Abstract
Metaverse is the new vogue word in town due to its unbounded potential to revolutionize the internet. The adoption of metaverse is growing at a rampant pace. The metaverse has been designed as an end-state phenomenon, incorporating and guaranteeing the interoperability between the virtual and the real world. It offers various applications such as real estate, virtual tourism, blockchain technology and cryptocurrency, etc. Now, virtual goods are digital assets that exist in the metaverse and are used to acquire, use, trade, or conduct businesses in the virtual environment. Examples of virtual goods are NFTs, digital artwork, in-game currencies, etc. Virtual goods are merely a part of the comprehensive metaverse that facilitates the experiencing, trading, and conducting of business activities with the same. However, with all its glamourous developments, this new prevalent virtual world, the metaverse is also bringing with it, a certain set of crucial challenges in the legal sphere that need to be dealt with properly; such as data privacy, regulation and governance, identity crisis, content moderation, etc. This research paper undertakes a comparative analysis of the Intellectual Property implications of the metaverse and virtual goods in India and the USA.
Keywords
Metaverse, avatars, NFTs, virtual goods, IPR, smart contract, virtual infringement, VR
Introduction
The metaverse enables you to live your normal life but as an avatar of you. It will be possible to buy and sell property, go to work, interact with one another, etc. However, on the downside, it will also allow the avatars to commit crimes, and violate obligations, personal rights, and copyright. As the metaverse is a cumulative virtual domain created by the confluence of a myriad of worlds, there is a high risk of escalation of real-time crimes. It is a world in which the law does not protect you. Hence, giving legal entity to the digital avatars becomes very important in the context of the metaverse. Currently, there is no specific set of rules that grants legal entity to the activities taking place in the metaverse. Analyzing the metaverse from a legal frame of reference, the question arises: Is the law ready for the metaverse? The governments of many countries still do not have sufficient laws on metaverse that can provide solutions for the virtual infringement of rights. The research paper conducts a thorough analysis of the legal implications of the metaverse in countries such as India and the United States of America, recognizing that neither country currently has specific regulations that oversee the metaverse appropriately. However, there are extensive laws and regulations related to technology and cyberspace domains that may come into play in the event of legal violations in the metaverse.
Research Methodology
This paper constitutes a doctrinal method of research that focuses on the legal sphere in the metaverse. It is descriptive and follows a qualitative approach. Data and past information has been collected and analyzed from various journals, books, articles, and blogs of big tech corporations that are major players in the virtual world market. It is a compilation of various authentic sources across the web that give exposure to the metaverse and its legal implications.
Review of Literature
The emerging concept of metaverse has gained significant recognition as it is a groundbreaking advancement in digital technology and experiences. The term has only recently gained currency, however its history is long.
It all dates back to 1838 when scientist Sir Charles Wheatstone outlined the concept of “binocular vision,” where you combine two images — one for each eye — to make a single 3D image. This concept led to the invention of stereoscopes, a technology where you use the illusion of depth to create an image. This is the same concept that is used in modern-day VR headsets.
The concept first appeared in science fiction in the 1950s, with William Gibson’s novel – Neuromancer and the 1982 film- Tron, directed by Steven Lisberger. These stories described an immersive virtual world for humans to explore.
Concluding these early attempts at virtual reality, author Neal Stephenson coined the term “Metaverse” in his bestselling 1992 novel Snow Crash, imagining a virtual multiverse in which people interact through avatars and experience shared virtual worlds in a dystopian future.
Second Life, launched in 2003 was one of the earliest virtual worlds to catch the interest of the general public. It allowed users to create avatars, explore virtual landscapes, socialize, and engage in various activities.
By 2020, manufacturers were shipping more than 5 million shipments of virtual reality (VR) and augmented reality (AR) headsets per year. There is a consensus that, although the metaverse could be accessed in many ways, consumers will need an immersive headset to take full advantage.
The current phase of metaverse hype began in 2021 when Facebook rebranded its parent company as ‘Meta’ and Microsoft released its ‘Mesh’ platform. Facebook also announced it would invest 10 billion US dollars and hire a 10,000 labor force in Europe to build out a metaverse.
In the present context, the concept of metaverse is quite popular through online gaming platforms like Roblox, Minecraft, Fortnite, Decentraland, etc.
The book, “The Fourth Transformation: How Augmented Reality & Artificial Intelligence Will Change Everything”, composed by Robert Scoble and Shel Israel provides an engaging look into the direction of technology, with a particular emphasis on the coming together of augmented reality (AR) and artificial intelligence (AI). It points out the multidimensional
understanding of the metaverse and its legal consequences, including IP rights, privacy, and the challenges of monitoring virtual environments which eventually led to the question of future laws on metaverse.
Intellectual Property in the Metaverse
In the context of the metaverse, IPR plays a vital role in safeguarding the ownership and use of virtual goods, such as designs, characters, and music, among others. Without IPR protection, creators are vulnerable to the risk of having their creations copied, replicated, or stolen without permission, which can result in financial losses and damage to their reputations. Therefore, IP laws in the metaverse are essential for innovation, creativity, and investment in the digital space, ensuring a fair and equitable virtual environment for all participants.
Every fragment of the metaverse has some kind of intellectual property emanating from it such as:
Copyrights– Copyrightable works in the Metaverse include those that are original and
fixed in a tangible medium of expression, such as text, images, audio, and video. Non- Fungible Tokens (NFTs) which are a type of digital asset that uses blockchain technology to verify ownership and authenticity, are themselves not copyrightable, but the underlying works that they represent, such as digital art, memes, or music, are subject to copyright protection.
Patents– When considering the potential patents that could be sought in the metaverse, they can be broadly classified into two categories:
1) Those related to hardware components such as devices and the type of types of equipment that are used to access the metaverse including VR glasses, processors, etc.
2) Those related to software-based inventions such as simulations. Patents filed in this arena must adhere to the same parameters and standards required for any other patents, i.e. novelty, inventive step, and industrial applicability.
Trademarks– Metaverse is a plus point for trademark-holding companies to extend their brands to the virtual world and thereby increase recognition. In light of this, brands have already started seeking trademark protection for their virtual goods by filing applications for registering their marks. For example, the popular fast-food chain- McDonald’s has filed an application seeking to register the mark ‘McCafe’ concerning a virtual restaurant that features not just virtual goods but when ordered virtually, allows home delivery of food in the real world.
COMPARATIVE ANALYSIS BETWEEN IP IMPLICATIONS OF THE METAVERSE IN INDIA AND THE UNITED STATES OF AMERICA
Decoding current regulations on Metaverse
In India:
As of now, India does not have specific laws governing the metaverse as a standalone concept. However, legal frameworks, such as those associated with Cyberlaw, Data Protection,
Intellectual Property, Copyright law, Contract law, and taxation are applicable in certain aspects of metaverse-related activities.
Information Technology Act, 2000
It can be relevant to the metaverse in several ways such as:-
Section 79(3)(b) of the IT Act can be used to remove unlawful content from the platform if a metaverse platform performs the function of an intermediary.
Section 75 of the IT Act, which deals with Extraterritorial Applicability can
be used if the offense involves a computer, computer system, or a computer network located in India. This suggests that the IT Act could apply to metaverse employees, regardless of their location or nationality.
Section 66C of the IT Act deals with Identity Theft. It can be applicable when the metaverse platform fraudulently or dishonestly uses another person’s electronic signature, password, or other unique identification feature.
Section 69 of the IT Act confers upon the Central Government and the State.
The government of our country the power to issue directions or interception or decryption of any information in interest in the security of the state, sovereignty, and integrity of India. Similarly, the data in the Metaverse environment should be under surveillance of the government, and if found against public policy or security of the state, it may be removed, and the Metaverse platform may be penalized accordingly for the provisions mentioned.
Intellectual Property Laws
India’s Copyright Act, 1957 and Trade Marks Act, 1999 can be applicable in the creation, use, and distribution of virtual assets such as avatars, virtual land and other digital subject matters. NFTs (Non-Fungible Tokens) that represent ownership of digital goods can also raise IP concerns.
Indian Contract Act, 1872
Section 2(h) of the Indian Contract Act, 1872 defines ‘Contract’ as “An agreement enforceable by law.” In the metaverse, several agreements are formed between virtual world residents, that is, avatars. These agreements revolve around the sale of virtual goods and the renting & buying of virtual properties among others. Such agreements gain the force of law, hence becoming a binding contract.
What is a ‘SMART CONTRACT’?
Sales in the metaverse are predominantly implemented using a ‘Smart Contract’. It is a self-executing contract with the terms of the agreement between buyer and seller being directly written in coding languages. The code and the agreements contained within exist across a decentralized blockchain network. That code controls the execution and the transactions are trackable and irreversible.
To test the validity of Smart Contracts through the eyes of Indian Jurisprudence, we would have to verify its conformity to section 10 of the Indian Contract Act, 1872.
Section 10 of the Indian Contract Act, 1872, free consent, the capacity of the parties to enter into a contract, lawful consideration, and a lawful object are the essentials for a contract. When the same is applied to smart contracts in the metaverse, the criteria of offer and acceptance are fulfilled but these basic requirements are already proven. However, smart contracts fall short as they are decentralized in nature and are not regulated by any government entity.
Digital Personal Data Protection Bill, 2023
The DPDP Bill which was introduced in the Indian Parliament in 2023 is a legislation that aims to balance the rights of individuals to protect their data with the necessity of processing such data for lawful purposes. This impending bill is likely to address privacy concerns and monitor the collection and usage of personal data, including data processed in the metaverse interactions.
Taxation Laws
Section 115 BBH of the Income-tax Act, 1961 states that the income from transfer of any virtual digital assets shall be taxable at the rate of 30%. A land in the metaverse is an NFT. Thus, the income arising from its transfer might be taxable under the same.
If transactions in the metaverse involve real-world money or virtual assets, they may be subject to Goods and Services Tax. For example, In India, cryptocurrencies are not considered as a legal tender, so payments made in the metaverse with cryptocurrency are considered barter transactions. GST might be applicable for these transactions, up to 18%.
In the USA:
Just like in India, there are no (or safe to say, a few specific) statutes in the United States of America that would apply to the metaverse but not solely. In the US as well, several frameworks constituting an umbrella term such as privacy laws, U.S. Intellectual Property laws, and the statutes and frameworks that internet-based corporations rely on to operate in their country- apply to the metaverse.
Digital Millenium Copyright Act, 1998
Numerous internet service providers rely on this act to protect themselves from copyright infringement claims based on content that their users upload to the platform. This would apply to the metaverse as well.
Content owners can send takedown notices authorized by DMCA to platforms that host infringing content, prompting the platform to remove it.
California Consumer Privacy Act, 2018
Provide comprehensive rights to Californian residents to control and regulate their data, including in virtual environments.
Section 1798.192 of the CCPA states that any attempts made to waive the CCPA rights are void and unenforceable.
Children’s Online Privacy Protection Act, 1998
Regulates the collection of data from children under 13, which could apply to the metaverse platforms used by minors.
Lanham Act (Trademark Law), 1946
Section 2 of the Lanham Act covers trademarks that can be registered on the principal register. According to this section, a trademark will not be refused registration if it contains a certain matter.
Section 1127 of the Lanham Act defines a trademark as an identification mark used in commerce, or registered in good faith to use it in commerce.
Computer Fraud and Abuse Act, 1986
Forbids unsanctioned access to computer systems, which could apply to cyberattacks targeting users or platforms in the metaverse.
Cybersecurity Information Sharing Act, 2015
Promotes sharing of information about cybersecurity threats between the government and private companies in the US to strengthen security measures.
Uniform Commercial Code, 1953
This applies to the sale of goods, which could outstretch the sale of virtual goods (coins, avatars, etc.) in the metaverse.
SEC Regulations, 1934
The Securities and Exchange Commission of the United States may monitor and regulate certain virtual assets or tokens (NFTs) as securities, subject to their method of issue and trade.
Financial Crimes Enforcement Network, 1990
Administers anti-money laundering and KYC rules, which may apply to virtual currency transactions in the metaverse.
Internal Revenue Code, 1986
The IRS requires that income earned from virtual transactions (sales of NFTs or in-game assets, etc.) must be reported to the concerned authorities for tax purposes.
Civil Rights Act, 1964
Existing rules in the Civil Rights Act and the anti-discrimination statutes may need adaption for virtual spaces as the metaverse is also an environment where issues of digital rights, harassment, and discrimination (virtual assaults/abuse or hate speech, etc.) could arise.
Communications Decency Act, 1996
Section 230 of this act provides immunity to online platforms from any case of liability that arises from third-party content. Several lawmakers in the country are pushing for this immunity to be scaled back.
Critical Appraisal
The countries are still a considerable distance away from formulating proper laws and regulations to monitor the activities taking place in the metaverse and ensure safety and justice to its users.
Although we have discussed a few comprehensive laws that can cover the legal issues in the virtual world, there are, no doubt, several shortcomings as well.
Intellectual Property conflicts may arise when metaverse platforms unethically use copyrighted content or trademarks without legal sanctions.
Privacy laws in both countries may not be able to fully address the intricacy of data collection in the metaverse, such as real-time monitoring and the use of biometric data like facial recognition and thumbprints.
Protecting the users from cyber threats requires strong encryption measures and secure virtual infrastructure. However, acts such as CFAA, CISA, the impending DPDP bill, IT Act are not tailored in a much secure manner to address cyber threats in the metaverse.
Even though the concept of smart contracts exists in the metaverse, enforcing contracts, especially across borders, in decentralized virtual environments is easier said than done.
Lawmakers are still facing a dilemma as to how to classify virtual currencies and non- fungible tokens under the securities law. The SEC (USA) and the SEBI (India) do not state proper rules and methods for the classification.
Determining the tax slab for virtual assets and tracking the income earned in the virtual world is a complex task, especially because of decentralized platforms and anonymous users.
In the coming years, lawmakers in both countries will likely develop more tailored laws pertinent to the metaverse as a standalone framework to address the unique challenges.
A way forward
Notably, the metaverse remains a theoretical and aspirational concept yet to be fully materialized. If the metaverse does become the technological marvel that many predict, it will rely on the collection of personal data to deliver a truly immersive and tailored user experience. However, data privacy and protection of rights in the metaverse are not explicitly defined.
The anomalies across data privacy and protection of individual rights within the metaverse in not just India or the USA, but across the globe need to be addressed. Currently, there isn’t a single universal data privacy and protection law that can govern the rights of all users operating within a global metaverse. As more and more people resort to the metaverse to socialize, interact, buy digital assets, etc.; data controllers, developers along with third-party affiliates, should comply with numerous shifting data laws, or at least make sure to follow the strictest ones.
Countries can start by entering joint agreements that unanimously provide a blanket of protective laws governing the collective data of individual member states- such as the European Union’s GDPR.
The loosely defined parameters around the collection, processing, and transfer of personal data in the metaverse need to be dealt with stringently, or users risk entering the uncharted wild west of a new cyber-realm.
There are several other initiatives that both India and the USA can take, such as
1.Creation of a virtual Interpol.
2.Building a VR infrastructure with privacy by design embedded.
3.Data governance can be ensured through a Decentralized Autonomous Organization to allocate accountability effectively.
Conclusion
After careful analysis, while both the USA and India are constantly making their way through the legal complexities of the metaverse and the virtual goods that fall in its ambit, there is a contrast in their regulatory landscapes and it is evident. The USA, despite not having specific standalone laws tailored to tackle the legal violations taking place in the metaverse, does have certain frameworks or established acts and regulations whose provisions can be applied to address the issues of virtual infringement of rights. This accounts for a greater degree of legal recourse and protection for consumers of the virtual world. Conversely, although undeniably, India too does have a few laws that apply to the metaverse; the scope is narrow- it faces a significant regulatory gap, void of comprehensive rules and legal structures to handle the violations within its virtual spaces.
Infringement of Intellectual property in the virtual world is equally severe as infringement taking place in the real world. As of now, the jurisprudence concerning laws in the metaverse is still developing.
There is an ambiguity as to who will be accountable for assuring adequate data protection in the metaverse. Each respective metaverse, to some extent, will be expected to self-regulate following all the laws applicable.
By thoroughly scrutinizing current regulations in both countries and the novel implications that metaverse interaction models can create, industry pioneers have an opportunity to inform their strategies and implementations. Staying ahead of domestic and global regulatory developments can help mitigate risk and define the scope of experiences. These considerations could enable a safer user environment in the metaverse, drive public adoption of the technologies, and help inform future policy developments related to the same.
Name- Simran Sen
College- Lloyd School of Law
Course- B.Com LL.B (2024-2029)