By Amy Sanderson (San Francisco)

Over half of the US video game players who responded to a survey believe the metaverse will revolutionize gaming. That enthusiasm, and the fact that major players such as Meta, Roblox, and Epic are bankrolling metaverse developments, is propelling the global metaverse gaming market to an estimated US$710.21 billion by 2027. While this rapid development promises exciting opportunities for gamers and lucrative use cases for entrepreneurs and investors, it also presents significant legal challenges that existing laws may not cover and jurisdictions may not be fully prepared to litigate.

What Is Metaverse Gaming?

Metaverse gaming offers features and characteristics that are similar to everyday activities and allows players to replicate their everyday lives in the virtual space while assuming alternate identities and leveraging superhuman abilities. Further, it allows users to interact with other players, trade in-game assets, and even experience a physical sense of touch using haptic gloves, headsets, and jackets. Some metaverse developers are implementing play-to-earn models that allow players to accrue real money by selling virtual assets they create or earn in metaverse games.

Metaverse gaming is similar to traditional online games, but they deliver a more immersive experience with 360-degree views, sensory awareness, and user-generated encounters. For example, some metaverse casinos attempt to replicate the full Las Vegas experience, something that is far beyond the scope of conventional online casinos. In the metaverse’s version of Caesars Palace, users explore a digital representation of the gaming floor, navigating their unique avatar around the virtual space. Users can control their avatar’s behavior in the same way they can control their own conduct in the real world, simply observing the high rollers, hanging out in trendy nightclubs, or betting real money – in cryptocurrency form. Decentralized casinos are currently one of the major draws for metaverse users. According to sources, 60 per cent of the activity in the Decentraland metaverse comes from Decentral Games projects (most of which are real-money gaming products and services). Differences among real-life activities, traditional online games, and metaverse gaming create legal challenges specific to the metaverse. The existing regulatory framework established to tackle legal issues related to online gaming may not suffice.

Gambling and Lotteries

Gambling and skill-based contests offering prizes or cash serve as a bellwether in the metaverse industry. Gambling and lottery games, which are both relatively easy to commercialize, present early use cases both for business models and for legislation, regulation, and enforcement. Numerous states have laws prohibiting physical and online gambling that may apply to metaverse games. In fact, regulators in Texas, Kentucky, New Jersey, and Alabama recently simultaneously filed cease-and-desist orders against the virtual casino Slotie. According to state law enforcement officials, Slotie’s owners had been soliciting investors online to participate in illegal gambling operations within the metaverse. Other metaverse sites tout the availability of loot boxes for players to obtain assets that enhance gameplay or can be sold for profit to other players and speculators. Loot boxes have come under scrutiny in several countries and states, which charge that these random virtual treasure chests target minors and facilitate gambling addiction.

It is interesting to note that defendants prevailed in three California and Washington lawsuits claiming loot boxes are illegal gambling mechanisms. Courts held platforms, app stores, and streaming services harmless for their roles in making loot box games available. Still, plaintiffs in various jurisdictions continue to file lawsuits alleging that purchasing the boxes is tantamount to games of chance and should therefore comply with state gambling laws.

Privacy and Cybersecurity

Because the metaverse is a decentralized platform with legal and ethical nuances, many privacy and cybersecurity laws that govern traditional centralized platforms may not apply or have proven difficult to enforce. Privacy concerns related to metaverse gaming revolve around the possibility of cyberattacks and data breaches. These concerns are widespread and affect the metaverse gaming’s ability to instill confidence among players:

What type of personal information is being collected from prospective gamers?

Who has access to stored personal information?

How is personal information being used?

Is personal information being shared with third parties?

What security measures are in place to safeguard personal data?

The problems posed are magnified in the metaverse due to the lack of regulations or governing bodies responsible for addressing privacy concerns that evolve with new technology. Companies looking to capitalize on the metaverse must be aware of these concerns and take steps to eliminate them, as they may be held liable under existing laws for privacy invasions and data breaches that expose users’ personal or financial data. They can also be held liable under other areas of law, such as torts and the law of publicity. It is best to speak to an attorney specializing in metaverse to understand privacy and cybersecurity challenges related to metaverse gaming.

In-game Assets

In-game items have an actual monetary value in many metaverse games, such as those incorporating paid NFTs. However, there is some confusion about the legal ownership of in-game assets in the metaverse. In fact, according to prominent legal scholar João Marinotti, it is even questionable whether anyone can even “truly own” something in the metaverse. This is because the current ownership of metaverse assets is not expressly addressed by existing property law at all. Instead, contract law has attempted to fill the gap in legal understanding, opening the possibility that what many individuals and companies call “ownership” in the metaverse is not the same as ownership in the physical world. Consequently, metaverse users or gamers may discover that assets they thought they owned are only permitted for use within the confines of a single game or platform. To minimize legal risk, metaverse gaming companies should take appropriate legal advice and have necessary legal documents which provide proof of ownership.

Intellectual Property

The computer-implemented nature of metaverse gaming may give rise to various hurdles or challenges related to licensing and protecting metaverse-related intellectual property (IP). This is particularly the case with patents. For example, an AR or VR technology patent holder may have a significant opportunity for licensing revenue, but experience difficulty identifying third parties using their technology without first obtaining their source code in discovery. Further, there might be issues related to trademark and copyright infringement when it comes to gaming in the metaverse. What sort of permissions are required to use images over the metaverse? When it comes to the metaverse, it is highly advisable to consult an attorney regarding IP-related questions or concerns.

Conclusion

Metaverse gaming may become exponentially popular moving forward. In fact, many hold that it has the potential to replace traditional online gaming. Hence, it is essential for video game companies and emerging technologies companies to be aware of legal considerations (including those mentioned above) related to the space. This is especially since recent court cases suggest that there are a number of significant legal pitfalls in the metaverse. It is best to consult an attorney specializing in metaverse gaming to get in-depth advice on legal considerations related to metaverse gaming.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

AUTHOR(S)

Amy Sanderson

Gamma Law

Duane Morris LLP