Metalaw: The Law of the Metaverse 

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What is Metaverse? 

From Facebook’s recent decision to rebrand as “Meta” to Epic Games’ billion-dollar investment in metaverse technology to Snap’s continuous development of an augmented-reality glasses prototype, the metaverse has dominated the news this year and is certain to continue to do so. However, what is it? There is no commonly acknowledged meaning of the term “metaverse,” and many regards it as an ambiguous phrase referring to an underdeveloped future of the internet. Almost all metaverse conceptualizations involve the usage of virtual reality (VR), augmented reality (AR), and avatars that are connected via a large network. Nonetheless, there are conflicting metaverse views. 

Law in the Metaverse 

Much of the implementation of current rules in the metaverse, as well as the possibility for the formation of new laws, remains unclear. Existing legal frameworks may plainly apply in some instances. In other circumstances, established laws become incompatible with new technology, and courts are challenged with unexpected challenges of applicability. In other instances, existing laws may be insufficient to curb undesirable behavior, necessitating the enactment of additional legislation and regulation. The breadth of all rules and regulations that may or may not be implicated in a metaverse is virtually limitless and may result in an infinite number of legal challenges. 

1. Intellectual property

Intellectual property problems are very certain to be significant among these legal difficulties and fact, the metaverse and other Web 3.0 initiatives have already encountered a number of intellectual property conflicts. In June 2021, the musical company Roc-A-Fella sued one of its co-founders, Damon Dash, attempting to prevent him from auctioning an NFT of Jay-Reasonable Z’s Doubt album cover. Roc-A-Fella asserts that it owns the copyright on the album cover and that Dash is not authorized to sell it as an NFT. 

In another instance, in 2018, numerous prominent people and celebrities sued Fortnite maker Epic Games, saying that the game improperly used each plaintiff’s copyrighted dance movements. Tracking and enforcing intellectual property in the virtual world has always been a tricky game of whack-a-mole, and we may anticipate similar difficulties in the metaverse. 

2. Virtual asset regulation

In the metaverse, virtual assets such as NFTs may be regulated under traditional financial regulatory frameworks such as securities, banking, money transfer, and commodities legislation. Due to the method in which certain blockchain-based assets are generated and traded, they may be classified as “investment contracts” and hence subject to securities regulations. When securities laws are applied, a complex collection of rules governing sales, trading, and other activities is triggered. 

Cryptocurrencies and tokens will definitely be used in the metaverse, and may be subject to these regulatory systems. The SEC is already grappling with how to apply securities rules to cryptocurrencies and tokens, and one SEC commissioner has suggested that securities regulations may apply to certain NFT initiatives, notably those that enable fractionalization or provide holders with a revenue stream. Along with securities laws, the issuing, trading, exchange, lending, and other operations involving in-world currencies may trigger the application of some regulatory regimes, such as those governing banking, money transmission, and other financial activities. 

3. Taxation

Likewise, when these assets are acquired and sold, they may be subject to a variety of taxes, including income and sales taxes. The Internal Revenue Service (IRS) of the United States of America (USA) has published advice explaining that cryptocurrencies are property from which profits are taxed. NFTs, it is believed, get a similar treatment. Indeed, the IRS has already sent a slew of subpoenas to cryptocurrency exchanges seeking information that might aid in the identification and collection of income taxes, and it would be unsurprising to see taxing authorities pursue metaverse enterprises in a similar manner. 

Another unresolved question is whether NFT and other metaverse asset sales are subject to state sales tax. While several jurisdictions have offered guidelines on how sales tax should be applied to digital assets, no state has released explicit advice on whether sales tax should be applied to NFTs. 

4. Regulation of conduct in the metaverse

Another significant problem is the legal boundaries of behavior in a metaverse and who will enforce them. Roblox has filed a lawsuit against content creator Benjamin Robert Simon, stating that Simon violated the Roblox terms of service and federal and state computer fraud and abuse statutes by participating in a range of aggressive activities toward other users. A beta tester for Facebook’s virtual reality platform Horizon World recently claimed that she was virtually grabbed in the Plaza, a virtual Horizon World gathering venue. Facebook has replied thus far by highlighting that user can block one another, but has not addressed the possible legal repercussions of such activities, which may require creative application of laws intended to combat physical world wrongdoing. 

5. Legislation governing gambling and lottery

Gambling and lottery rules, which normally control specific activities involving games of chance with prize rewards, may also apply to metaverse initiatives that include possibilities to win prizes through chance. For instance, several metaverse games include “loot boxes,” which are virtual unopened treasure chests that users may discover or purchase and open in order to acquire a randomized assortment of various virtual goods. Regulating loot boxes as a kind of gambling has already sparked controversy in a number of states. 

6. Privacy and cybersecurity

Two more developing concerns with metaverse initiatives are privacy and cybersecurity. Privacy is affected by actions involving personal data, such as data processing activities such as data collecting, usage, and transfer. Users may provide a variety of personal data to metaverse initiatives, ranging from basic identifying information to information on their mobility and activity in the metaverse. 

Metaverse designers should consider adopting privacy rules and corporate compliance initiatives to address these concerns. Having said that, applying current privacy regulations to the metaverse raises additional concerns. This problem will only get worse if more jurisdictions enact extensive privacy regulations – for example, the legislation in California, Virginia, and Colorado. 

Conclusion 

The metaverse opens up an enormous range of possibilities and raises a number of innovative legal challenges that must be handled. Metaverse platforms are still in their infancy, and the law-and-order concerns that will ultimately need to be handled have been barely scratched. These challenges are likely to become more prominent as these platforms develop and user use rises. The construction and growth of legal frameworks in this domain provide a chance to create new worlds with current governance frameworks that are unencumbered by historical baggage but informed by what has and has not worked in the past. 

Published By: Simran Mulani

Edit By: Khushi Thakur

Sahiti Annam
Sahiti Annam
Sahiti is a Law student pursuing BBA.LLB at Symbiosis International University, Pune. She also holds a Diploma in International Business laws & Indian Corporate Laws. Her primary interest areas are Bankruptcy Laws, Company laws, Blockchain & Data Protection Laws, Banking Laws, and Laws relating to Intellectual Property Rights. Having been a professional lawn tennis player and an avid sports enthusiast, she is capable of handling her wins and losses well. Her adaptability makes her an excellent team player.

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