To begin with, let’s define Metaverse: _____________________________
No, that’s not a typo in our first line; rather, it underscores the fact that although there are many descriptions as to what constitutes the Metaverse, there seems to be no ‘real’ definition—pardon the pun.
But among the attempts to explain the Metaverse are phrases such as ‘decentralized platforms’, ‘an ecosystem of interconnectivity between the digital and physical world’, ‘virtual-and augmented-reality worlds’, and a host of other attempts to get our heads around the concept. But for lawyers, the main issue is: what does this mean for our transactional interactions, and what laws will apply?
Getting a ‘Second Life’
In 2003, San Francisco-based Linden Labs created an online multimedia world to which people related by way of their personal avatars. Called ‘Second Life’, the website allowed users (called ‘residents’) to live out a virtual life, own virtual land, and breed virtual pets—the latter two items being available for sale or purchase. Although the term Metaverse was not yet introduced, Second Life may have, in fact, been one of its first iterations. And, early on, it was the subject of a DCMA takedown order pertaining to breedable animal avatars. (See Amaretto Ranch Breedables, LLC v. Ozimals, Inc. US.D.C. N.D. Cal C-10-05696 CRB, 2011.)
Fast forward to 2015, when two Argentinian-based developers created Decentraland, a ramped-up virtual world also providing land sales as NFTs purchasable via MANA, an Ethereum-based cryptocurrency. Decentraland bills itself as a decentralized Metaverse where users exercise ‘power and control’. But in addition to the world of avatars and virtual reality, Decentraland allows for the development of actual businesses. A New York law firm, Falcon Rappaport & Berkman PLLC, announced the launch of its digital headquarters on Decentraland in August 2021, claiming to be the first law firm to establish an official location in the Metaverse.
KYC—Know Your Client
A primary characteristic of the Metaverse is that digital and physical ‘personas’ become intertwined. That being the case, validating identification becomes a major issue in the course of commercial transactions. Is the party entering into a transaction a digital entity? Or a real person? And in either case, how does one establish client authenticity when both goods and parties may consist of blockchains and NFTs? Presumably, the cryptocurrency world has perfected the authentication of asset ownership. But for lawyers, the Rules of Professional Responsibility continue to require that an attorney legitimately identify his or her client before taking on a case, and if an in-person meeting is not feasible, or, even a Zoom session with a human being who provides verifiable, physical ID, then a system will have to be developed in the Metaverse to satisfy the canons of ethics. Bits and bytes alone may not suffice.
Payment in the World of Virtual AML
Payments by a client (or a purchaser in a commercial goods transaction) will continue to be by way of credit card, phone app, or—increasingly—cryptocurrency. But along with confirmation of client identity comes the requirement for validation of the source of ‘funds’ and strong safeguards against AML and other cybercrimes. Furthermore, cryptocurrency payment methods designed to decentralize the financial world are still subject to hacking and, in many jurisdictions, securities laws, and tax regimes. Just as criminal liability can ensure to an attorney who receives his fee from an organized crime figure who places wads of the fruits of his crime on the lawyer’s desk, so too, receipt of stolen cryptocurrency or other digital assets in payment can lead to culpability.
What Metaverse Lawyers Do
Where there are transactions—of any type—there are disputes and lawsuits. Just as the Internet and disputes over the IP ownership of digital avatars have bred novel legal questions, so too, real issues are emerging from the virtual Metaverse world. These include issues of jurisdictions, tax regimen, AML ramifications, cybercrime, and of course legal ethics. But ‘real estate’? What will happen when ‘land’ disputes emerge over property that, in fact, consists of NFTs, heretofore designated as personal property? Estate planners will also be faced with novel issues related to bequests of real versus virtual property.
Although, as of yet, there is no Metaverse-specific body of laws, generally, the laws that have evolved regarding the Internet will be the basis for Metaverse rulings. The emphasis will be on IP with much focus on copyright infringement, Principal-Agency Law, and Contract Law emphasizing Smart Contract functionality of blockchain transactions. One aspect which will likely be more difficult to adjudicate than some others will be the threshold issue of jurisdiction. If the Metaverse is ‘everywhere—but nowhere specific’ nailing down jurisdiction can be problematic.
In a recent cryptocurrency case, the Lead Plaintiff contended that the general geographical location of the computer ‘nodes’ used to trade cryptocurrency could be relied upon to determine foreign versus domestic investors—even if the actual investor’s location was not known. However, the court rejected that assertion based on precedent that the situs of a blockchain transaction does not turn on the location of the nodes. (See Williams v. Block One, 1:20-cv-02809-LAK, August 15, 2022).
Who Will Make the Rules?
The decentralization feature of the Metaverse sounds enticing, and it also means a lack of centralized authority. Facebook and Twitter, for example, both have their own Terms of Use, but behind them are administrators who set those terms. If Decentraland, Roblox, and others are truly user-governed, disputes involving those platforms might be more challenging to litigate. Furthermore, real-world transactions can indeed conflict with the whole notion of seamless integration of the virtual and physical worlds: gamers have found that VR goggles, headsets, and other interface devices used to immerse themselves in the Metaverse won’t help much if they suddenly have to leave the devices—and that world—to retrieve an access code, or a credit card in order to continue in the Metaverse.
Executive Summary
The Issue
How to truly integrate the physical with the virtual in the context of the Metaverse?
The Gravamen
In its current state, the Metaverse may virtually augment the reality of the physical world, but seamless integration is not there yet.
The Path Forward
Using law developed for the Internet as a stepping stone, lawyers will need to re-set their conventional jurisprudence sights in order to resolve emerging Metaverse law issues.
Action
1. Digital Home:
Before making the leap to a Metaverse home office, research what the Metaverse can and cannot do for your practice.
2. Part Real—Part Virtual:
Understand what functionality can be fully virtual and what must remain within the confines of the physical world.
3. Body of Law:
Learn how to adapt contemporary Internet Law to the issues you will be facing with Smart Contracts, Virtual ‘Land’, Blockchain, Jurisdiction, and Legal Personality.
4. Professional Responsibility:
Know what ethical considerations will govern your Metaverse practice with special emphasis on proper identification of your client and authentication of his or her contract rights and property ownership.
Further Reading:
- https://www.dlapiper.com/en/us/insights/publications/2022/06/exploring-the-metaverse-ipt-news-june-2022/
- https://theconversation.com/the-metaverse-three-legal-issues-we-need-to-address-175891
- https://abovethelaw.com/2022/04/what-laws-apply-in-metaverse/
- https://osgoodepd.ca/blog/the-metaverse-understanding-its-impact-on-the-practice-of-law/
- https://cxm.co.uk/real-world-transactions-against-the-notion-of-the-metaverse/
