I will be presenting a 90-minute talk on the legal implications of a metaverse and how the potential for the next phase of virtual worlds will be substantially different than those of Second Life and the earlier efforts.
The program will be presented at the American Bar Association, Business Law Section Cyberspace Committee Jan. 19, 2022. The program will explore 2021’s significant changes to streaming, gaming, and online social engagement with an emphasis on the rapid growth of virtual reality, augmented reality, and the implications of these emergent technologies on privacy, cybersecurity, financial transactions, commercial regulation, and contracting terms. I am sharing my initial approach to the talk and the paper which will accompany it here.
Introduction
The metaverse, as highlighted by the recent corporate name change of Facebook, owes its origins to Neal Stephenson’s Snow Crash (1992) or to prior works by Verner Vinge and William Gibson.[1] The metaverse has been used in an informal manner for the past three decades. Aspects of a metaverse are essential to world-building games like Roblox, to massively multiplayer online roleplaying games like Fortnite, Halo, and World of Warcraft, and to virtual worlds like Second Life.[2] These online environments allow users to interact with each other, to engage with computer-generated characters, and to play or perform activities using elements within the virtual environment. To foster the interaction among participants, each participant is represented by an avatar. The avatars may be designed to resemble the real-world user, to be highly fanciful, or to be anything in between.
The shift by Facebook to adopt Meta as its name and embrace virtual worlds has received a great deal of attention.[3] That attention alone is likely sufficient to spur additional companies to provide resources and innovations, making virtual worlds more significant in the videogame, social media, and ecommerce sectors. As a result of this growth, there will be an increase in attention by all other industry sectors.
The metaverse of tomorrow may not look like the virtual environments described in Ready Player One, Avatar, or The Matrix, but it is likely to look much more robust than the original Second Life. Advances in technology and shifts in culture have the potential to create an environment that is different rather than merely a faster and better-rendered version of what has gone before. The expansion of 5G wireless connectivity and embedded IoT products have the potential to make many household devices, vehicles, and machines become integrated into virtual worlds. The potential to use blockchain and nonfungible tokens to identify and transact with scarce resources in a virtual environment has the potential virtual property and monetize artificial in-world scarcity. These tools can also help stabilize and protect the value of in-world currencies and assets, an essential component of financial stability in a game or society.
Facebook (or Meta) has had a slew of corporate acquisitions suggesting where it sees at least some of this growth, including “a deal to buy Within, the company co-founded by VR pioneer Chris Milk, best known for its Supernatural workout app[;] … Unit 2 Games, which makes a “collaborative game creation platform” called Crayta; Bigbox VR, which makes a popular game for Facebook’s Oculus VR goggles; and Downpour Interactive, another VR game-maker.”[4] Facebook was extremely successful when it incorporated Zynga’s Farmville and Words with Friends into its social media environment,[5] so the use of interactive gaming into the space controlled by Steam, Epic Games, and others.[6]
Improved goggles and the development of augmented reality glasses (remember Google Glass) will improve the immersion. Haptic sensors used in gloves, keyboards, and desktops will increase kinetic feedback. Increased computing power in cell phones along with chip availability may make one’s cell phone into an always-on replacement for desktop and laptop computers. The expanding skill-set of Siri, Google, and Alexa will create a different kind of computer assistant. Together, these technologies will make the virtual world as different from Pong as a laptop from an IBM Selectric typewriter.
Technological improvements such as those listed above are necessary but not sufficient for the creation of a fully realized metaverse. The other aspect of the change must come from social readiness, demand, and predisposition for use. Again, there are strong indicators that those changes are coming. The massive expansion of online gaming has led to a cultural shift among the millions who spend time in these environments, such as “(1) competitive integrity, (2) wealth sharing, and (3) labor.”[7] Despite the overwhelming success of gaming, however, the metaverse will be built on more.
Expansion of at-home work accommodations and at-home educational environments makes use of Zoom, Slack, Teams, Canvas, and similar interactive environments a core part of one’s work and learning environment. Separating work or school from play environments may no longer be accomplished using physical spaces. At-home workers and students have enjoyed needing to only dress the half of their bodies in view of the camera. Privacy concerns have led many users to create virtual backgrounds. High-quality digital imagery could easily replace our live heads with photorealistic animated headshots that do not need make-up, clothing, or lighting to make us look professionally present in classes and meetings. Populating our meetings with photo-realistic avatars could have a transformative effect. Standardizing the use of non-representational avatars could also help organizations and communities deal with implicit biases involving race, gender, and sexual identity. After all, if everyone online is a dog, then perhaps there is some truth to the statement that “I don’t see breed.” This is not to suggest that all these things will come to pass or that they will all occur in the same virtual world. But they highlight the potential for a change in kind rather than degree with a fully realized metaverse.
Over the course of the next months or years, most of these technological innovations will be possible. Which of these changes will be successful will depend on a number of factors, most of which will depend on the public’s perception of the innovation rather than any technological merit. Given the continued expansion of the videogaming industry, the societal impact of social media, and the shift to technology-mediated work and learning environments, however, it is a reasonable expectation that some of these shifts will take place, creating new markets worth billions of dollars and triggering significant legal, business, and regulatory issues.
The Legal Implications – A Glimpse and a Roadmap
The expansion of virtual worlds will take place within an environment largely defined by intellectual property rights of copyright, trademark, patent, trade secret, and publicity rights.[8] Each of these doctrines is well established, making it likely that the application of these intellectual property rights will be generally predictable within the metaverse environment. Beyond the intellectual property regime, however, there may be some areas where the expansion of virtual worlds to large-scale adoption of a metaverse will have unanticipated implications and complications.
Unlike the “real” world, the interactions within the metaverse are framed by contractual relations between the site owner and the participants in which the contractual agreements and terms of service take on an extremely important role. There have been numerous examples of users on platforms challenging the enforceability of end user license agreements or terms of service agreements.[9] When the host is a gaming company such questions are generally treated as simple contract issues. But if the use of virtual worlds develops into “The Metaverse,” a single, ubiquitous platform or interconnected series of commercially-owned platforms, then the market power of the host will raise additional questions regarding the unconscionability of any terms imposed by the all-powerful system owner, the potential to treat the platform as a common carrier, or to redefine and regulate the environment to avoid unfair and deceptive trade practices.
To the extent the metaverse is used by governmental agencies, then the spaces operated and managed by the government might be considered to become designated public fora within the proprietary metaverse.[10] Further distinctions may be needed when a government official is acting in a private, nongovernmental capacity from the person’s actions in an official capacity.[11]
As the metaverse grows more robust in user experience, it is more likely to be the marketplace for commercial transactions. If the world uses in-game currency, then transactions are unlikely to trigger significant legal scrutiny. But if the in-game currency can be converted to money or items of value, then many additional considerations need to be made.
In-world wagering becomes online gambling. Transferring funds within the game will be subject to money transfer laws. Platforms might also be subject to the Uniform Money Services Act or similar state laws regulating currency exchange and wire transfer services. In game banking and investment services will likely be subject to the regulations governing real-world activities. Depending on the financial transactions that can occur within the game, potentially every financial regulatory body could claim jurisdiction over some aspect of these financial transactions.
Whether investments create value through the efforts of the users or the efforts of others, many of the activities have the potential to create, store, and transfer wealth. State and federal regulators have already been grappling with the legal implications of digital assets being transferred by operation of law, including bankruptcy and wills. To the extent that nonfungible tokens and cryptocurrencies are also transferred and referenced within the metaverse, the mapping of these assets to their historical real-world counterparts will also become important. The need for predictability and stability will require state and federal regulators to provide concrete answers.
The Securities and Exchange Commission will continue to have jurisdiction over the sale of securities by Meta and the publicly traded corporations which offer virtual world platforms. In addition, the collaboration by participants within the virtual world to monetize the digital assets created within the platform will trigger securities regulation when the activities are collaborative, but the value is not created by the effort of the individual users.[12] State blue sky laws may play a role in protecting the public from unscrupulous in-world get rich quick schemes, but only to the extent there is state jurisdiction over the activity.
The metaverse will likely become home to many online pastimes beyond role-playing games. These will include sports wagering and fantasy leagues, gambling, the sale of drugs and illicit items, and provision of adult entertainment. Some of these “vice” activities are more heavily regulated than others, and it is likely that the state and federal regulators of such activities will seek to regulate these activities. Financial services companies will not provide financial services for illegal activities and tend to avoid those companies which may trigger such regulatory scrutiny. Uses such as these could make collaborations by the financial services sector more difficult. However, it is also possible that the lure of the metaverse payday will encourage the financial sector to look beyond the sector of illegal activity in order to be part of the broader transition. Concerns over illegal activities might also drive corporations to segment and separate their operations, creating an internet of virtual worlds rather than a unified metaverse. Interoperable virtual worlds would help more risk-averse enterprises participate without taking on all the challenges of an unregulated, virtual wild west.
At the other end of the use case, to the extent the metaverse becomes a platform for online business meetings, trainings, and classroom settings, the platforms and the business operating on those platforms will also be required to comply with various ADA accommodation obligations for those consumers who have a medical impairment or health issue. The structure of the metaverse must take into account the needs of those users who are hearing impaired, visually impaired, have motor-skill limitations, or have other special needs. To the extent the metaverse is offering an alternative to a public accommodation, the provider of that service must take reasonable steps to assure that all customers are able to take advantage of that service.
This last set of obligations, in turn, requires the providers of the metaverse platform to address the social responsibility as well as legal responsibility it will have in managing the character and tone of the metaverse environment. Through enforcement of the terms of service, congressional adjustments to the Communications Decency Act § 230 safe harbor, and updated privacy laws, the success or failure of the metaverse may well depend on the extent to which privacy rights are protected and harmful trolling behavior is curtailed. Like enterprises on the current internet, each service provider will have ongoing obligations to protect the privacy and security of the information and data of its customers as well, making compliance with applicable privacy and security laws an essential component of each company’s metaverse strategy.
The challenges for operating in the fully realized metaverse are daunting and it will likely emerge in fits and starts over many years. But as well the internet’s transformation of media, gaming, commerce, and financial services, the potential for an immersive next stage in communications is anticipated too heavily for it to remain fiction. Someone will soon be willing this reality into existence. As such, the legal community must be ready to face what that reality will bring and help foster the best version of this next future.
[1] See Ethan Zuckerman, Hey, Facebook, I Made a Metaverse 27 Years Ago, The Atlantic, Oct. 29, 2021, https://www.theatlantic.com/technology/archive/2021/10/facebook-metaverse-was-always-terrible/620546/. (“[Stephenson’s] metaverse owed a debt to Vernor Vinge’s 1981 True Names and to a series of William Gibson novels from the ’80s. Both of those authors owed a debt to Morton Heilig’s 1962 Sensorama machine, and on and on we go, back in time to Plato’s shadows on a cave wall.”)
[2] See Jon M Garon, Playing in the Virtual Arena: Avatars, Publicity and Identity Reconceptualized through Virtual Worlds and Computer Games, 11 Chapman L. Rev. 465 (2008).
[3] See, e.g. Introducing Meta: A Social Technology Company, Facebook, Oct. 28, 2021, https://about.fb.com/news/2021/10/facebook-company-is-now-meta/ (corporate press release); Kevin Roose, The Metaverse Is Mark Zuckerberg’s Escape Hatch, N.Y. Times, Oct. 29, 2021, https://www.nytimes.com/2021/10/29/technology/meta-facebook-zuckerberg.html; Peter Kafka, Facebook is Quietly Buying up the Metaverse, VOX, Nov. 11, 2021, https://www.vox.com/recode/22776461/facebook-meta-metaverse-monopoly.
[4] Kafka, supra note __.
[5] See Danie Victor, FarmVille Shuts Down, but Practices It Instilled in Users and Developers Live On., N.Y. Times, Jan 1, 2021 at B4, https://www.nytimes.com/2020/12/31/technology/farmville-zynga-facebook.html (“In early 2009, when Facebook was still nascent in its efforts to swallow as much of the internet as possible, online games were not yet the behemoth they would become. Then, that June, came FarmVille.”); Chris Morris, The Most Important Friendship: Facebook and Zynga, CNBC, May 15, 2012, https://www.cnbc.com/2012/05/15/the-most-important-friendship-facebook-and-zynga.html. (““games from Zynga have generated the majority of our payments and other fees revenue,” the company said. The rest of the revenue was tied to advertising. Zynga purchases a lot of ads on Facebook to promote its titles – and its apps generate a lot of page views….”).
[6] Shani Shisha, Fairness, Copyright, and Video Games: Hate the Game, Not the Player, 31 Fordham Intell. Prop. Media & Ent. L.J. 694, 696 (2021) (“video games now make up the largest entertainment market in the world by an order of magnitude.”).
[7] Shisha, supra note __ at 700.
[8] See, e.g., E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095 (9th Cir. 2008) (trademarks); Hart v. Elec. Arts, Inc., 717 F.3d 141 (3d Cir. 2013) (publicity rights); Brown v. Entm’t Merchants Ass’n, 564 U.S. 786 (2011) (free speech rights); Pellegrino v. Epic Games, Inc., 451 F. Supp. 3d 373, 387 (E.D. Pa. 2020) (false endorsement); Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992) (copyright); National Basketball Ass’n v. Motorola, Inc., 105 F.3d 841(2d Cir. 1997) (copyright). See also Sophie Goossens, Christine Morgan, Cem Kuru, Fred Ji, DJ Cespedes, Protecting Intellectual Property In The Metaverse, 33 Intell. Prop. & Tech. L.J. 11 (2021); John Perry Barlow, A Declaration of the Independence of Cyberspace, 18 Duke L. & Tech. Rev. 5, 6 (2019); Jessica Litman, Imaginary Bottles, 18 Duke L. & Tech. Rev. 127, 128-29 (2019); Mark A. Lemley, Place and Cyberspace, 91 Calif. L. Rev. 521 (2003).
[9] E.g. MDY Industries, LLC v. Blizzard Ent, Inc., 629 F.3d 928, 939 (9th Cir. 2010); Blizzard, Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593, 595 (E.D. Pa. 2007). See also Kevin Carr, Digital Assets & License Protections in an Age That Denies Class Actions and Mandates Arbitration, 2021 J. Dis. Res. 335, 352 (2021).
[10] See, e.g., Knight First Amendment Inst. at Columbia Univ. v. Trump, 928 F.3d 226 (2d Cir. 2019); Davison v. Randall, 912 F.3d 666 (4th Cir. 2019).
[11] See Lindke v. Freed, 20-10872, 2021 WL 4427170, at *5 (E.D. Mich. Sept. 27, 2021) (“Courts have approached this argument by examining whether the public official acted under color of state law in maintaining the social media account, thereby triggering First Amendment concerns.)
[12] S.E.C. v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946) (an “investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”)