The metaverse, the latest evolution of the internet, is an umbrella term for three-dimensional virtual environments. It’s a space where individuals and companies can connect, actively take part in social and cultural events, and do business – navigating with the help of virtual avatars.

The metaverse market is booming, creating exciting opportunities to tap into new global revenue streams. Companies can give immersive, interactive product presentations in 3D, buy and sell digital assets and products (NFTs) and host events in virtual worlds. However, this virtual space is still largely unregulated and lacks a uniform legal framework.

This raises a wide range of highly complex legal questions for businesses operating in this arena – and those preparing to.

We help clients successfully implement their metaverse projects – tackling the many legal obstacles, developing legally sound solutions to unresolved issues, and advising on how to avoid potential pitfalls.

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Working in the metaverse involves a range of issues and challenges related to employment law. Transferring individual tasks – or even entire jobs – to virtual working environments requires rethinking how employees interact with each other. Traditional working arrangements and remuneration structures must be scrutinised and adapted. Aspects such as occupational health and safety and employee data protection also need to be considered.

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Banking & Finance

Banking and capital markets issues are inherent to conducting Web3 cryptoasset transactions in the metaverse. Companies operating in this space not only have to deal with various licensing and supervisory obligations under banking and capital markets law, but also with numerous other legal challenges – for example in connection with the tokenisation of real assets or the issue and trading of cryptoassets. They also need to adhere to banking and capital markets compliance rules.

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Cryptoasset trading is the financial backbone of the metaverse and Web3 applications, and thanks to advances in technology can take on a variety of shapes and forms. The provision and use of metaverse services and decentralised Web3 applications across borders touch on various areas of law – posing new challenges for digital commerce.

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Compliance & Investigations

Compliance is another key issue in Web3 and the metaverse. With new business areas and potential cross-border uses come new, greater liability risks. Ensuring compliance with laws and regulations in Web3 and the metaverse is therefore crucial.

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Data Regulation/Privacy

The metaverse and Web3 pose new challenges for regulating the use and the protection of data. What legal system applies in virtual business spaces? How can data protection responsibilities be defined and basic rules such as data storage limits for blockchain applications be implemented? What impact will regulations such as the EU Data Act and the EU Data Governance Act have?

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Dispute Resolution

The virtual worlds of the metaverse are no more immune to disputes than the real world. Trading in digital real estate, non-fungible tokens (NFTs) and cryptoassets, or providing or using online services can trigger conflicts between users and metaverse platform operators or between the users themselves. All this requires a new approach to fundamental procedural issues.

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The virtual worlds of the metaverse offer users countless opportunities to interact using digital assets when gaming, shopping or consuming entertainment. That means copyright, trademark and patent rights play an even more critical role than before. The metaverse therefore presents companies with new challenges – and opportunities – when it comes to the use of trademarks as well as to cross-border access to copyrighted works such as films or music.

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Antitrust law lays down the regulatory framework for the market behaviour of the various players in the metaverse and Web3 applications. For businesses, it is the EU Digital Markets Act – which regulates platform-like metaverse and Web3 applications – that is the most relevant. Web3 applications also raise antitrust concerns such as the exchange of competitively sensitive information and collusion between competitors.

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No longer the exclusive domain of cryptocurrencies and gaming, the metaverse and Web3 provide an attractive marketplace for companies and investors alike – but also raise numerous new corporate law issues. The metaverse and Web3 are significantly characterised by what are known as decentralised autonomous organisations (DAOs). The establishment and management of these integral components of the metaverse and Web3 demand special legal expertise. As “corporations of the metaverse”, DAOs require both effective governance structures and token-based incentive systems to function. Investing in metaverse and Web3 companies – usually using cryptocurrencies and tokens – also requires navigating new legal complexities.

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The metaverse and Web3 involve a variety of regulatory challenges. The EU’s Digital Services Act, Artificial Intelligence Act and the various cybersecurity standards are current examples of a dynamic regulatory environment that is being driven particularly at European Union level. At national level, the provisions of the Telemedia Act (“TMG”), the Network Enforcement Act (“NetzDG”) and the Interstate Treaty on the Protection of Minors in the Media (“JMStV”) also bear relevance to metaverse and Web3 application environments.

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The vision of virtual and real worlds being fully interoperable is still a long way from reality. But with the progress being made by tech giants, the two spaces are becoming ever more integrated – presenting considerable opportunities for business, but also creating tax issues and challenges. After all – where there are profits, the state will want to levy taxes.

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