Meta-Versus: Part 2 - a non-exhaustive taxonomy of Metaverse disputes

In Part 1 of this series we introduced some of the issues that arise from the proliferation of Metaverse disputes, including the types of dispute that may arise, how those disputes might be resolved, and how any decisions resulting from the dispute might be enforced.

This article will address the types of dispute that are likely to arise from the Metaverse. As with any emerging tech, the types of disputes are likely to develop over time. However, it seems to us that at present, Metaverse disputes can broadly be categorised as: (i) claims brought by users against Metaverse companies, (ii) claims brought by one Metaverse platform user against another, and (iii) intellectual property (IP) disputes – which could involve claims against users or platforms.

Claims by users against Metaverse platforms

Metaverse platforms provide the virtual spaces on which their users will meet, interact, and potentially transact. The complexity of the virtual spaces – and, correspondingly, the service offered by the platform to its users – means that there is significant scope for users to suffer financial or non-financial harm whilst using the platform. It seems almost inevitable that some of those users will look to the Metaverse platform to try to recoup their losses by way of a civil claim.

As we covered in Part 1, many Metaverse platforms involve economies into which users (including consumers and businesses) can invest significant amounts of fiat or crypto-currency. These investments can be substantial: in December 2021, an investor purchased a plot of virtual land neighbouring Snoop Dogg’s plot in the Sandbox (a decentralised metaverse game on the Ethereum blockchain) for 71,000 $SAND (Sandbox’s local token, then worth around US$ 450,000). In February 2022, Portion, an NFT auction house and marketplace, purchased land on Decentraland (another Ethereum-based metaverse) then valued at US$1.2 million. Companies including PwC, JP Morgan, Samsung and HSBC have all set up branches in the Metaverse. Meanwhile, other digital metaverse assets continue to fetch high prices: in May 2021, a digital-only Gucci bag sold for over US$ 4,000 on Roblox – more than its real world counterpart.

Whilst many investments into the Metaverse will have been made in crypto (meaning that the investment may have depreciated in value independently due to market volatility), we can also envisage scenarios in which disgruntled users may seek to bring claims against the Metaverse platforms in relation to their investments. These types of claims might include:

• Real-estate: It is possible that Metaverse platforms could take steps which reduce the value of a plot of virtual land. For example – an investor may have purchased a plot of land on the basis that no further plots would be created (i.e. that there would be virtual scarcity), only to find that the platform later goes back on that promise. A plot of land might derive its value from a nearby feature in the virtual world (e.g. a mountain, or a beach), which the platform could unilaterally decide to remove.
• Disruption to business: Many Metaverse platforms allow users to do business on the platform; for example, selling digital goods (e.g. skins, artwork, objects) or services (e.g. music concerts, virtual real estate agency, or gambling). But what happens if the platform decides to remove or change a feature on which a user’s business depends? Similarly, what happens if the platform decides to shut down the user’s account – e.g. because it finds the user’s activity to be contrary to its policy (which finding the user may not agree with), or the platform experiences a catastrophic service interruption leading the user to suffer a loss.
• Inability to withdraw funds: Users may want to realise profits made on a Metaverse platform in real-world fiat currency. Whereas decentralised blockchain platforms allow users to sell their in-world currency on cryptocurrency exchanges, most centralised Metaverse platforms do not provide functionality to allow users to cash out of their in-platform currency. As more value pours into these platforms, users may seek to challenge this in order to realise value from profits made on the platforms.

The extent to which users will be able to bring claims in relation to on-platform digital assets (such as virtual land) will depend significantly on the extent to which those assets are recognised as property under applicable local law. For example, the English Law Commission has today released a consultation paper on digital assets, including in-game digital assets likely to be found on Metaverse platforms. The paper provisionally concludes that in-game digital assets do not currently qualify as property applying the Law Commission’s current criteria, but recognises that there is scope for the English legal system to move towards recognising more meaningful ownership and property rights for in-game digital assets – particularly where in-game assets are linked to NFTs.

Other claims by users may arise from non-financial harm suffered on or as a result of using Metaverse platforms. Just as with the regular internet, there have already been reports of hate speech and sexual harassment on, for example, Meta’s Horizon Venues. Metaverse platforms will likely need to contend with claims that they are in some way responsible for the safety of users on their platforms. These types of claims could also extend to product liability type claims by users against platforms – e.g. where the user has suffered physical or mental harm whilst using the platform. Given the quantities of data that Metaverse platforms will process, it is also likely that they will be exposed to claims in respect of data breaches.

The nature of Metaverse platforms increases the likelihood that these types of claims may manifest in the form of class actions by users – they are likely to have multiple users who have all suffered the same harm, and the medium makes it easy for claimant lawyers and funders to target and communicate with potential claimants and ‘build a book’. This will be made even more straightforward in jurisdictions which allow opt-out actions and/or representative bodies, thereby increasing both the magnitude and likelihood of the risk to platforms.

Claims by users against other users

The Metaverse will enable people to interact with each other in new environments and ways; depending on the platform, users will be able to buy and sell digital assets (including art, wearables, accessories and virtual land) from each other, as well as offer each other virtual services (e.g. live events, education, counselling). Many of the disputes that are likely to arise from these interactions will not be vastly different to the types of disputes that already arise between users on the regular internet; however it is still possible to foresee disputes which are unique to the Metaverse:

• A digital asset or item on a Metaverse platform (which could be an NFT) could be mis-sold by one user to another (e.g. on the basis of a misrepresentation as to the attributes of the asset, such as its origin or value).
• The owner of a piece of digital land could get into a dispute with the owner of a neighbouring plot for de-valuing their real estate (e.g. by obscuring their view of a nearby feature).
• A user could dispute commission due to a virtual real-estate agency (operated by another user) upon the purchase of land in the Metaverse.

The scope for disputes between users is likely to depend on the complexity of transactions / trades that can be carried out on any given platform. Centralised platforms (e.g. Roblox) often define parameters within which users can trade with each other, thereby limiting the scope for disputes to arise. Other platforms (e.g. Second Life) have long allowed users almost complete freedom to contract with each other however they see fit – giving rise to scope for disputes in relation to a broad range of relationships and issues.

Where Metaverse platforms are built on the blockchain, it is likely that many contracts between users will be in the form of smart contracts, which are self-executing transaction protocols written in code on the blockchain. Unlike traditional, written contracts, the terms of these smart contracts are completed automatically and ‘on-chain’, raising questions as to how disputes in relation to such contracts will fit into the traditional disputes landscape.

IP disputes

Many Metaverse platforms will be rich with IP, as IP owners take advantage of the new opportunities and experiences afforded to users; we are already seeing brands such as Disney, McLaren and the NFL collaborating with popular Metaverse platforms such as Roblox and Fortnite. The Metaverse has included (and will continue to include) numerous technological advances, for example allowing users to access the Metaverse by using virtual reality devices. These innovations will inevitably lead to IP being showcased on the Metaverse in new and innovative forms, providing exciting opportunities for owners of IP rights.

Correspondingly, however, owners of IP rights will also face the challenge of determining how best to protect their marks against IP infringers in the new environments within the Metaverse. It is therefore inevitable that we will see all manner of IP-related issues and disputes arising in and from the Metaverse.

These disputes are already emerging in relation to trademarks, with a number of infringement cases emerging – predominantly in relation to NFTs. Earlier this year, the luxury brand, Hermès, sued NFT-creator Mason Rothschild on the grounds of trademark infringement, trademark dilution and cybersquatting in relation to the creation and commercialisation of 100 “MetaBirkin” NFTs, which Hermès alleged were similar to its famous Birkin bag. Nike has also recently sued StockX for commercialising and selling NFTs featuring its trademarks. In circumstances where many on-chain Metaverse platforms allow (or envisage allowing) users to equip their avatars with clothing / items held as NFTs, these types of disputes are only likely to proliferate as the demand for branded items increases amongst users. With user-created content being an over-arching objective for many platforms, it seems likely that the Metaverse will see a burgeoning counterfeit industry (reflective of that in the real world). IP rights holders will need to adapt in order to meet this new challenge.

The rise of the Metaverse has also entailed a surge of technological advances in both hardware components and software processes. This has resulted in a wave of patent applications being filed as the proprietors of this new technology seek to protect their investments. As with any other technology, as the Metaverse continues to develop, competitors will undoubtedly seek to gain a slice of the pie and will develop similar technology in order to enter the market. Patent disputes are therefore likely to feature heavily in the types of disputes arising from the Metaverse.

The Metaverse also enables users to perform and create through their virtual avatars, meaning it is possible to create original content within the Metaverse. This raises the possibility of copyright infringement in relation to works originating both “outside” as well as “inside” the Metaverse – and consequently, the prospect of copyright disputes.

The short read

If the possibilities for the Metaverse are potentially limitless, then so too are the types of disputes that may arise from it. The types of dispute surveyed in this article represent only a fraction of the diverse universe of Metaverse-related disputes that may unfold as the technology becomes more prevalent.

But important questions remain, as yet, unanswered: how will these disputes be decided and resolved? As will be apparent, the availability and viability of claims by users against Metaverse platforms will vary considerably between platforms, and in many cases will be subject to the terms and conditions to which users agree when they sign up to use the platforms. Similarly, the manner in which disputes between Metaverse users are resolved will, at least during their early stages, vary broadly between platforms. Part 3 of our Meta-Versus series will cover how we envisage Metaverse related disputes being resolved, and will seek to answer some of these questions.