The metaverse as a virtual marketplace

Ever since Mark Zuckerberg announced that he was renaming Facebook as Meta, it’s been on everyone’s lips – the metaverse. Although still in its infancy, this emerging industry promises to usher in a new era and fundamentally change the way we communicate, ­create, and do business.

Industry giants such as Microsoft and Google have announced billion-dollar investments to build the metaverse in the coming decades and, according to McKinsey, the metaverse could potentially be worth up to five trillion US dollars by 2030.

What exactly is the metaverse?

In the narrowest sense, the metaverse is intended to be an interoperable network of virtual 3D worlds in which we can network, learn, interact, and do business – the three-dimensional evolution of the internet, so to speak. There are already independent – i.e., non-interoperable – virtual 3D worlds such as the gaming platforms Roblox and Fortnite. These are not just used for gaming but are already generating millions in revenue through the sale of virtual goods.

In a broader sense, this vision also includes the seamless merging of the real and virtual worlds, for example by ­using augmented reality. Furniture manufacturers are ­already offering apps that allow customers to virtually place furniture in their home to visualize the ­desired piece of furniture in their living space before they buy it.

What opportunities are there for businesses?

The sale of virtual goods or services is opening up a new market with significant growth potential without the cost and complexity of physical production and distribution. Rapper Travis Scott’s virtual concert on the gaming platform Fortnite in 2020, for example, only lasted eight ­minutes but generated revenues of around $20 million.

The metaverse also makes it possible to develop physical products more efficiently. Businesses can design and test digital twins in the metaverse. This minimizes risk, optimizes product development processes and reduces costs.

Businesses also have the unique opportunity to reach new and, above all, younger target groups. The 3D platform Roblox, for example, has around 50 million daily users, 67% of whom are under the age of 16. This demographic group holds immense potential, as they are the customers of the future, not only in virtual worlds, but also in the real world.

In addition, the metaverse transcends physical boundaries and enables a global presence. It also offers businesses new ways of engaging with customers, such as interactive ­experiences, virtual events and personalized interactions. The result is greater customer loyalty and retention.

What is there to consider? Three important tips

However, the new and unknown nature of the metaverse also harbors legal challenges and the risk of ­unintentionally becoming entangled in legal pitfalls.
So, what needs to be considered to ensure that businesses do not unintentionally infringe the rights of third parties when they enter the new virtual world and want to ­become active there?

1. Think of the metaverse!

With the advent of the internet, there were disputes in the past as to whether licensed rights also covered online use in addition to physical use. Many people did not anticipate internet use and therefore did not address and regulate it in their contracts. This led to ambiguities and, as a result, to legal disputes.

In the Web3 world, similar problems are now becoming apparent, as illustrated by the conflict between film producer Miramax and director Quentin Tarantino in connection with so-called NFTs. NFTs or “non-fungible ­tokens” essentially consist of two parts: the metadata, a code that is stored on the blockchain, and the content, which can in principle be anything and is linked to the metadata via a hash code.

Tarantino had reserved certain rights to the film “Pulp Fiction”, including “publication in print”. The conflict arose when Tarantino announced that he wanted to sell some excerpts from his handwritten screenplay as NFTs. He argued that the above-mentioned clause also allowed him to create such NFTs. Miramax disagreed and went to court. At the end of 2023, an out-of-court settlement was reached between the parties, the details of which are not yet available.

To avoid such complications, emerging or future technological developments must be included in license and ­usage agreements at an early stage. In the context of the metaverse, this means integrating clear regulations on ­virtual use into contracts – even if there are no concrete plans for the metaverse yet.

For example, a business is planning to develop a specific product line in collaboration with a well-known designer or pop star. If the business intends to have its partner transfer the corresponding rights to it, virtual versions of this product line must also be considered. Can the business create virtual versions for 3D platforms in addition to the physical product? Does the transfer of rights also ­include the production of NFTs? For which countries is a license required for such virtual and thus transnational use?

Of course, this also applies vice versa. Businesses that ­license their intellectual property to third parties should define clear and precise conditions for the use of their rights in the metaverse.

This foresight will enable a smoother transition to the metaverse without the need for lengthy renegotiations.

2. Secure the appropriate rights!

Businesses typically rely on external partners, particularly software developers and virtual reality designers, to create virtual worlds and objects. Although experiences in the metaverse may seem vivid and tangible, virtual products are fundamentally different from physical products. At their core, they are merely manifestations of software code that has been created specifically for this environment. As such, these codes, and thus the digital/virtual creations, may be protected by copyright – independently of the copyright protection of the ­physical product on which the virtual product may be based.

Imagine a furniture company hires a virtual reality ­designer to transform one of its characteristic and copyright-protected pieces of furniture into a virtual product for the metaverse. Even if this virtual product is ultimately only an exact copy of a real object that is already protected by copyright, it could still be considered a copyrightable creation in its own right.

The same applies when software developers are commissioned to first design a virtual product for product develop­ment, which will be tested as a digital twin in the virtual world before it goes into physical mass production. New and independent copyrights could arise in connection with this digital twin.

Therefore, it is important to include provisions in the agreements with the designers that regulate the ownership and transfer of the exploitation rights of the virtual pro­ducts. In this way, potential disputes over exploitation rights can be avoided and businesses can fully exploit their virtual goods without infringing the rights of their ­software developers.

3. Be transparent!

One common first step in establishing a presence in the metaverse is the use of NFTs. These can take a variety of forms, such as keys or tickets to exclusive events, or ­access to physical or virtual products. For example, ­RTFKT, a digital fashion company (since acquired by Nike), worked with a digital artist to sell 620 virtual sneakers as NFTs, raising $3.1 million in less than 5 minutes. With the help of so-called “smart contracts”, ­functions can also be integrated that enable revenue shares in subsequent NFT ­resales.

But – the sale of NFTs is a new business area that is not yet characterized by established practices. This means that buyers are often very uncertain about what exactly they are buying. In particular, the current NFT hype and sometimes exorbitant sales prices can lead to the erroneous ­assumption that the acquisition of such NFTs also entails the acquisition of comprehensive industrial property rights.

This may be true in some cases. For example, in the case of the Bored Ape Yacht Club (an NFT collection of ­profile pictures of a cartoon monkey), the owners of the NFTs have been granted the right to make unlimited commercial use of their NFT artwork. However, the vast majority of businesses will want to retain commercial exploitation rights when creating and selling NFTs and only transfer certain rights of use for non-commercial purposes. This allows them to continue to exercise ­exclusive control over the use and marketing of the ­digital or virtual products in various contexts and platforms.

To avoid such misunderstandings caused by differing ­expectations and any resulting legal disputes due to unfair competition, transparency in the legal structure is essential. It must be clearly communicated which rights of use are granted to the buyer. If the NFT’s smart contract ­stipulates that the business will also participate in resales, this must be clearly indicated. This will ensure smooth participation in the evolving digital or virtual world and avoid disappointed expectations. The old legal adage also applies in the metaverse: “The best contracts are those in which everything is regulated in such a way that they can disappear directly into the (digital) drawer after ­conclusion.”

Summary

The metaverse offers businesses immense opportunities, from new markets to efficient product development. ­Nevertheless, businesses should think about legal aspects at an early stage, make clear agreements on ownership and utilization rights, and focus on transparency when selling NFTs or virtual products. The rapid rise of this digital world requires proactive action to ensure smooth integration and legal clarity.