March 8, 2022

Intellectual Property in the Metaverse and the Challenges of Regulating a Lawless Frontier

Intellectual property may be among the most important assets in online 3D virtual worlds such as Meta’s metaverse, but guarding those assets will likely invite a flurry of complex, new legal challenges.

The proponents of “Web 3.0” have lofty goals to create a collaborative space that comprises a seamless experience across the virtual world(s) designed by developers and companies. These virtual worlds come with their own complex economy involving digital assets—both virtual and tangible—and each grounded heavily in decentralized finance.

While this new frontier brings a sense of excitement, there is an equal sense of apprehension as the many possibilities of the metaverse are counterbalanced by the risk that unscrupulous actors may exploit the intellectual property and rights of others. 

IP Licensing in Metaverse

The development of virtual worlds introduces a host of issues relating to, among other things, cross-licensing, advertising, copyrights, trademarks, royalties, and patents that all will have to be carefully navigated and negotiated. These negotiations may challenge lawyers from a wide variety of practice areas to make assumptions regarding the scope of the metaverse and legally define a set of rights in a virtual world that has no borders. Additionally, agreements will need to protect a brand from the reputational damage that can arise from unauthorized use by articulating the metes and bounds of proper brand usage.

It may also be critical to establish clear IP licensing arrangements with metaverse platform providers that take into account the broad potential of the metaverse. For example, agreements must contemplate, among other factors, the breadth of use to be allowed and new applications that are envisioned. On platforms that invite user-generated content, agreements should also clarify the steps the metaverse provider will take to remove and/or censor infringing content.

Data Ownership, Privacy Concerns, and NFTs

The metaverse will induce the creation of data, and the implications of that data must be considered. For example, haptic inputs from gear meant to supplement the experience raise concerns over what data is being collected and how it is used or shared. Guaranteeing authenticity and protecting IP from counterfeit digital replications is another challenge in the metaverse. This is where NFTs, or non-fungible tokens, come into play. Among many other uses, NFTs can function as digital certificates that can prove ownership online.

Cybersecurity and Protecting IP

Cybersecurity remains an unresolved issue on Web 2.0. Security concerns may be compounded in the metaverse, where cybercriminals will seek to match innovations on new platforms with some of their own, exploiting any vulnerabilities. Impending regulations may soon reshape the virtual environment to address the expansion of deep fakes, avatar impersonation, stolen biometric data, and digital wallet hacks, all of which remain an issue in online environments. As long as data is an asset that can be sold and/or traded, such data will be a target of online cybercriminal activity, including in the metaverse.

Regulations will likely determine who will be responsible for protecting sensitive user data, which would be considered trade secret information, and what the penalty would be for failing to uphold cybersecurity industry standards. Brands that suffer a loss of trust from their users due to data breaches on metaverse could look to sue responsible parties for those losses.

User data is not the only asset that needs to be protected. Developers will also be responsible for protecting company trade secrets and pending patent applications that could be stolen by hackers looking to disrupt operations. Tracking down patent infringers on a decentralized Web 3.0 may be difficult, further complicating patent enforcement efforts.

Global, Federal, and State Level Regulations on the Horizon

It is expected that governments and companies will evolve to address the regulatory needs of the metaverse, but the needs driving policy change are a moving target for now. Entities will need to closely monitor these new policies, both globally and locally. The metaverse may force updates to the European General Data Protection Regulation (GDPR) and/or the US Digital Millennium Copyright Act (DMCA) that are specific to virtual world regulation, for example.  Alternatively or additionally, monitoring and enforcing regulations may induce the creation of its own governing power due to the scope of the metaverse and its unpredictable implications.