Decoding The Metaverse Part 4 – Metaverse Law & Regulatory Challenges

We look at Metaverse Law & Regulatory Challenges. Where will businesses have to ensure compliance with government policy in the metaverse?

In part 3 of our metaverse series we looked at how businesses can start implementing a strategy for the metaverse.

But part of a metaverse strategy will be dealing with regulatory frameworks and policy. Although there are no such frameworks dedicated to the metaverse right now, they are on the way. So this week we will look at possible legal and regulatory challenges the metaverse could present.

Plus we will take a general look at the financial impact of the metaverse. What can we expect in the next few years?

Let’s find out.

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What Impact Will The Metaverse Have? Let’s Follow The Money

To chart the financial implications of the metaverse, it can be useful to look at other technology. AI (artificial intelligence) is getting a lot of attention at the moment, but that was not always the case.

In 2015, total global AI investment was around $12.75 billion dollars. By contrast in 2021, this investment figure stood at $93.5 billion dollars. This number will only increase in the next few years.

The economic impact of the metaverse could be even greater than AI. This is because of its vast number of use cases and the fact its appeal crosses all kinds of demographics. It appeals to all genders. It crosses geographical boundaries and it can pull in users from all generations. People make digital purchases already. So the impact of the metaverse will be huge.

McKinsey research suggests that the metaverse may generate $5 trillion dollars before 2030. This is across both consumer and enterprise use cases.

The metaverse is not far away. But that means legal and regulatory challenges are also around the corner. But what could they be?

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Metaverse Law & Regulatory Challenges

As the metaverse has many different uses, for both consumers and companies, it poses regulatory challenges. But the following areas are where the metaverse will see increased scrutiny from lawmakers.

Metaverse Law & Regulatory Challenges – Data & Privacy

The biggest area of potential regulatory impact for the metaverse is in data and privacy.

Due to the nature of the metaverse, it opens up far more possibilities for personal data processing than the internet we use now. Our facial expressions, gestures, voices and interactions will be in the metaverse. Where platform holders can process them and use them.

Existing legislation like GDPR or PDPA here in Thailand could apply to the metaverse. But there is heavy emphasis on “could” in that sentence. Lobbying by huge Silicon Valley firms will take place. If history is a guide they will try to weaken any legislation that targets the metaverse.

But the appetite among lawmakers right now is to heavily scrutinize the biggest players in tech. Due to the international nature of the metaverse, there are huge data compliance implications. GDPR applies to the location of the subject, not where the data is processed. So world builders (like Meta), experience builders (brands in the metaverse space) and anyone providing metaverse services will need to deal with the transfer and processing of data. 

For lawmakers there may be an appetite to curb the new types of personal data processing made possible by the metaverse. That means adjustments to existing legislation. Or even brand new types of legislation, designed with the metaverse in mind.

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Metaverse Law & Regulatory Challenges – Intellectual Property

Next to data and privacy, intellectual property could be a serious headache for metaverse businesses.

The challenge here has several different factors. One applies to creators in the metaverse space. The other applies to brands that operate within that space.

Creators & User Generated Content IP

To start with, determining the identity of metaverse creators could be much more difficult. For example, say a user produces a creative work. But that process also involves decentralized collaboration with other anonymous avatars. This opens up questions of who owns the intellectual property to that user created work?

Creative DAOs or cooperatives could be the answer here. But that opens up other potential legal headaches. If one user has a justifiable case for key ownership of an idea, would that blow up the DAO if they wanted to legally enforce that ownership?

According to PWC, the European Commission is already considering reforms “regarding co-created intellectual property resulting from new technologies”. This could mean some legal headaches for big metaverse companies.

Counterfeit Goods

For brands, counterfeiting is a huge concern. This could explode in the metaverse. For example, is a fake Burberry bag seller in the metaverse violating Burberry’s brand IP? How would lawyers for Burberry even find the users who counterfeit goods? Do digital assets even qualify as goods under existing IP laws? This is a question for both companies who want to get involved in the metaverse and for lawmakers.

In fact luxury fashion brand Hermès has already faced these issues. Hermès won a lawsuit in 2023 against an NFT creator. This could provide a precedent that protects some brands against trademark infringement.

This is an issue for brands and experience builders who want to take part in the metaverse. If your business falls under this category you should be filing for metaverse trademark protection right now.

Metaverse law - Wooden blocks, one with "regulations" written on it.

Metaverse Law & Regulatory Challenges – Financial Regulations, Products & Property

Virtual property is already being bought and sold for huge amounts. But these kinds of transactions open up huge regulatory questions. For example, does existing land law apply in this case? Real-world property law covers against, for example, trespassers. Would this be transferable to the metaverse? Could someone steal your property? If someone did, how can you verify ownership? Will users be able to take out mortgages on virtual property?

Will there be metaverse pension products? Or internal metaverse stock markets?

All of these questions seem very abstract and hard to conceptualize. But they are very real examples of how lawmakers will need to protect metaverse consumers.

Some of this leads into cryptocurrency regulation. There is an increasing appetite to regulate the cryptocurrency space. With the IMF making five key recommendations on cryptocurrency regulation in 2022. Lawmakers have concerns about real-world contagion from both cryptocurrencies and the metaverse.

The flipside is that fintech companies will see huge opportunities to sell metaverse financial products. As the metaverse matures, there are big opportunities but also serious hurdles for lawmakers to address.

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Metaverse Law & Regulatory Challenges – Transactions & Marketplaces

Digital marketplaces are already under regulatory scrutiny. The recent EU marketplace seller taxation changes show this. As the metaverse could have an infinite number of marketplaces and sellers, this is another regulatory headache.

How will governments tax metaverse creators and sellers? Will metaverse platform holders or world builders be liable for reporting taxable transactions? This is a concern for users, world builders and businesses operating in the metaverse. 

It is certain that lawmakers will look at metaverse transactions for tax purposes. Existing legislation, like the EU example above, may already cover this. But it is going to be something all metaverse businesses need to be aware of.

Metaverse Law - Illustrated image showing cyberbullying.

Metaverse Law & Regulatory Challenges – User Interactions & Community

This is a dark subject. But, we have seen how bad things can get already on social media. Toxic users and cyberbullying in the metaverse could be even worse.

Legally regulating the behavior of metaverse users will be a huge undertaking. Wherever people congregate, bad actors can be present. So metaverse world builders/platform holders need to put user safety first.

There have already been examples of virtual sexual harassment. As use of haptic technology increases, this will become an even more urgent issue to address. It will not be easy to ensure offenders face real-world consequences for their actions. So lawmakers and platform holders must cooperate to ensure the safety of all metaverse users.

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Do you need to prepare for the metaverse? MAQE has years of commerce experience and knowledge of complying with government financial regulations in sectors like insurance. Get in touch via [email protected]