Irma Dzinic June 29, 2022September 6, 2023 The recent announcement that Dubai’s Virtual Assets Regulatory Authority (DVARA) has entered into the metaverse with the establishment of its Metaverse HQ made it the first regulator to have a presence in the emerging digital space. DVARA opened its metaverse-based headquarters in the virtual world ‘The Sandbox’. UAE showed a long time ago that it is a hub of innovation not only in the Middle East but in the whole world; thus, this news did not come as a surprise to many. A few months ago, the Ministry of Health and Prevention (MoHAP) had announced that they developed a new metaverse platform, which will basically allow people to have virtual access to their medical care. In April this year, Dubai World Trade Centre launched the first metaverse incubator in the Middle East – Meta Incubator. Recently DAMAC Group has also announced plans to launch into the metaverse and build its own digital cities and invest capital up to $100 million for this project. Dubai’s plans to invest in creating a futuristic, human-centred version of the city are confirmed by the recent announcement from the head department of Dubai Municipality. It has been announced that Dubai is looking to capitalize on opportunities created by the metaverse and plans to work with investors and private sector companies on creating a city in the metaverse. All this makes it abundantly clear that UAE will be the hub of the metaverse in the near future. In order to understand why DVARA entering the metaverse is extremely important for the UAE economy, it’s important to understand what is metaverse and how will it operate and affect the current world. Therefore, we will try to answer a few very common questions related to the metaverse. What is metaverse? According to many experts, the easiest way to explain what is metaverse is to define it as a 3D internet model. Basically, it can be described as the next version of the Internet that combines several technologies, including augmented and virtual reality, and blockchains, along with concepts from social media, which will allow users to create an online virtual world that is parallel to the world we live in. It is important to mention that currently, we have several metaverses such as the SandBox, Decentraland, Roblox, Zepeto, SuperWorld, Cryptovoxels, Somnium Space and many others. Each virtual world uses specific blockchain technology and has its own cryptocurrency. It is extremely important to mention that in the metaverse, we don’t have a central authority controlling this virtual world, which means that metaverse is a decentralized platform where users are free to create their digital assets and experiences. What is the difference between the metaverse and augmented/virtual reality? Often considered as the same thing, the truth is that they are quite different. Augmented reality and virtual reality are the technologies for creating 3D environments with certain purposes or functionalities in mind. On the other hand, the metaverse is an open, shared, and limitless virtual world created by users. It is important to mention that no one owns the metaverse. Similar to the Internet, it is a virtual space with no defined owner that can be expanded accordingly, with internationally adopted regulations keeping it in check. In order to understand the metaverse and the difference between the Internet and the metaverse, it is important to understand the evolution of the web, which is illustrated below. How will metaverse affect different industries? It is evident that companies from all industries will try to find their place in the metaverse, hence for some industries with certain changes and deviations in comparison to the real world. For example, shipping companies would always need to operate in the real world, but they will have a chance to explore new ways of interacting and engaging internally with existing and new clients, then take advantage of plenty of marketing opportunities in the metaverse and to incorporate meetings inside virtual worlds. If we look back into the past and development of the retail industry through the years, it is completely logical to expect that the retail industry will be one of the first industries that will move into the digital world. For the retail industry, we can expect that metaverse will be a combination of physical shopping and online shopping. A lot of brands have already started their steps into the metaverse. For instance, Gucci recently bought a virtual land in the SandBox to expand its Gucci Vault (online concept store), and the plan is to create an interactive consumer experience. Nike joined this trend as well, where they launched a virtual world of sports – Nikeland in Roblox. Nike has recently acquired Rtfkt, which is a leading brand in NFT creation. There will be assets that will only exist in the metaverse and will have real monetary value; therefore, users will be able to build and buy assets. These assets will be in the form of the NFTs (Non-Fungible Tokens), and it could be literally anything starting from clothes, art, land and other items. It will be possible to pay for assets with cryptocurrencies. NFTs play a massive role in the retail industry and is the main element that would make the retail in the metaverse possible and profitable. Now that we have understood is the concept of the metaverse, several questions arise regarding the law, jurisdiction, regulations, and legal implications. The issue of jurisdiction One of the major legal issues with all concepts of the metaverse is jurisdiction and where it lies. Currently, there are no laws specifically regulating the metaverse, meaning that even UAE, with its DVARA as the world’s first regulatory authority that entered the metaverse, has not yet recognized the metaverse as a separate or different jurisdiction or as a standalone jurisdiction, or even, a jurisdiction where current UAE laws would apply. However, the general laws that are applicable to the Internet can also apply to the metaverse, but only in the case that we can connect the claim with the real world. In the group of general laws that can be applicable to the metaverse, we have intellectual property law, copyright law, defamation law and many others. When we talk about general laws, we should mention that virtual worlds and other Web 3.0 projects have already witnessed a few intellectual property disputes raised, which is proof that intellectual property disputes will be one of the main legal issues. One of the most famous legal battles in the metaverse/NFT is definitely in the Hermès v. Mason Rothschild and Nike v. StockX cases, where are raised allegations of infringement of famed trademarks. These cases should be a ‘wake-up call’ for the courts to understand what NFTs are and what is the value of NFTs if they are tied to works of art or underlying products. The creation of new types of digital assets, such as digital collectables documented via NFT, has already raised a lot of intellectual property issues together with the scope of the rights for using the content held by the NFT owner. There are already a few different licensing models that are developed by content licensors and NFT creators. For instance, the holder of an NBA Top Shot Moment NFT will receive a limited license, which approves the use, copy and display of the underlying content but only for personal, non-commercial use. Another legal implication raising in the metaverse might be connected to the use and exploitation of previously acquired or licensed intellectual property rights for acquirers and licensees, which they obtained long ago under other agreements that may predate the Internet. New legal challenges and questions will arise about the scope of rights licensed will have in the context of the virtual worlds, especially because of the unique ways that the metaverse operates. When we talk about other forms of intellectual property law that is applicable in the metaverse, we should mention copyright law which usually applies to content that users create — such as digital artwork, virtual properties and avatars. On the other hand, as infringing on the copyright, we can also consider if we create something in the virtual world that is like a copyrighted work in the real world. Only the owner of a copyrighted work and those who they authorized have the exclusive rights to display the work, perform, distribute and reproduce. If it comes to violating any of these rights, it is possible to be sued for copyright infringement. For instance, if an avatar we created is based on a copyrighted character, the owner of the copyright can ask the court to order to stop distributing and creating avatars based on their work. Therefore, the owner of the copyright may file a lawsuit for infringing their copyright and seek monetary damages as one of the remedies. It is important to mention that making false accusations and damaging statements against an organization or person in the metaverse can easily lead to being held liable for defamation in the real world. Defamation law can be applied in metaverse to the content created by the user, which may damage the reputation of an organization, company or another person. Therefore, creating an avatar in metaverse that can be critical for a certain company’s business practice and reputation. The company can seek the court to order to stop distributing and creating avatars that may cause damage to their business. Also, the company may seek monetary damages. With the aforementioned, we recognize that the issue of jurisdiction in the metaverse creates a lot of predicaments for government authorities as it can easily be considered a ‘grey area’. It is important to understand that transactions in the metaverse are generally monetized using cryptocurrency or NFTs, and every metaverse owns its own currency. For instance, if you are in the Sandbox metaverse, we would need SAND tokens to transact. Now, the question arising is how disputes can be resolved since there is no jurisdiction over metaverse. For example, if somebody hacks your digital wallet and spends your coins in the metaverse, can we file a claim in the country where we are based at that moment? As far as we can treat it in the existing world, this is data theft; therefore, in the metaverse, we cannot apply it. Hence, when we talk about data protection, security and privacy, we should understand that the IP issues from the old economy pertaining to the protection, patent issues, ownership and definitions of IP are only a few of the concerns and potential challenges. One of the main concerns is avatar identity theft, then how to address deep fakes, leading further to new ways of attacking and trolling from wallet integration. Web 3.0 will release new levels of the content generated by machines, such as digital objects and avatars. We may experience disputes challenging the validity of AI-created IP and avatars. As many approaches from the real world are impractical to apply in this new economy, it is completely logical that we will experience a massive change when we talk about ownership, levels of sensitivity, sharing, and new formats of data and control. New categories of our personal data will be exposed in metaverse as gestures, facial expressions and all other varieties that avatar can produce. There might be a chance that the EU’s General Data Protection Regulation (GDPR) might be applicable. Still, again there is raising the question regarding the ‘no boundaries’ nature of the metaverse. As we know, the GDPR applies based on the location of the subject when their data is processed and not on their citizenship or home country. This creates confusion as we don’t know how to approach it in order to determine which jurisdiction metaverse falls under. Should we look at the location of the avatar itself as the avatar’s data will be processed, or we should look at the location of the person who is operating the avatar? And if we take the first approach and we look at the avatar’s location, how can we determine which jurisdiction is applicable in the metaverse? Nonetheless, recently there have been a lot of cases that are touching on the issue of jurisdiction in the virtual worlds. For instance, let’s remember the Ion Sciences vs Persons Unknown and Others, where the English Commercial Court granted an injunction in favour of Ion Sciences, which is registered in England and Wales. After considering whether the court had jurisdiction over the Persons Unknown, Justice Christopher John Butcher decided that the applicable law to determine the dispute is the law where is Ion Sciences domiciled, who is the original owner of the crypto asset. English commercial court granted ancillary disclosure order against unidentified defendants, worldwide freezing order, and a Bankers Trust order out of the jurisdiction on the Kraken and Binance cryptocurrency exchanges in Ion Sciences vs Persons Unknown and Others last year. Although the claimant’s witnesses were based in England, all the documents were in English, and the Bitcoin was transferred from England, so basically, the court knew where the Bitcoin was located at the time prior to the alleged fraud and misappropriation. The judge stated that it was extremely difficult to identify which forum could hear this case because the defendants, as unknown, could not be located. Another legal implication in the metaverse is money laundering. Metaverse is a great space for money laundering because transactions are happening anonymously in a decentralized and encrypted space over the blockchain, which means that nobody can track where the money is coming from. On the other hand, we have an issue of another nature. For instance, we have ongoing business in the metaverse, where we generated large amounts of cryptocurrencies, and we decide that we want to cash out crypto, meaning to exchange crypto into fiat and later deposit it at a local bank. The first thing that will happen is that the bank will ask for the source of those funds; for this reason, an audit might take place. As the source of money from a business running in the metaverse, where all transactions are virtual, is anonymous and encrypted, then there is no VAT, tax or government authority that can audit this business. Another worrying fact is that metaverse is a boundless marketplace which means that easily it can become a ‘dark web marketplace’ as was ‘Silk Road’ that dealt with illegal weapons, drugs etc. Having that in mind, we should mention that we never know who is sitting behind avatars, so basically, we don’t know with who we are interacting. This may enhance the probability of criminal and abusive actions, i.e., sexual harassment, especially when we have individuals who are aware that they cannot be held responsible for actions that take place in the metaverse or any other virtual world, as they know that their actions cannot be proved. Nonetheless, with all the aforementioned issues, one of the main concerns will be antitrust. As the centralized metaverse is configured as an extended corporation, i.e. Facebook’s Meta or Microsoft’s metaverse, and as these companies could end up having some degree of collaboration, it might create the feeling that large tech companies are controlling the virtual world. As we know that the antitrust standards are defined in the pre-metaverse economy, this kind of collaborative nature could lead us to more issues, precisely antitrust concerns. Another concern is that this decentralized configuration of the virtual worlds might masquerade as centralization, which means control behind the scenes, which is opening more issues and making it harder to monitor, enforce, track or even report. Will this lead to new ways of practising law and the introduction of a new generation of lawyers? It is entirely logical to expect that metaverse will introduce us to the new ways of practising law. With the metaverse becoming mainstream, it will not be surprising to see new generations of lawyers- avatar lawyers show up in these virtual worlds. We can expect that AI-driven lawyers will be extremely different from the digital twin of a human lawyer, with different case types, solutions, issues and outcomes which will be based on specific factors. Avatar Lawyers could provide services like company incorporation, virtual legal firms and arbitrating digital land disputes. Rights to practice as also needed knowledge, skills and credentials of avatar lawyers still must be established and will need to be agreed upon in the metaverse. An interesting fact is that ‘Grungo Coarulo’ – a New Jersey-based law firm, has already established its first office in the metaverse; therefore with expansion of metaverse we can expect that many law firms will do the same. Conclusion Since all ideas about the metaverse lead to a world with ‘no boundaries’ – a virtual world with complete freedom and no central authorities controlling it, the main concern that rises now is – will high interest of investors from the real world and their investment in metaverse require the involvement of existing jurisdictions which might lead to the major changes in the main idea of the concept of the metaverse? This remains to be seen with further development of the metaverse and the law applicable to it. The interplay of different laws and regulators might be needed to address the legal issues raised by the metaverse. Should you require further information on this topic, please contact us at info@fichtelegal.com.
