Factor metaverse into commercial contracts, businesses advised

Samantha Livesey and Santos Hau of Pinsent Masons said that while there is significant uncertainty currently over what operating in the metaverse will mean for businesses, that could change quickly as legal and regulatory frameworks are updated.

The concept of the metaverse is still very much in its infancy, with several businesses battling to define, develop and operate it. However, the term broadly refers to the convergence of physical and digital worlds in a way that augments reality.

In October last year, the European Commission announced that it would “propose tools on developing open human-centric virtual worlds, such as metaverses” during the second quarter of 2023. Recently, it further clarified that it expects to make an announcement on the non-legislative initiative on 3 May. EU competition commissioner Magrethe Vestager is leading the work on behalf of the Commission.

Hau said: “While details of the EU’s proposed initiative are light, the desire for openness and the appointment of Vestager to oversee the initiative suggests strongly that competition policy will shape the Commission’s work on virtual worlds. This could have a bearing on businesses working with technology providers to develop solutions for the metaverse. Businesses should ensure they will be able to comply with any interoperability requirements that arise in future and that they can exit agreements easily if suppliers or developers inhibit this.”

“Businesses negotiating with technology providers should seek to embed interoperability by design in their contracts, taking care to avoid ‘walled gardens’, and carefully review exit provisions and other clauses that may prevent them from migrating data and systems quickly to new providers,” he said.

The metaverse is already having an influence on the activities of policymakers and regulators. In its recent proposals to revise EU design laws, for example, the European Commission has proposed to widen the scope of potential products that can obtain design rights protection to include digital goods – including those available in the metaverse.

Samantha Livesey, technology law expert at Pinsent Masons, said: “Businesses may assume that the intellectual property (IP) they hold rights to in the physical world also apply in the digital world, but that may not necessarily be the case – despite recent changes to the Nice Classification system for trade mark applications. Businesses should consider commissioning a full audit of their IP to understand what rights can be enforced and where any gaps are before they begin operating in the metaverse.”

“While businesses can and should expect the legal and regulatory frameworks to change over time as the concept of the metaverse matures, the existing frameworks can currently be applied to such activities,” she said.

A good example of where change is likely, due the immersive nature of the metaverse, is around data protection law and advertising standards compliance. The latter is mentioned in the UK advertising watchdog’s warning to businesses engaged in marketing that the existing advertising rulebook in the UK “applies as much to realms of data as it does to those of brick and mortar”.

In the context of compliance with both data protection law and advertising rules when operating in the metaverse, businesses should particularly consider how they engage with children and whether there is a need to limit their advertising in certain spaces to ensure content targeted at adults cannot also be accessed by children, Hau said.

“It seems likely that, as is happening now in response to growth in the use of artificial intelligence (AI) systems, policymakers and regulators will develop more specific requirements concerning operations in the metaverse in the years ahead,” Hau said. “Businesses should consider adding ‘change of law’ provisions into their commercial contracts so there is a dedicated process for when new metaverse regulations take effect so they can adapt in response to new obligations and liabilities arising.”