TechNotes – Top 10 issues for AR/VR

“Worldwide spending on augmented reality and virtual reality (AR/VR) is forecast to reach $160 billion in 2023, up significantly from the $16.8 billion forecast for 2019.”

IDC report: “Worldwide Augmented and Virtual Reality Spending Guide”, 2019

1. AR/VR applications: Virtual reality (VR) is a computer-generated, simulated experience, usually created using a head-mounted display or headset, and which is typically fully immersive and interactive. This experience can be similar or entirely different to the real world. Augmented reality (AR) also creates an interactive experience, but by overlaying digital information on to real world elements, supplementing a user’s reality or environment. Gaming is one of the well-known applications of AR/VR, but its potential doesn’t stop there. AR/VR can be used in all sorts of ways, from military or medical training, to trying on outfits or make-up, with the potential to impact on various aspects of our daily life and across all sectors of business.

2. IP: AR and VR content developers should consider protecting the IP they develop (for any proprietary hardware or software), IP licensing issues and the risks of using third party IP. From a licensing perspective, AR and VR content developers should ensure they have appropriate licences for any third party imagery, characters, music and other content used in AR/VR products. The interactive nature of AR/VR platforms may allow users to manipulate and generate new or derivative IP themselves, and the rights to this user-generated content will need to be addressed in any terms of service. The use of real-world trade marks or copyright material in an artificial reality by a user also poses interesting questions, particularly where such use is incidental and a clear infringement claim may be difficult to make out. At the same time, AR and VR presents brand owners with novel and exciting commercial opportunities to generate revenue through brand placement.

3. Data Privacy: Both AR and VR solutions require the processing of significant amounts of personal data, including users’ identity information, appearance, body-tracking data, location, communications and other behaviour. Where the data controllers wish to rely upon the GDPR’s legitimate interest ground to justify such processing, they may need to demonstrate that they are not able to provide the same immersive experience without such data. AR and VR products also usually need to process biometric data (ie fingerprints, facial recognition systems etc) to enable the use of these technologies. There is concern over whether users have a genuine choice to provide consent to the collection and processing of their data in this context, where the technology cannot otherwise be used without their data being processed.

4. Security: AR and VR applications may require access to a variety of sensor data, including video and audio, GPS, temperature etc. and make use of users’ other devices (such as their camera (including always-on cameras) and microphone). If the AR and VR device/application is hacked or breached, this poses a huge security risk and, in many jurisdictions globally, breach notification is compulsory and can be expensive (both to implement as well as in the case of large fines) and time-consuming. Where AR and VR devices/applications verify account details by linking to a social media account, this adds another layer of vulnerability and exposure to malicious use of this data.

5. Virtual Crimes/Civil Offences: The criminal/ethical issues around the psychological effects of immersing the user in AR/VR experiences and questions around how virtual crimes should be dealt with could become an increasing issue in the future. For example, body suit technology is developing so that AR/VR users are able to feel kicks/punches or touch that they experience in their extended reality. AR/VR could also influence users into committing crimes inadvertently (eg if AR/VR instructs a user to follow directions and the user trespasses on private property – something which became an issue for the developers of Pokémon Go, who reportedly paid $4m to settle a class-action suit in California).

6. Health and Safety: Without proper precautions, the use of AR/VR may increase physical safety risks. For example, VR, which is predominantly used indoors, may cause risks to the user (or others) if it is used in an unsafe or restricted environment (eg VR motion sickness). At the same time, AR, which overlays an interface on the physical world, carries potentially more serious risks, since it may distract users from their surroundings or cause them to act in a way which puts them in danger. Developers must outline any potential safety risks in AR/VR applications and hardware clearly to the user, include safety warnings in both the packaging for any hardware and on the start-up of any software and, wherever possible, implement features in any hardware or software to protect the user.

7. Marketing and Advertising: Where AR/VR creates a convincing reality or in cases where AR might overlay different messages and images across the screen (ie Apple AR Glasses or Google Glass), developers need to ensure that any advertising shown to the user within their technology is appropriately labelled as such. For example: (a) in the UK, for example, advertisers have a responsibility to be transparent to ensure consumers are made aware that content is sponsored; and (b) developers of wearable AR/VR should consider making it clear and visible what content has been created by which application, in the case where multiple applications are visible at once (such as with AR glasses).

8. Product liability: The product liability claims most likely to arise in relation to AR/VR products are allegations that a product is defective, or that the product’s warning labels do not adequately warn the customer of the risks of the AR/VR application. AR/VR applications can be applied to assist users to perform a task requiring care and precision (for example, AR/VR software used to assist in construction projects or as part of medical procedures) and, in such cases, it is possible that technical issues or errors with the relevant application could have significant repercussions for a project or procedure, leading to personal injury, negligence claims or actions for damages. Lags or latencies in the applications may also cause a raft of issues.

9. Tax: The development and use of AR/VR could present opportunities from a tax perspective; whether through various tax incentives (such as R&D tax relief, video games tax relief and patent box/innovation box) and/or establishing a tax effective IP ownership and licensing structure for cross-border activities. The increasing use of AR/VR (particularly following the COVID-19 crisis) may also fundamentally change the location and nature of business activities within a global organisation as well as how products/services are provided to customers. This could raise potential tax risks including employment tax, tax residency, permanent establishment, transfer pricing and indirect tax which will need to be monitored and mitigated.

10. Employment: AR/VR can be effective tools in the workplace to bring realism to learning and development, as well as for induction/onboarding. AR/VR allows organisations to test skills in close to real life scenarios and things like response times and judgment. There is also some evidence of AR/VR being used to deliver diversity and harassment training as a way of walking in another person’s skin. It is not without HR risks though. Alternative tools or training should be provided where AR/VR may not be suitable (eg to accommodate those who would be disadvantaged due to visual or hearing impairments). As AR/VR potentially also offers flexibility and autonomy in terms of when, where and how employees train (as well as being cost-effective), employers should ensure their remote working arrangements are similarly fit for purpose.

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