Making the law on the new frontier in e-commerce

New developments in internet technology pose more and more legal and compliance questions. Will the metaverse add even more complexity?

Edon Byrnes of Ogier Leman Ireland LLP: ‘There are a number of retailers who are moving away from bricks and mortar toward online, so some are setting up essentially virtual shops within the metaverse’

How should retailers respond to the metaverse? It sounds like a question from science fiction and, indeed, the very concept has its roots in books such as Neal Stephenson’s Snow Crash and proto-VR tales such as Philip K Dick’s: A Maze of Death. And yet, the metaverse is here, with companies investing in virtual reality hardware, supporting infrastructure including cloud capacity and CPUs and, of course, developing actual online and connected communities.

Edon Byrnes, partner in corporate M&A at law firm Ogier Leman, said existing trends gave some indication of how the retail sector was responding.

“There are a number of retailers who are moving away from bricks and mortar toward online, so some are setting up essentially virtual shops within the metaverse,” he said.

Unsurprisingly, the first movers in the metaverse have so far tended to be either niche players or larger entities with an appetite for experimentation. For the moment, then, corner stores that got click-and-collect working during the pandemic can remain untroubled.

“At the minute it’s the bigger brands such as Adidas, and fashion brands in particular,” said Byrnes.

Indeed, famed US retailer Gap closed its entire bricks and mortar operation in Ireland and Britain in 2021, shuttering all 19 stores as a result of the pandemic and moving online. This year it entered the metaverse.

But will the 3D, immersive world of the metaverse prove a draw to others? Some retailers are already dipping a toe in the water. French fashion brand Lacoste has opened a metaverse shop in conjunction with virtual reality solutions developer Emperia.

Digital marketing agency Razorfish recently published a report saying virtual reality was natural to Gen Z, and that this created real opportunities for retail.

It also raises a raft of legal and compliance questions.

“Data protection issues arise with online purchases already. With the metaverse, particularly where it may be younger users, extra regulation and safeguards are required in relation to how they give consent,” said Byrnes.

In addition, the metaverse as it stands is not a single platform like Facebook or Twitter. Instead, it is – or promises to be – a virtual reality internet and, like the internet we know today, it will be decentralised.

“There is no unitary metaverse. There are any number of platforms, though of course in the end there may only be one winner. But for the moment choosing which one is an issue,” said Byrnes.

This raises potential jurisdictional questions, he said.

“Data breaches, too, are a challenge, and there is a jurisdictional issue around them. When this develops further into transactions/contracts for sale, you also have the question of which jurisdiction applies.

“That is very much the case with decentralised platforms,” he said.

Protecting intellectual property in the face of digital counterfeiting will also be of concern to established brands.

“There will also be issues around intellectual property; that is certain,” said Byrnes.

In fact, there already are: in January, it was reported that French luxury brand Hermès was suing an artist for making knock-off Birkin handbags in the metaverse.

Ultimately, what all this underscores is that however bizarre it may seem to those of us who have no interest in virtual reality, the metaverse is already a place where people interact and, more to the point, transact – and not always in ways that brands appreciate.

Indeed, metaverse real-estate sales topped US$501 million (€483.8 million) in 2021, and in February analysts predicted that by the end of 2022 that figure could double. And the half a billion, reported by MetaMetric Solutions, concerned only the four biggest metaverse platforms.

“At the moment it may seem like a curiosity, but it has come up, with more than one client asking about it,” said Byrnes.