Legal Business Blogs

Sponsored briefing: The metaverse law – are we ready for the challenge?

We are witnessing unexampled times… In the light of the pandemic, there have been economic ramifications in Turkey and all around the world. Yet, this was also an opportunity for finding tools in order to ensure business continuity, since no one had any idea on when the pandemic will cease. Thankfully, we are in an era where we can get the most out of technological developments. In that regard, virtual interactions have become an essential part of life for businesses. Needless to say, the legal sector is no different than any other sector. The trend has even accelerated during the pandemic, with both clients and law firms inclining towards video-conferencing and other appropriate forms of virtual interactions, eg, e-hearings and e-meetings.

Not long ago, interest in virtual interactions has focused on the ‘metaverse’, which seems to be the latest fashionable concept in tech viewed as a form of cyberspace. What makes the metaverse different? Well, basically, it allows us to immerse a version of ourselves as avatars in its environment via augmented reality or virtual reality. However, at this point, lawyers are inclined to ask who or what will govern the metaverse?

First things first, as in the real world, there will be several transactions to be made in the metaverse. Generally, those transactions will be monetised using cryptocurrency or NFTs (non-fungible tokens) and will raise some interesting legal questions. Think of a simple sale-purchase agreement concluded in the metaverse. Perhaps existing legal schemes may apply to a certain degree but the issue becomes problematic when it comes to digital products. Indeed, for instance, what kind of ownership is precisely included in a digital art transaction, if the digital product was created through use of artificial intelligence? Who will be the true owner? The avatar or the legal person operating that avatar? Can a legal persona even be attributed to an avatar? What if the legal person operating that avatar chooses to mask his/her identity behind an avatar that may not easily be traced? The scope of all laws and regulations that can or might be implicated in a metaverse is practically unbounded and might raise countless legal issues.

Apart from transactions, another important issue concerns the legal limits of conduct in a metaverse. We might have situations where some kind of altercation occurs that would ‘break the law’ if it took place in the real world. This kind of incident could break tort law or criminal law. Take for instance an avatar assaulting another. Will criminal provisions of ‘assault’ be applicable? Or if we take one step back, could we even make an avatar responsible for its actions in the metaverse? If so, that would mean that we need to attribute a legal persona to the avatar allowing them to sue or to be sued. Even in that case, how are we going to ‘prove’ harm or loss suffered by an avatar since there will be no actual bodily harm? That would be complicated…

Nevertheless, it seems there are certain measures that companies may take, in order to be ready before the ‘metaverse’ becomes mainstream. No need to be a soothsayer to foresee that intellectual property disputes will feature prominently among the legal issues concerning the metaverse. Back in 2018, several reputable figures and celebrities filed lawsuits against Epic Games, developer of Fortnite. The relevant celebrities alleged that the game implemented each claimant’s dance moves without their consent/permission, although those dance moves were trade marked.

As you can see, while the scope of intellectual property protection in the metaverse is not crystal clear, the new NFT market has already witnessed a considerable number of intellectual property disputes. Therefore, companies and developers must carefully consider whether they possess the required intellectual property rights for use in a metaverse.

Apart from intellectual property disputes, ownership rights and virtual assets will also be of significant importance. For instance, will NFTs be subject to traditional regulatory regimes (eg, securities, money transmission, banking and finance, and commodity laws)? Application of the existing provisions may trigger a complex set of regulations, since it is obvious that the metaverse will most probably use cryptocurrencies and tokens, as a method of payment. The Capital Markets Board in Turkey is already struggling with the proper application of securities laws to cryptocurrencies and tokens; therefore, issuance, trading, exchange, lending and other activities concerning in-world currencies might trigger certain regulatory regimes.

In addition, when the mentioned assets are sold and/or purchased, they could be subject to taxation, including, but not limited to, income and sales taxes which currently constitutes a grey area.

Furthermore, when it comes to online betting or gambling, the issue becomes more problematic. Turkish legislation does not allow gambling of any kind, while betting is permitted as long as it is licensed by the authority appointed by the state. Yet, are we going to sanction gambling in the metaverse as well? If we do permit it, how would the gains be reflected into real world?

Another emerging issue relating to the metaverse is ‘privacy’ including collection, use and transmission of personal data. It is obvious that the metaverse will collect a great variety of personal data from users that will require privacy policies and compliance programs.

In parallel with the technological development, opportunities in the metaverse are likely to evolve. However, before trying to evaluate what could a company do in order to best protect its rights before the metaverse becomes mainstream, (as quoted very well in a DLA Piper article) we should acknowledge that ‘Discussing the metaverse in 2022 may be a bit like discussing the Internet in the 1960s’. Still, there are certain measures that companies may take in order to be ready for the new buzz:

  • Implement a financial system that does not exclude cryptocurrency, blockchain technology and NFTs.
  • Get your products licensed and acquire the corresponding intellectual property rights (especially do no forget to register your trade marks in the new classes, to the extent applicable).
  • Get familiar with the securities laws, especially the issuance, trading, exchange, lending and other activities.
    n Follow up closely the developments and guidance regarding taxation of digital assets.
  • Get familiar with the legislation concerning cybercrimes, personal data protection and general data protection.
  • Make sure to obtain ‘metaverse rights’ under the contracts you will execute.
  • Last but not least, make sure to select good ‘avatar lawyers’ and at least a good ‘virtual law firm’ since interesting legal cases are surely ahead!

For more information, please contact:

Erdem Atilla
Senior partner and head of dispute resolution

Eda Beltan
Senior partner and head of banking and finance

10 Lamartine Caddesi Taksim 34437 Istanbul Turkey
T: +90 212 313 3500