The Metaverse and International Arbitration (Part I): ADR in this Virtual Era

[This article has been authored by Aryan Tulsyan, a third-year law student at JGLS, Sonipat.]


Keywords: Metaverse, Web 3.0, Arbitration, ADR, ODR

Introduction

Metaverse is going to be the next generation of the internet” – Mark Zuckerberg


The Metaverse is a virtual environment wherein one can truly experience and sense entering the environment rather than observing it on a screen. This includes the performing of various activities as an active participant, such as working, playing, attending meetings, shopping, purchasing, and developing virtual land etc. The importance of understanding the Metaverse extends beyond its fascinating complexities since the Metaverse is one of the most commercially significant avenues, as is evident from Facebook’s rechristening to “Meta”. Furthermore, predictions that the Metaverse economy would possibly be worth $13 trillion in terms of total addressable market by 2030 complements this. In spite of being virtual and digital, the Metaverse is a social ecosystem and thus, would have disputes which have to be resolved, as per Marx’s social conflict theory. As there are jurisdictional challenges in lieu of the fact that no single country would have jurisdiction over the Metaverse, the resolution of disputes in the Metaverse becomes a key question. This article will try to look at the various types of disputes that may arise with respect to the Metaverse and whether arbitration can be used to resolve these disputes. The article also compares the Web 2.0 ODR mechanism and its implications in the Metaverse. Part II of this series will further analyze disputes that may arise between Metaverse platforms and its users and will delve into the nuances of adopting blockchain arbitration as a dispute resolution mechanism for the Metaverse.


Intellectual Property Disputes in the Metaverse

As the Metaverse has remained in a legal lacuna since its conceptualization, the absence of statutes, scholarly work, and case laws on the Metaverse can lead to ambiguities in the types of disputes that may arise relating to the Metaverse. A lot of disputes surrounding the Metaverse are related to Intellectual Property Rights Law, as the Metaverse comprises of virtual marketspaces, which makes the infringement of copyrights, patents, and trademarks possible. Most intellectual property contracts are prone to disputes as they would have been made before the conceptualization of the Metaverse. A major source of contention that can arise from this discrepancy is that who would be owning the intellectual property rights in the Metaverse and whether the rights include the right to mint corresponding Non-Fungible Tokens (“NFTs”). NFTs are digital assets that can replicate real-world objects like clothes, vehicles etc. For example, I may have the right to produce a Gucci bag in the physical world, but that might not entitle me to replicate Gucci shoes electronically and sell digital versions of them as NFTs.


Some high-profile disputes include the Nike-StockX dispute, where Nike has accused StockX of trademark infringement on the grounds that StockX replicated images of Nike’s shoes in their NFTs, which are sold in the virtual marketspace (at a 1,000% price increase compared to the physical shoes). Another high-profile dispute includes the lawsuit by Miramax Films against Quentin Tarantino (Miramax LLC v. Quentin Tarantino), where the latter decided to auction his collection of NFTs, which included the original handwritten screenplay of Pulp Fiction and a drawing inspired by some elements of the film. Miramax argued that the contract between them and Tarantino was limited to intellectual property rights over interactive games, live performances, and other ancillary media (page 47) and did not include NFTs, thus accusing Tarantino of violating their intellectual property rights.


Arbitration could serve as an effective fit for resolving such disputes concerning intellectual property rights in the Metaverse, as it would resolve issues of jurisdiction and applicable laws. Since most countries do not have laws recognizing intellectual property rights in the Metaverse, nor have they defined their jurisdictional ambits with respect to the Metaverse, international arbitration could be effective in resolving such disputes. Arbitration would allow such parties to have autonomy in deciding the appliable rules and laws relating to their dispute. Furthermore, since the alleged infringement of intellectual property rights would take place in the Metaverse, arbitration would help resolve jurisdictional challenges that may arise.


Inter-User Metaverse Disputes

While the antecedent section discussed disputes between persons (natural or juridical) on rights in the Metaverse, this section will discuss the disputes that may arise in the Metaverse, between persons present in the Metaverse, and how arbitration can be factored in as an effective dispute resolution tool. Inter-user disputes in the Metaverse could be replications of physical-world disputes, such as torts and crimes. For example, NFT fraud and rape by and between avatars have already begun to take place. The primary cause of disputes is that users in the Metaverse can, laissez-faire, provide services to each other, create virtual assets, and freely exchange these assets and services. These tools provide users with the opportunity of committing offences and giving rise to disputes, which becomes even more tenable due to the absence of any law enforcement agencies in the Metaverse.



Web 2.0 ODR Mechanisms

Dispute-resolution between users in the Metaverse can be juxtaposed to Web 2.0 dispute-resolution between buyers and sellers, some of which employed the use of Online Dispute Resolution (“ODR”) mechanisms. In this context, this article shall look at the ODR mechanisms used by eBay and PayPal and whether a similarity can be drawn to dispute resolution in the Metaverse. eBay employs the use of SquareTrade as a dispute resolution platform, which provides two options to users: professional mediation and online-assisted negotiation. Users can (1) use the virtual platform to negotiate between themselves and reach a consensus, or (2) eBay appoints a mediator in order to facilitate discussions online to resolve the dispute. PayPal, on the other hand, employs a negotiation-arbitration hybrid to resolve disputes. Unsatisfied buyers can commence dispute resolution, after which PayPal puts a hold on the transaction and allows the parties to reach a settlement in 20 days. If there is no consensus between the parties, either of them can alleviate it to a claim, and the outcome is decided by PayPal. This is a form of informal arbitration, where PayPal appoints a person to act as an arbitrator who renders a decision. This outcome is binding on the buyer, whereas the seller can appeal (where the decision was in favour of the buyer) in case the item is not returned to the seller in the same condition, no item was returned at all, or if the wrong item was returned.


The incorporation of these Web 2.0 ODR mechanisms can be implemented within the Metaverse owing to their decentralized nature, but there would be room for some modifications to enable an efficient system of decentralized justice. Firstly, unlike Web 2.0, it would be possible to attach the assets of the parties involved in dispute resolution within the Metaverse. Assets could be attached through staking cryptocurrency or the use of smart contracts where automatic execution could take place. One of the requirements for submitting a dispute could be staking of the cryptocurrencies or other digital assets such as NFTs, and the awards/settlements can be automatically enforced, resolving the issue of enforcement that may arise in Web 2.0 disputes. Secondly, due to automatic enforcement, parties would be certain of the outcome and will trust the system more. Since the dispute resolution would take place within the Metaverse itself, the parties would be more comfortable as they are a part of the virtual ecosystem. On the other hand, parties involved in dispute resolution may consider Web 2.0 platforms such as eBay and PayPal to be externalities.


Thirdly, a system of decentralized justice within the Metaverse should facilitate multilateral ODR mechanisms, where third parties, witnesses etc., could participate, instead of just the buyer and seller being involved. This would make the decentralized justice delivery more reliable and competent. While Web 2.0 dispute resolution processes would have to rely on representation made by either party solely, a Metaverse decentralized justice system could involve the aforementioned third parties to have a better understanding of the factual matrix and thus deliver a more accurate award. Fourthly, since the Metaverse system of dispute resolution is equipped with various tools and data, it should ideally ensure the conformation of facts of the dispute so that it cannot be challenged later on. Lastly, one of the criticisms of ODR has been that it takes away the essential physical and face-to-face elements of ADR. This can be partially resolved through the Metaverse, where the avatars of the parties would be able to interact with one another in a real-like fashion, and there would be provisions to view the actual videos of the persons along with their virtual avatars, which could be a closer feat to physical interactions.


Conclusion

A physical society’s inherent complications are not avoidable by the Metaverse, which is the reason that many disputes occur in the physical world and are replicated within the Metaverse. While some disputes, like intellectual property rights disputes, take place within the physical world, but their object lies in the Metaverse, other disputes such as theft and fraud take place within the Metaverse itself. Both these types of disputes can be resolved through various ODR and ADR mechanisms, especially arbitration. This article aimed to understand the operation of ODR mechanisms in Web 2.0 and how they could be applied within the Metaverse (Web 3.0). In this context, it is important to understand the development of blockchain arbitration and its capability of being the key to resolving disputes within the Metaverse.

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