Spilling the beans on disputes in the metaverse

By Karl Blom (Partner), Anél De Meyer (Senior Associate) and Brittany Leroni (Associate)

Johannesburg, 23 Oct 2023
Karl Blom (Partner).
Karl Blom (Partner).

Given the multifaceted nature of the metaverse, the disputes that could arise are limitless. It is therefore important that dispute resolution mechanisms that will be used in dealing with metaverse related disputes are agile enough to account for a new legal environment.

The term metaverse was first coined in a novel called “Snow Crash” by Neal Stephenson, which was published in 1992. It described a dystopian future world from which people escaped into an alternative 3D, connected reality.

More than 30 years later, we have already experienced the integration of the metaverse into different aspects of our everyday lives, such as:

  • Qatar hosted the first EA Sports FIFA Metaverse tournament in 2022, where viewers received free non-fungible tokens (NFTs) exchangeable for merchandise and player interactions.
  • In 2022, Nike introduced “Nikeland”, a virtual environment where users can try on virtual products with their avatars and take part in mini-games. They can visit Nike's digital showroom, buy any type of garment and even create their own Nike-branded accessories from scratch.
  • More than 60 brands (such as Balenciaga, Tommy Hilfiger, Adidas and DKNY) participated in Decentraland's second Metaverse Fashion Week from 28-31 March 2023, which allowed visitors to virtually participate in runway shows, panel talks, shopping experiences and ‘after-parties’.

The metaverse market is expected to reach USD 758 billion by 2026 (See "The Metaverse and International Arbitration – How to Anticipate and Resolve Web 3.0 Disputes", Global, Switzerland, 4 March 2022). As it grows, so will new and complex legal issues.

Anél De Meyer (Senior Associate).
Anél De Meyer (Senior Associate).

How will legal disputes evolve as a result of the rise of the metaverse?

Types of metaverse disputes

To understand the disputes that may arise, we must consider the fundamental building blocks of the metaverse. The metaverse can broadly be divided into:

(a) Infrastructure: The "roads" and "bridges" that enable users to connect to the metaverse platform, ie, the hardware and technologies underpinning the metaverse and the way users access it.

(b) Platforms: The software and tools determining how users will access and continue to build the metaverse.

(c) Content: The immersive experiences and applications that allow people to interact and participate in activities on the metaverse.

(d) Governance: The rules and regulations of the metaverse (including its accessible content).

Given the multi-faceted nature of the metaverse, the disputes that could arise are limitless. Metaverse disputes can stem from currency and crypto investment, virtual items or assets, virtual real estate, data, policies, rules and governance systems. The claims could be:

  • Criminal in nature, ie, hacking or theft of crypto-currencies, NFTs or theft of virtual property.
  • Regulatory, where disputes fall under the purview of national regulators, ie, the Financial Sector Conduct Authority.
  • Commercial and civil claims concerning: (i) claims against other users for defamation, hate speech, or harassment; and/or (ii) intellectual property disputes related to trademarks and patents for novel and inventive hardware and software and/or unauthorised use of trademarks and patents in the metaverse.

Metaverse innovations will inevitably lead to Intellectual Property (IP) being showcased on the metaverse in new and innovative forms, providing exciting opportunities for owners of IP rights, but also presenting novel risks.

We can expect to see:

  • Claims by users against metaverse platforms: Disgruntled users may bring claims against the metaverse platforms because of their experiences or losses they have suffered. For example, in terms of real estate, the metaverse could reduce the value of virtual land by removing features (such as a virtual beach) from which the virtual plot derives value. Claims could also arise due to business disruption if, for example, a metaverse platform removes or changes a feature which is integral to a user’s business, deactivates a user's account or experiences an interruption, which leads to the user suffering a business loss.
  • Claims by users against other users: Interactions between metaverse users can give rise to disputes concerning, for example, virtual real estate transactions between owners, disputes related to misrepresentation over the sale of digital assets, harassment, etc.

There has been a proliferation of meta-claims, including:

Doe v. Roblox, 2022 WL 1459568 (N.D. Cal. May 9, 2022) – read more here: This was a class action lawsuit where action was instituted against metaverse developer Roblox on the basis that Roblox should have offered refunds or credit when “moderating” or “deleting” virtual items that users had acquired through the Roblox Avatar Shop.

Hermès Int’l v. Rothschild, 2022 WL 1564597 (S.D.N.Y. May 18, 2022): An artist was selling “MetaBirkins”, a series of NFTs that depicted fur-covered purses intentionally resembling the iconic Hermès Birkin bag. Hermès made headlines in January 2022 when it filed an action against the artist, accusing him of trademark infringement, trademark dilution and injury to business reputation (Hermès Proceedings).

The terms and conditions of resolving disputes related to the metaverse

Claims by metaverse users against metaverse platforms

When users register to use a metaverse platform, they typically agree to be bound by the terms and conditions of that platform. These can include terms around intellectual property rights, limitations of liability, indemnities, copyright, patent and trademark licences, termination and suspension rights, and dispute resolution.

Brittany Leroni (Associate).
Brittany Leroni (Associate).

The Ts and Cs will normally prescribe the governing law in case of a dispute and the dispute resolution method. The Ts and Cs of the Decentral and metaverse platform, for example, prescribe a multi-tiered arbitration clause that establishes good faith negotiations as a condition precedent to arbitration under the ICC rules, whereas Biance's dispute resolution Ts and Cs state that user-to-platform arbitration must be administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Rules. Meta requires that "commercial claims" must be resolved by way of arbitration and, if your claim is not subject to arbitration, "you agree that the claim must be resolved exclusively in the US District Court for the Northern District of California or a state court located in San Mateo County". 

Users should note terms that can affect their claim and dispute experience (for example, agreeing to a restrictive dispute term where the metaverse platform limits the scope of its liability or prescribes that disputes must be resolved within the jurisdiction of specific courts). This may cause issues relating to the monetary viability of the claim, and enforcement of court awards, rendering awards obtained by users (residing in different jurisdictions) against platform owners ineffective. In addition, the cost and time associated with launching a dispute in a specific court which is situated in a different jurisdiction to the user may be outright prohibitive.

Key terms to look out for when considering dispute resolution are:

What to look out for.
What to look out for.

Claims among metaverse users

In disputes arising from user-to-user interactions and transactions, the manner in which such disputes will be resolved in relation to virtual property rights, intellectual property protection and infringement, harassment, theft of digital assets, etc, will again depend on a multitude of factors, such as:

  1. Whether any terms and conditions apply to these user-to-user interactions and transactions.
  2. Whether there is any conflict of laws which should be considered (based on the user location and the location of the metaverse owner).
  3. The identity of the parties.
  4. Specific national and international private laws that may be applicable to the dispute in question.

In the Hermès Proceedings, for example, Hermès claimed that the Southern District Court of New York had jurisdiction to hear the matter because the offending use of the Birkin trademark was sold by the artist on the "MetaBirkin Website", which is accessible to users in the US and New York, the artist targeted New York consumers, and users in New York purchased the MetaBirkin tokens. Therefore, a substantial part of the merits which gave rise to the infringements and claims were situated within the district of New York. Hermes' claims were bought under the US national Trade Mark Act of 1946.

Metaverse disputes involving national regulators are likely to be determined by the disputes process of the regulator in question.

Although metaverse developments are on the cutting edge, and metaverse disputes may be resolved by way of court litigation and arbitration, the dispute resolution mechanisms being applied still lean towards the traditional and standard processes that are more suited to traditional 'one-dimensional' disputes. These traditional mechanisms need to be developed and adapted to make it possible to resolve metaverse disputes with agility and to account for a new legal environment, where traditional law principles and concepts are less relevant or are no longer fit for purpose.