Metaverse make-up

Digital content and the marketplace economy

The metaverse is by its very nature centred around the consumption of – and interaction with – digital content. It envisages that there will be the merging of digital assets and worlds, the sharing and creation of content, and commerce linked to all of this.

This provides the perfect arena for digital creativity, with something like the Sandbox, for example, epitomising this, as it allows players to build, own and then monetise their digital assets. Traditional "material" entertainment experiences and valuable assets are also becoming digital, for instance, football and baseball stickers (once collected by children in a personal, paper album and exchanged in the playground), are now unique non-fungible tokens (NFTs) that can be collected and exchanged in the metaverse. While that is amazingly appealing from a user perspective, it also falls squarely within the scope of upcoming digital regulation that is aiming to regulate digital content far more prescriptively including how it is treated and traded. The metaverse is also, due to its intended consumer audience, an area that is both currently regulated and also about to be even more stringently regulated from next year.

Digital content

To date, there has been no specific, or consistent, way that "digital content" has been regulated across the EU (the UK did this with the Consumer Rights Act in 2015, but the rest of Europe is playing catch-up). This is all set to change with the Digital Content Directive, which comes into force on 1 January 2022. The Directive looks to regulate digital content across its lifetime, from provision, to on-going conformity, to rights on contract termination. It also, crucially from a metaverse perspective, treats content paid with data on an equal footing with that paid for with money, bringing far more digital content into regulatory scope than previously. This will, of course, improve the position of consumers, but, for traders, compliance could be challenging in the metaverse context. For example, consumers will have "conformity" quality rights regarding digital content. How will a trader be able to ensure that these are met throughout that content's lifetime, including the provision of updates so that conformity is maintained? As the Directive imposes consumer portability rights for digital content that has been created and restrictions on traders' ability to use that consumer-generated digital content post-contract termination, how will that practically work and be managed in the metaverse? The Directive therefore makes sense when looking at the "traditional" digital content providers that it is primarily looking to address (app stores, social media platforms and video sharing services, for example). But, when approaching something as far-reaching and with as blurred boundaries as the metaverse, actually applying the Directive's rules with any certainty becomes far more difficult. For example, at a very basic level, how do you determine who the "trader" is that is supplying digital content (for example, persistent digital items) that a consumer may have created? With so many actors operating within the content space, trying to define roles and responsibilities will be challenging. The legislation, although meant to be technology neutral, is not designed to be applied to something as forward-facing as the metaverse.

The marketplace economy

The metaverse assumes that there will be a lot of trading within it, whether business to consumer, consumer to consumer, trading across games, via traditional payment methods or NFTs. Clearly the scope and means by which this is done is, and will continue to evolve, but a fair assumption is that a lot may take place via some form of marketplace. Again though, this is an area that EU legislators have in their sights. We already have the Platform to Business Regulation, which governs a marketplace's relationship with those selling through it. But, by virtue of the Omnibus Directive (with effect in the EU from 28 May 2022), more obligations will be coming soon and imposed on marketplaces. These include having to give details of whether sellers are "traders" or consumers, how any search results are ranked, and how the authenticity of the consumer reviews published on the marketplace is verified. In such a fast developing and organic, interrelated world as the metaverse, keeping track and clearly disclosing all of this may present multiple challenges. Transparency is a fundamental issue for the development of the metaverse, as the trust that can be placed on the reliability of marketplaces is, and will continue to be, one of the main attractions for consumers.

Consequences of non-compliance

Users of the metaverse will undoubtedly comprise many millions of consumers, all connected across the globe. So, consumer protection will play a key part in regulators' attempts to govern it, and consumers may also be enforcing their own rights. Previously, it could have been argued that sanctions for breach were less serious than under other regimes, but that is also set to change under future digital regulation. The Omnibus Directive brings with it the prospect of maximum fines being set at a minimum of 4% of turnover for the most serious breaches of the Consumer Rights Directive, Unfair Commercial Practices Directive and Unfair Terms Directive – a step change in consequences for non-compliant metaverse actors. However, with such an interconnected world, interpretation and liability allocation will be far from simple. For instance, where is a consumer "located" when in the metaverse (determining which local consumer laws apply)? Against whom could a consumer or regulator enforce rights in such a blurred environment? How would identification of the people behind avatars work in order to know which rights are being infringed? And how, in such an interoperable place, can a business make sure it is disclosing all it needs to consumers? These will not be straightforward issues to work through but will be an area of huge focus, in light of the scrutiny that will fall on consumer protection issues in the coming years. These crucial challenges will determine the future reliability and efficiency of the metaverse to which socio-economic life is rapidly shifting.

Increasing regulatory complexity

The metaverse will raise increasingly complex issues from a digital and consumer regulatory perspective. As these platforms evolve, they are likely to attract ever greater regulatory scrutiny. Digital and consumer regulation are a focus area for legislators, bringing the possibility of yet more regulation, trying to tackle the perceived issues. The immediate challenge will be working through how to apply what already exists with any meaningful force or certainty. This will be the primary issue to be addressed by regulators, as the rules and expected legal outcomes for the metaverse will need to be as clear as those in "real life" in the EU and the UK. The risk of different interpretive approaches taken by regulators across different European countries is always present, and if that comes to pass may negatively impact the metaverse's expansion.

Authors

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Alex Aisthorpe Senior Associate, UK alex.aisthorpe@osborneclarke.com +44 117 917 4154