Will the new world of the metaverse be governed by old rules?

In April 2020, records were broken when more than 12 million people attended a concert headlined by the US rapper Travis Scott. Aside from the size of the crowd, astronomical though it was, what was notable about the concert was that, in the conventional sense at least, it did not really take place at all.

Rather, with COVID-19 restrictions making mass public events impossible, crowds rushed not to muddy campsites, but to cyberspace, with Scott's performance being hosted by the popular video game Fortnite. Such an event was, perhaps, inevitable: if we have learned anything from the global pandemic it is that people crave interaction, hence the stellar year enjoyed by social media platforms.

And as the success of Scott's concert demonstrates, video game developers experienced a similarly purple patch in 2020. Minecraft, for instance, saw its 91 million users in 2019 become 131 million in 2020, whilst Roblox's Q1 2021 revenue showed an increase of more than 140% on the same quarter last year.

This explosion of popularity was not lost on the business world, with investment in video games in 2020 77% higher than in 2019. Newspapers have been overflowing with stories of mega deals, too, be it the $1 billion funding of Epic Games; Microsoft's $7.5 billion acquisition of Zenimax; or EA's $2.1 billion acquisition of Glu Mobile. The sector, in the words of one industry figurehead, has grown at 'breakneck pace.'

Crucially, however, the Fortnite concert reflects a wider, no less significant development: the rise of the metaverse. Typified by games like Fortnite and Roblox, the metaverse -- offering a persistent, shared virtual space where gamers are able to build cities, attend events and meet with friends -- is fast looming into reality. The retailer H&M, for instance, recently launched a virtual island on Animal Crossing that enabled gamers to meet and greet Game of Thrones star and brand ambassador Maisie Williams, whilst Roblox unveiled virtual clothing designed by real brands.

"Any epoch-defining innovation inevitably challenges the legal status quo, and the rise of the metaverse is no exception to the trend"

Even as restrictions lift, the metaverse will continue to grow. According to the International Data Corporation, for instance, spending on augmented and virtual reality -- a key ingredient of the metaverse -- is set to explode from just over $12 billion in 2020 to $72.8 billion in 2024. The proliferation of the next generation of consoles -- from the PlayStation's 5 VR headset, which is even rumoured to include gaze tracking, or the incredibly popular Oculus Quest 2 -- will only further nurture this growth.

Any epoch-defining innovation, from the birth of the internet through to the arrival of artificial intelligence, inevitably challenges the legal status quo, and the rise of the metaverse is no exception to the trend. But whether we see an entirely new legal and regulatory regime spawned remains the million-dollar question.

It is, of course, true that some existing laws will struggle to keep pace with technological innovation, but this does not make the entire legal edifice redundant. In fact, quite the opposite: a number of existing laws already apply to the metaverse and are already giving rise to various legal considerations companies will have to start grappling with in the immediate term.

For one, as is perhaps inevitable in the age of the General Data Protection Regulation, there will be significant legal questions over privacy. After all, AR/VR technology requires the processing of significant amounts of personal data, much of which is biometric in nature and therefore afforded enhanced protection under existing rules, requiring explicit consent when used for identifying an individual. There are real concerns, however, over whether consent can be freely given in circumstances where the AR/VR technology cannot be used in the absence of such processing. And then there is the fact that the metaverse will likely be initially populated by children, which again imposes a new raft of requirements, only further complicating matters.

"Companies need a strategy for dealing with their intellectual property in the virtual world"

And this is not the only thorny legal question at play. The high-profile dispute over ownership of the 'floss' dance move, arguably brought to public attention by Fortnite, acutely demonstrated how events in the virtual world can have real world implications. Such disputes -- those relating to intellectual property -- will only grow in significance as the metaverse grows. After all, there are legitimate questions of copyright when a community develops a virtual world and works are subsequently created within that environment. Not to mention the question of if you have a protected brand in the real world, and someone uses it in the virtual world, can you bring a claim?

The issue is that things become cloudy when users collaborate or generate content or properties based on existing properties, but fundamentally the legal position remains clear: you must get permission to use somebody else's intellectual property. It is an established answer to a new question.

Companies, therefore, need a strategy for dealing with their intellectual property in the virtual world. They need to periodically monitor infringements of their brands or marks, and should consider the extent to which they may give permission to use content that they have created.

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At the boardroom level, consumer-facing companies need to quickly establish their own rules of the road for protection, exploitation and infringement in a metaverse environment, where the tools for creating and sharing -- and the depth of creativity possible -- are far in excess of what we now understand to be the case on the internet.

Perhaps the knottiest of questions, though, relates to the rise of non-fungible tokens (NFTs) and virtual currencies, which have found a natural home in the metaverse. Both throw up significant challenges: NFTs pose a particularly complex question of how intellectual property may be authenticated and traded, and how contracts may be formed in a 'smart' manner automatically; whilst, more broadly, it is still to be determined how different types of tokens will be recognised across the world (or even banned in some territories, like cryptocurrencies).

Real-world legal dynamics in the metaverse, with interoperable currencies and assets that can be used across different platforms, can be hard to align with the technology and user behaviour. There's little substitute for a considered approach to risk management if brands wish to operate in this exciting area.

The EU's approach to an equally exciting area in the shape of AI -- designing a new regulatory framework rather than adapting the existing rules -- could have given us a glimpse of how lawmakers will tackle the challenges thrown up by the metaverse. As the virtual world continues to grow, the question of whether we have root and branch reform, or pruning of existing rules, will only become more urgent. We may not be waiting too long before we are presented with the answer.

Gregor Pryor is Global Entertainment and Media Industry Group Co-Chair for London-based law firm Reed Smith.