What marketers need to know about keeping it legal in the metaverse

How would advertising standards be enforced and controlled in a virtual, decentralized environment? As part of The Drum’s Metaverse Deep Dive, Gregor Pryor of law firm Reed Smith considers some of the challenges that lie ahead for marketers.

In years to come, historians may say that 2021 was the year when the metaverse truly came of age, along with cryptocurrencies, blockchain and NFTs (non-fungible tokens). What is less clear today is the impact the virtual world will have on our futures.

When Facebook announced in October of last year that it would rebrand its parent company to Meta, the world took notice. The emergence of technologies that have become known more widely as ‘web3’, which utilizes blockchain, seamless hosting and encryption and which allows for the transfer of value through cryptocurrencies and NFTs, seems light years away from web 1.0 (the static and read-only web) and web 2.0 (social media and user-generated content); some say that it is the future of the digital world, and by default a key emerging future for marketers.

The emergence of the metaverse

The term ‘metaverse’ was first introduced in 1992 by author Neal Stephenson in his science fiction novel Snow Crash, even before the introduction of blockchain technology in 1998. Then the reference was not just to a single ‘metaverse’ and so it is today, virtual worlds range from gaming realms such as World of Warcraft and Fortnite, to e-commerce worlds such as Highstreet Market.

More recently, the focus has shifted to worlds such as Decentraland, a decentralized autonomous organization that has been a popular marketplace for high-value NFTs. The trading volume over the past seven days was over $7.18m alone. As these metaverses evolve and the introduction of new virtual worlds increases, the market for different technical components will also grow rapidly, from better hardware and hosting servers to a need for higher quality input and output devices such as VR headsets and glasses to keep up with graphics, and the employment of game developers and content creators will be in high demand.

Marketers: balancing opportunity with risk

As with its predecessor social media (the closest comparison we can draw), undoubtedly the metaverse presents a wealth of opportunities for marketers and advertisers, but the evolution of these virtual worlds is not without the legal issues that come with it. The question of ownership, authorship and exploitation of intellectual property are rife. This includes whether the metaverse is patentable, as ‘abstract ideas’ cannot be patented. Where is the threshold drawn? Another intellectual property concern involves copyright and the intellectual property protection that covers works created by artificial intelligence and not by humans.

Other concerns also arise. For example, how would advertising standards be enforced and controlled in a virtual, decentralized environment? Should taxes be payable on renting virtual land? These are all challenges that regulators will be wrestling with over the months and years to come, and which marketers especially must be cognizant of.

Other legal issues include assessing the implications on data privacy including cybersecurity and how to make platforms secure. Children access the metaverse similar to the way they access the internet. How can a child safety be enforced in a virtual environment? Devices such as VR glasses will be able to process a wide range of data from their users’ real-world environment, including, potentially, what the inside of their homes look like and who the users live with.

Not only is enforcement and compliance with data protection laws in question; from a consumer perspective, trust is becoming an overarching theme of concern. The same principles of data minimization and purpose limitation play an essential role in the processing of personal data in the metaverse as it does in the real world. The data protection responsibilities of the controller, joint controller and processor will be shared among the operators of the metaverse platforms, but how can the corporate players involved reach consensus on who is responsible for what? Naturally, most companies operating in a metaverse will want to shift their responsibilities to another party to minimize risk and liabilities.

Finally, one of the main purposes of the metaverse is to allow people to interact and express themselves in a digital world. Ideally, each of the different metaverses would be accessible and compatible across all devices and headsets on the market. For this to be possible, companies will need to agree on a set of specific standards for a metaverse so that they can interoperate throughout the different virtual worlds. If an agreement is not reached, every company that wishes to participate will have to comply with the technological constraints built by its predecessors and require a licensing of rights to use another company’s underlying technology to build its new metaverse.

It is evident that cooperation among the different metaverse creators will be essential for its success and subsequent marketing opportunities. Decentralization in circumstances where there is no one corporate operator behind a metaverse makes things much more interesting from a legal perspective, both from the perspective of liability and, more importantly, control.

The past year has demonstrated that consumers are embracing the metaverse, but to reach its full potential, marketers, businesses and legislators need to work together to ensure that the opportunities of this world are realized while remaining a safe space for all.

Gregor Pryor is co-chair of law firm Reed Smith’s global entertainment and media industry group.

For more on the exciting new opportunities for marketers in this rapidly evolving space, check out The Drum’s Metaverse hub.