for Service Providers

Some industry experts believe virtual environments should not face undue liability for the actions of others. One way to limit their liability is to grant avatars legal status distinct from their association with the games and applications they visit. This, metaverse proponents say, would incentivize game developers to continue innovating within the metaverse. The argument is that in order for the metaverse to thrive, there must be a careful balance between protecting the rights of various stakeholders without impeding technological progress. This is likely to be a difficult juggling act for legislators, as no one wishes to absolve the person controlling an avatar of legal consequences. So, while the avatar would be distinct from the game, it could not be separated from the player.

Perhaps a more immediate precaution is for sites to ensure they draft and make public the appropriate legal documents to minimize their liability. Standard legal documents such as terms and conditions, privacy policies, and end-user licenses can go a long way in shielding businesses from legal entanglements. These documents, drafted by an experienced Web3 attorney who can also incorporate a robust limitation of liability clause, should be part of the due diligence exercised by any gaming or metaverse company.

Conclusion   

The law regarding the legal liability for acts committed by avatars is still evolving. Some scholars have proposed that there should be statutory remedies for acts committed by avatars while others have proposed that liability for acts committed by avatars could be dealt with within conventional principles of tort law. For developers and platform holders, it is best to speak to counsel or a law firm well-versed in emerging technologies so that you are well-protected against any liabilities arising from illegal acts or wrongdoings committed by users as avatars.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Legal Guide to DAOs in the Metaverse

 1000 648 David Hoppe
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Decentralized autonomous organizations (DAOs) are rapidly gaining popularity in the metaverse. Creating and hosting a DAO in the metaverse offers organizations numerous benefits, such as increased participation, visibility, efficient interaction with other applications and organizations, access to global audiences, and opportunities to take advantage of the growth of this relatively new landscape. Additionally, a DAO can provide an equitable, transparent governance structure due to its decentralized nature. Moreover, smart contracts allow for automated processes which can save time and reduce the risk of errors or abuse. Finally, since many DAOs are distributed across multiple borders, they also offer users unprecedented global mobility within the virtual world.

It is important to understand and comply with the relevant laws and regulations when conducting business within the metaverse. That’s where web3 lawyers who specialize in blockchain and decentralized technologies come into play – providing support when it comes to understanding and navigating legal issues related to a DAO’s activities.

DAOs in the Metaverse: Use Cases

Businesses, associations, and other groups seeking to avail themselves of the benefits of DAOs within the metaverse will need to structure their organizations to meet the legal requirements of their jurisdictions and protect their finances, reputations, and intellectual property. Executed properly, metaverse DAOs can present an attractive option for businesses seeking to enrich the user experience and gain a competitive advantage in today’s landscape.

  • Virtual Assets – DAOs are being increasingly used to track ownership and transactions involving metaverse real estate and virtual assets such as in-game items, NFTs, and digital collectibles. These assets need to have clear ownership and transfer mechanisms, comply with local tax laws, and adhere to securities laws if applicable. Smart contracts used by DAOs must also comply with local contract laws and protect sensitive data such as ownership records and financial transactions. It is important to have a mechanism for transparent and fair dispute resolution in accordance with local laws.
  • Event Management – Concerts, competitions, and real-money gaming tournaments must comply with local jurisdiction laws and have clear governance mechanisms in place. Smart contracts must comply with local contract laws, and sensitive data such as details of ticket sales must be protected. Dispute resolution must also be transparent and fair, in accordance with local laws. DAOs can provide virtual services such as virtual currency exchange, in-game item rental, and prize awards.
  • Data Security – Metaverse-based organizations can manage sensitive data such as ownership records, financial transactions, and voting records using the assets particularly prevalent in DAOs. For instance, metaverse DAOs can leverage blockchain technology to store data in a decentralized manner, reducing the risk of a single point of failure or data breaches. The use of smart contracts is especially useful in automating data security processes, such as overseeing permissionless protocols governing access to data, monitoring for suspicious activity, and triggering alerts and action when necessary.
  • Content Creation and Distribution – Users can participate in the metaverse economy through ownership and management of in-game assets, NFTs, and virtual goods. However, it’s crucial to ensure that the content complies with local content regulations and doesn’t infringe on any copyrights or trademarks. DAOs must also comply with securities laws if applicable and understand and fulfill their tax obligations. In the event of disputes, transparent and fair dispute resolution is necessary, and anti-money laundering and counter-terrorism financing regulations must be followed. Moreover, DAOs themselves may create and distribute content, including images, videos, and music. It’s critical to ensure that this content doesn’t infringe on any copyrights or trademarks.
  • Dispute Resolution – It is important to have a mechanism for resolving disagreements within organizations that is equitable, transparent, and compliant with local laws. DAOs can provide a fair and secure platform for community members to make decisions and manage resources in the metaverse. DAOs often operate using smart contracts, and it is important to ensure that the contracts comply with local contract laws and are enforceable. DAOs may also need to enter into licensing and distribution agreements with creators and distributors of content, and it is important to ensure that these agreements are legally binding and enforceable.

Creating and managing a DAO in the metaverse also presents hurdles that must be overcome. This new frontier also comes with potential legal issues and implications. As there is no central authority to regulate metaverse activity, illegal activities may go unnoticed, leaving victims of fraud or other malicious behavior unable to recover their losses. Additionally, setting up a compliant and secure DAO requires technical expertise, while interoperability issues can make it difficult for DAOs to interact with each other or other metaverse applications.

Although these challenges exist, a lawyer can help protect all stakeholders involved by providing essential guidance and support at every step. Engaging a lawyer brings an added competitive advantage that will benefit any organization looking to build success within this digital landscape.

A lawyer with Web3 experience can help ensure the DAO operates efficiently and transparently, protecting the interests of all stakeholders involved. This consultant can provide valuable guidance on complying with national or international laws and regulations specific to a given metaverse environment. Having access to legal counsel during the process of setting up a DAO also provides essential advice when it comes to contract negotiation, helps structure the DAO’s governance mechanisms appropriately, and enables risk management geared towards avoiding potential issues once it’s operational.

This specialized knowledge can be highly advantageous in today’s competitive market, enabling organizations to make informed decisions while ensuring transparency and fairness throughout their operations. Additionally, web3 lawyers are equipped to aid with various tasks such as designing smart contracts for use within the metaverse or aiding with dispute resolution proceedings.

A good Web3 lawyer will not only have expertise in relevant laws and regulations applicable to creating a DAO but also possess a comprehensive knowledge of how virtual realities function differently than their physical counterparts. This is especially true when dealing with intellectual property rights or global tax liability associated with doing business across different jurisdiction borders. Ultimately, seeking specialist legal assistance when building a DAO within the metaverse is invaluable for any organization looking to achieve optimal performance within this new digital landscape.

Conclusion

Setting up a DAO in the metaverse can enable organizations to enjoy the benefits of decentralized autonomy by taking advantage of blockchain technology. However, this new frontier also comes with potential legal issues and implications. As there is no central authority to regulate metaverse activity, illegal activities may go unnoticed, leaving victims of fraud or other malicious behavior unable to recover their losses. Additionally, setting up a compliant and secure DAO requires technical expertise, while interoperability issues can make it difficult for DAOs to interact with each other or other metaverse applications.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Playing It By Ear: Money and Music Rights in the Metaverse

 1000 648 Amy Sanderson
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The metaverse promises to open a world of new possibilities, applications, and business models, and along with these new ways of working, socializing, and entertaining ourselves come a host of legal questions. Music is poised to become one of the metaverse’s most fertile grounds for both creativity and litigation. While, like the metaverse itself, issues surrounding music production, performance, licensing, and other areas are still unfolding, it is time to start thinking about how music will “work” in a metaverse environment.

Background

Few have thought about the intersection of music with the metaverse, leaving the area—especially in a legal intellectual property rights context—a mystery to many. Copyright, trademark, contract law, right of publicity, and other civil legal issues have been applied to music production and performance in the physical world for decades. Still, laws concerning music in an alternate realm and optimal strategies for performers, distributors, labels, venues, and other stakeholders will depend on how society answers a few basic questions:

  1. How will people use music in the metaverse?
  2. What are the likely new sources of revenue from music in the metaverse?
  3. Can “real world” laws be applied, or do we need brand new laws for the metaverse?
  4. What are the key issues metaverse companies and emerging technology platforms need to know about music rights over the metaverse?
  5. How will music rights be protected, laws enforced, and bad actors caught and penalized?

Some of these issues are more easily understood, while others are not. For instance, it is likely that music lovers will enjoy their favorite songs in the metaverse in several ways—by attending virtual concerts, subscribing to streaming applications or ad-supported metaverse radio stations, and purchasing and downloading music. But the metaverse also enables more interactive and intimate encounters with music and artists, from exclusive small-venue or “unplugged” shows to Q&A sessions and contests.

This gives rise to several new potential revenue sources. Blockchain technologies in the metaverse may allow for more efficient administration and tracking, reducing transaction costs and cutting out agents, brokers, and other “middle people,” lowering prices and rewarding the creative people behind the music. Another potential revenue source might be converting older musical formats for use in the metaverse. For example, creating metaverse concerts from old footage and remastering music for use in metaverse games and venues could become substantial new businesses. The good news is that existing laws can likely be adapted to the casual enjoyment of music by individuals  in the metaverse. The need to define additional artistic and performance rights for the metaverse is probably unnecessary since it is essentially the same rights, just applied to a new medium and format. In fact, a new bundle of rights specifically for this new technology would create an additional, redundant layer of complexity. Nonetheless, industry and government will need to find a way to regulate music ’s use in the metaverse because, regardless of the locale, intellectual property rights must be protected.

  • Rights Clearance – As in the physical world, determining who holds the right to use and profit from musical creations, performances, streams, and sales online will be a primary consideration in the metaverse. In most cases, traditional copyright and licensing rules used by today’s online music will apply. However, the proliferation of virtual music venues, derivations, technology, and applications within new, private, or even open online environments muddies an already murky and fragmented licensing process. The rights clearance issues posed by the metaverse are not very different from those posed in the real world, but the additional variables presented eliminate a cut-and-paste or one-size-fits-all approach. We see an environment beset with exceptions, concessions, negotiation, and compromise regarding metaverse music rights.
  • Contracts – Musicians, their representatives, partners, and other individuals who upload music over the metaverse may be beholden to contractual commitments with third parties. For example, an artist might be expected to pay a certain percentage of the royalties earned before being allowed to use or upload a particular song to online platforms. Contracts may stipulate that intermediaries and internet service providers will be held liable for any secondary infringement of intellectual property rights that takes place in their realms. This could become a minefield for digital music, video games, virtual reality, and other companies operating in the metaverse. These companies and metaverse developers themselves need to be careful about any unauthorized use of music on their platforms. It is best to speak to a copyright attorney specializing in emerging technologies about the legal implications related to contracts and music rights in the metaverse.
  • Royalties – So many new formats, venues, and applications may present difficulties for artists to keep track of royalty payments earned in the metaverse. Blockchain, NFTs, and crypto transfers may provide some relief by monitoring and recording how much is owed, by whom, and when payments are remitted. For example, by using blockchain technology, NFT platforms can record who owns a certain piece of music. The platforms can also keep track of the necessary royalty splits at the time when the NFT is minted. Additionally, artists, especially unsigned or independent artists, can take advantage of the blockchain and capture a bigger portion of their music revenue by issuing NFTs of their music themselves. So, blockchain technology and NFTs help artists and creators keep track of everything, including how much money they receive.
  • Licensing – Existing licensing models appear too rigid to accommodate the possibilities promised by the metaverse, likely necessitating new laws or procedures to deal with the complexity. Licensing norms have not been fully developed or standardized for Web3. Experts are applying what they know about Web2 and previous digital iterations to determine how to streamline music licensing in the metaverse. It’s a sticky problem, aggravated by the fact that few musicians, end consumers, and start-ups fully understand how copyright law is implicated in Web3 or the creation of NFTs.

There are many challenges related to obtaining and granting a license to use music in the realm of the metaverse. Different stakeholders hold different views on who should be required to obtain a license, how compensation should be arranged, which rights should be conferred, and a myriad of other details. Performing rights organizations in the US and elsewhere believe the content provider (usually the streaming platform) should be responsible for clearing performance rights licenses.  However, these issues are not so clear in a metaverse context, where the platform may be decentralized or an NFT holder may own the rights to publicly perform a certain song while others do not. IP enforcement may be difficult, which is why new procedures may be necessary for music licensing in the metaverse.

Conclusion

Blockchain technology and NFTs will increasingly play a role in artists’ ability to make money and control their rights, particularly for rising and independent artists. However, questions remain about how these rights will be operationalized, especially as complications arise in the swiftly evolving metaverse and Web3 space.  Qualified legal advice can assure end consumers, metaverse service providers, and artists that their rights are guarded. It is best to seek the advice of a lawyer specializing in blockchain and metaverse issues before foraying into music in the metaverse.

Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Virtual Commerce: Brands in the Metave®se

 1024 664 David Hoppe
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The value of the global metaverse is expected to reach $800 billion by 2024. This represents more than 16-fold growth over the $48 billion generated in 2020. The metaverse brings with it a host of legal challenges and opportunities including trademark enforcement, branding and marketing deals, content partnerships and collaborations, market development, and customer diversification. Companies – both established players and start-ups – that are intent on operating in the metaverse writ large or building their own metaverse platform should be aware of several brand-use and trademark issues that can arise.

The Metaverse Is Built on Brands and Trademarks

Companies seeking to establish a foothold in the metaverse must familiarize themselves with trademark rights, as many brand owners are leveraging their IP in this new digital environment. Many optimistically view the metaverse as a limitless market for promoting their products and services. Visionary brand owners are taking steps to register their logos and trademarks for goods and services that are accessible exclusively in the metaverse, including downloadable virtual goods for virtual online worlds, retail stores that carry virtual goods, digital collections services, and others. For example, Nike has filed more than a half dozen trademarks with the US Patent and Trademark Office (USPTO), indicating the brand’s intention to sell virtual shoes and apparel in the metaverse. Trademark applications include those for Nike’s swoosh logo, “Just Do It” slogan, and Air Jordan designs. Further, luxury brands such as Balenciaga and Gucci are actively testing how they can use the metaverse to connect with real-world consumers to generate additional revenue.

The diverse commercial implications of the metaverse may prove difficult to regulate, and potential metaverse participants may have difficulty following which rights belong to which stakeholders. The potential issues and ambiguities that arise from the proliferation of digital brands and their intersection with the metaverse emphasizes the need for companies operating in the video game, digital media, AR/VR, crypto, and other emerging tech spaces to develop comprehensive plans for protecting their assets and IP while avoiding infringing upon those of others. This will require them to accumulate or partner with others who possess an understanding of the applicable laws and regulations and how they affect business strategies, partnerships, rights conveyances, audience protections, publicity, products, services, and more.

Gaming, digital media, crypto/blockchain, and other tech organizations should pay particular attention to a few pertinent legal areas:

  • Trademark Search and Registration – Technology and digital media companies, whose primary focus until now likely has centered on Web 2.0, now may want to consider taking a page from Mark Zuckerberg’s Facebook and rebranding themselves as metaverse-first organizations. To do this, they will need to file at least one new trademark registration for the metaverse. Rebranding a company to reflect this new focus may stir up a host of issues. For instance, a company seeking to capitalize on the popularity of words such as ‘meta’ and ‘metaverse’ by promoting sports brands in their gaming metaverse, could face stiff competition and/or infringe on already-filed trademarks and copyrights. More than 800 already use “meta” as a word or prefix, and more than 100 more such applications were filed in 2021. Furthermore, the USPTO might consider trademark applications such as ‘BRANDS IN THE METAVERSE’ or ‘SPORTS IN THE METAVERSE’ too generic or descriptive to be valid. It is advisable to consult a trademark attorney for guidance on such matters.
  • Branding – Use and the misuse of brand names are likely to become even more rampant in the metaverse than in the physical world. This is a primary reason why world-famous brands have registered trademarks for virtual goods in addition to their physical consumer product lines. Technology companies aiming to build their own metaverse should be aware that effective mechanisms exist for brand owners to enforce their rights. As a result, metaverse providers may find it necessary to engage dedicated staff to monitor user-generated content, investigate suspected violations, respond to cease and desist notices filed by legitimate trademark holders, and remove offers for counterfeit goods. Responsible platforms might take a proactive approach and provide a dedicated mechanism for brands to file notices and lodge complaints if they find cases of their trademarks being violated.

    Obtaining the advice of an experienced intellectual property attorney can help these companies understand their responsibilities for policing infringements and ways they can protect themselves from becoming a party to them. A comprehensive, nuanced IP policy is also extremely important for mitigating secondary liability. Specifically, a metaverse service provider that fails to incorporate a sound IP policy might be held liable for trademark infringement or brand misuse which takes place in their corner of the metaverse.

  • Licensing – Many brands and trademark owners are experimenting with ways to profit from the metaverse. Some hope to promote their goods and services while others look to leverage the drawing power of other brands and trademarks. Whatever the business model, commercial metaverse participants and providers must be able to negotiate and document appropriate trademark licensing arrangements. For example, metaverse users can create avatars by using a variety of digital products. This functionality can empower users to assume identities as “real-life” fictional characters in the virtual world. Absent appropriate trademark licenses, metaverse providers may find themselves at risk of being accused of trademark infringement due to user activity. It is critical that providers: (i) understand the scope of rights, duration, territory, exclusivity, sub-licensing, royalty rates, and other provisions of any licensing agreement they enter; and (ii) implement calendars and related procedures to ensure that applicable provisions are complied with and deadlines are met.

The metaverse provides both opportunities and challenges for providers, marketers, and brand owners seeking to engage with new audiences and increase brand loyalty via virtual goods and services. As more brands move forward with metaverse marketing strategies, developing a sound trademark strategy will ensure maximum protection and flexibility for all stakeholders. A strong trademark strategy can also help emerging technology companies monetize their existing IP (brands) in the metaverse. For example, a video game company might capitalize on the goodwill of its existing in-game assets and license them out in the metaverse.

The information provided herein does not, and is not intended to, constitute legal advice. It is for general informational purposes only.

A trademark attorney specializing in emerging technologies can advise you regarding how to profit from your existing trademarks in the metaverse and related legal issues.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Heavy Meta: Privacy and Cybersecurity in the Metaverse

 1024 663 David Hoppe
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The metaverse is poised to become the biggest technological revolution of the 21st century. It is likely to change the way humans engage with each other, revolutionizing social interaction, building whole new economies, and ushering in a host of privacy and cybersecurity issues. Emerging technologies companies should be aware of these issues and take the necessary steps to mitigate risk as these markets enter gray or wholly unexplored legal territories. In this article, we examine some of the issues related to the areas of privacy and cybersecurity in the metaverse.

Privacy

The interconnected universe can be expected to collect, store, and rely on more personal data than ever before by unifying currently disparate personalized digital experiences that range from shopping to virtual travel, to entertainment, and information gathering. Metaverse providers will have access to even more personal data, including biometric responses, physical location, financial records, and even the appearance of users’ homes. FurtherMetaverse companies such as Mark Zuckerberg’s Meta are likely to collect personal information for individual identification, advertisement targeting, tracking through multiple channels, health monitoring (such as heart and respiratory rates), and others to optimize the virtual experience. Metaverse companies will combine and aggregate vast quantities of data that influence every aspect of our lives. 

Protecting user privacy presents a serious hurdle for metaverse, XR, and video gaming platforms, both from a practical and a legal standpoint. And the meta environment magnifies the cost of getting it wrong. 

  • Device and Headset Proliferation – According to Facebook whistleblower Frances Haugen, the metaverse will require people to put “many, many more sensors in our homes and our workplaces in addition to those attached to our bodies to generate fully interactive virtual reality experiences. A metaverse setup is likely to include added gear such as headsets and AR glasses which could present major privacy threats by bringing live cameras and microphones inside homes and offices. This poses challenges from a privacy point of view as it would give these sensors unprecedented real-time insight into the everyday lives of individuals. International Data Corp reports that shipments of AR and VR headsets more than doubled in the second quarter of 2021 to 2.2 million compared with the same period last year. The consultancy expects total headset sales to reach 9.7 million in 2021 and nearly triple again by 2025. Much of the growth is driven both by more sophisticated gaming systems and the use of VR in events, conferences, education, fitness, and the metaverse.
  • Collaboration and Interoperability – The primary purpose of the metaverse is to allow people to interact in a digital world, which means that each metaverse should be accessible from all devices and headsets. This has ramifications from a privacy standpoint since user data will be accessible across devices and platforms. To mitigate the privacy challenges arising as a result of universal interoperability, experts have proposed that technology companies agree to certain standards for a connected metaverse that can integrate among different creators. In the absence of such standards, technology companies will have to license the rights to use another company’s underlying technology to build its own metaverse. 

The metaverse poses significant privacy-related challenges. In the absence of specific laws to protect data privacy over the metaverse, emerging technologies companies should undertake specific legal measures to minimize the risk of privacy-related issues in the metaverse.  

Cybersecurity

The metaverse’s cybersecurity legal challenges are similar to those posed by the internet which, in turn, reflect those of society in general. According to experts, the metaverse is likely to give rise to entirely new cybercrimes due to its unique infrastructure. For example, a metaverse, which is heavily centered on the use of cryptocurrencies and non-fungible tokens (NFTs) can be a hotbed for financial cybercrimes such as fraud, theft, and money laundering, as well as “old-school” digital malfeasance such as phishing, ransomware, and hacking.

  •  Cheating and duping – There is a high likelihood of cheating and duping on the metaverse primarily due to the ease by which attackers can conceal their true identities behind multiple layers, screens, and avatars. Famous art dealer Sotheby’s has recently introduced Sotheby’s Metaverse which is aimed at digital art collectors. It offers a curated selection of NFTs chosen by the auction house’s specialists. The NFTs available on Sotheby’s Metaverse are verified and digitally tracked through a public ledger of the blockchain via Ethereum. However, just like in the real art world, collectors can easily be fooled by counterfeits, replicas, and prints that are minted by cybercriminals poised as legitimate authenticators.
  • Cybersquatting – The ease of obscuring one’s identity also enables would-be cybersquatters. Fraudsters can take advantage of squatting on .eth websites that use a legitimate company’s name. In this case, the cybercriminals leverage the goodwill or reputation of established businesses by creating Ethereum domain names and smart contracts that ostensibly belong to the victim organizations. Hence, transactions on the metaverse may not be safe as it is difficult to ascertain a user’s identity.  

In addition to the above, other questions must be answered before users can truly feel comfortable spending time in the metaverse and platform holders feel reassured that they will not be held liable for enabling security breaches or harboring cybercriminals:

  • How will metaverse cybersecurity be managed?
  • What requirements will apply with respect to keeping data secure?
  • How will regulation or site policies evolve to address deep fakes, avatar impersonation, trolling, and other cyber threats?  
  • What laws will apply and how will the various players collaborate in addressing this issue?

The metaverse poses complex questions that most likely require the amending of existing laws and regulations. Until then, having appropriate legal and technological measures in place can help mitigate risk and provide some degree of protection for metaverse users.      

Recently, Facebook’s metaverse has come under scrutiny for potentially violating users’ privacy. Haugen has argued that  Facebook’s metaverse (and the virtual reality world in general) could be addictive and lead to the stealing of personal information. To prevent similar allegations, Emerging technologies companies working in the metaverse space should be fully aware of the privacy law-related implications of the metaverse. These companies should consider developing their own metaverse (or virtual platform) privacy policies, personal data protection policy, data retention policy, data subject consent form, licensing agreements, and other legal documents in place. A law firm specializing in emerging technologies can help you in drafting these legal documents and provide you with guidance on the privacy and cybersecurity-related regulatory challenges posed by the metaverse. 

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

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