As Meta Platforms CEO Mark Zuckerberg ha said, the metaverse is “the next generation of the internet,” a virtual environment you can enter – instead of just observing on a screen – where you can (or soon will be able to) work, play, socialize, shop designer brands, buy virtual land, and a lot more. Part of what makes the metaverse special now – as compared to existing videogame universes or social media platforms – is the ability to buy, own, and resell digital assets, a feature that has been enabled by the development of the blockchain technology. More than that, the metaverse allows people to escape the individual, geographic and social limitations that bind them. 

Although it still is at an early developmental stage, the global metaverse market is expected to reach $758 billion by 2026, and as with any groundbreaking technological development, the metaverse will give rise to complex legal issues. In fact, legal disputes are already surfacing in the courts, particularly when it comes to the right to create and sell non-fungible tokens (“NFTs”), i.e., digital assets stored on a blockchain that represent digital – or real-world – objects like art, music, or videos. In January 2022, Hermès filed a trademark lawsuit against digital artist Mason Rothschild for creating and selling 100 MetaBirkins NFTs that depict the company’s iconic Birkin bag. 

In response to Hermès’ trademark infringement and dilution complaint, counsel for Rothschild has comparing his use of the Birkin trademark to Andy Warhol’s famed use of the Campbell’s soup cans in the early 1960s, arguing that he is selling art that is shielded from trademark liability by the First Amendment. 

Another one of the high-profile intellectual property battles related to the metaverse involves Nike, which filed a trademark infringement lawsuit against StockX in early February 2022, claiming that the reseller was offering up NFTs that display Nike’s trademarks without authorization.

Several lawsuits will also arise in relation to contracts entered into before the metaverse era. For all intellectual property contracts drafted before the metaverse was even contemplated, a major source of contention will be to determine who owns the said rights in the metaverse and whether they include the right to mint a corresponding NFT. This issue was at the core of the lawsuit that production company Miramax filed against director Quentin Tarantino following the announcement of his plans to auction off NFTs of seven exclusive scenes from his handwritten Pulp Fiction script. Miramax argues that Tarantino’s NFT project violates their contract – although the contract was entered into long before the invention of NFTs. 

The Hermès, Nike and Miramax-Tarantino lawsuits are far from being the only type of Web 3.0 disputes. There will inevitably be numerous claims lodged by users against metaverse platforms or among metaverse users, themselves. Although there will certainly be new types of disputes, the rise of metaverse will also give rise to disputes of the same nature we encounter today in the “real” world. 

Disputes Against Metaverse Platforms

One of the most obvious and predictable types of disputes that will arise between users and metaverse platforms will concern the use of personal data, as it is virtually impossible for metaverse platforms to guarantee the absence of hacking attacks indefinitely. A growing number of disputes relating to virtual real estate in the metaverse is also likely given that the virtual real estate market is booming. Prices have recently reached unprecedented levels, with a total volume of $500 million last year (including a single transaction of $2.43 million in Decentraland) and are expected to double in 2022. What increases the value of a specific plot of land is not only its location but also its scarcity, since most metaverses guarantee a limited number of available plots. But what if the value of your waterfront parcel in a very trendy Saint-Tropez-like village suddenly falls, as the metaverse platform decides to build an airport instead of the virtual sea in front of your house, or to remove the sea altogether? Would you have a legal claim? Should you (and can you) ask for more guarantees than those provided by default, when buying your plot of land? 

And what if, despite its current commitment, a metaverse platform unilaterally decides one day to increase the number of plots? The value of your real estate investment would undoubtedly decrease, but would you have a claim against the platform for breach of its commitment to limit virtual land? Lastly, what if a metaverse platform goes bankrupt altogether or shuts down its servers? What claim would you have against it? Which bankruptcy law would be applicable?

There may also be disputes concerning the interference of metaverse platforms in users’ personal investments in the metaverse, where they are allowed to offer services to users or to create digital assets and sell them to other users. But what if, after having invested a fortune in building a state-of-the-art virtual flagship store, exhibition center, concert hall or gaming experience, the metaverse platform unilaterally decides to shut it down, or even delete your account altogether, because it finds your activity to be against its policy (which always contains a degree of subjectivity)?

With the foregoing in mind, companies that are eyeing ventures in the metaverse should assess the guarantees offered by the metaverse platforms – and their rights in case of violation, which vary from platform to platform. This includes carefully considering the terms of use, with a particular focus on: (1) the type of activities that are prohibited; (2) the scope of the metaverse platform’s limitation of liability: some platforms (The Sandbox and Decentraland) limit their liability for example in case of a bug or virus in the metaverse software, which may impact the services a user is offering or its digital assets; (3) the existence of an overall limitation of liability cap (e.g. $100 for The Sandbox and Decentraland); (4) the governing law and its impact on the users’ rights and obligations. Currently, Decentraland provides for the laws of Panama, The Sandbox for the laws of Hong Kong, and Cryptovexel for the laws of New Zealand; and (5) the dispute resolution method: currently, arbitration under the ICC rules for Decentraland and jurisdiction of the courts of Hong Kong for The Sandbox.

Disputes Among Users

As for disputes among metaverse users, in addition to the trademark disputes already underway, and any potential criminal and tort disputes that inevitably carry over to the metaverse from the physical world (such as theft of digital assets, sexual harassment practiced by one avatar against another, housing disputes between neighbors, etc.), a large part of disputes will arise from transactions between users.

In the metaverse, users can: offer services to other users (e.g. gaming experience, concert, real estate agency services, coaching); create digital assets (e.g. wearable, accessories, art) and sell them to other users; and rent or resell parcels of virtual land to other users. Against this background, there are questions over what terms and conditions apply to these transactions? 

When it comes to NFTs, for instance, transactions are completed through smart contracts, which automatically transfer (permanently or temporarily) the ownership of the digital asset (i.e.  virtual land, virtual objects, or virtual vouchers giving access to a virtual service) from one user to another upon reception of crypto payment. However, these smart contracts are currently limited to monetary obligations and term limitations; they do not allow users to provide for more complex rights and obligations to govern these transactions. In some specific circumstances, it might therefore be advisable to also enter into a “classic” contract specifying in particular the real identity of the avatars and the applicable law and dispute resolution mechanism chosen by them. The applicable law would address all the issues that could not be anticipated upon coding of the smart contract or drafting the “classic” contract.

Alternatively, NFT and/or metaverse platforms could also start providing fair, transparent, and impartial dispute resolution mechanisms for disputes between users. They could, for example, allow disputes between users to be decided by a third party through a decentralized justice system, similar to the one used by eBay in the early 2000s. They could also provide for automatic enforcement of these decisions, which would be particularly important given the avatars’ anonymity. The success of metaverse platforms will undoubtedly depend on their ability to address these dispute resolution issues.

The dispute resolution framework will likely have to be reinvented to account for the technological settings of the new environment we are moving into. Our legal system is based on geography because it is the world we currently live in, but in the metaverse – where anonymous avatars from all around the world are interacting and transacting with each other – time, location and identity are fluid perceptions. The legal concepts of habitual residence, place of business of the parties or real estate property location, which are traditionally at the core of private international law rules, become meaningless. Therefore, before investing on NFT ventures or the metaverse market, more generally, companies and investors, alike, would be well advised to carefully check the applicable terms of use, if any, and in certain circumstances, enter into a contract better suited to the particular needs of the transaction.

In case of disputes, contracts should allow for arbitration (after a potential mandatory mediation) rather than court litigation. These alternative dispute resolution mechanisms offer valuable advantages for digital transactions, provided they adapt to meet the challenges of technology and time-sensitivity: ability to agree in advance on the applicable law or the language of the proceedings, flexibility of the process, arbitrators’ expertise in the technologies at hand, ease of enforcement of arbitral awards under the New York Convention, etc.

Juliette Asso is counsel at LALIVE, where she specializes in international arbitration, including both commercial and investment treaty arbitration.

Laura Azaria is counsel at LALIVE, where she specializes in international arbitration and litigation.

A copyright case over allegedly infringing non-fungible tokens (“NFTs”) listed on an online marketplace in China has resulted in what is being characterized as a “first-of-its-kind judgment.” Filing suit against Bigverse, plaintiff Shenzhen QiCeDieChu Culture Creativity Co Ltd. (“QiCeDieChu”) asserts that it is the copyright holder of a series of illustrated works by Chinese artist Ma Qianli, including one of a cartoon tiger receiving a vaccine, which was tied to an NFT and offered up on Bigverse’s NFTCNplatform without its authorization. As the operator of the marketplace site, Bigverse is contributorily liable for failing to adequately police the platform for infringements, QiCeDieChu argued.

Specifically, QiCeDieChu argued in its complaint that Hangzho-headquartered Bigverse has an obligation to review the NFTs that are minted and then offered up on its NFTCN platform – in connection with which it collects a portion of the sale – to ensure that the digital tokens are not tied to works that infringe the rights of others. Unsurprisingly, Bigverse argued in response to QiCeDieChu’s suit that it should be shielded from infringement liability, as it is merely a middleman and not the creator or the seller of the NFTs on its platform, which are created – and uploaded – by users.  

Following a hearing in April, the Hangzhou Internet Court sided with QiCeDieChu, holding that Bigverse does, in fact, have a duty to detect and prevent infringement before NFTs are actually listed on its platform, in addition to having an obligation to respond to infringement notices about infringing NFTs after the fact. By failing to fulfill that duty, which is critical when it comes to NFTs because of the generally irreversible nature of the transactions and the ability of “flaws in the copyright ownership of the underlying work of an NFT” to impact the “entire NFT transaction chain,” Bigverse infringed QiCeDieChu’s “right to disseminate works through information networks.”

As such, the court ordered that one-year-old Bigverse – which raised RMB 10 million ($1.6 million) in a Series A round in March – remove the infringing NFTs and pay RMB 4,000 ($589) in damages to QiCeDieChu. Additionally, the court also states that Bigverse should maintain a vetting system to verify that NFTs that users are looking to list on the NFTCN platform do not infringe the rights of others, as well as a takedown system to address infringing NFTs that have been listed.

The court noted that while NFTs cannot be destroyed, they can be sent to an “eater address” (or burn address) and thus, removed from circulation, which it asserted is a sufficient way to deal with infringing NFTs.  

Reflecting on the “landmark” case, DLA Piper’s Horace Lam states that it is the first time that a Chinese court has specifically spoken to the legal nature of NFTs and the obligations of an NFT platform. Specifically, Lam notes that the court characterized NFTs as “digital commodities,” and emphasized that the sale of an NFT does not equate to a transfer or license of the intellectual property of the underlying artwork, unless the terms of the sale provide otherwise. (The court also noted a party that mints an NFT should have rights in the underlying artwork, as distinct from merely having a copy of the underlying work.)

A key takeaway, according to Lam, is the court’s determination that the sale of an NFT that makes unauthorized use of another’s copyright-protected work “does not infringe upon the copyright owner’s ‘right of distribution’ in the underlying work, which is limited by the first-sale doctrine. Instead, it infringes the copyright holder’s “right of communication by information networks,” which he says is “a highly controversial issue in relation to copyright infringement of an NFT.” 

Given that the Hangzhou Internet Court is only a district-level court, Lam asserts that it is “unclear whether its ruling will be widely followed or is likely to be challenged in subsequent cases by other courts in China,” but says that the outcome is “meaningful,” nonetheless, in the light of the fact that formal NFT laws or regulations have not been enacted in China (yet). As such, he encourages players in the NFT space in China to “carefully consider the implications of the ruling.” 

In much the same way as NFTs have boomed in popularity in other countries across the globe, there has been significant interest in – and demand – for NFTs in China. The potential drawback, however, comes in the form of an inability to resell such digital tokens amid an enduring crackdown on cryptocurrency trading and mining by the Chinese government. 

MIT Technology Review reported last month that three national financial industry associations in China released a joint statement centering on NFTs. The three associations, “which collectively cover almost all Chinese banks, brokerages, and fintech companies,” according to MIT Tech Review’s Zeyi Yang, asserted that to “prevent financial risks,” they are asking their members “not to offer centralized trading platforms for NFTs, to refrain from investing directly or indirectly in NFTs, and to forbid using cryptocurrencies like Bitcoin or Ethereum in buying or selling them, among other measures.” 

“The initiative is designed to make it harder to trade NFTs and impossible to speculate in them,” Yang states. “Ultimately, the shifting political atmosphere around NFTs may help test whether they hold any intrinsic value.” 

A European Union regulator is looking to crackdown on anti-competition within the fashion industry. In a statement on Tuesday, the European Commission announced that it has started “unannounced inspections at the premises of companies active in the fashion industry in several Member States,” and at the same time, “has sent out formal requests for information to several companies active in the fashion sector,” citing concerns that the unidentified fashion industry players may be engaging in anti-competitive behavior in violation of EU law, including by potentially joining together to fix prices, limit production or share markets or customers, instead of engaging in competition. 

“The Commission has concerns that the companies concerned may have violated Article 101 of the Treaty on the Functioning of the European Union (‘TFEU‘) and Article 53 of the European Economic Area Agreement, which prohibit cartels and other restrictive business practices,” the European Commission stated, noting that unannounced inspections are “a preliminary investigative step into suspected anticompetitive practices.” The regulator cautions, stating that fact that it is carrying out such inspections and sending out formal requests for information “does not mean that the companies are guilty of anti-competitive behavior, nor does it prejudge the outcome of the investigation itself.” 

The fashion industry-specific action comes as the focus of the Commission for the 27-member bloc appears to primarily lie with big tech. In March, for instance, the Commission revealed that it had initiated a formal antitrust investigation to assess whether an agreement between Google and Meta (formerly Facebook) for online display advertising services breached EU competition rules, namely, Article 101 of the TFEU and/or amounts to the abuse of a dominant position (Article 102 TFEU). Meanwhile, earlier this month, the European Commission informed Apple of its preliminary view that it abused its dominant position in markets for mobile wallets on iOS devices “by limiting access to a standard technology used for contactless payments with mobile devices in stores (‘Near-Field Communication (NFC)’ or ‘tap and go’),” and thereby, restricting competition in the mobile wallets market on iOS.

Not limited entirely to tech, the Commission has pin-pointed at least one fashion-centric entity this year (aside from the unnamed companies involved in the recently-announced probe) in connection with an anti-competition probe, announcing early this year that it had launched a formal antitrust investigation to assess whether Pierre Cardin and its licensee the Ahlers Group may have breached EU competition rules by restricting cross-border and online sales of Pierre Cardin-licensed products, as well as sales of such products to specific customer groups. According to a statement from the Commission in January that “Pierre Cardin and Ahlers may have breached EU competition rules by restricting the ability of Pierre Cardin’s licensees to sell Pierre Cardin-licensed products cross-border, including offline and online, as well as to specific customer groups.” 

The investigation, which is currently underway, is said to focus on whether Pierre Cardin and Ahlers, its largest licensee, “developed a strategy to prevent parallel imports and sales to specific customer groups of Pierre Cardin-branded products by enforcing certain restrictions in the licensing agreements,” per Reuters, as the Commission has reinforced rules against curbs on cross-border and online sales as part of a push to boost e-commerce.

Harrods is reportedly following in the footsteps of Chanel and limiting sales of luxury goods to Russian consumers in an attempt to comply with sanctions levied by the government of the United Kingdom. The Telegraph reported over the weekend that “the Qatar-owned store has been combing its customer database, singling out those with a Russian phone number or who have said they live in the country,” and alerting them that if they “might currently or ordinarily be [a] resident [of] Russia,” it cannot supply them with “luxury goods” worth more than £300. This means that “items ranging from jewelry and designer clothing to furniture and gym equipment are now off limits.”

“Our priority is to comply with regulations, informing potentially impacted customers on how it may limit their ability to shop at Harrods, and ensuring wider customers are not unduly affected. We are happy that we have been able to take this action and support customers in making them aware of recent government regulations,” a spokesman for the London-based department store stated. And while the move to block individuals who are “either currently or ordinarily in Russia” from snapping up designer wares may enable Harrods to fall in line with escalating sanctions in the United Kingdom, it does, however, stand to land the company on the receiving end of consumer furor, including “accusations of discrimination from Russians affected.” 

Chanel faced pushback – and claims of “Russophobia” – last month when it revealed that it had “rolled out a process” in its stores outside of Russia “to ask clients for whom we do not know the main residency to confirm that the items they are purchasing will not be used in Russia.” This meant that some Russian consumers were blocked from purchasing coveted Chanel products in the wake of Russia’s invasion of Ukraine, in furtherance of an move by Chanel to abide by European Union sanctions that prohibit the export of luxury goods to Russia.

“The latest sanctions from the European Union and Switzerland prohibit ‘the sale, directly or indirectly, of luxury items to any natural, legal person or entity in the Russian Federation or for use in the Russian Federation,’” Chanel said in a statement in early April, noting at the time that it was “working to improve the procedure.” Chanel – which maintains the title of the second largest luxury brand in the world, following only behind Louis Vuitton – also apologized in the statement “for any related misunderstandings and inconveniences” that have stemmed from its efforts to implement the newest EU sanctions that prohibit companies in the 27-member bloc from exporting luxury goods worth more than 300 euros ($330) to Russia. 

The response from Russia consumers, including models and heavily-followed influencers, who went so far as to post videos of themselves destroying Chanel bags on social media in protest, demonstrates the risk of tarnishment that comes from brands taking stands over issues, including geopolitics. On the heels of Western brands making statements about human rights abuses in their supply chains in connection with alleged forced labor in the Xinjian region in northwest China, which is known for its cotton production, massive boycotts came by way of the Chinese market. In addition to consumers swearing off companies – ranging from Nike and H&M to Burberry and Calvin Klein – for expressing their “concern,” leading Chinese e-commerce platforms “kicked major international labels off their sites, and a slew of celebrities have denounced their former foreign employers,” the New York Times reported at the time. 

The Times’ Vanessa Friedman and Elizabeth Paton called the situation, which saw adidas’ Q2 2021 sales fall by more than 16 percent in China “because of geopolitical tensions,” CEO Kasper Rorsted revealed, “a perfect case study of what happens when market imperatives come up against global morality.” H&M similarly reported a drop in sales – 23 percent in Q2 2021 – in China as a result of consumer boycotts, with CEO Helena Helmersson calling the situation “complex.” Meanwhile, seeming looking to save face, Nike’s CEO John Donahoe asserted at the time that Nike, which also faced pushback over comments about the alleged use of Uyghur forced labor in cotton production, is “a brand that is of China and for China.” 

At the same time, while the likes of H&M, adidas, and co. experienced what the Washington Post has characterized as “nationalistic backlash that led Chinese consumers to call for boycotts and hit brand loyalty and market share to a degree that these companies may never come back from,” Japanese apparel giant Uniqlo opted for a neutral stance, and has been rewarded as a result. “I want to be neutral between the U.S. and China,” Tadashi Yanai, the owner of Uniqlo parent Fast Retailing, told Nikkei Asia in December 2021.   While its “more outspoken peers saw their revenues in the greater China region slump sharply,” Bloomberg has since reported that “Uniqlo’s went in the opposite direction, with takings rising 17 percent in the year ended August 2021.”

The publication notes that it is not merely its apparel offerings that set Uniqlo apart from its rivals in the “lucrative–but tricky–Chinese apparel market,” stating that “there is also the Japanese brand’s approach to contentious political issues. In particular, the predominantly Muslim Xinjiang region in China’s northwest.” 

Back in terms of the robust luxury-centric sanctions that have been levied upon Russia by the U.S., UK, and EU, among others, if other brands and retailers are following in the lead of Chanel and Harrods, it is being kept quiet, presumably for fear that bottom-line-impacting backlash is sure to follow. 

Six months ago, negotiators at the United Nations’ Glasgow climate summit celebrated a series of new commitments to lower global greenhouse gas emissions and build resilience to the impacts of climate change. Analysts concluded that the new promises, including phasing out coal, would bend the global warming trajectory, though still fall short of the Paris climate agreement. Today, the world looks ever more complex. Russia is waging a war on European soil, with global implications for energy and food supplies. Some leaders who a few months ago were vowing to phase out fossil fuels are now encouraging fossil fuel companies to ramp up production. 

In the U.S., the Biden administration has struggled to get its promised actions through Congress. Last-ditch efforts have been underway to salvage some kind of climate and energy bill from the abandoned Build Back Better plan. Without it, U.S. commitments to reduce emissions by over 50 percent by 2030 look fanciful, and the rest of the world knows it – adding another blow to U.S. credibility overseas. Meanwhile, severe famines have hit Yemen and the Horn of Africa. Extreme heat has been threatening lives across India and Pakistan. Australia faced historic flooding, and the Southwestern U.S. cannot keep up with the wildfires.

At the halfway point of this year’s climate negotiations, with the next U.N. climate conference in November 2022, here are three areas to watch for progress and cooperation in a world full of danger and division.

Crisis Response with Long-Term Benefits

Russia’s invasion of Ukraine has added to a triple whammy of food price, fuel price and inflationary spikes in a global economy still struggling to emerge from the pandemic. But Russia’s aggression has also forced Europe and others to move away from dependence on Russian oil, gas and coal. The G7 – Canada, France, Germany, Italy, Japan, the U.K. and the U.S. – pledged on May 8, 2022, to phase out or ban Russian oil and accelerate their shifts to clean energy.

In the short term, Europe’s pivot means much more energy efficiency – the International Energy Agency estimates that the European Union can save 15%-20% of energy demand with efficiency measures. It also means importing oil and gas from elsewhere. In the medium term, the answer lies in ramping up renewable energy.

There are issues to solve. As Europe buys up gas from other places, it risks reducing gas supplies relied on by other countries, and forcing some of those countries to return to coal, a more carbon-intense fuel that destroys air quality. Some countries will need help expanding renewable energy and stabilizing energy prices to avoid a backlash to pro-climate policies. As the West races to renewables, it will also need to secure a supply chain for critical minerals and metals necessary for batteries and renewable energy technology, including replacing an overdependence on China with multiple supply sources.

Ensuring Integrity in Corporate Commitments

Finance leaders and other private sector coalitions made headline-grabbing commitments at the Glasgow climate conference in November 2021. They promised to accelerate their transitions to net-zero emissions by 2050, and some firms and financiers were specific about ending financing for coal plants that don’t capture and store their carboncutting methane emissions and supporting ending deforestation. Their promises faced cries of “greenwashing” from many climate advocacy groups. 

Some efforts are now underway to hold companies, as well as countries, to their commitments. A U.N. group chaired by former Canadian Environment Minister Catherine McKenna, for instance, is now working on a framework to hold companies, cities, states and banks to account when they claim to have “net-zero” emissions. This is designed to ensure that companies that pledged last year to meet net-zero now say how, and on what scientific basis. 

For many companies, especially those with large emissions footprints (like fashion), part of their commitment to get to net-zero includes buying carbon offsets – often investments in nature – to balance the ledger. This summer, two efforts to put guardrails around voluntary carbon markets are expected to issue their first sets of guidance for issuers of carbon credits and for firms that want to use voluntary carbon markets to fulfill their net-zero claims. The goal is to ensure carbon markets reduce emissions and provide a steady stream of revenue for parts of the world that need finance for their green growth.

Climate Change Influencing Elections

Climate change is now an increasingly important factor in elections. French President Emmanuel Macron, trying to woo supporters of a candidate to his left and energize young voters, made more dramatic climate pledges, vowing to be “the first major nation to abandon gas, oil and coal.” With Chile’s swing to the left, the country’s redrafted constitution will incorporate climate stewardship. In Australia, Scott Morrison’s government – which supported opening one of the world’s largest coal mines at the same time the Australian private sector is focusing on renewable energy – faces an election on May 21, 2022, with heatwaves and extreme flooding fresh in voters’ minds. Brazil’s Jair Bolsonaro faces opponents in October who are talking about protecting the climate.

Elections are fought and won on pocketbook issues, and energy prices are high and inflation is taking hold. But voters around the world are also experiencing the effects of climate change firsthand and are increasingly concerned.

The Next Climate Conference

Countries will be facing a different set of economic and security challenges when the next round of U.N. talks begins in November in Sharm el-Sheikh, Egypt, compared to the challenges they faced in Glasgow. They will be expected to show progress on their commitments while struggling for bandwidth, dealing with the climate emergency as an integral part of security, economic recovery, and global health.

There is no time to push climate action out into the future. Every decimal point of warming avoided is an opportunity for better health, more prosperity and better security.

Rachel Kyte is the Dean of the Fletcher School at Tufts University. (This article was initially published by The Conversation.)