IP and Metaverse(s) – an externally commissioned research report

Question 1

Executive summary

Accepted Answer

This report investigates potential intellectual property (IP) issues that relate to the development of the Metaverse.

In the absence of a clear consensus on a technologically neutral definition of the Metaverse, the review has identified common characteristics emerging from contemporary Metaverse visions (including existing ‘proto-Metaverses’), focusing on those that have the most notable implications for IP. These characteristics, together with current, potential, and proposed technologies, inform the IP issues and challenges, which form the scope of this report. We have structured the report in the following manner:

an introduction dedicated to outlining the key characteristics of the Metaverse as identified within the literature, together with some preliminary IP challenges
existing and persisting IP issues, which already affect ‘proto-Metaverses’ and will persist notwithstanding how the Metaverse evolves and emerges
anticipated new IP issues, which are connected to the key characteristics of the Metaverse definitions and technologies, introducing more novel challenges
an analysis of existing and potential approaches for addressing the various IP issues discussed

We have reviewed several different sources, ranging from academic papers, online articles, government reports and studies, and popular literature. As is often the case with new technologies and digital phenomena, the recent enthusiasm and investment for the Metaverse has prompted a discussion amongst legal academics and practitioners, seeking to anticipate and outline the potential challenges and opportunities which the Metaverse might present. However, within the existing literature, there has been limited discussion on the impact on IP and the necessity and/or desirability of IP reforms.

The Metaverse is a buzz word encompassing all the latest technology trends, sparking imagination, and pushing the boundaries of possibilities. It has created substantial excitement in investors and users alike.

The majority of the literature provides a historical overview of the concept (generally Snow Crash, Ready Player One, Second Life, Minecraft, Fortnite, Decentraland), admits the difficulties in defining it (frequently providing a new definition – we found over 50 different definitions), and then adopts a position on the scale between two standpoints: either the Metaverse is already here, or it will never exist (this is often determined by the definition embraced). It is quite common for the authors to outline potential or predictable legal and regulatory issues, but these tend to be just peripheral. On the other hand, numerous sources focus on specific aspects of the Metaverse (in particular, literature on NFTs and AI has exploded in the last years).

This study highlights that:

there is no consensus of what the Metaverse specifically entails and whether and in what form we may experience and access it now or in the future and it is therefore difficult to anticipate specific IP issues and challenges. There is a range of characteristics that it may or may not exhibit, but only three potential models the Metaverse can adopt (decentralised, centralised and hybrid). Learning from history, and in line with geopolitical differences, one could predict the hybrid model (a series of Metaverses with different level of interconnections) to be the more viable one and we can expect a number of large technological monopolies, dominating the different geographic and cultural regions
there is a mature discussion on technological standards (e.g., the Metaverse Standard Forum), and a growing discourse on ethics and regulation, but most of the current literature does not formulate and explore relevant IP questions, whether they be new or prevailing ones. This is an obvious gap in the literature especially considering that IP law and regulation are fundamental to the constitution of the Metaverse. The Metaverse is complex matrix of IP products and services and is persistent, infinite, and ever evolving. IP will therefore determine how the Metaverse is created, populated, and experienced, how users can migrate between them, and eventually leave them
IP is perceived and experienced by businesses and users in a very different manner. If the current IP regime does not address the businesses’ commercial needs satisfactorily, businesses can rely on alternative routes, such as contracts and technology-based solutions. However, there is a danger that any gaps in IP law and uncertainties addressed through these means, will side-line not only users, but also the IP regimes themselves as well as legitimate and democratic legal processes
notwithstanding the growing body of literature on trade marks and NFTs, user-generated content, AI and computational creativity, digital exhaustion, or mixed realities, no definitive approach for IP in the Metaverse has been identified in the literature so far

Question 2

1.  Introduction

Accepted Answer

This report investigates potential intellectual property (IP) issues that relate to the development of the Metaverse. It provides a review and evaluation of the contemporary scholarship and the existing literature on the Metaverse – in particular, the intersection, interplay, and impact this immersive environment may have on the IP system.

The report comprises of four main parts: 1) introduction, 2) existing and persisting issues, 3) Metaverse-specific issues, and 4) analysis and recommendations. The introduction outlines the range of definitions and defining characteristics of the Metaverse, and it addressed some prevailing assumptions. Furthermore, it sets out the remit and methodology of the subsequent review and analysis. The second part focuses on identifying issues and challenges that pre-date the Metaverse but will continue to play an important part in shaping the future vision of the Metaverse. The third part highlights issues which are specific to the Metaverse yet previously unaddressed. The report closes with an analysis of the key findings and some recommendations.

While the ecosystem is and will be undoubtedly global, there are major players within the industry driving the design and development of different visions of the Metaverse, reflected in the available commentary, case law, and scholarship.

The report is primarily concerned with IP and a detailed scrutiny of other legal and regulatory implications are beyond its scope. Where relevant, the report refers to both international treaties covering IP rights as well as key national jurisdictions.

1.1 De-mystifying assumptions about the Metaverse

In the existing literature, there is sometimes a tendency to make assumptions about the form of the Metaverse will eventually take, overlooking the uncertainty surrounding the potential characteristics and technology which the forthcoming Metaverse might entail. As such, before providing a definition of the Metaverse, it is helpful to briefly outline and demystify some common assumptions frequently made concerning its shape and structure. Firstly, many Metaverse conversations lead with the assumption that the Metaverse will be interoperable. However, there is no actual consensus on how interoperable the Metaverse will be, nor is there consensus on what specific approach will facilitate that interoperability. As Ball stresses, within the broad Metaverse conversation there is “disagreement on how much interoperability is required for the metaverse to really be ‘the metaverse’, rather than just an evolution of today’s Internet” (Ball, 2020). For instance, some suggest that interoperability will be achieved by “community-based standards and open protocols” (Ball, 2020), whilst others consider licensing a potential approach to interoperability (Garon, 2022). As such, the discussions on interoperability do so with the recognition that interoperability may be defined or achieved in several ways, with sections 1.3.1 and 3.1 respectively, examining various proposed approaches.

Another common assertion that features prominently in the literature is that the Metaverse will be fully decentralised. However, it is important to recognise that there is no consensus on the extent which the Metaverse will be decentralised or needs to be decentralised, nor in terms of how it would work (Ball, 2020). And as will be examined in 3.2, there are different technological approaches which might ultimately facilitate decentralisation.

Relatedly, it is arguable whether there will be a single Metaverse or several Metaverses with varying degrees of interoperability or decentralisation. For instance, Garon contends that rather than a Metaverse, we should expect a Multiverse – a loose partially interoperable confederation of distinct virtual worlds and Metaverse environments, “each subject to a different mix of state authority, corporate oversight, and participatory governance” (Garon, 2022). Outlining several reasons for why this is the likely outcome. For example, Garon argues that there will not be a single Metaverse that provides a common global experience because of the “unique set of positive law and social norms in each country or region”, contending that the Metaverse will “exacerbate rather than flatten” the existing trend of internet governance and domestic law varying from country to country. Garon also takes the view that the historical development of the Web 1.0 and 2.0 suggests that for Web 3.0 or the Metaverse there will be some form of platform monopoly or oligarchy. Accordingly, whilst the report uses the term ‘Metaverse’, it does so only as a shorthand, and recognises that a likely if not probable outcome is that there will be several Metaverses or a ‘Multiverse’.

Finally, it is important to address an important assumption concerning blockchains and the Metaverse. In much of the conversation surrounding the Metaverse, legal or otherwise, there seems to be a common assumption that blockchain, cryptocurrency, NFTs and similar distributed ledger technologies are crucial for the Metaverse (Guthrie et al., 2021; Watts, 2022; Vig, 2022; May and Kempton, 2022; Nigam et al., 2022). However, it is essential not to conflate the Metaverse with blockchain technology and crypto. This is because it is arguable whether such technologies are indispensable to the Metaverse, and it is unclear whether they will endure as the Metaverse develops (Ball, 2021). Moreover, many existing platforms or services such as Roblox or Minecraft, which have often been described as proto-Metaverses or Metaverses, (Radoff, 2021; Newzoo, 2021) function entirely independently of blockchain technology. The significance of distributed ledger technology, as a technology which has been primarily deployed to facilitate decentralisation, (DiMatteo et al., 2019 Riede, 2018) arguably depends on the degree to which the decentralisation is understood as a core characteristic of the Metaverse. As such, although blockchains and ledger technology will be examined, the report does so on the basis that they are not indispensable to the Metaverse.

With the preceding observations in mind then, it is crucial that in defining the Metaverse, it is done in a way that is sufficiently open-ended to anticipate a variety of challenges which span multiple and different definitions of the Metaverse.

1.2 Definition(s) of the Metaverse

Defining the Metaverse is far from straightforward since there are contrasting visions of how the Metaverse will eventually look like, and because its development – the early stages of which are already in progress – is and will continue to be incremental. Moreover, the specific technologies underpinning the eventual Metaverse framework remain undetermined or not fully developed. As such, providing a strict exhaustive definition of the Metaverse is both impossible and short-sighted. Nonetheless, there is some consensus on its fundamental components, such as those identified by Matthew Ball as the seven ‘core attributes’ of the Metaverse (Ball, 2020) and later re-elaborated by a number of commentators. These characteristics feature prominently in subsequent visions and descriptions of the Metaverse:

scaling (ability to increase the size of the Metaverse);
persistence (unlocking technical limitations to improve the immersiveness of the Metaverse);
interoperability (the merging of different virtual worlds and systems);
Economy (allowing for trading across the Metaverse);
identity (evolving current online identities for avatars for a stronger connection to the user);
convergence of physical and digital (spanning across many aspects of life);
multiple contributors (content from all sorts of stakeholders from individuals to commercial organisations)

As such, in order to better understand the potential challenges that the Metaverse might present, it is crucial to clearly outline the central characteristics of the Metaverse, identify key problems which emerge from existing or potential technologies, and examine the likely complications which those characteristics and technologies entail.

Alongside the minimal emphasis placed on arriving at a comprehensive definition of the Metaverse, much of the existing analysis frequently overlooks many of the potential IP issues. The number of discussions and publications about the Metaverse have rocketed recently, including discussions about related technologies and trends such as Web3, Decentralized Autonomous Organization (DAOs) or Non-Fungible Tokens (NFTs). Further explanations of what these related technologies entail are included in the report as and when relevant. These discussions seldom, however, address the impact of IP on the Metaverse – and the Metaverse’s impact on IP – at the necessary level of depth. In addition, some literature asserts that the Metaverse concept is not new and can be traced to existing literature on virtual worlds (Guadamuz, 2022b; Ramos, 2022) and as such, sidesteps the examination of potentially novel challenges. To an extent, this position is understandable, since the Metaverse discussion does represent an extension of issues pertaining to the Internet, platforms, interactive entertainment, virtual worlds, and virtual property discourse, and there are existing precedents which do and should apply to the Metaverse. However, there are potentially new issues, which can be anticipated and identified in connection with the key and common characteristics of the Metaverse, or in relation to contemporary and emerging technologies underpinning these characteristics. As such, an analysis that outlines and pre-empts the forthcoming challenges of the Metaverse, both new and old, is imperative.

Early definitions of the Metaverse conceive of it primarily as a digital environment that functions as a shared virtual, online space, as the following extracts show:

“Digital ‘3D’ environments where humans interact with each other (socially and economically) in cyberspace” (Tromans, 2017). Early examples cited include several MMORPGs (massively multi-player online role-playing games), including World of Warcraft and Everquest, alongside less game-focused virtual worlds such as Second Life, There, Moove, Active Worlds and Entropia
“The convergence of i) virtually enhanced physical reality and ii) physically persistent virtual space” as well as “a shared virtual social space with 3D capacity” (Smart, J. et al., 2009)

The references to ‘3D’ in this early literature are references to 3D computer graphics displayed on two-dimensional displays (as is common with video games), rather than any form of VR (virtual reality) or AR (augmented reality) technology, which would have been in its infancy at the time. This contrasts with more up-to-date conceptualisations of the Metaverse, which generally agree that it is much broader than a single video game or a virtual world.

Some contemporary literature on the Metaverse continues to look back to this notion of the Metaverse as a shared virtual social space, as the following extracts show:

“A persistent digital world that is inhabited by digital twins of people, places and things … a new version – or a new vision – of the internet, one where people gather to communicate, collaborate and share with personal virtual presence on any device” (Roach, 2021)
“The difference between the Internet and the Metaverse is that the Metaverse allows us to immerse a version of ourselves, known as avatars, in its environment, and it is the avatars that interact with other avatars, socialise, learn or carry out activities in the Metaverse” (Lau, 2022)
“The Metaverse can be best described as the immersive Internet, where users are within a three-dimensional online environment, using headsets or other equipment. Current Internet experience is mostly two-dimensional, limited to screens of computers and mobile phone. As the Metaverse experience is immersive, users need special digital agents, or avatars, to represent them” (Nanobashvili, 2022)

Broader contemporary definitions of the Metaverse have begun to converge on several characteristics, highlighting four attributes which many authors consider to be central components of a viable Metaverse, namely:

Immersive realism, which enables users to feel psychological and emotional engagement with the environment through sight, sound, touch, other senses, gestures and expressions;
Ubiquity, in that the Metaverse persists regardless of whether any user is interacting with it at any given time, is constantly available and accessible from all existing devices, and enables the individual’s virtual identity to remain intact and consistent;
Interoperability, in that it employs shared standards (including locator standards for identifying places or landmarks, similar to how URLs already work; identity standards for verifying users’ credentials; and currency standards to facilitate trade) that enable the seamless exchange and transfer of users, digital assets and virtual environments between different virtual locations; and
Scalability, which permits concurrent use of the system by massive numbers of users without compromising system efficiency or the user experience (Dionisio et al., 2013).

These four features were also adopted in a briefing on the policy issues arising from the Metaverse prepared by the European Parliamentary Research Service (Madiega et al., 2022). And a similar understanding is adopted by other public bodies, such as the UKIPO, which has identified ubiquity, convergence of physical and digital, (de)centralisation and interoperability as the key features in the next generation immersive 3D Internet. Ball’s Metaverse primer also identifies scalability, interoperability, and persistence as its core attributes, defining the Metaverse as “a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments” (Ball, 2020). Ball also cautions against regarding the Metaverse as being synonymous with virtual reality (VR) and explains that VR technology is merely one of the many ways through which the Metaverse can be experienced, pointing out that hundreds of millions of users are already participating in virtual worlds without relying on wearable devices. Ball also notes that the Metaverse offers a much broader and more integrated experience than video games, even those with a strong online multiplayer component. Friedmann, meanwhile, points out that there seems to be some consensus that the Metaverse “will encompass the existing Internet, and create an open, inclusive, persistent, interoperable network that provides Extended Reality, which could include digital twins of physical objects, that can be experienced multi-sensorily, and makes, at least partly, use of decentralized technology” (Friedmann, 2022).

To summarise, while there is no single comprehensive definition of the Metaverse at present, and it remains to be seen in which form (or forms) the Metaverse will ultimately manifest, the consensus emerging from contemporary literature is that the Metaverse will exhibit the following features: (1) scalability; (2) persistence (of the virtual space as well as of individual identities); (3) interoperability; and (4) immersiveness. These characteristics mean that the Metaverse will span across many different aspects of everyday life and that monetary or commercial transactions will be possible within the Metaverse. The Metaverse is also closely associated with immersive forms of technology such as VR, AR and extended reality (XR). While these are not necessary components of the Metaverse, they are likely to enhance the user experience.

From the above, it is clear that at this stage it is not possible to provide a single overarching definition of the Metaverse and it remains to be seen which vision will prevail and gain traction with the user base as well as adapt to increasing regulatory oversight. It is outside the scope of this study to provide a new definition of the Metaverse; rather, in the following parts of the report, we will focus on those of its characteristics that will be most relevant for IP.

1.3 Metaverse characteristics

While definitions are obviously important, the lack of consensus require us to move beyond them and focus on the principal characteristics of the Metaverse which will have the most profound impact on IP, namely 1) interoperability; 2) decentralisation / centralisation; 3) convergence of physical and digital; and 4) multiple contributors.

1.3.1 Interoperability

Interoperability, or the ability of different systems and platforms to exchange information seamlessly with each other, is considered by many thinkers to be a key attribute of the Metaverse. For at least a decade, commentators have made the point that a Metaverse – including a network of interconnected Metaverses – can only emerge if there are technological standards that allow objects, avatars, behaviours and so forth to be exchanged seamlessly between heterogeneous virtual worlds (Dionisio et al., 2013). We can consider the notion of interoperability from different angles, as to the underlying technological standards, IP, and licences.

At present, interoperability between virtual worlds exists only as a loose collection of standards, most of which are focused on the transfer of 3D models/objects across different environments, and no single dominant standard has yet to emerge (Dionisio et al., 2013). Even if a standard for 3D models were to be adopted, this alone would not be sufficient to facilitate the emergence of the Metaverse. Other standards, each concerned with a different layer of virtual world technology, would also need to be developed. The following standards are considered to be key: a protocol standard (which defines the interactive and transactional contract between a virtual world client and a virtual world server), a locator standard (which identifies places or landmarks across virtual worlds), an identity standard (which defines a unified set of user credentials and capabilities that can transfer across different virtual worlds), and a currency standard (which quantifies the value of virtual objects and creation, facilitating their trade and creation) (Dionisio et al., 2013).

The Metaverse Standard Forum, meanwhile, has identified a very broad spectrum of interoperability issues that present the biggest challenges to an open Metaverse, namely: interoperable 3D assets; privacy, safety, security, and inclusion; user identity; avatars and apparel; real/virtual world integration and geospatial issues; teaching and education; payments and economy; and extended reality and user interfaces (Metaverse Standard Forum, 2022). As this shows, much work still needs to be done on the identification and implementation of unified standards across a wide range of domains.

It has been suggested that interoperability between virtual worlds may be encouraged by markets. However, it is not clear whether companies will have sufficient incentives to agree on standards and create interoperability between their virtual worlds, especially given the scale of the task. In addition, the creation of unified standards by private companies may raise antitrust concerns (Nanobashvili, 2022), while also limiting consumer choice and competing innovation (Madiega et al., 2022). ‘Killer acquisitions’, namely the acquisition by large companies of nascent, innovative competitors primarily to pre-empt future innovation is also a concern (Madiega et al., 2022).

Besides the technical limitations, achieving true interoperability in the Metaverse will also be challenging from an IP perspective. The possibility of developing interconnected virtual environments where IP assets converge and move freely across different platforms may lead to complex situations that push the boundaries for rightholders. Companies may find their IP being used in the Metaverse in unforeseen ways or interacting with other IP they might not want to be associated with. In this regard, Kempton suggests that companies should be prepared before stepping in the Metaverse and reconcile their marketing efforts to bring their IP to the Metaverse, while ensuring their IP is used in a consistent way with their branding (Kempton, 2022).

Interoperability may also pose a challenge for software programmers and developers building Metaverse platforms. To create new compatible software and systems with other virtual ecosystems, it will be necessary to extrapolate components that are essential to implement interoperability (D’Onofrio and Gialletti, 2022). Developing a set of Metaverse standards to help build new compatible technologies can aid in accomplishing the desired interoperability (Guthrie et al., 2022).

One successful example of how interoperability can be achieved is the telecommunications industry. When the European Telecommunications Standards Institute (ETSI) sought to build a global cellular standard for a fixed and defined interface between phones and network in early 1990s’, it resulted in the Global System for Mobile Communications (GSM). It was deployed across Europe and paved the way for numerous important advancements in cellular technologies (including SIM cards and SMS messaging). Later, 3GPP was formed to create a truly global cellular standard, a predecessor to UMTS, more commonly known as ‘3G’, and the next generation, ‘5G’. While consumers still need to monitor roaming charges, their phones will work anywhere because the communications interface between the phone and any network is now the same worldwide. However, it is worth noting that the telecommunications industry had to navigate a single technological dimension, whereas in the context of the Metaverse, interoperability will need to be addressed on multiple levels (Schneider, 2022b).

1.3.2 Decentralisation / centralisation

One of the debates that features prominently in current discussions of the Metaverse is the extent to which it will be or needs to be decentralised. Decentralisation has already been identified as a central concept underlying Web 3.0. It represents a vision for the new iteration of the Internet, which seeks to provide users with greater control over their data, content and online activity by changing the infrastructure on which many present-day online applications are built (Digital Regulation Cooperation Forum, 2023), and which is frequently associated with the Metaverse. Ball summarises the concept as follows: “Some believe the definition (and success) of a metaverse requires it to be a heavily decentralized platform built mostly upon community-based standards and protocols (like the open web) and an ‘open source’ metaverse OS [operating system] or platform (this does not mean there will not be dominant closed platforms in the Metaverse)” (Ball, 2020). Within the literature, it is sometimes suggested that blockchain might operate as a tool to enable decentralisation, although details on how this would be achieved are (perhaps understandably) sparse at present (Nanobashvili, 2022). One of the advantages of a decentralised model is that it would be more participatory and democratic. As a result, it would give users autonomy from corporate governance (Garon, 2022). It has also been suggested that individual users would be able to profit directly from their involvement in the Metaverse, instead of ‘paying’ for the use of free platforms with their personal data, as is the case under the existing model of the Internet (Nanobashvili, 2022). While the big tech companies and intermediaries are likely to lean towards a centralised model of the Metaverse, therefore, certain categories of users (particularly those who are technologically knowledgeable) might well be drawn towards decentralised models (Garon, 2022).

At present, much of IP enforcement on the Internet is predicated on the existence of centralised platforms. Via their terms of service (ToS), large media platforms such as YouTube, Facebook and Instagram prohibit their users from uploading or displaying infringing material, and reserve to themselves extensive powers to remove infringing material, to suspend the accounts of infringing users, and even to terminate such users’ access to their services. These ToS and platform policies, in turn, rest on a complex network of IP laws, most notably ‘safe harbour’ provisions that offer immunity to online service providers from claims of copyright infringement based on the actions of their users provided that: (i) they have no knowledge or awareness of that fact that infringing material is being provided through their services; and (ii) upon acquiring knowledge of awareness of that fact, they act expeditiously to remove or disable access to that material (the E-commerce Directive, DMCA). There is an argument that IP enforcement in a centralised Metaverse would operate similarly to this existing model (Choi and Gierhart, 2022a). Choi and Gierhart cite as an example Meta’s Horizon Worlds ToS, which – like the ToS imposed by virtually all large platforms – prohibit users from uploading infringing material and reserve to the platform the right to take down unlawful content.

A decentralised model of the Metaverse may, however, present new challenges for IP enforcement. It is difficult to identify the relevant provider who can take action in relation to infringing content (including removing or disabling access to the content) across decentralised networks (Madiega et al., 2022). The challenges presented by decentralisation are also acknowledged by Choi and Gierhart, though they also take the view that the extent of the difficulty will depend very much on the degree of decentralisation employed. Some Metaverses that contain elements of decentralisation may nevertheless still be operated by a centralised entity responsible for imposing and enforcing ToS. In such cases, Choi and Gierhart suggest, the traditional model of enforcement can still be applied. The Sandbox is cited as an example of this. The Sandbox has a certain element of decentralisation, as it allows users to buy parcels of ‘digital real estate’, each of which is associated with a unique NFT on the public Ethereum blockchain. However, it is governed by standard ToS, which prohibit users from uploading or displaying infringing content, and give the operators of The Sandbox the right to terminate the accounts of users engaging in infringing activity (Choi and Gierhart, 2022b).

Other Metaverses, meanwhile, may be operated not by a single corporation, but by a Decentralized Autonomous Organization (‘DAO’). Matters relating to these Metaverses are decided through a voting system, with users being allotted votes based on pre-determined rules (often based on how much virtual land or currency they acquired in that Metaverse). In these cases, Choi and Gierhart suggest, two options are available. The first is where, despite its decentralised nature, the Metaverse is still governed by a centralised set of ToS (though presumably these and any related policies would have to be approved by the relevant DAO). Choi and Gierhart give the example of Decentraland, whose ToS (backed by a DAO-approved Content Policy) prohibit the infringement of IPRs. Claims of IP infringement are handled by a non-profit entity (called the Foundation), which is purportedly independent of the founders of Decentraland. The ToS also give the Foundation broad powers ‘at its sole discretion’ to block infringing content and suspend the accounts of infringing users ‘to the extent technically possible’ for the Foundation to do so. In this scenario, IP enforcement would still apply in a very similar way to the traditional model. The second scenario is where no such policies are in place. Where this is the case, the DAO could vote to determine whether infringing content should be removed. In practice, whether the DAO would ultimately vote to do so would depend on several factors, including who has voting power within the DAO, how many votes they have, who can be mobilised to vote, and whether they have any interests in protecting IPRs that would induce them to vote one way or the other. These voting powers can be used in perverse ways: “there is nothing that ensures that metaverse participants will vote ‘the right way’ when it comes to the enforcement of IP rights, especially if they have an interest in the outcome” (Choi and Gierhart, 2022c).

As this analysis shows, the greater the degree of decentralisation within a Metaverse, the more difficult it will be for owners of IPRs to enforce their rights. IP enforcement is likely to prove particularly challenging in Metaverses that are not governed (even in a loose sense) by a centralised entity. It remains to be seen whether new Metaverse platforms will lean towards more decentralised or centralised models, as they both have different strengths and weaknesses (for companies and users alike). In this regard, it is highly probable that most (but not all) companies building Metaverse platforms will opt for a hybrid approach that allows them to retain a certain degree of authority to monitor and remove IP infringing content, in order to avoid the risk of incurring platform liability. Further, the ability to retain a minimum level of centralised power to enforce IPRs might also be a crucial feature for Metaverses that strive for interoperability and wish to remain competitive in the market, since IP rightholders will likely prefer to work with interconnected platforms that can guarantee a minimum level of protection for their IP assets.

1.3.3 Convergence of physical and digital

Many Metaverse advocates promise that the Metaverse will fully bridge the physical ‘real world’ and the ‘digital’ world, contending that the Metaverse will result in a ubiquitous and large-scale virtualisation. It is often suggested that the separation between the physical and digital environments will become an arbitrary distinction, as the two will exist and operate concurrently and codependently. Already this seeming separation of physical space and online environments is eroding, with our increased reliance on digital spaces to undertake tasks that have traditionally required in-person and physical participation. As Garon comments, platforms such as Zoom, Teams, and “similar interactive environments” are already establishing themselves as integral to work and education spaces, observing that “[s]eparating work or school from play environments may no longer be accomplished using physical spaces” (Garon, 2022). The eventual shape which this convergence will take is still uncertain, but there are several technologies, which potentially make up the underlying architecture for the anticipated Metaverse. For instance, virtual reality, 3D environment, physics engines, motion tracking, virtual machines, haptics, machine learning and avatar creation tools are some examples of key technologies in creating an “experience that spans both the digital and physical worlds” (Ball, 2020). Motion tracking or VR technology can be leveraged to enable the actions and movements of the user in a physical sense to be mirrored identically in the digital environment, while with haptic technology can be implemented to provide immersive sensory experiences that are indistinguishable from traditionally analogue experiences (Owens, 2018). Likewise, augmented reality, augmented space and extended reality technologies are other technologies which could foreseeably allow the physical and digital to coincide, potentially in the form of mirror worlds where being physically present in a particular space could allow one to be connected to a perfectly replicated digital environment that can be navigated concurrently and identically to the physical (Faccio, 2021; Friedmann, 2022). A similar effect may also be achieved through augmented space technologies, where a digital experience can be overlaid on top of the physical conversely, through wearable technologies such as glasses (Faccio, 2021).

Beyond this, convergence might also be facilitated through smart objects or ‘everyware’ and smart environments, creating real world environments driven by ‘ubiquitous computing’ and the ‘Internet of Things’ (Friedmann. 2022). This further erodes the boundaries between the tangible and intangible objects or property. Material collectables such as football and baseball stickers are already finding parallels with digital collectables such as NFTs (Marino et al., 2021), and the fashion industry is starting to develop digital offerings such as virtual skins for avatars on online platforms, virtual worlds, and video games.

We can track similar trends in other types of user experiences. With e-sports, we can already see the move from analogue to digital in terms of play, competition and broadcasting, and cloud-based gaming may facilitate this transition even further. As Schneider observes, with this convergence the Metaverse platform(s) offer “a new space with its own set of rules” (Schneider, 2022a). Mostert and Yeoh also note that digital platforms are already “inextricably linked to our society’s infrastructure” and caution that with growing digitisation, the Metaverse represents a potential “parallel judicial universe, an independent meta-system with its own virtual jurisdiction” (Mostert and Yeoh, 2022). As will be discussed further in section 3.3, this raises numerous questions for how IP regulation will need to develop or adapt to accommodate this emergent hybrid environment that straddles both the physical and digital, whether that be to address new forms of infringement, or to consider how regulation extends, applies, or needs to adapt to these new spaces and environments.

1.3.4 Multiple contributors

Another characteristic which many Metaverse models emphasise is that it will be the product of multiple contributors, and its development and expansion will be significantly underscored by a vast number of users. For instance, Ball’s vision of the Metaverse will be “populated by ‘content’ and ‘experiences’ created and operated by an incredibly wide range of contributors, some of whom are independent individuals, while others might be informally organized groups or commercially focused enterprises” (Ball, 2020). This indicates we can expect that there will be an array of content from a range of different contributors in various degrees and forms. Some companies behind proto-Metaverses have already acquired technologies to provide software and creation tools that are embedded into the digital platform, which enable users to create entire immersive environments. Creation on these digital platforms could thus range from traditional methods such as coding, to more simplified creation systems that require no experience in coding or design (Ball, 2020). Moreover, many proponents suggest that this content will become central in the economy of the Metaverse or for user participation in it, with the potential for user renumeration to be directly integrated into the platform.

As Ball observes, Roblox, which can be regarded as a proto-Metaverse in some senses, already offers renumeration to users who create games within its platform and has now complemented that with a “Developer Marketplace” to provide assets such as plugins, models, terrains, and other items to facilitate creation (Ball, 2020). The intermingling of user creativity and platform-provided assets in the Metaverse is likely to be even greater in degree. As observed in the Metaverse report, there is likely to be a “merging of digital assets and worlds” and a significant amount of trade and commerce, ranging from “business to consumer, consumer to consumer, trading across games” (Marino et al., 2021). With the proposed scale of the Metaverse, its potential interoperability and likely breadth of participation, the already complex licensing issues which already exist for games which provide complex tools for user-generated content are likely to become even more intricate. It may also mean that existing distinctions between commercial enterprises, traders, and individual end-users will become blurred, which as will be discussed in 3.4, carries consequences for IP.

1.4 Conclusion

While the interest and investment in the Metaverse has increased dramatically, matched by an increase in emerging scholarship, the precise nature and implementation of the Metaverse or multiple interconnected Metaverses remains unclear. This part of the report aimed to establish and outline the range of available definitions that can further elucidate the concept and provide firm foundations on which the proceeding analysis can be based. Given that there exist a wide range of positions and visions of the Metaverse and the timeline according to which it has been, or will be, developing, it was necessary to identify common elements and characteristics so that our understanding of the Metaverse is a way that is sufficiently open-ended to anticipate a variety of challenges which span multiple and different definitions we encountered. We also addressed certain assumptions about the Metaverse, especially in terms of the level of (de)centralisation and interoperability needed for the Metaverse to exist, or an association with a particular technology.

The lack of consensus with regards to definitions require us to move beyond them and identify common elements and characteristics of the Metaverse and select those which will have the most profound impact on IP. Firstly, interoperability can exist on multiple levels – interoperability of the underlying technological standards, IP, and licences – and is likely to push the boundaries of IP protection. Secondly, the extent of decentralisation / centralisation will have a direct impact on IP rights and enforcement. Thirdly, convergence of physical and digital that will further challenge the increasingly artificial distinction between spaces, interactions, and implications for IP within physical and digital environments. And ultimately, we believe that the complexity of the ecosystem, with multiple contributors, focus on user-generated content, and multi-layered licensing framework will create further pressure for the IP system.

Irrespective of how the Metaverse will be ultimately defined and designed, the preliminary findings show that this will inevitably result in the increased use of and demand for IP. IP will play a crucial role in the creation and constitution of the Metaverse, as well as defining users’ and businesses’ experience of it. It will also be essential for enabling users and businesses to leave the Metaverse in a secure and controlled manner. The IP system will also have to cope with an increased risk of infringement and enforcement challenges.

Question 3

2.  Existing and persisting issues

Accepted Answer

The IP issues and challenges that have arisen in the context of the Metaverse are, for the most part, not new. In fact, many of them have been present ever since the Internet and related digital technologies came into widespread use. The debates around jurisdiction and enforcement in the Metaverse, for instance, echo those around the regulation of cyberspace that took place in the mid-1990s. Likewise, concerns raised by the prospect of large-scale trade mark and copyright infringement in the Metaverse are reminiscent of those raised by the unauthorised use of trade marks and copyright-protected works in virtual worlds. These remain live issues in the Metaverse space because they were addressed imperfectly – or not addressed at all – when they initially arose in the context of the Internet and digitisation. The fact that these remain pertinent issues in the context of the Metaverse provides us with an opportunity to reopen important debates about the role of IP in digital societies, and in particular how the protection and enforcement of IPRs can be done in a way that does not undermine democratic processes or fundamental rights within the Metaverse.

2.1 IP

In this analysis, we will focus on copyright-protected works, patented inventions, protected trade marks, and protected designs in the Metaverse. However, we are aware that issues relating to personality rights and unfair competition may also arise, and that these two areas of law may provide additional potent legal tools for rightholders to use for addressing the challenges they face. These will therefore be mentioned where specifically relevant.

2.1.1 Copyright

2.1.1.1 Subject matter, exclusive rights and limitations and exceptions

To date, there is virtually no academic literature on protectable subject matter, the extent and operation of exclusive rights or the applicability of existing limitations and exceptions within the Metaverse. Each of these topics raises potential challenges. The Metaverse is expected to enable new, varied and diverse forms of creation and innovation. Users and businesses might, however, find it difficult to secure copyright protection for the products of such innovation, given the UK’s existing ‘closed list’ approach to copyright subject matter, under which only creations that can be brought within an exhaustive statutory list of categories will be eligible for copyright protection. This ‘closed list’ was arguably never fully compatible with the EU Aquis Communitaire, often putting the UK judges in the difficult position of having to navigate two apparently opposite approaches (SAS Institute Inc. v World Programming Ltd, 2013; Response Clothing Ltd v The Edinburgh Woollen Mill Ltd, 2020; Waterrower (UK) Ltd v Liking Ltd, 2022; Shazam v Only Fools The Dining Experience, 2022).

Questions are also likely to arise as to whether rightholders’ exclusive rights extend to any new and innovative modes of exploitation that are developed within the Metaverse, and how the rules relating to exhaustion of rights operate in the Metaverse. There are also questions as to how far the UK’s existing limitations and exceptions can be stretched to accommodate derivative creativity within the Metaverse, particularly as UK copyright law has historically been much less flexible on this front compared to, e.g., US copyright law.

2.1.1.2 Infringement, detection, and enforcement

Regardless of the different technologies that may be used to build Metaverse platforms, an expected feature of these virtual environments – as a continuation of web 2.0 – is that users will be able to upload, share, create and ‘own’ content online. Most commentators agree that this is likely to enable unauthorised uses of copyright-protected works and trigger enforcement issues, similar to the ones that digital platforms face in the current state of the Internet.

In this regard, Watts argues that copyright infringement in the Metaverse will “essentially operate as it does now”, referring to copyright issues faced by conventional online content sharing services. However, Watts acknowledges that traditional detection mechanisms may not be efficient in identifying infringing works within a blockchain and in decentralised Metaverses that lack a central authority, which will require the development of new surveillance technologies. Conversely, centralised Metaverse platforms are more likely to rely on monitoring technologies and implement traditional notice-and-takedown procedures to enforce copyright (Watts, 2022).

In a report published by Osborne Clarke, Guthrie et al. suggest that a main issue will be determining if Metaverse providers can be held primarily liable – or not –for copyright infringement, and if these platforms can take advantage of the safe harbour provisions like conventional Internet providers (Guthrie et al., 2022). Similarly, in a report published by DLA Piper, D’Onofrio and Gialletti suggest that the Metaverse generates “increased significant risks for copyright holders” and monitoring copyright infringement in this virtual environment will be difficult, as it already is in existing online spaces. Hence, the authors suggest that Metaverses ought to have ad hoc procedures to report and remove copyright infringements, establishing a platform liability regime like the one provided through EU by the Directive on Copyright in the Digital Single Market (Directive 2019/790) (D’Onofrio and Gialletti, 2022).

Thus, unauthorised use of copyright protected works online will remain a general problem in the Metaverse era. The main issue will be to determine the best mechanisms and tools for monitoring infringement and facilitating copyright enforcement.

2.1.1.3 Licensing / future clauses

Another recurring issue identified in the literature is the use of future technology clauses in existing licence agreements over copyright protected works, and the capacity of such provisions to cover exploitation of the licensed content in the upcoming Metaverse. Since the Metaverse is often presented as a novel development in comparison to existing online digital platforms, both licensors and licensees must determine if the pre-existing terms of their licence agreements would enable the licensee to exploit copyright protected works in the Metaverse.

D’Onofrio and Gialletti suggest that the Metaverse may be conceived as a new distribution channel and lead to the development of new business models, which in turn may open the doors for renegotiating the terms of existing licensing agreements to ensure that the exploitation of copyright-protected works has been authorised expressly for these new virtual platforms (D’Onofrio and Gialletti, 2022).

Similarly, Nanobashvili argues that it is difficult to foresee the development of innovative technologies in advance, and the language in licence agreements may require interpretation to determine if a licensee is authorised to use a copyright-protected work in the Metaverse, as seen in Random House, Incorporated v Rosetta Books LLC (2011) where a US court found that the publisher’s licence to produce works ‘in book formats’ was restricted to physical books and did not cover digital distribution (Nanobashvili, 2022). Further, Nanobashvili highlights two different approaches in the copyright laws of different jurisdictions, which may translate into different terms in licences over copyright protected works. In the United States, authors may transfer rights to uses of works unknown at the point of transfer; however, authors may also terminate any lifetime transfers and reclaim ownership of their rights thirty-five years after the date of transfer. In contrast, in countries such as Spain, Belgium, Greece, Poland, Hungary and the Czech Republic, copyright law does not allow the transfer of copyright for uses unknown at the time of transfer. Nonetheless, it may be difficult to establish a specific date when the Metaverse was created, or on which Metaverse-related uses will be considered ‘known’ (Nanobashvili, 2022).

Conversely, in a report published by the Italian branch of DLA Piper, Varese and Grondona suggest that future technology clauses only pose limitations in the context of publishing agreements, and companies are able to “rely on future technology clauses to use copyright protected works in the Metaverse” (Varese and Grondona, 2022).

An additional issue connected to copyright licensing lies in the Metaverse’s capacity to bring together multiple intellectual property rights of different stakeholders within a common virtual environment. At present, it is common to see ‘mashups’ of several copyright-protected characters within video games such as Fortnite; likewise, interoperable Metaverses will create similar spaces where the interaction of copyright-protected works is likely to take place. In this regard, Murphy et al. suggest that provisions connected to the scope of use of copyright protected works may need to be reviewed, particularly the ‘use in combination’ with other intellectual property. Hence, rightholders should be prescriptive to determine “who their characters can and cannot interact with” in the Metaverse (Murphy et al., 2021b).

2.1.2 Trade marks

The rise of the Metaverse represents a unique opportunity for brands owners to expand their business into a newly established virtual environment where they can engage with their customers. In the recent years, several renowned companies have already developed commercial strategies to step into different proto-Metaverse platforms to promote their brands to existing and new customers.

While the literature highlights different challenges concerning the extension of trade mark protection in the Metaverse, most of these issues are not entirely new as they reiterate pre-existing discussions pertaining to trade mark protection in online and virtual worlds. For instance, in a 2008 article, Kotelnikov already raised several questions pertaining to the use of trade marks in virtual environments existing at that time, such as Second Life. The discourse considered the scope of protection that physical goods brands would receive in virtual spaces, the extent of freedom of speech in virtual worlds, or the difficulties of determining the use in commerce of a trade mark in connection to a certain jurisdiction within a virtual environment (Kotelnikov, 2008; see sections 2.2.3 and 3.3 for more details). Most of these problems remain relevant in the Metaverse era, although the answers to some of these questions may vary in certain aspects.

A common challenge for trade mark legislation observed by Metaverse commentators lies in determining the goods and services that a trade mark should cover in order to be protected in the real world as well as in a virtual space such as the Metaverse. In the DLA Piper report, Alfieri and D’Angeli suggest that the Metaverse marks a ‘year zero’ in the field of trade mark filing. Brands had to redefine their filing strategies and expand their portfolio to unusual classes of the Nice Classification in order to attain trade mark protection in virtual environments (Alfieri and D’Angeli, 2022). For instance, Park notes that a trade mark distinguishing real world apparel would not only seek protection in class 25 but also in other atypical classes, namely, class 9 for downloadable virtual goods and software, class 35 for retail store services featuring virtual goods, or class 42 for on-line non downloadable virtual goods and NFTs to use in virtual environments (Park, 2022).

Changes in filing strategies are a consequence of another persisting problem, which is the uncertainty on whether the owners of real world trade marks will be able – or not – to claim exclusive rights over their use in relation to virtual goods. In this regard, it has been observed that expanding a brand’s portfolio to classes covering virtual goods and services bolsters enforcement and reduces the risk of courts denying protection of real-world brands in the Metaverse, although there might be budgetary constraints to adopting such a strategy (Popple et al., 2022). Brands adopting such a strategy are also vulnerable to have the validity of their registrations challenged on the grounds of bad faith and/or non-use where the brand has no intention of actually using the mark in relation to virtual goods or services, and/or seeks registration of the mark or the extension of its coverage solely in order to prevent its use in the Metaverse by third parties.

Lapatoura suggests that trade mark protection in the physical world can be extended into digital environments in the case of luxury brands that own an established reputation and goodwill. Most jurisdictions confer protection against trade mark dilution for owners of trade marks with a reputation, which allows them to take action against unauthorised uses of their trade marks even in relation to products or services which are different to those for which the trade mark has been registered. This, in turn, means that the owner of such a mark, which has no Metaverse presence, would nevertheless be able to rely on the reputation of the mark in the physical world to take action against unauthorised uses in the Metaverse. However, this option is not available to emerging entrepreneurs and start-up companies, who will find themselves in a vulnerable position (Lapatoura, 2022).

In this regard, Vig suggests that a company that owns a clothing brand selling physical products may not be capable to demonstrate that the unauthorised use of its trade mark on virtual clothing in the Metaverse has been used ‘in the course of trade’, because there are no actual goods being sold. At the same time, trade marks that exist only within the Metaverse may not necessarily be protected in connection to physical goods, if the creator of such trade mark has never used it in the physical world. And even if the owner were to register the ‘Metaverse-born’ trade mark for physical goods, the registration may be subject to a cancellation for non-use (Vig, 2022).

The territorial nature and scope of protection of trade marks poses another significant challenge in the Metaverse. Like other pre-existing online service providers, Metaverse platforms are borderless virtual environments that operate on a global basis, independent from the boundaries of a single jurisdiction. Lapatoura suggests that this might be problematic for international business-to-consumer (B2C) transactions in the Metaverse: a seller that does not own a trade mark in the jurisdiction where the buyer is located might be exposed to infringement proceedings if a similar prior trade mark has been registered by a third party in that jurisdiction (Lapatoura, 2022).

Further, two (or more) companies that own the same trade mark in different jurisdictions will eventually have to interact with each other and coexist within a common virtual world, creating a risk of likelihood of confusion. Some criteria might be used to establish a geographical connection of a trade mark in virtual worlds, such as determining the location of subscribers or client data (Kotelnikov, 2008).

However, these lines become blurred in modern Metaverse platforms that aim to become interoperable global spaces. In this regard, Watts notes that the traditional ‘targeting’ principles used for e-commerce platforms (including the top-level country domain, currency and languages used) would hardly apply to Metaverse platforms that have a global focus and rely on cryptocurrencies (Watts, 2022). It appears that there is not yet a clear answer on how Metaverse platforms should ideally deal with these complex scenarios.

As the existing literature shows, the Metaverse’s potential ability to bridge the physical ‘real world’ and the digital world and its uncertain jurisdictional boundaries present particular challenges where trade marks are concerned, given their territorial nature. Rightholders may find it necessary to revamp or completely overhaul their filing and brand maintenance strategies in order to protect their trade marks effectively within the Metaverse. The mismatch between the territorial nature of trade marks and the inherently global nature of the Metaverse gives rise to difficulties identifying the relevant target market and determining when, how and where infringement has taken place, and at whose instance. It calls to mind the conflict which arose in the context of domain names – which are also global in nature – in the 1990s and 2000s. Over time, mechanisms have been developed for addressing the most egregious trade mark-related domain name disputes, such as cybersquatting and other bad faith domain name registrations. However, both national courts and alternative dispute resolution fora, such as the WIPO Domain Name Dispute Resolution Service, have failed to come up with workable rules for dealing with good faith concurrent use of the same or similar trade marks by different companies. Equally, arbitration procedures, whereby the parties opt out for a private dispute resolution procedure outside of the judicial system, may need to be adapted in order to provide speedy, efficient, and affordable of resolution expected by Metaverse users. The fact that this problem is likely to recur in the Metaverse on a greater scale should provide policymakers and platforms with the impetus to identify a solution. This may include modifying rules of ‘traditional’ arbitration specifically for digital disputes or adopting a form of decentralised justice system, such as autonomous arbitration, which combines blockchain, crowdsourcing and game theory in online dispute resolution (Chan et al., 2022) (more details on automated and blockchain-based governance can be found in section 3.2).

Some further issues related to trade marks and the Metaverse have been addressed by commentators (see section 2.2.3 Non-fungible tokens below, which also covers trade mark issues), but for others aspect, e.g., what constitutes use of a trade mark in the Metaverse, unconventional uses, and audio-visual trade marks, there is no literature directly dealing with these.

2.1.3 Patents

New hardware and software innovations will be needed both to construct the Metaverse itself as a digital space and to enable users to access it as well as enhance their experience of it. The companies behind these innovations will undoubtedly seek patent protection for their inventions – indeed, there is evidence that this is already happening. The accelerated development of the Metaverse has caused a sudden increase in the number of patent applications filed for inventions pertaining the Metaverse (European Innovation Council and SMEs Executive Agency, 2022). The South Korea’s Korean Intellectual Property Office reported that up to 43,700 patent applications related to the Metaverse and immersive content were filed between 2016 and 2020 in the US, South Korea, Japan, Europe, and China, which is nearly a threefold increase over applications filed in the previous five years. Most of these inventions are not even known to date due to the disclosure periods required for patent registration. However, commentators agree that the early development of a portfolio of Metaverse-related inventions is a relevant strategy for businesses to secure a place in the Metaverse and get an advantage over competitors when entering in this new market, and most of the inventions seen nowadays will set the course to shape the Metaverse in the following years (Tiberio and Di Vizio, 2022; Rektorshek and Steinmüller, 2022a).

It has been observed that most of the Metaverse-focused innovations are related to hardware support that will improve the user experience to make it as realistically as possible, usually relying on technologies such as virtual reality or augmented reality (Tiberio and Di Vizio, 2022). Likewise, companies are trying to develop new hardware that will lower the threshold to enter the Metaverse, such as the peripherical devices that users will need to navigate these platforms (Rektorshek, 2022b).

A second set of inventions will be connected to software development, which concern the inner processes used in the Metaverse to access and remain in these digital spaces, including mechanisms that personalise the user’s experience. For instance, Tiberio and Di Vizio note that the US Patent Office has examined a system that would allow users to preview and filter ‘virtual rooms’ that they wish to enter in the Metaverse (Tiberio and Di Vizio, 2022). Rektorshek and Steinmüller observe, however, that software-related patents for simulated worlds are more difficult to obtain in the states which are parties to the European Patent Convention (‘EPC’) in contrast to the US, as the EPC expressly excludes software ‘as such’ from the scope of patentability. This means applicants in EPC states face the additional hurdle of demonstrating that their inventions have a ‘technical effect’ that goes beyond the interaction between the software and the computer. This, in turn, might eventually lead to licensing or infringement issues in the future as these platforms will be accessed globally (Rektorshek and Steinmüller, 2022a).

While the interest in Metaverse-related patents is growing rapidly, there are concerns that the monopoly granted by these rights could potentially become detrimental for innovation within Metaverse platforms that aim to become decentralised and interoperable spaces. Guthrie et al. observe that new entrants to the market – in particular, developers – might find it difficult to navigate the Metaverse’s patent landscape, which might eventually lead them to unknowingly infringe rights of others. In this regard, they suggest two possible solutions: (i) creating licensing pools with the essential patents required for Metaverses that will simplify the licensing process for new developers, ensuring interoperability; and (ii) using open-source licensing models to release new technologies to allow the further development of technologies (Guthrie et al., 2022).

In the end, it will be necessary to find the right balance between the interests of developers and rightholders to ensure that patents do not become an obstacle towards the development of the Metaverse.

2.1.4 Design protection

The protection provided by registered and unregistered designs (UK) or trade dress under trademark law and design patents (US) is not limited to specific goods or services, which creates a degree of flexibility. Most of the visual components of the Metaverse (from static icons to dynamic animated characters, interfaces, virtual spaces, etc.) could be arguably protected by design. Moreover, the importance of design protection has been extensively highlighted by the early and substantial investment by fashion and luxury brands in the Metaverse. Some remaining uncertainties around design protection, and in particular unregistered design rights (UDRs), are likely to present challenges for the rightholders in the Metaverse. For instance, a high percentage of fashion designers currently rely on UDRs as their main form of IP protection, as UDRs are particularly well-suited to rapidly changing trends within the fashion industry (Lapatoura, 2022). However, the ‘borderless’ nature of the Metaverse is likely to present difficulties for designers.

Some of the legal challenges, which need to be addressed have been highlighted by Bennet (Bennet, 2022, 15:00), and include the registrability of a digital design. The Community Design Regulations 2005 (s. 3) refer to ‘products’ while the Copyright, Designs and Patents Act 1988 (s. 213) refers to ‘articles’ and in absence of case law on the point we can only assume these terminologies encompass digital designs even when they are not embodied in a physical article or product. The EUIPO Practice is to allow registration of digital designs under Class 14-04 of the LOCARNO classification (see Guidelines at Section 4.1.3).

Closely connected challenges are the potentially outdated design representation requirements when it comes to representing animated digital designs, and questions over the correct classification. Questions also remain regarding whether Class 14-04 of the LOCARNO classification correctly embraces the convergence of physical and digital that is expected to be a key characteristic of the Metaverse or if it will continue to require two separate categories for both the physical product/article and its digital representation.

When it comes to using a registered or unregistered design in the Metaverse, the first challenge is to determine whether this use is qualifying. This is particularly relevant in a situation where the digital design is not encompassed or embodied in a physical product as well. Given the wording of Article 19 of the Community Design Regulation, the term ‘use’ ought to be understood broadly and therefore include the use of a product or article on the Internet as well as in the Metaverse. Furthermore, when a person publishes or exposes a design in the Metaverse, it is unclear whether it qualifies as a disclosure, which could undermine the notion of novelty – a key requirement for design protection to arise.

These legal issues are similar to those that arise in the context of trade marks, and it is important to ensure that the legal framework is able to respond to new and emerging technologies so that users and rightholders are able to participate in the Metaverse with confidence. The UKIPO launched a consultation in early 2022 on the use of designs in a digital environment, “including avatar content in online gaming”, with the aim of ensuring a balance between human created and computer-generated designs, arguably being relevant to the Metaverse.

In general, legal issues arising from the use of design rights in the Metaverse are virtually unexplored in the literature, with only a few commentaries specifically exploring the use of designs in digital environments (see, for instance, Sarlangue, 2021; Burbidge, 2020).

2.2 Para-IP

We use the term ‘para-IP’ here to refer to a set of issues that span across different areas of IP law, while also touching on other areas of law such as the law of contract and the law of personal property. In this section, we analyse four ‘para-IP’ issues that are of particular relevance to the Metaverse: user-generated content, virtual property, NFTs and licence agreements and platform liability.

2.2.1 User-generated content (infringement and rights)

Metaverse platforms are expected to come embedded with a wide array of digital tools that will enable businesses and individual users to create, upload and share different types of digital content. User-generated content is therefore expected to become ubiquitous in the Metaverse.

In the present day, much digital user-generated content makes extensive use of copyright-protected works and/or protected trade marks. Because of this, the creation and dissemination of such user-generated content amounts to infringement unless done with the permission of the relevant rightholders or in reliance upon an applicable limitation or exception. While a full analysis of user-generated content in general is beyond the scope of this study, it should be noted that rightholder permission is seldom available or obtainable, and the limitations and exceptions found in the IP laws of many jurisdictions (such as the UK and EU Member States) will likely be too narrow to accommodate such activity. Even in jurisdictions whose limitations and exceptions are, in principle, broader (such as the US), there remains a great deal of uncertainty as to whether and to what extent to apply. At the same time, such activities are generally very hard to monitor, costly to enforce against, and typically have no or very limited negative impact on the rightholder’s business. Attempts at enforcement are likely to cause user dissatisfaction and may end up backfiring against the rightholder. In practice, therefore, such activities are typically tolerated or condoned either expressly or impliedly (via lack of enforcement) by rightholders. Some creative industries, such as the video game sector, may even expressly embrace such activity via user licences that allow for certain specified reuses of protected content (Dimita, Lee, MacDonald, 2022). However, this still results in a grey area for user-generated content, as rightholders who have hitherto been tolerant of user creativity may suddenly clamp down on it if they decide that forbearance no longer suits their business model or strategy (Catton, 2020). Even where certain forms of user creativity are permitted under a licence, in the vast majority of cases, the terms of these licences will be framed in such a way as to allow them to be varied unilaterally by the rightholder. A case in point is the Dungeons & Dragons (‘D&D’) tabletop role-playing game system, published by Wizards of the Coast (‘WotC’), which for twenty years had been distributed under a copyright licence called the Open Game Licence (‘OGL’). This allowed individual users and third-party publishers to produce D&D-compatible material. Recently, WotC sought to alter the terms of the OGL (Schaub, 2023). While this attempt was ultimately abandoned, due to an outcry from the tabletop gaming community, what this incident shows is that the unilateral variation of user licensing terms is something which rightholders are legally entitled to do. Current approaches for dealing with user-generated content thus create significant uncertainty and risk for individual users. This is an issue which will need to be resolved if – as is envisioned – the Metaverse is to be a digital space where user creativity is widespread, and where third-party content providers will be able to offer their creations to users via a marketplace.

2.2.2 Virtual property

The issues surrounding property rights (distinct from IP rights) in virtual assets have been identified, debated, and examined for over two decades. Players currently do not have any property rights in virtual items (anything ranging from their avatars, currency, and in-game assets) and only limited safeguards guaranteed by privacy and consumer protection regulation. This status quo is further consolidated by contracts and licence agreements. Literature on property theories has informed research on virtual property (Castronova, 2002; Fairfield, 2005), but no coherent legal doctrine has been adopted yet.

In 2002, Castronova famously calculated the (potential) GDP of the virtual world Norrath to be almost $2,000 per inhabitant and coined the terms ‘virtual economy’ and ‘virtual property’. He provided evidence of a substantial dollar-based trade in virtual goods, as well as liquid currencies and demonstrated the existence of real economic activity, both within virtual environments and between the virtual and real worlds (Castronova, 2002).

Players have legitimate expectations about acquiring legal interests in virtual items. There are two sources of these expectations. Firstly, the architecture of video games, the existence of virtual economies, and the property-like characteristics of virtual items give rise to these expectations. Virtual items are intangible and yet durable, transferable and of an independent value. They can be bought and sold. In addition, players exercise a certain degree of control over their virtual property insofar they can transfer them to another or exclude others from using them. As a direct consequence of virtual economies – every environment has its own currency, marketplaces and currency exchange – most virtual items have a real-world monetary value. Secondly, video game companies’ representations and conduct either explicitly authorise or at least tolerate these transactions. It is unclear why the dependence on a third-party’s technological service ought to make virtual assets dependent on the legal system, even if that service is provided subject to a contract (Michels and Millard, 2022).

The licence agreements, which are the primary legal documents governing the use of digital products and services, inform us that the providers reserve all the proprietary interests in relation to the account, virtual character, or any items of value that users acquire at any point in time during their participation. The existing legal framework fails to deal properly with these issues as we can see with the disparate treatment of physical and digital assets in general. Applicable laws, such as contract, intellectual property, or consumer protection law, do not recognise players’ expectations as legitimate. Intellectual property law prohibits (in simplified terms) copying, producing, or disseminating of similar expressions or products. Consumer protection addresses the contractual side of the relationship between the player (the consumer in this context) and the provider in relation to the sale of digital content or provision of digital services. Furthermore, it focuses on issues such as provision of adequate information to consumers, rights of withdrawal, or liability. It does not deal with the allocation of proprietary interests in virtual assets, nor does it concern itself with the numerous interactions between players themselves. In the absence of a holistic approach to regulation, what remains is a legal framework that treats virtual property in a fragmented, diverse, and incomplete way.

This issue now transcends video games and has become a fundamental question for the post-digital era and, most crucially, the Metaverse. This point has been reiterated by the recent Law Commission’s Digital Assets Consultation Paper (2022), which examined the suitability of property laws in England and Wales with regards to digital assets. It proposes creating a third category of personal property, encompassing ‘data objects’ (the precise scope and variety of data objects befitting this category remains unclear). However, the Report concludes that from all the different types of digital assets examined, only crypto tokens attract property rights based on the necessary criteria (for instance, to be identifiable, excludable, rivalrous, separable, and of value). It dismisses other types of digital assets. While the enquiry has been welcomed, it offers little clarity and policy direction addressing the absence of virtual property. Equally, creating an illusion of property in a digital environment (a third category of personal property for crypto tokens) does not support democratic processes. The issue of crypto tokens, in particular non-fungible tokens, is addressed in the following section in more detail.

2.2.3 Non-fungible tokens

While a detailed analysis of the legal status of non-fungible tokens (NFTs) is beyond the scope of this study, a brief summary of some of the most pertinent IP issues regarding NFTs is required as, together with blockchain and cryptocurrency, they are often associated with the Metaverse. Some envision them as essential building blocks as they can enable some of the key Metaverse characteristics, such as decentralisation and convergence of physical and digital. While it is important not to conflate the Metaverse with any particular technology, users, brands, and developers view NFTs as offering unique opportunities, especially by facilitating commercial transactions and marketplaces within the Metaverse (Goossens and Feldman, 2021; Valeonti et al., 2021; Lapatoura, 2022).

This is achieved through the tokenisation of assets, where any object, physical or digital can be represented in a digital form (an image, audio, or 3D representation), as a token, which exists as a digital unit of value, recorded on the blockchain. This non-fungible token, an NFT, is embodied in a unique computer code. NFTs can take different forms, but most commonly exist as metadata files containing information that has been encoded with a digital version of the object that is being tokenised (Guadamuz, 2021). Anyone can create an NFT. The creation process is called ‘minting’ and entails taking the relevant digital file (representing any physical or digital object) and uploading it to a platform, such as OpenSea, and generating a unique number that is then written into the blockchain as a smart contract (Guadamuz, 2021; Giannopoulou, Mezei and Quintais, 2022). After paying a transaction fee (the so-called ‘gas fee’) (Guadamuz, 2021) through a crypto wallet, the user obtains two different pieces of information: a token ID and a contract address. Additional information can be added to the code (such as definition or IP rights management).

There are two different types of NFTs: on-chain and off-chain NFTs (Finzer, 2020). On-chain NFTs include both the token and the underlying file stored on the blockchain. For off-chain NFTs, the copy of the underlying asset has been stored off the blockchain and intermediaries provide links (URLs) to the location (Guadamuz, 2021). Off-chain NFTs are the most common and the cheapest types of NFTs. However, they come with a risk: if the link to the underlying file is broken, the NFT can no longer access the file and the associate value is diminished or lost (Hertz, 2021). On-chain NFTs are more reliable and legally acceptable method for managing rights, since the underlying file is directly stored on the blockchain, but minting costs are much higher and environmentally demanding (Larva Labs Blog: On-chain Cryptopunks; Ross, Cretu and Lemieux, 2021).

Transactions are facilitated through smart contracts, which are prepared, cryptographically signed, and uploaded on the blockchain after the parties agree on their scope. Uploaded contracts can interact with other components on the blockchain network (De Filippi and Wright, 2018). Blockchain, smart contracts and NFTs have unlocked an entire ecosystem that enables the sale of digital items by transforming them into collectables and unique digital assets. NFTs are seen therefore as way of certifying originality, ownership, and authorship (Finzer, 2020). However, the legal reality is more nuanced and complex (Liu, 2022).

When someone purchases an NFT, they purchase in fact the metadata file, a digital receipt, which is transferrable as well (Cranwell et al., 2022; Huertas and Hikl, 2022). The claim that an NFT equals to a digital copy of the digital representation of the underlying object is inaccurate and has led to several misunderstanding and misconceptions. Rather than a possession of a digital copy, the NFT is a digital receipt linked to the digital copy and the relevant transaction(s).

The UK High Court has defined NFTs as ‘property’ by keeping them separate from the underlying digital assets (Osbourne v Persons Unknown). However, it should be noted that this approach may not apply to every NFT (Goossens and Breen, 2022). To address this lack of clarity, the Law Commission has published a consultation on Digital Assets and the readiness of the legal system in England and Wales to embrace digital assets, including NFTs (Law Commission, 2022). Other jurisdictions are also exploring how to address the prevailing legal uncertainties surrounding the legal status of NFTs (e.g., Singapore: Janesh s/o Rajkumar vs. Unknown Person (“CHEFPIERRE”); Choo and Lam, 2022; China: Hangzhou Internet Court of China, see Qin, 2022).

Some scholars believe that NFTs provide a more inclusive and revolutionary solution regarding the protection to digital assets in a global borderless digital environment such as the Metaverse, in comparison to national and international IPRs, especially in terms of copyright (Evans, 2019; Bamakan et al., 2022; Lee, 2022). Although NFTs are technically metadata files, Lapatoura argues that reducing them to just code, information, or data, will have an adverse effect and challenge IP protection available to NFTs and the underlying digital assets (Lapatoura, 2022).

Beyond the legal status of NFTs, it is crucial to address the IP (in particular copyright and trade marks) issues that might arise when an NFT relates to a protected subject matter. Anyone can create (mint) an NFT, and this person is not necessarily the IP owner of the underlying work or has acquired authorisation from the rightholder to do so. Generally, even though the case law is still scarce, and there might be different approaches depending on a particular jurisdiction, an unauthorised creation and dissemination of an NFT, based on a protected work and in the absence of limitations and exceptions, may constitute an IP infringement. There are further specific questions that would require more in-depth analysis and legal clarity.

For instance, from a copyright perspective, it is not clear whether an NFT could be protectable as a work per se (e.g., independently from the underlying work). Notwithstanding the fact that originality threshold is relatively low in most jurisdictions, the act of minting might arguably not be qualifying for copyright to subsist.

A crucial issue is what right – if any – can be licensed and/or transferred via NFTs. If an NFT comes with a well drafted copyright licence linked to a digital asset and without any time and territory limitations, theoretically, no issues arise (e.g., licensing a JPEG file for use on limited devices). The complexity of the analysis increases with the addition of constraints on time and territory within the licence and without clear identification of the object of the licence (e.g., digital asset or underlying work). Ownership of an NFT is distinct from ownership of the underlying asset and it is also distinct from ownership of copyright in the underlying asset. This is often misrepresented and/or misunderstood, even more so when the NFT is linked to both digital and non-digital assets.

The confusion is caused by the fact that not all NFT are the same and therefore confer the same rights. In some cases, when purchasing an NFT, the user is acquiring ownership over the token (the metadata file) and the underlying work, which does or does not include a transfer of the copyright ownership from the seller to the purchaser (this needs to be specifically stipulated in the contract). More often, however, the purchaser obtains only the ownership over the token, rather than over the underlying work per se. Some of these questions have been addressed in courts in the US or China (Roc-A-Fella Records Inc. v. Damon Dash; Miramax, LLC v. Tarantino et al.; Shenzhen Qicedie Cultural Creativity Co. Ltd v. Hangzhou Yuanyuzhou Technology Co. Ltd.).

When it comes to trade marks, beyond the general issues already addressed in section 2.1.2, the questions concerning the relationship between NFTs and trade marks have already attracted attention from both trade mark offices (registrability and classification) and courts (scope of trade mark protection and infringement) (McCollum v. Opulous; Hermes International and Hermes of Paris, Inc. v Mason Rothschild; Nike Inc. v Stockx LLC).

One case in particular has attracted significant media attention, and it involves the luxury brand Hermès and its popular bag ‘Hermès Birkin’. Hermès brought a lawsuit in the US alleging trade mark infringement, which was likely to cause confusion among customers as a result of Rothschild’s unauthorised transformation of the Birkin, the globally recognised handbag model, into an NFT and its sale under the name ‘MetaBirkins’. The company sued the artist on the basis of obtaining an economic revenue (each NFT sold for thousands of euros) and taking unfair advantage from the reputation of the luxury brand. Rothschild argued that the NFT was an artwork and should be permitted under the First Amendment, which relates to freedom of speech. The court disagreed and found in favour of Hermès, determining that the NFT was not an artwork and Rothschild’s sale of the NFTs violated Hermès’ rights to the ‘Birkin’ trade mark (Small, 2023). Importantly, the court previously noted that “a traditional trademark analysis might apply if, for example, the “MetaBirkin” were sold as virtually wearable goods for use in the metaverse, thus making them more akin to commodities as opposed to artistic works” (Boyd, Chaudri and Brazier, 2022). While Hermès trade mark registrations do not include those marks for use on digital goods or services (although relevant applications have been filed), the company argued that expanding into the Metaverse is a natural progression for the brand. The outcome is significant, because it will guide companies in how to strengthen their brand protection in the Metaverse. It can also signal that digital assets are considered to be ‘things’ in the property sense and that the existing trade mark protection can be easily applied to the Metaverse.

With the expansion of the Metaverse and digital marketplaces, we can also expect an increased number of disputes, between rightholders, users, and the platforms. We consider developments with regards to dispute resolution mechanisms in section 2.1.2.

Apart from the need to clarify the uncertainty with regards to legal status and tax implications, other issues that require attention are legitimate concerns about cheating and NFT scams, which have together contributed to a diminishing attractiveness for users (Lober and Guidobaldi, 2023).

2.2.4 Licence agreements and platform liability

A major recurring concern in the development of the Metaverses lies in the design of the rules that govern and limit user behaviour within these virtual worlds. Current Metaverse projects regulate user conduct in a traditional way, establishing inner policies through Terms of Service (ToS) or End User License Agreements (EULAs) that users must accept before entering the platform. These contractual provisions between the platform owner and the user address an array of conduct and allow remedies for violation such as banning infringing users, removing content, or confiscating infringing assets (Ara et al., 2022).

Given the new functionalities and features that Metaverse technologies will bring in terms of interoperability or decentralisation, and especially those connected to online content-sharing and creation, licence agreements will play a crucial role in shaping the landscape and rules that will define how IPRs are protected and enforced within the Metaverse.

Early Metaverse literature already highlighted the importance of the ToS and EULAs as the primary governance tool to allot and protect IPRs in virtual worlds. Second Life‘s ToS provided that IPRs of the digital content purchased or created within the platform vested in the users. The platform controller (Linden Labs) also reserved the right to review and remove infringing content within the platform or ban users who breached the licence’s conditions (Tromans, 2007). Conversely, most virtual worlds – such as modern massive multiplayer online games (MMOs) – opt for business models where all digital goods remain the property of the platform owner. Users become licensees of the content, restraining the possibility of transferring the content to other virtual environments (Varese and Grondona, 2022).

New business models and IP regimes may emerge in the Metaverse as providers shape and change their licence agreements and the way IPRs are assigned. In this regard, Guadamuz suggests that Metaverse platforms might be encouraged to adopt a more hybrid approach where users can retain certain IP rights. For instance, Roblox ToS provides that all the IP in the environment is owned by Roblox, but the users can bring their own copyright works into the game (such as music), which is then licensed to Roblox (Guadamuz, 2022a).

However, the use of ToS and EULAs as governance tools for IP in the Metaverse relies on the existence of a centred authority that defines the policies and holds sufficient powers to enforce IPR against infringing activities within the platform. It has been suggested that these Metaverses operate like ‘walled gardens’: closed and independent environments where the user’s conduct will be controlled by the separate rules of each service provider (Varese and Grondona, 2022). These restrictive versions of the Metaverse will then work as separate islands of non-interchangeable content where users must comply with the specific terms of use applicable to the different corners of the Metaverse, which are defined by the companies controlling such islands (Guadamuz, 2022a).

Under these centralised structures, service providers may establish mechanisms to take down infringing content within the virtual spaces they run and govern, as it currently occurs with other digital platforms in cyberspace (such as marketplaces and social media platforms). Commentators suggests that Metaverses are likely to qualify as online content-sharing services under the Digital Copyright Directive, and thus they may take advantage of the safe harbours provided in Article 17 just like other media providers in cyberspace (Guthrie et al., 2021).

However, as it was previously explained, it is yet to be determined whether centralised, decentralised, or hybrid Metaverse structures will prevail in the market. While most platforms currently operate under centralised structures, later stages of the Metaverse might allow more open, interoperable, and decentralised virtual environment to flourish. This might pose a significant challenge to the governance model based on EULAs and ToS, and for IP enforcement purposes under platform liability regimes. A company’s ability to police and control content in the Metaverse is clearly hindered when faced with fully interoperable and decentralised systems, as it remains unclear to what extent companies will effectively be able to control and take down infringing content that can move freely across different platforms that belong to different owners.

It has been noted that decentralised platforms such as Decentraland, which are governed by a DAOs, still maintain a traditional approach to IP enforcement (Choi and Gierhart, 2022b). Nevertheless, the effectiveness of IPR enforcement and platform liability regimes or safe harbours remains to be tested should a fully interoperable and decentralised Metaverse platform come to existence.

2.3 Jurisdiction, (lack of) harmonisation and localisation

Ever since the Internet came into widespread use, there has been a tension between its global and borderless nature and the territoriality of IP laws. This is exacerbated by the fact that different states will inevitably have varying standards for IP protection: even within the fairly extensively harmonised EU copyright regime, for example, individual Member States still retain a certain degree of flexibility and discretion. In 1996, John Perry Barlow predicted that ‘cyberspace’ would be jurisdiction-independent (Barlow, 1996). This, however, is not what has occurred where the Internet and virtual worlds are concerned, and it is highly unlikely that the Metaverse will evolve into a fully independent space completely free from the constraints of geographically bound legal rules. As the Metaverse grows and develops, therefore, these tensions are likely to intensify. Within the literature, it has already been pointed out there will be difficulties determining which jurisdiction’s laws will apply to transactions within the Metaverse, and which jurisdiction’s privacy and data protection laws will apply, as well as who is empowered to enforce these legal rules within the Metaverse (Lau, 2022). The same difficulties apply equally to IP laws. Where claims of IP infringement in the Metaverse are made, questions will inevitably arise as to which jurisdiction’s laws are applicable and which court has jurisdiction over the claim (Choi and Gierhart, 2022c; Madiega et al., 2022). While it has been suggested that this could potentially be resolved through the application of the ‘targeting’ principles currently applicable to e-commerce platforms (Choi and Gierhart, 2022c), these may be difficult to apply to a Metaverse which has a genuinely global focus and relies on cryptocurrency rather than any specific state-issued currency for transactions. At present, courts are still relying on these ‘targeting’ principles to resolve issues relating to NFTs and unauthorised digital uses of IP. In the Lil Yachty case, for instance, the United States District Court for the Central District of California held that it had jurisdiction over a trade mark infringement case brought by a US-based songwriter and rapper against two UK-based companies for marketing NFTs using his stage name, which he had previously registered as a trade mark. This was on the basis that the defendants had advertised live music events in Los Angeles, their website represented that they had offices in Los Angeles and New York, and that they had used social media to advertise their activities to their followers in the knowledge that a large number of these followers were in the US (McCollum v Opulous et al, 2022). As explained previously, these principles would be difficult to apply to ‘pure’ Metaverse-based activities with no obvious connection to a physical territory.

The lack of harmonised standards of IP protection across different jurisdictions also raises problems. An example that may be especially pertinent for the Metaverse is freedom of panorama within the EU. While EU copyright law has been subject to a significant degree of harmonisation, there remain flexibilities for Member States, particularly where limitations and exceptions are concerned. The Copyright and Information Society Directive permits Member States to enact exceptions permitting “the use of works, such as works of architecture or sculpture, made to be located permanently in public places” (Directive 2001/29/EC). However, this provision is optional in nature, which has led to what Friedmann calls a “smörgåsbord” of regulation’: some Member States have not implemented such an exception at all, while others have implemented it to varying degrees (Friedmann, 2022). Friedmann contends that, if the eventual Metaverse is to incorporate cityscapes, freedom of panorama needs to be available within it, to prevent the rightholders of the copyright in physical buildings from objecting to their virtual re-construction within the Metaverse.

In addition, the borderless nature of the Metaverse is likely to create challenges where IP licensing is concerned. At present, it is common for IP licences to be granted on a territorial basis, raising questions as to whether licences of this kind extend to the exploitation of the relevant IP within the Metaverse (Danks, 2022). It has been suggested that, in future, a practice will be developed whereby Metaverse-related uses of IP will be carved out and licensed separately, in a similar manner to entertainment licensing for air travel (Danks, 2022).

While issues relating to jurisdiction and the lack of harmonised standards across different states are not new, they remain particularly salient where the Metaverse is concerned. The unique characteristics of the Metaverse means that the (imperfect and largely ad hoc) legal tools and strategies that have been developed for addressing these issues in the context of the Internet as it exists in the present day may well prove inadequate. Different solutions may therefore need to be formulated.

2.4 Conclusion

The uncertain territorial boundaries of the Metaverse, together with the envisioned convergence of physical and digital spaces, mean that IP challenges which had previously arisen in the context of virtual worlds, domain names, user-generated content, enforcement, and jurisdiction remain persistent issues. These issues take on added significance if the Metaverse does indeed become part of the fabric of our everyday lives, as its proponents often suggest. As with the Internet in the early 1990s and virtual worlds in the 2000s, the Metaverse presents a fundamental challenge for the issue of jurisdiction. The Metaverse is envisioned to operate as a single global space; however, IPRs are fundamentally territorial in nature. The somewhat piecemeal legal solutions that have been developed in the context of present-day Internet business practices – such as the notion of ‘targeting’ for e-commerce platforms – may simply have no purchase in a global Metaverse that has no obvious connection to any particular geographical region. Again, as with the Internet and virtual worlds, the Metaverse is expected to give rise to new modes of IP exploitation. This, in turn, raises questions about the nature and extent of rightholders’ exclusive rights, in particular the extent to which they apply to the various uses that are likely to be made within the Metaverse, as well as the scope of existing licensing agreements. There is also a debate to be had about the extent to which existing limitations and exceptions to IP rights are capable of accommodating the creative activities which individual users will no doubt wish to undertake – and be enabled to undertake – in the Metaverse. This has been a persistent issue within IP law, particularly in the wake of ‘Web 2.0’ and the virtual explosion of user-generated content which it enabled, and it remains only imperfectly resolved to this day.

The potentially decentralised nature of the Metaverse will also give rise to challenges in terms of IP enforcement. While the emergence of large, centralised platforms in the present-day digital environment has made enforcement much simpler and more straightforward as a practical matter, this is unlikely to prove a viable solution for the Metaverse if a fully or partially decentralised model is adopted. As discussed above, there is a real possibility that patents relating to hardware and software inventions necessary for constructing the Metaverse and giving users access to it may become concentrated in the hands of a few companies. This, in turn, gives rise to concerns that these companies may become de facto gatekeepers to the Metaverse, with negative implications for innovation, decentralisation, interoperability and user welfare. The same concerns have arisen in the context of large online platforms that effectively control access to vast swathes of the digital environment, but for the most part, governments have only taken the very first steps towards addressing them. Finally, the issue of personal property rights in virtual assets will take on greater significance in the Metaverse. While this had previously arisen in the context of virtual worlds and MMORPGs, the position arrived at there – namely, that users effectively have no personal property rights in any virtual assets they might acquire – is unlikely to be tenable in the Metaverse, given how closely it is expected to be woven into the fabric of users’ everyday lives.

Question 4

3.  Metaverse-specific IP issues

Accepted Answer

Although the eventual form, architecture, and technology of the Metaverse remains to be seen, there are nonetheless potential IP issues which can be anticipated. And whilst the literature does not always examine these IP issues in the context of the Metaverse, there are observations and conclusions which can be extended to understand the difficulties which the Metaverse presents for IP regulation. For instance, there are certain challenges which are connected to key characteristics of the Metaverse (such as IP governance in an interoperable environment), and to the extent that these characteristics remain central to the evolution of the Metaverse, it is likely that these challenges will continue to be central as well. In addition, there are problems which are posed by either existing technologies, which underscore current proto-Metaverses, or proposed technologies which seem likely in facilitating the Metaverse (such as blockchain technology or artificial intelligence). And there are also problems which are likely to emerge owing to conflicts between IP regulation and the Metaverse’s technological regulatory infrastructure. Finally, there are potential issues which emerge from the uncertainties surrounding the application of existing IP definitions and legal assumptions to potential Metaverse models. These issues will be discussed in the following subsections, which will identify gaps in both the scholarship and the law and emphasise the most pressing problems for IP regulation.

3.1 Interoperability

Metaverse advocates often promise that the Metaverse will revolutionise the freedom and ease with which data, information, virtual property, and users will be able to move and be transferred. With many entrenching seamless mobility as both a key characteristic of the Metaverse, and an integral aspect of the Metaverse’s infrastructure. Accordingly, much of the broader Metaverse discussion has focused on identifying or conceptualising the technological framework which will facilitate this interoperability. However, equally important is the legal framework which must work parallel to the technological architecture, and which needs to navigate the various forms of governance, whether that be between respective Metaverse platforms or legal jurisdictions – a task which, especially for IP, is laden with numerous obstacles and challenges.

As observed in Part I, whether the Metaverse will be entirely and fully interoperable is not certain (Ball, 2020). For instance, Garon argues that rather than a single interoperable Metaverse, the eventual Metaverse infrastructure will be more akin to a Multiverse; “a loose confederation of distinct virtual worlds and metaverse environments” (Garon, 2022). This means that the infrastructure will be one which is “international, partially interoperable… [and] subject to a different mix of state authority, corporate oversight, and participatory governance” (Garon, 2022). Outlining the integral legal and IP challenge for an interoperable Metaverse – standardised governance. Within the broader literature, the common consensus is that standardisation is paramount to facilitate interoperability, however, few discussions on standardisation and interoperability focus on the IP issues or address IP concerns in significant depth (Madiega et al., 2022; Nanobashvilli, 2022). Regardless, there is some analysis which considers how frameworks for IP interoperability might be achieved, and which examine potential difficulties for IP which might accompany these interoperable frameworks.

For instance, Friedmann comments on how the absence of interoperability has actually been an important factor in bottlenecking the unauthorised dissemination of works and observes that a fully interoperable network could exacerbate existing challenges with governing the use and circulation of copyright works. Accordingly, Friedmann considers a few approaches which might enable interoperability without prejudice to rights management. For example, he argues that central repositories might be one approach to implement interoperability. He also suggests that an organisation such as ICANN, which manages the central repository for IP addresses and facilitates current levels of internet interoperability, could similarly be established or empowered to “take on the coordination of the different parts of the metaverse and their interoperability” (Friedmann, 2022). He further proposes that such central repositories could also be leveraged alongside automated content recognition tools to provide a measure of control over the otherwise unfettered movement of works which an interoperable platform or architecture might enable, although stresses that it would be imperative that such automated tools are equally equipped to account for limitations and exceptions to ensure balance (automated tools will be discussed further below when discussing technical regulation). Similarly, he suggests that such central repositories could also function as de facto or voluntary copyright registers, with potentially even in-built rights management functions. To that end, he notes that this could be deployed in the form of blockchain technology, however, contends that such an approach would prove “prohibitively expensive to upload works” (Friedmann, 2022), and as such, suggests that adopting a model similar to the Interplanetary File System (IPFS) could be more effective. The author further contends that this infrastructure could be augmented by a flexible licensing system, akin to Lessig’s Creative Commons, thus providing authors with the ability to have better control over the use of their works, even beyond existing limitations and exceptions. This would create a paradigm that could be described as pseudo-interoperable, where the infrastructure ostensibly allows interoperability, but with safeguards to ensure that rights management for authors are maintained.

Garon has also commented on the importance of licensing in the context of an interoperable Metaverse, and observes that for there to be interoperability, it will be necessary for the companies who operate on a common platform, or between platforms which are interoperable, to “to cross-license the copyright in their respective audio-visual works as well as in the software code which runs those works” (Garon, 2022). He also argues that platforms must designed in ways which guarantee the retention of rights by the vendor, without undermining interoperability, whilst ensuring that end-user interactions are standardised. This accordingly raises the concern that interoperability is achieved in a way that does not prejudice exit-strategies for rightholders, where rightholders or licensors must be able to leave the Metaverse or platforms with the guarantee that their rights and various forms of licensed IP will cease being distributed throughout the platform, a task which might prove difficult in an unfettered interoperable Metaverse.

Garon further theorises that the underlying interoperable software may ultimately reflect the approaches that Google and Apple have adopted for their app stores. He observes that, although the Metaverse companies could make their core code publicly available through Creative Commons licensing, commercial reality and history suggests that parties unwilling to similarly cross-license and share their own IP will be excluded. This means that where a dominant Metaverse platform or platforms arise, the relative bargaining power of vendors will be significantly diminished and imbalanced.

Garon also comments on the importance of ToS for allocating IP rights in avatars in order to facilitate interoperability and suggests that the “ToS would likely allow users to own the intellectual property rights in their avatar” (Garon, 2022). Although this also means that users will equally need to guarantee that they have any rights to copyright protected works used in the avatar, or any other content which they utilise within the virtual world. However, this seems optimistic. Firstly, current ToS tend not to be drafted in a way that favours end-users (Garon, 2022; Pascault et al., 2020; Rustad and Onufrio, 2012). And secondly, even if users are guaranteed to retain ownership of their IP assets, it seems that interoperability might be better facilitated by terms, which grant the platform(s) a non-exclusive licence for any IP rights arising in connection with the avatar. This, like many existing ToS and EULA paradigms, potentially confers a disproportionate amount of control in the hands of the Metaverse platforms. To an extent, this does not represent a novel problem, however, because of interoperability, and because of the potential scale which can be presumed necessary for at least a measure of the interoperability promised by Metaverse advocates, these existing concerns become amplified.

Besides terms which may force users to license away potential rights they might have in their avatar, or in their UGC, terms may also be drafted in ways which curtail limitations and exceptions to IP. Again, this is not uncommon, but the scale on which it will occur in the Metaverse may have worrisome normative implications for IP. As Garon argues, “the ToS for a universal platform has the potential to become the equivalent of positive national law” (Garon, 2022), if not positive international law, which accordingly carries significant implications for IP and national autonomy. Despite numerous international instruments which provide partial harmonisation, there remains significant disparities in the regulation of IP across different jurisdictions, and there are numerous specific aspects of IP governance which remain localised, notably limitations and exceptions. As such, the ToS of an interoperable and ubiquitous metaverse has the potential to strengthen platforms’ ability to standardise IP governance. In the best-case scenario, it may mean that Metaverse ToS will export and impose other jurisdictions’ legal standards for regulation, and in the worst-case scenario, ToS may entirely circumvent and override legitimate checks and balances guaranteed by both national and international IP laws. Add to the consideration that virtually all licences and ToS between platforms and the end-users are contracts of adhesion, this may result in extending the reach of IPRs beyond their original aims and for the benefit of dominant corporate entities (Garon, 2022).

3.2 ‘Decentralised’ regulation and new forms of technical governance

Besides standardising governance using more traditional tools of legal governance and regulation, some Metaverse proponents seek to leverage technology as instruments of governance. This recommendation is especially prominent in Metaverse characterisations which view decentralisation as an intrinsic ethos of the Metaverse. And although there is no consensus on which specific technology, or which general technological approach should ultimately facilitate the Metaverse’s regulatory architecture, most proposals and potential ‘solutions’ can be categorised into one of two forms: lateral regulation, where the technological architecture represents a new set of regulations, and where the governance is supposedly independent of legal governance; and surrogate regulation, where the technological architecture is employed to facilitate legal governance, to deploy existing legal rules directly through technology. Generally speaking, the use of technology as an agent of law or in lieu of law is not a novel concept, and there exists a longstanding body of literature on ‘code as law’ stretching back to early ‘cyberspace’ and other web 1.0 and web 2.0 discussions, (Reidenberg, 1997; Lessig, 2006) much of which remains relevant in assessing the Metaverse. Nonetheless, alongside the existing scholarship on technological governance, there are also newer or more nuanced issues which emerge specifically for IP and the Metaverse, although the extent which these are considered by the literature vary. As such, the following sections will discuss various forms of technological regulation, focusing on technologies which currently underpin proto-Metaverses and technologies which are likely to remain relevant in facilitating the Metaverse, whilst also considering common if not universal challenges facing technological governance of IP in the context of the Metaverse.

3.2.1 Blockchain, crypto, and similar technical regulations parallel to IP

As noted in section 1.1, the existing literature sometimes conflates blockchain, cryptocurrency, NFTs and distributed ledger technology with the Metaverse, even though it is unclear whether such technologies will persist in the eventual Metaverse. Nonetheless, because blockchain technology is currently a prominent feature of many Metaverse models, and because there are also IP governance implications which emerge from the use of blockchain technology to underpin Metaverse infrastructure, the challenges for IP regulation will be discussed.

In its current form, there are several practical shortcomings with relying on blockchain technology to structure or govern IP in the Metaverse. Firstly, blockchain technology is restrictive. Blockchains require high amounts of processing power, making them expensive to run and set up (Riede, 2018). Accordingly, there are economic obstacles which make them prohibitive (Friedmann, 2022), which in turn diminishes access to the rights management and control conferred by traditional forms of IP management. This problem is especially concerning for copyright, which automatically vests in authors and arises without financial burden. And whilst there invariably are costs associated with enforcing those rights for copyright traditionally, to the extent that a blockchain becomes the central infrastructure for registration as well as enforcement of IP rights, it creates a risk that additional handicaps become imposed on the average author.

A further obstacle for IP governance that Riede comments on is the “tamper-proof design” (Riede, 2018) of the blockchain, observing that the blockchain’s inherent resistance to change or correction undermines the ability to flexibly manage or update IP rights. This is an issue which becomes especially worrisome in the context of ownership disputes, as well as for navigating the termination of agreements and rights if licensors or rightholders seek to leave the Metaverse. Riede also suggests that “[i]t will be challenging to design feasible ways for rights owners and other stakeholders that allow modifications to the blockchain-based registers in accordance with applicable laws” (Riede, 2018). This raises a further concern beyond the practical difficulties which accompany blockchain management – ensuring conceptual coherence and compliance with existing national laws and international regulatory frameworks. In addition, Riede also outlines several other notable concerns connected to relying on blockchain technology in lieu of legal frameworks and traditional legal remedies. For instance, he argues that there are significant implications depending on whether such technical infrastructure is introduced privately or publicly. He stresses the importance of having prima facie evidence which can guarantee the authenticity of claimed rights stored in the record, as well as the corresponding guarantees for rights owners or users to challenge that record, to ensure that the public are adequately safeguarded.

Moreover, Riede questions whether such records of title might be deemed enforceable and outlines the obligation for these frameworks to also provide adequate tools so that owners, licensees and other parties can exercise their legitimate and legal rights. He likewise queries the efficacy of automated licensing, especially compared to existing “contractual remedies in case of fault, infringement, warranty issues or other circumstances” (Riede, 2018). Garon similarly comments on the adequacy of relying on blockchain technology – specifically smart contracts – in place of legal contracts, arguing that smart contracts lack risk management or contingency, and the absence of associated legal rights and remedies means that they are ultimately less powerful and effective tools than legal contracts. To illustrate this, he comments on the incident with the crypto project ICON, which lost $8 million USD because of a software error, explaining that “Had ICON employed a ToS, it could have contractually required users to meet investment criteria. It also could have reserved the power to legally recall and reissue tokens in the event of catastrophic breaches” (Garon, 2022). And notwithstanding a debate on whether existing contractual approaches to licensing and governing IP are satisfactory (Derclaye, 2007; Rustad and Onufrio, 2012), the total absence of legal remedies for smart contracts or blockchain technology means that at minimum, the current legal contractual matrix remains a preferable solution for IP management.

In addition, it is not clear how blockchain regulation can guarantee regulatory compliance obligations (Garon, 2022), and equally, there are concerns connected to the constitutional legitimacy of relying on such forms of technological regulation. For example, Filippi and Hassan have commented on emerging shifts towards technological regulation in recent years and outline several concerns with blockchain regulation. They observe that under existing approaches to software regulation – such as with Digital Rights Management (DRM) and technological protection measures (TPMs), the ex-ante nature of these tools means that “software…ends up stipulating what can or cannot be done in a specific online setting more frequently than the applicable law” (Filippi and Hassan, 2016). This consequence, they argue, is even more apparent with blockchains that can leverage smart contracts to enable rule enforcement, which unlike most existing forms of technical regulation (such as DRMs, TPMs, or ContentID), exist entirely independent of any underlying legal or contractual provision. This radically redefines the relationship between rights owners and end-users, enabling the code drafters to usurp the legal rights and expectations of users, and potentially allowing platforms or rightholders to circumvent the limitations or exceptions which counterbalance the rights conferred by the IP law.

Moreover, they suggest that this increased reliance on code represents not just a revision to the enforcement of legal rules, but on the drafting and elaborating of rules as well, arguing that “[a]s a result of these technological advances, the lines between what constitutes a legal or technical rule becomes more blurred, since smart contracts can be used as both a support and as a replacement to legal contracts” (Filippi and Hassan, 2016). And for copyright, the regulatory consequences of blockchain do not stop with smart contracts for licensing rights, since blockchain can ostensibly mediate the dissemination of works by leveraging tokenisation and smart contracts to provide hard coded limitations and rules for the transfer and use of works (Filippi and Hassan, 2016; Lee, 2022). However, Filippi and Hassan equally caution against directly transposing legal rules into technical rules for several reasons. Firstly, they stress that there is a fundamental conceptual difference between the two, in particular, language – where the language of the law is deliberately flexible and purposefully ambiguous, whilst for code, language is necessarily strict, formalised, and requires predefined categories, methods and conditions. They observe that law is context dependant and requires interpretation and a degree of flexibility, which are absent in technical rules.

They further observe that technical regulation can supplant the law, and effectively confer rights in ways which do not reflect the legal systems of rights, responsibilities, and limitations. This, they argue, introduces further concerns, since “laws cannot (or should not) be entirely and exclusively defined through technological processes, as technology cannot replace the democratic debate which necessarily takes place within the legislative branch” (Filippi and Hassan, 2016). They warn that the ability to unilaterally impose technical rules by software builders undermines both constitutional expectations about governance, whilst also raising questions concerning transparency and safeguarding.

In a related vein, they note that whilst it is possible through contract law for parties to establish their own voluntary sets of rules, contract law nonetheless is accompanied by its own set of legal safeguards, which as Garon has also noted, are absent for smart contracts and technical regulation more broadly (Garon, 2022). As such, if blockchain technology persists in the evolution of the Metaverse, there are concerns surrounding the freedom of access to both managing and using rights, and a related challenge with rigidity which will likely be imposed onto IP regulation, and which unduly limits the flexibility afforded by existing IP tools and governance. Furthermore, even if blockchain technologies develop and overcome its practical hurdles or are eventually substituted for alternative technical regulatory frameworks, there still are underlying conceptual concerns with technological regulation itself, such as its ex-ante nature of enforcement, its ability to displace legal rights and interfere with legal tools which exist to redress potential imbalances, and the conceptual disparity between flexible legal definitions and strict hard coded definitions.

3.2.2 AI and computational implementation of exceptions and limitations

AI and algorithms are key technologies which almost certainly are going to be integral in the management and governance of the Metaverse. They will likely be favoured by decentralised-Metaverse advocates who see technology as a tool to reallocate control away from centralised authorities. And for the Metaverse, they represent a powerful tool for governing the large-scale use and transfer of content on the platform. For instance, they could be deployed alongside blockchains to temper the strict technical rules and definitions, or they could be implemented directly – similar to existing content recognition and identification systems – to effectively regulate and screen the upload of works (Friedmann 2022; Elkin-Koren, 2017). Or to govern the transfer of various works and other protected materials across the Metaverse or between Metaverse platforms. And in contrast to ‘traditional’ technical rule driven governance, there is the purported advantage that they enable a more flexible approach to technical regulation, since their enforcement can derive from more open-ended criteria, rather than absolute and formalised rules. However, there are complications that accompany them which can be identified from their current use by platforms and can be anticipated in their potential governance and regulation of IP in the Metaverse. Within the existing literature, there is little that explicitly examines the use of AI or algorithms in Metaverse contexts, but conclusions from the existing scholarship can nonetheless be extended to understand the various challenges facing their use in the Metaverse.

The limited scholarship on the intersection between AI and the Metaverse is predominantly US-centred. For example, Elkin-Koren has commented on the way which existing algorithmic management of infringements such as YouTube’s ContentID system and Notice and Takedown (N&TD) procedures have reshaped the landscape of copyright infringement and the exercise of limitations and exceptions. She argues that with the absence of human oversight, N&TD are extremely vulnerable to misuse as they lack the requisite oversight and checks to guarantee that enforcement is legitimate and reasonable. Elkin-Koren also observes that statutory safeguards are not operating successfully, since for instance, the counter notice mechanism is rarely used since there is no duty to notify users about removal, and procedures are far too complicated for ordinary users who lack the relevant and necessary legal expertise (because counter notices involve too many risks and costs, especially for the average user). This leaves users with disproportionate tools for seeking remedies, placing limitations on legitimate rights and access, free speech, whilst introducing a crucial challenge to ensure “that algorithmic governance serves copyright goals, maintains delicate copyright balances, and complies with the rule of law” (Elkin-Koren, 2017). To that end, Elkin-Koren argues that algorithms and AI should be used to implement automated limitations and exceptions, and specifically considers the potential with automating fair use (or similarly ‘fair dealing’ in the context of CDPA), for instance using AI and algorithms to identify a fair use score to help screen and facilitate uploads. At least some fair use considerations could be relatively easy to automate, such as the amount copied, by providing a “score based on similarity of less than 10 percent” (Elkin-Koren, 2017). The difficulties with failing to analyse facts or processing information external to the content can be partially addressed by relying on certain user tags to help detect the type of use, where certain domain names such as .edu or .gov could de facto identify whether the nature of use is educational or governmental. Which alongside tagging in the upload, or by assessing commercial use by detecting the presence of advertise or other forms of monetisation, could also help clarify if it is fair use.

Elkin-Koren also contends that whilst there might be challenges with classification and discretion, AI and machine learning could be applied to study existing fair use decisions, supplemented by parameters and clusters identified by scholars in key fair use studies, which could preserve the flexibility and discretion which courts can exercise when applying fair use. Such machine learning tools could even potentially be sophisticated enough to examine the fair use factors and determine whether the use is ‘fair’. She further argues that whilst there may be complications relying on unsupervised training to identify clusters based on past fair use litigation, that these difficulties are no different than those which emerge from the existing algorithmic and automated enforcement with N&TD and content identification. As such, implementing these tools to facilitate defence as well as enforcement, at least presents a temporary and partial fix which redresses some of the existing imbalance. This may be one of the few available tools considering the sheer volume of content which needs to be regulated, which considering the proposed scale and ubiquity of the Metaverse, is likely a pressing concern. Finally, Elkin-Koren concedes that alongside potential practical challenges, AI and automated regulation raise several new legal challenges, especially since these processes lack transparency, and must be legally compliant. However, she counters that legal innovation is imperative, and that the legal framework must be adapted to address the encroaching presence of algorithmic governance, and that it cannot be left to programmers and engineers to resolve (Elkin-Koren, 2017).

Friedmann, who builds on this proposal by Elkin-Koren, argues then that for the Metaverse, it is critical that sufficient safeguards be implemented in the Metaverse, because the existing “strict liability in an era of massive online use and infringements, which already has pushed and, a fortiori, will steer platforms in the Metaverse in the direction of automatic, scalable solutions” (Friedman, 2022). Therefore, an algorithmic system similar to Elkin-Koren’s proposal for fair use should be designed for the Metaverse. Friedmann further argues that whilst it is theoretically possible to train an algorithm using machine learning to distinguish between infringing and non-infringing content through patterns, it would lead to black box results, and lacks ex ante transparency and explainability. As such, a similar system to Elkin-Koren’s, which relies on parameters for algorithmically recognising limitations and exceptions from scratch could be potentially helpful. Although he recognises that this may vary according to the types of protected subject matter, types of exceptions or limitations and that thresholds would need to be established. Nonetheless, Friedmann contends that if a fair use system underscored by filter technology could succeed in the US, it means that it should be even more successful in the EU or for systems with less flexible norms. He observes that within this hypothetical system, a rightholder could even dictate and authorise use that goes beyond traditional limitations and exceptions, providing a more balanced and transparent framework for end-users. Friedmann stresses that with the potential for abuse under central repositories and content recognition, especially under an omniscient Metaverse platform, there are real dangers that a system is imposed which governs based on unauthorised use rather than illegal use. In contrast to Elkin-Koren and Friedmann however, some commenters are less optimistic and enthusiastic about the potential of algorithmic governance, even in the context of fair use and limitations and exceptions.

Burk for instance is not convinced that “old-style legal personalization can be translated into data-driven, machine-mediated personalization” (Burk, 2019). Burk similarly laments the effects that algorithmic policing has had on the landscape and nature of copyright enforcement and infringement (Burk, 2019; Sag, 2017). With minimal if not absent human oversight, and with only a few removal decisions being challenged owing to disproportionate costs, users are left significantly disenfranchised. Burk contends that although machine learning can, through pattern recognition (there are empirical investigations on fair use decisions, which suggest that the judicial outcomes follow a pattern, and therefore could be detected by neural networks or machine learning) or less explicitly designed parameters, ostensibly sidestep previous concerns about translate indeterminate legal standards into code, there remain fundamental concerns with automated governance. For instance, Burk raises concerns surrounding biases in design choices, explaining that identifying the impact of unauthorised use of a work on the actual or potential markets require models of those markets, and accordingly, introduces scope for bias in the decisions made about the data which is used to populate those models.

Likewise, Burk observes that although quantitative assessments on amount of work can be automated, the weight or significance given to that number are nonetheless the product of either explicitly programmed values, or stem from algorithmically learned data patterns, both of which are conditional on the human decisions which precede them. He stresses that algorithms are products and tools of human judgment, meaning that the de facto legal decisions, be it enforcement or defence, ultimately reflect the judgment and interpretation of the software engineers who designed them, rather than the applicable legal instruments, or the views of the judiciary as the governing institution intended to interpret the law. Burk also argues that fair use is not a static concept, and even if fair use could be engineered ‘faithfully’, it is not clear which version of fair use is being developed, and overlooks that the common law evolves, and that fair use at present does not reflect fair use historically.

Furthermore, Burk notes that although the algorithm could be updated to evolve, continual updates lead to unexpected dynamism and therefore inconsistency or uncertainty. He stresses that whilst this might be argued that this is true for judicial decisions, and that the actual process of judicial reasoning is never fully transparent, the major difference between technical design and legal regulation, as Lessig pointed out, was that legal governance and rules devolves from policy choices, made by publicly accountable officials rather than largely invisible and unaccountable software engineers (Burk, 2019).

This extends to automation and algorithmic governance challenges that will likely face the Metaverse. And as Burk has stressed, the difficulties facing algorithmic fair use are equally true for any aspect of governance that is automated, be it the idea/expression dichotomy, exhaustion, and so forth (Burk, 2019). Moreover, whilst Elkin-Koren and Friedmann are less sceptical than Burk, what all three nonetheless acknowledge is the potential for technical displacement of limitations and exceptions, and the risks of technological regulation usurping authors’ exercise of legally entitled rights and interests represents a significant concern. This challenge is both a present obstacle with content identification and regulation of platforms and proto-Metaverses, and an issue which, with the proposed scale and pervasiveness of the Metaverse, is increasingly imminent. The resolution will likely become a crucial milestone in the governance of the Metaverse and IP more generally. The intended scale of the Metaverse and its interoperability invariably means that human oversight will become increasingly impractical, leaving automation an ever more attractive solution, despite the considerable costs to users and notwithstanding constitutional concerns. And even direct involvement from legal institutions and governing bodies may not be able to assuage or overcome the fundamental challenge that the nature of technical enforcement and legal enforcement are not comparable.

3.3 Convergence of digital and physical

There are several potential issues which may emerge with convergence of physical environment and digital environments promised by Metaverse advocates, notably, there are implications for definitions, and potential new forms of infringement which can be anticipated. Again, this discourse is equally driven by US-based authors, examining the issues from the US IP system. Firstly, as Friedmann observes, because of potential artificial intelligence tools, the immediacy with which digital twins can come into existence, copyright, licensing contracts, and by extension regulation may need to automatically consider digital twins when regulating a physical object, suggesting that sensors, real-time data, and machine learning analytics may enable the immediate or rapid creation of digital simulacra replicated from its physical twin. He argues therefore that it “must be avoided that the digital twin becomes the perfect blueprint for copyright infringers of the physical counterpart” (Friedmann, 2022). Likewise, Friedmann comments that it may become necessary for regulations or concepts originally intended and designed for the physical world to be redesigned or read in ways to accommodate the digital, suggesting, for instance, that if the Metaverse were to replicate cities, the freedom of panorama may need to be extended (Friedmann, 2022).

Another issue has been identified by Faccio who outlines a unique situation surrounding the use of trade mark in augmented space, and whilst she does not explicitly consider this in the context of the Metaverse, the purported convergence of digital and physical means that this situation and the associated challenges are not just plausible but probable. Faccio comments that with greater use of augmented reality and augmented space, there is the possibility to leverage these augmented digital environments to interfere with the display of physical marks. Specifically, she considers the situation where a company uses augmented reality and augmented space to advertise in front of a competitor’s physical store and mark, and questions whether that constitutes use in trade of a mark by a third party. She notes that it may be difficult “to prove use in trade of a mark by third parties, when such mark is used only indirectly, e.g., because a company wants to display their ads in front of a competitor’s store” (Faccio, 2021). Faccio also observes that “the party allegedly infringing the trade mark owner’s rights may defend itself claiming that none of the functions of the trade mark is adversely affected by the actual representation of the advertisement” (Faccio, 2021). This demonstrates that existing assumptions and language developed for trade mark law may not be well equipped for the contexts and situations which may emerge with environments that are part physical and part digital, leaving trade mark regulation open to exploitation.

Another forthcoming challenge is the uncertainty surrounding the application of trade mark defences within the Metaverse. For instance, one question which Schneider raises in Holland & Knight’s Masters of the Metaverse Blog series, is whether artistic expression is an available defence to trade mark infringement in virtual spaces as the Metaverse evolves. Schneider argues that whilst certain fair use defences, such as nominative use and fair use should likely and easily apply to the Metaverse, because “like other forums, is a place where people can discuss, compare and parody brands” (Schneider, 2022c), it is less clear whether artistic expression is an available defence for trade mark use in the Metaverse. Schneider suggests that analogies can be drawn to earlier cases involving video games, since both video games and the Metaverse involve virtual worlds, which provide creative experiences for their audience or users. He observes that the Rogers Test has tended to lean towards free expression, and that video game caselaw has largely favoured creators incorporating third-party IP. And while the defendant in the ‘MetaBirkin’ case relied heavily on the protected speech under the First Amendment and lost, the outcome itself does not preclude the application of the First Amendment in the Metaverse per se. Schneider contends that because of this trend, the “threshold question will be whether an experience in the metaverse could be fairly characterized as an artistic work” (Schneider, 2022c). Depending on the potential environment and experience conferred by the Metaverse being examined, the answer to this question may differ. And whilst some digital environments might be creatively driven and designed to invoke responses and feelings from the user, in other spaces, which are more functional – such as a “[b]rutalist building that houses classroom” (Schneider, 2022c) – it may be difficult to establish that entail creativity, and accordingly, be ineligible for artistic expression as a defence.

Moreover, Schneider notes that even if uses in the virtual world could be deemed artistic, there are further challenges that the mark must have artistic relevance, and that it cannot lead to consumer confusion. These questions may prove difficult to answer depending on how the Metaverse evolves. Indeed, whilst not considered within the article, another question presents itself – how might ubiquity and the convergence of the physical and digital affect the Rogers Test? With such a pervasive environment that straddles real world environments as well as the digital, it seems arguable that consumer expectations, and by extension consumer confusion evaluations, may differ in the context of the Metaverse. Similarly, there are potential implications for assessments concerning realism and the inclusion of trade marks to facilitate realism. With the convergence of the digital and physical, at what point does the virtual space become ‘real’, and trade mark use ceases to become artistic? These concerns go beyond artistic expression as a defence and suggest that with the erosion of the boundaries between digital and physical environments, there may well be significant consequences for trade mark legislation and regulation moving forward.

Schneider also raises a further issue with definitions in a separate blogpost, commenting on the uncertainties surrounding the potential for patent infringements in virtual machines and in virtual spaces. Schneider observes that computers can function as virtual machines, which are capable of simulating physical machines, and suggests that current patent infringement in virtualised scenarios do not “meaningfully differ” (Schneider, 2022a) from the issues connected to physical machines since the experience of interfacing with the virtual machine is not distinguishable from the physical. He notes that the Metaverse could become a space which, with its own rules and tools could facilitate its own unique forms of virtual infringement, arguing that virtualisation in the Metaverse already exists, with Redstone computers in Minecraft being a prominent example of a virtual machine that already exists in a ‘proto-Metaverse’. Schneider further argues that because virtual spaces can eventually be designed with physical laws which correspond to the real world, users in the Metaverse could, depending on the claim, eventually and theoretically build things which infringe on real world patent rights. For instance, he contends that method claims could straightforwardly apply in the Metaverse, suggesting that because “[v]irtual machines in the Metaverse, like any other machine, are capable of performing specific steps…one could prove infringement by showing that the virtual machine performs each step in a given claim” (Schneider, 2022a). Moreover, it may even be possible for apparatus claims to be applied in the Metaverse, even though such claims would be “directed to physical devices” (Schneider, 2022a).

To illustrate this, he proposes a hypothetical claim involving a patent for a turnstile which counts the entrance of patrons, noting that for a real-world claim, the examination would be on the potentially infringing physical turnstile. However, he observes that for a potentially infringing virtual turnstiles, the approach becomes less clear, and uncertainties emerge, since the virtual turnstile, as a computer simulation of an apparatus, would not actually be considered an apparatus based on the common understanding of the term. Moreover, he suggests that because it is a computer simulation, the described elements are actually absent: there is no actual ‘post’ from the turnstile or any ‘ground’ that it is fixed to in the virtual world, and as such, no infringement. Conversely, he argues that infringement could be established relying on the doctrine of equivalents following the rhetoric of Warner-Jenkinson Co v Hilton Davis Chemical Co (1997), and stresses that read alongside Winans v. Denmead, (1853) this becomes a relevant concern for inventions in virtual space, since “where the whole substance of the invention may be copied in a different form, it is the duty of the courts and juries to look through the form for the substance of the invention” (Winans v. Denmead, 1853).

Schneider further points out that infringement by equivalence requires that the difference is insubstantial, or functions substantially, in the same way to substantially the same result, and argues that for a virtual turnstile, function and result are likely no different, meaning that there is potential for infringement by equivalence. He suggests that what might instead prove difficult is establishing an equivalent way, explaining that whilst from the perspective of a user in a virtual world, the turnstile is operating in the same way as the apparatus claim, it is not from a real-world perspective because the turnstile does not actually exist tangibly: it is simply a collection of binary ones and zeros representing the turnstile in memory and through the operation of algorithms rather than ‘actual’ physics. Accordingly, Schneider argues that the applicability of the doctrine of equivalents to the Metaverse “turns on how one views the virtual space” (Schneider, 2022a). He suggests that in anticipating and acknowledging virtual infringement, there are two potential, albeit improbable, avenues – for courts to construe terms broad enough to cover virtual machines, or for Congress to amend the Patent Act to extent patent protection to virtual worlds. Whilst this is perhaps unlikely now, with the convergence of physical and digital environments, there may be greater imperatives for legislation to be updated to define the role of patent law more clearly in the context of these virtual environments, and to more explicitly identify the scope of rights conferred.

What these various examples demonstrate is that existing legislation and existing legal rhetoric may be ill-equipped to address the potential issues which arise with a converging physical and digital environment. Assumptions concerning the separation of digital and physical which once held true, may not continue to persist as the Metaverse expands. And with the digital and physical worlds converging, the need to address questions concerning the specificity or even relevance of bespoke rules for respective environments grows ever more urgent.

3.4 Multiple contributors

The most prominent concern which emerges from the Metaverse’s emphasis on its multiple contributor model is the difficulty with identifying the roles and responsibilities of the platform, vendors, and its participants. For instance, Mostert and Yeoh have questioned how liability might be resolved in an online platform that involves a plethora of users and actors including potential meta governments, meta constitutions, as well as ‘real-world’ governments and constitutions, especially where platforms may be able to act increasingly more like legislators and regulators (Mostert and Yeoh, 2022). They also argue that there are increased uncertainties with liability for these potential virtual worlds and platforms because of the underlying AI system, asserting that with the complexity and interdependency of AI systems, it may become even harder to “assign legal responsibility to avatar owners, software coders and metaverse operators, all of whom may have varying degrees of control over the AI systems in question” (Mostert and Yeoh, 2022). With the centrality of users as well, the licensing landscape is likely to be incredibly complex, as platforms may need to consider how to provide property rights and to license content from users (Guadamuz, 2022a), whilst being mindful of how they obtain licences from commercial proprietors to facilitate use by numerous third parties and end-user throughout the Metaverse. Similarly, the Metaverse report by Osborne and Clarke has also commented on how the existing approach to identifying the roles of digital content providers may not readily translate to the Metaverse, and questions how regulations designed for traditional digital content providers and platform-to-user relationships can successfully be applied “when approaching something as far-reaching and with as blurred boundaries as the metaverse.” For instance, the authors observe that even a basic assessment – identifying the trader who is supplying digital content that consumers have created, may prove difficult in the context of an environment with multiple actors operating concurrently. Accordingly, they argue that the legislation is not sufficiently technologically neutral to accommodate the redefined relationships between platforms and users that the Metaverse may entail (Marino et al., 2021).

3.5 Computational creativity and AI generated content in the Metaverse

Besides algorithmic governance, another key role which AI will likely play in the development of the Metaverse is in the creation and generation of the Metaverse’s virtual world or environment itself. It should be noted that the issues surrounding computational creativity and the use of AI in the Metaverse are substantial, complex, and warrant significant separate inquiry. As such, this section will only provide a broad overview of some notable challenges facing the generation of the Metaverse world and environment through AI. And it will also briefly touch on a related concern about AI deepfake avatars in the Metaverse.

The potential aspects of the Metaverse which could be created by AI can range from assets such as images, digital objects, sounds, to NPCs (non-player characters) including chatbots and virtual assistants, to landscapes and entire locations, to the very physics underpinning the virtual world itself. Moreover, if the Metaverse is to be a massively scaled or an infinite virtual environment, world, or platform, then it is arguable that AI will be essential for developing and populating the Metaverse, and in facilitating scalability. AI can generate the Metaverse’s world and environment more efficiently than a human could (Melendez, 2022). However, relying on AI to generate various parts of the Metaverse, creative and non-creative, leads to potential complications for IP regulations which are at best, limitedly equipped in governing computational ‘creativity’ or AI generation. Some of these challenges are not unique per se and involve questions that have been long raised in the literature surrounding AI. Nonetheless, they are worth re-examining, especially in the context of a massively scaled and pervasive Metaverse, which not only reintroduces these difficulties but exacerbates them on a scale and in ways unique to the Metaverse. The most notable of these are the issues surrounding authorship or inventorship of AI generated content, infringement by AI generated creations, and digital identity.

In recent years there has been an increased reliance on AI to accomplish tasks historically undertaken by humans, such as the creation of art and environments for virtual worlds. Yet, because the concepts of authorship and inventorship are and continue to be anchored to human creativity (or originality) and human inventiveness, for most jurisdictions, the available protection for purely computer-generated creations is significantly limited. And even for the UK, which grants copyright protection for computer-generated works, commentators opine that it is still necessary to identify and confer authorship on the human responsible for making the necessary arrangements. As such, there is at present little to no protection for creations made by AI (Goossens et al., 2022). As a consequence, this creates uncertainties for copyright authorship when the work in question is created alongside or with the assistance of AI and AI tools, since it is unclear to what extent that the use and involvement of AI displaces human authorship enough to invalidate protection for the resulting creation.

For instance, Brooke et al. comment that the human-centric approach to identifying copyright authorship means that joint creations by human and AI may exist in a grey area that is “blurry and subjective” (Brooke et al., 2022), observing that there have already been difficulties with an application made to the US copyright Office concerning a graphic novel which was created with the assistance of AI image-generation technology. The graphic novel Zarya of the Dawn was at first granted registration, only to be cancelled shortly after with a request for details that there was substantial human involvement. They stress that only works partially assisted by AI are capable of being protected (Brooke et al., 2022). This sentiment was similarly echoed in a US patent case – Thaler v Vidal, which concerned a patent where the AI system was listed as the sole inventor, with the court concluding that an inventor strictly means a human being or a natural person. This establishes that under US patent law inventorship remains only available to humans. This carries consequences for important doctrinal and practical questions, such as how to identify when reliance on AI tools invalidates claims of inventorship, and how to demonstrate that the novel aspects are attributable to a human rather than AI (Zodieru and Gelfound, 2022; Mao, 2022).

With respect to the Metaverse, one potential foreseeable consequence of this grey area is the difficulties in navigating authorship and ownership issues where there is joint creation between human users of the Metaverse and the underlying AI. Many Metaverse models stress that they are user-centric and treat UGC or user creations as defining features of the Metaverse (Harding et al., 2021; Ball, 2020). And whilst comprehensively describing what these potential creations might entail is beyond the scope of this report, at the minimum, it is probable that there could be avatar generation tools supplied by the Metaverse platform(s) which rely on both human input and AI software. This is a likely hypothetical since there are already many proto-Metaverses provide character or avatar creation tools, as well numerous AI image tools for generating ‘unique’ avatars (Brooke et al., 2022). Depending on the nature of the AI, there are potential uncertainties surrounding the authorship or ownership of the resulting avatar. Moreover, this is only a basic example, and it is arguably possible that the eventual Metaverse will include even more sophisticated creation tools embedded into the platform, which again may involve AI in differing degrees. Similarly, there may be entire films or literary works created with dialogue between both human users and AI chatbots or NPCs. Or there may even be AI-generated creations which independently create by taking from various output supplied by users within the Metaverse (which also introduces infringement issues that will be discussed shortly), creating a virtual landscape filled with numerous creations which vary in their eligibility and extent of protection.

Following the current trajectory of AI trends, the Metaverse could rapidly become a virtual environment filled with various forms of IP that intermingle human creativity or ingenuity and AI. And the possibility for the Metaverse to be a platform or environment that offers unprecedented access to AI tools for the average user/creator that radically changes the nature of creative participation is palpable. Yet existing regulatory approaches remain ill-equipped to address this new paradigm of creative participation, especially since definitions are incapable of addressing creative or inventive practices that are disconnected from individuals and humans. An additional challenge which compounds this existing uncertainty is the lack of harmonisation, specifically the disparity of national approaches to AI regulation in a supposedly international and borderless Metaverse. For instance, Zhao contends that TRIPS Agreement has been unsuccessful in maintaining a minimum standard of protection in an AI era, arguing that the approach to protecting algorithmic creations is fragmented (Zhao, 2022). And similarly, although in Thaler v Vidal the court rejected Thaler’s patent, the South Africa patent office was willing to grant Thaler patents which listed the AI system as the inventor. Likewise, the Australian federal court found that an AI could be listed an inventor, but equally noted that the AI system could not be a patent applicant or grantee under Australian law, stressing that ownership and inventorship are separate (Larivchenko, 2022). This creates further concerns for authorship and ownership of AI assisted or joint creations will be navigated in the forthcoming Metaverse. It demonstrates the importance of having clearer definitions that can anticipate the challenges which AI creation, and joint AI creation in the Metaverse, might present.

Beyond authorship, there are also questions surrounding potential infringement made by AI. As Goossens et al. observe, “if output generated by an AI system that has been trained on a particular type of data is substantially similar to the data in the dataset, it may be an unauthorised derivative work that infringes copyright in the pre-existing works” (Goossens et al., 2022). For example, if a machine learning AI is ‘taught’ to paint using a dataset filled with Banksy works, it is possible that a resulting image the AI creates could be similar enough to an existing Banksy work to be considered infringing. As such, the nature of the ‘source work’ (Lim, 2021) being taken and used in the dataset becomes incredibly important, especially where the AI is being trained on existing works which are afforded protection. And as an Osborne Clarke comment has observed, this is a particularly important question for the Metaverse, noting that although in the ‘real world’ the data or source works being fed to the AI may not be subject to IP protection, for the Metaverse, every asset and aspect will have been at the minimum, coded by a human and potentially protected to some extent. The comment also argues that the “‘IP is everywhere’ problem has the potential to give rise to new and contentious AI and IP issues and questions” (Osborne Clarke, 2022). There are both IP complications with the technology itself potentially breaching IP laws in its access, use and reuse of protected or licensed information or property, as well as with generated output infringing on existing protected property (Osborne Clarke, 2022). Moreover, the complications go beyond what is coded into the Metaverse, and the IP relied upon by the platform(s) developers, since as already discussed, the Metaverse is purportedly going to centralise UGC and user participation in the expansion and development of the Metaverse virtual environment.

‘IP is everywhere’ problems are especially apparent for copyright. With a myriad of potential avenues for creation and participation, with copyright arising automatically, and with the potential for iterative or derivative creation in the Metaverse performed both by users and as well by AI, fundamental copyright questions become exceedingly difficult to answer. Identifying when the work is created, who it is created by, if and the extent to which it is displaced by artificial intelligence, whether reuse by another user in the Metaverse is permitted, are all questions rife with additional doctrinal inquiries and uncertainties. Besides copyright, there are also concerns with AI generating content that replicates and possibly infringes the various trade marks and designs, which are present throughout the Metaverse. Furthermore, it could be impossible for the AI to determine the source of the protected content accessed by the AI (e.g.: the rightholder, the platform, user-generated, etc.) and whether the original incorporation into the Metaverse was authorised, legitimate, or an infringement.

Even patents could potentially be infringed by AI depending on the kinds of software and creation tools afforded to Metaverse end-users, which could potentially allow users to directly infringe patents using software engines or even indirectly through virtual machines (see further 3.3).

Accordingly, a foreseeable problem is the potential infringement by an AI that is trained using aspects of the Metaverse environment contributed by users, and related to that, the potential licensing issues, agreements, or solutions which may emerge to combat such difficulties. For example, there are already commentators in the literature who propose relying on licences and smart contracts to govern the allocation of rights (Lim, 2021). However, such an approach raises similar concerns with inequitable bargaining positions and the questionable circumvention of IP protection and guarantees discussed in section 3.2.1. Regardless, existing concepts surrounding reuse, iterative use, and use by AI require further inquiry and clarification to combat potential and anticipated infringement through AI, especially in the context of the Metaverse as a vast, human-to-human, human-to-machine digital platform and environment.

Finally, there are also additional concerns for AI-generated content and the Metaverse that are connected to digital identity and deepfakes. Existing AI technology has already been shown to be extremely effective at creating convincing deepfakes, and Mostert and Cruz have observed that with the Metaverse, there is a greater risk for digital fraud. Raising the concern that “interactive deepfakes backed by advanced AI may become commonplace in the metaverse, much like the presence of non-playable characters in video games” (Mostert and Cruz, 2022). And whilst it could be argued that developers could seek to curtail this in terms of ‘official’ Metaverse platform NPCs, there are potentially much fewer safeguards which could prevent bad faith end-users from seeking to abuse machine learning AI to populate the Metaverse with deepfake avatars. Theoretically, IP could be a critical tool in combatting potential deepfakes. For instance, Danks has suggested that copyright could be relied upon if the deepfake was produced using existing video footage of an individual. However, Danks also notes that there are several shortcomings, such as the lack of guarantee that the individual and the copyright owner of the footage are the same person (Danks, 2022).

Moreover, deepfake and identity issues go beyond ‘image’ per se. Consider for instance virtual Youtubers or Vtubers, who are streamers or performers who use a digital avatar or ‘Vtuber Model’. Protection of avatars is not necessarily new: for example, there have already been numerous instances of avatars being granted trade mark protection. However, for many Vtubers, these digital avatars are not necessarily ‘static’, with many Vtubers frequently changing and updating their avatars in varying degrees, ranging from outfit or costume changes to entirely different digital avatars and models. Accordingly, the artwork, the visual image(s) and visual characteristics associated with the performer’s identity can in some instances be fairly flexible. Notwithstanding these changes, the Vtubers nonetheless cultivate a digital identity which is critical for their brand, marketing, and arguably even their goodwill in a trade mark sense. Already there are many examples of Vtubers leveraging their digital identity in a commercial fashion, and in ways identical to or analogous to trade marks for merchandising and for endorsing and selling products. And conversely, there are already examples of brands like Kellogg’s or Netflix who have developed Vtuber avatars to expand their brand (Sutcliffe, 2022).

Consider a hypothetical scenario using a deepfake technology, where a potential fraudster replicates a popular Metaverse Vtuber’s voice and then creates a similar but non-infringing virtual avatar, and in doing so attempts to either fraud, pass off, or ruin the goodwill or reputation of the original Vtuber. Whether that be by performing using the deepfake generated avatar, or by deploying numerous AI-backed deepfake avatars throughout the Metaverse. For these various scenarios, it is unclear whether existing IP regulation such as copyright or trade marks, or IP adjacent regulation such as publicity or privacy are capable of tackling such a novel form of appropriation. And especially for IP adjacent rights, the suitability of existing legal remedies to address deepfakes is further dependent on jurisdiction, where the US right of publicity might for example confer sufficient protection to combat AI deepfake activity, whilst the patchwork of protection in the UK may prove far less effective (Danks, 2022).

Moreover, whilst Vtubers are presently one of the clearest examples avatars and digital identity growing in importance, the emerging relevance of digital identity in the Metaverse will likely extend to all users. As Mostert and Cruz comment, citing the US case of Fraley v. Facebook: “the distinction between a ‘celebrity’ and a ‘non-celebrity’ seems to be an increasingly arbitrary one”. Image rights serve to protect the economic interests of private individuals who are harmed by misappropriations of their image for commercial purposes” (Mostert and Cruz, 2022). This suggests that digital identity is already an increasingly important issue for end-users. Accordingly, with the evolution of digital identity beyond just an individual’s ‘image’ or ‘personality, and with digital identity intersecting even further with copyright and trade mark, it may be helpful to consider how IP regulation can be deployed or reformed to better protect digital identity, and to combat challenges such as AI-generated deepfakes.

3.6 Conclusion

What this section demonstrates is that whilst there are many challenges and obstacles for IP that can already been observed with proto-Metaverses, considering key proposed or likely characteristics of the Metaverse, it is very probable that the forthcoming Metaverse will exacerbate many of these unresolved and underlying challenges. For instance, if the Metaverse’s interoperability and IP interoperability is significantly achieved through ToS, it could likely lead to a contractual framework which circumvents IP on a vast scale, supplanting national and international governance. Similarly, if the Metaverse is to achieve decentralisation, and with the anticipated reliance on tech regulation, there are even greater risks with automation and lack of human oversight. This comes with the potential to significantly displace the legislative power (from the state to private entities), undermine constitutional legitimacy, and deprive users of their legitimate rights. Moreover, with the convergence of physical and digital, there may be potential new forms of infringement which IP may not be readily equipped to address, whether that be digital twins, AR/augmented space trade mark infringements, or virtual infringements of patents.

In addition, it is also unclear with existing IP definitions and defences can be extended to a dual physical-digital environment, and whether current conclusions reached about consumer confusion, or parody or artistic use will remain relevant in the Metaverse. With the extent and manner which the Metaverse will have multiple contributors, it also seems that existing assumptions about the relationships between owners, users and platforms may quickly become outdated if not already. And finally, with the growing reliance on AI, and the likely importance of AI and machine learning in creating and facilitating the Metaverse, it can be anticipated that there will be new forms of creative participation which will present challenges to definitions such as authorship and inventorship, as well as introduce new avenues and forms of potential infringement or harmful activity.

As such, it is argued that there are numerous issues which must be addressed to provide a framework of protection that is adequate and capable of addressing the myriad challenges which the Metaverse might present. Across these issues, there are two common concerns – firstly, that many existing definitions are outdated or limited in addressing aspects of the forthcoming Metaverse, and that with how malleable the Metaverse is, even new definitions, if drafted narrowly will quickly become obsolete as well. Secondly, the Metaverse represents a real risk for users who could be disproportionately affected in development of the Metaverse, and that without intervention, users may find their legitimate IP rights greatly diminished. Accordingly, it is imperative that approaches to IP and the Metaverse moving forward are developed in ways which are both flexible enough to accommodate the shifting model of the Metaverse, and in a manner which sufficiently safeguard users.

Question 5

4.  Analysis and recommendation

Accepted Answer

There is a growing awareness among stakeholders of the importance of a human-centred approach as the transition towards the Metaverse proceeds at its current relentless pace. In 2022, through a joint Declaration for the Future of the Internet, the UK, the EU, the US, and various other partners committed to protecting and respecting human rights online. Later in 2022, the EU Commission launched the European Declaration on Digital Rights and Principles, which aims to put people at the centre of the digital transition. It seeks to foster solidarity and inclusion, entrench freedom of choice, facilitate participation in the digital public space, create a safe and secure online environment, and ensure the sustainability of digital technologies. In the same vein, the EU Commission has also proposed two new legislative initiatives – the Digital Markets Act and the Digital Services Act – which are aimed at redressing the balance of power between the large platforms that have come to dominate the digital economy and their users (both business users and individuals alike). The Digital Markets Act seeks to establish a more level playing field for fostering innovation and competition by imposing new obligations and prohibitions on large gatekeeper platforms, while the Digital Services Act seeks to protect users’ fundamental rights online by establishing higher accountability standards for large platforms. A key guiding principle for the EU in its policymaking in this area is that of ‘digital sovereignty’ – the idea that the EU should reassert its authority over the digital environment, and to establish a safe and secure digital environment for its citizens and businesses against the encroachment of non-EU technology companies that do not adhere strictly to European conceptions of fundamental rights, particularly on issues such as privacy and data protection.

This is already a part of the EU-wide global initiative to regulate the Metaverse, forecasted to be launched in 2023. Even though IP is not expressly mentioned, arguably the three pillars identified (people, technology, and infrastructure), are directly or indirectly related to IP.

In the US, the Cloud Act is already in place to grant jurisdiction when a cloud service is based in the US. The race for control over the Metaverse has already started.

For IP, the Metaverse represents both an opportunity and a challenge. The opportunity exists because it will create more demand for IP and new markets for commercialisation. Ultimately, the Metaverse presents a chance for IP experts and policymakers to address existing and persisting issues initially brought about by the Internet and increasing digitisation, and which remain, at present, either unsettled or imperfectly resolved. Equally, a number of challenges will arise from the predictable increase of infringements and difficulties in monitoring and enforcing IP in the Metaverse. More urgently, this can lead to an existential struggle for IP, as there is a risk that it will be rapidly overridden by contracts.

It is therefore paramount that in the Metaverse, we maintain – if not increase – the relevance of IP. Not as a self-serving exercise, but because IP has the potential to become a safeguard for ‘digital citizens’ and their rights and freedoms, since everyone’s interactions will inevitably be underpinned by IP. It is possible to envision IP protection being restructured in a way that goes beyond merely protecting rightholders’ exclusive rights and has positive implications for consumer protection and user welfare.

4.1 Merits and shortcomings of existing IP approaches

It is encouraging to see the first signs of public discourse and a proactive approach to IP in the Metaverse at this early stage even if it is unclear, at this point, what the Metaverse will specifically entail. It is also understandable why the focus thus far has been on technological standards, ethics, and regulation generally rather than on IP per se. No doubt there are some profound philosophical questions about the Metaverse that need to be fully addressed before concrete IP visions and approaches are finalised. However, one point which emerges consistently from the existing literature is that the Metaverse will be or is already happening in one form or another. In addition, there is a consensus that IP law will be vital in the creation and constitution of the Metaverse, as well as defining users’ and businesses’ experience of it. At this stage, therefore, we believe that clarifying the IP issues is as important as answering the underlying philosophical questions.

The existing discussion on IP Metaverse approaches has understandably focused primarily on the commercial aspects of the Metaverse and the issues addressed are examined predominantly from the perspective of rightholders moving or planning to move into these new environments. These approches tend to focus on pre-existing and persistent issues generally associated with IP in the digital environment.

One of the consequences is that some of the more prominent commercial IP strategies implicitly suggest relying on alternative routes, such as contract and technological solutions, because the current IP regime is perceived as not addressing businesses’ commercial needs satisfactorily. It is true that there has been a noticeable increase in trade mark and design registration and patent application clearly linked to the ‘advent’ of the Metaverse, but at the same time we can notice a soaring reliance on commercial and technological solutions over strictly legal ones to address real or perceived issues. For instance, collaborations and cross-promotional branding as well as direct contact and collaboration with Internet platforms and online service providers is often thought to be a better strategy than more traditional IP maintenance and enforcement methods. These direct links may also give rightholders a more efficient and privileged route for tackling infringement rather than relying on the standard notice and takedown procedure. For instance, a brand with limited resources might find it more efficient to enter a partnership with the operators of selected virtual worlds to protect and monitor the use of their signs in those particular virtual worlds, instead of relying on trade mark law and having to register (and use) the sign in multiple jurisdictions. The lack of resources or IP awareness is not unique to the Metaverse, but it is likely to be exacerbated by the complexity of the ecosystem.

The entire discourse on NFTs is also particularly enlightening since much of the focus appears to be centred on the development of a technological solution that risks introducing the illusion of para-property rights rather than addressing the underlying absence of property rights in digital assets. It might prove to be ineffective and create a further range of IP issues, while at the same time failing to take full account of the environmental consequences.

By effectively sidestepping IP law, these business approaches might eventually make the IP system redundant in the Metaverse. This is likely to be detrimental, as the mechanisms built into IP law for striking an appropriate balance between the interests of rightholders and users would be side-stepped as well, giving businesses free rein to unilaterally dictate the terms of their engagement with users. We believe a successful approach to ‘IP in the Metaverse’ should have at its core the maintenance of the relevance of IP, not as a self-serving measure but as a safeguard for digital citizens. Democratic participation ought to be one of the foundations of the Metaverse.

From the above, it is key that IP law will remain central to the success of the Metaverse, constantly challenged and reassessed by the growing complexity of interactions, stakeholders, and the environment itself (MacDonald, 2023).

4.2 Conclusions and recommendations

The UK is one of the top markets for attracting and retaining tech talent and this is an opportunity to give a platform to all the relevant stakeholders to shape a post-Brexit future for the Metaverse. Now that the Brexit transition period has come to an end and the EU-UK Trade Cooperation Agreement has been signed, the UK is navigating the complex task of reviewing and revising the thousands of laws and regulation originating from the EU. It is unclear whether and to what extent the protection and enforcement of IPRs – the lifeblood of the creative industries – is the focus of this enquiry.

Brexit presents an opportunity to redraw the IP rulebook and to make the IP regime more fit for purpose in the Metaverse. Now that it is no longer bound by the requirements of EU law, the UK is free to reform, redesign and restructure its IP laws to ensure that they are capable of tackling the challenges that the emergence of the Metaverse will inevitably bring. In order to drive any desired changes however, an informed, multi-stakeholder approach is essential. While the UK is of course still bound by various international treaties relating to IP, the international framework leaves it flexibility to redesign its IP laws to strike a balance between protection for technology companies that will build the Metaverse, the exclusive rights of IP rightsholders, and the fundamental rights and other interests of Metaverse users. More research and impact studies will of course be needed to identify what the optimum balance may be. In the meantime, however, the following areas should be given priority. These are mainly issues, which initially arose with the widespread use of the Internet and increasing digitisation and have been thus far only partially resolved (or not resolved at all). Naturally, they have taken on a greater significance in the wake of the Metaverse’s emergence:

copyright. Clarity is needed on a plethora of key issues. These include the scope of the UK’s ostensibly closed list of copyright subject matter, and the extent to which it is capable of accommodating the new forms of creation that are likely to arise in the Metaverse; the scope and extent of the existing limitations and exceptions, in particular whether they are flexible enough to allow the kind of widespread derivative creativity that is expected to be ubiquitous within the Metaverse; how copyright detection and enforcement will operate within different models (centralised, decentralised and hybrid) of the Metaverse; whether existing licences will extend to uses within the Metaverse and how copyright licensing for Metaverse-related uses will operate
trade marks. Clear and up-to-date guidance is needed on the scope of protection trade marks hitherto applied to physical goods in the ‘real world’ should receive in the Metaverse (including whether a new Nice category is necessary or desirable), whether and to what extent the use of a trade mark in the Metaverse constitutes the use of a trade mark within or in connection with a particular jurisdiction, and how conflicting Metaverse-related uses of the same or similar trade marks ought to be dealt with where they have been validly registered by different rightholders in different jurisdictions
patents. Given the rapid increase in Metaverse-related patents and patent applications, there are well-founded concerns that new entrants to the market will find it difficult to navigate the patent landscape, with potentially detrimental effects for innovation. To head off this potential issue, steps need to be taken towards a viable solution. Possibilities that should be investigated include the creation of patent licensing pools and the use of open-source licensing models
designs. Clear and up-to-date guidance is needed on whether design rights extend to digital designs that are not embodied in a physical article or product, how digital designs should be represented and classified for the purposes of registration, whether use within the Metaverse amounts to a qualifying use, and whether the making available of a design in the Metaverse fulfils the public availability requirement or counts as a public disclosure
user-generated content. Careful thought needs to be given to how greater certainty can be given to individual users and third-party content providers who wish to create, upload and make available content (including on a commercial basis) to other Metaverse users, as much of this content will inevitably make use of copyright-protected works or protected trade marks and other indicia of origin in some way. Possible solutions include broadening the scope of the existing limitations and exceptions as well as licensing arrangements that cannot be unilaterally varied
virtual property & NFTs. Given the likely expectations of Metaverse users, it is necessary to consider whether and to what extent Metaverse users ought to be given personal property rights – or something adjacent to such rights – in the virtual assets which they acquire, and how any conflicts between these rights and the rights of IP rightholders ought to be resolved. The role of NFTs in addressing this issue is questionable, but it would be undoubtedly helpful to have clarification of the legal nature of NFTs and their relationship with the underlying IP rights
platform liability. At present, IP governance, third party liabilities, and enforcement on the Internet and within virtual worlds is facilitated by the cooperation of centralised platforms and reinforced through EULAs and ToS entered into between users and the operators of centralised platforms. However, the Metaverse itself might well be much less centralised, thus presenting significant challenges for the current governance model. Steps should be taken towards formulating IP approaches for addressing governance and enforcement issues for a Metaverse which employs either a decentralised model or a hybrid model

Question 6

5.  References

Accepted Answer

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Case Law

Hermes International and Hermes of Paris, Inc. v Mason Rothschild (2022) SDNY 1:22-CV-00384.

Miramax, LLC v. Tarantino et al. (2021) CDCA Case No. 2:21-cv-08979-FMO-JC, Dkt. No. 1

McCollum v. Opulous (2022) CDCA Case No. 2:22-CV-00587-MWF-MAR, Dkt. No. 1

Nike Inc. v Stockx LLC (2022) SDNY Case No. 1:22-CV-00983.

Osbourne v Persons Unknown & Anor [2022] EWHC 1021 (Comm).

Random House, Inc. v. Rosetta Books LLC [2001] S.D.N.Y. 150 F. Supp. 2d 613.

Roc-A-Fella Records Inc. v. Damon Dash (2021) SDNY Case No. 1:21-CV-05411.

SAS Institute Inc. v World Programming Ltd [2013] EWHC 69 (Ch).

Shenzhen Qicedie Cultural Creativity Co. Ltd v. Hangzhou Yuanyuzhou Technology Co. Ltd. (2022) Zhe 0192 MinChu 1008 Hao

Shazam v Only Fools The Dining Experience [2022] EWHC 1379 (IPEC).

The General Division of the High Court, in Janesh s/o Rajkumar v Unknown Person (CHEFPIERRE) [2022] SGHC 264

Warner-Jenkinson Co v Hilton Davis Chemical Co (1997) 520 U.S. 17.

Winans v. Denmead (1853) 56 U.S. 330.

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