Arbitration: A Preferred Mode Of Dispute Resolution Mechanism In Metaverse

Increasing Popularity and Growth of Metaverse

Earlier metaverse was seen as a gamer's haven however, due to the advancements in technology, many have started developing interest in it as it is possible to have human interactions and host birthday parties, weddings, concerts etc. in metaverse. In a short span, metaverse has become popular and is expected that the global market for the metaverse will reach up to USD 785 billion by 2026^[1]. The realism of the metaverse has excited hundreds of companies with big investments in metaverse, like Microsoft with $70 billion deal to develop new games^[2] and meta-Facebook has invested up to $10 million to develop hardware and software for the metaverse platform^[3]. The new platform where every company is trying to establish its base is because it provides unique mode of participation, digital market creation, socialisation, and monetization with a unique way to escape the personal identity of the individual with no geographical locations or social information attached.

Metaverse is also in demand because of the virtual real estate property, which is limited in number as most of the metaverse have limited plots only. Many metaverse are selling the virtual properties however, Decentraland with $ 5.6 billion^[4] and stand box at $4.5 billion^[5] have maintained the value at the top position. In the year 2022 the price of land token has increased to $15000 approximately that is the present valuation of virtual real estate properties^[6]. The virtual world with limitless scope and various possibilities have opened all the avenues for buying and selling through non fungible tokens (NFT). The possible avenues for high demand of digital assets are Digital storefronts, Virtual Gaming with the investment of $138 billion in the year 2021^[7] and Virtual Entertainment.

The huge investment in the virtual real estate market like (Decentraland and Stand Box) has skyrocketed the virtual real estate prices. Legal disputes are arising "for right to create and sell non fungible tokens (NFT)". This leads to the question that whether the statutory framework created by physical world can protect the rights in the new virtual environment. The initial stage of metaverse is already at the top with no regulatory body, this will undoubtedly give rise to different legal issues that will be complex because investors around the world will be investing with no territorial boundaries attached. Also, when an investor will purchase a few pieces of 'land' or an NFT on a metaverse platform, there is no clarity on the rights one can enjoy as the owner of such digital asset. Digital assets will certainly present unique legal risks and disputes. Therefore, for safeguarding the rights of investors and resolving such disputes, arbitration can be the preferred mode of dispute resolution.

Disputes in the Metaverse

It is impossible to imagine a new virtual world with no disputes or conflict between the users and the platform. Intellectual property disputes, data privacy, hacking, harassment etc., are some of the challenges that any metaverse platforms will have to deal with. The growing demand for metaverse is more likely to increase legal disputes as the value of virtual real estate has reached to USB 500 million in last year with single transaction of USD 2.43 million in Decentraland^[8]. The venture capital investment in crypto assets on metaverse has reached to US $8 billion in the previous year and it is estimated that the value of metaverse will reach US $800 billion with generated revenue of US $1 trillion by 2024^[9]. Legal disputes in relation to NFTs and digital assets have already started some of which are as follows:

In January 2022 French fashion company Hermes file, a legal suit for iconic Birkin bag. The company mentions that Mason Rothschild has created fake digital meta-Birkin NFTs that showcases Birkin bag in them & they have copied the trademark of the company without any authority^[10].

In the month of February 2022 another intellectual property right suit was filed by Nike on stockX (reseller company on metaverse) the case was filed for NFT's that display Nike company logo (trademark). In this case the stock X company was using Nike without any power or authorization to sell the NFTs^[11].

In Tulip trading limited V. Bitcoin association for Bitcoin SV(BSV) and others, March 2022. This case was filed for crypto digital assets calming that the company was suffered due to hack in crypto web and they were restricted from crypto assets as well.

July 2022, for the first time UK court observed that NFTs can be a legal document in the court proceeding in Fabrizio D' Aloia case^[12].

Legal challenges in the Metaverse:

Metaverse has an element of hypothesis and a new level of freedom that gives scope for mischief and crime. Though the risk of physical harm may be minimal, but users may be psychologically affected. Investors who are interested in metaverse are likely to face various legal issues for instance, what if the virtual property bought is hacked or the metaverse decides to increase the virtual real estate area? In that case, can an investor file a suit? If yes, which court will have the jurisdiction? What law will be applicable to these disputes? Further, AI-generated avatars and IPs may be subject to conflict. Managing privacy & security in today's time is already complex, metaverse may make it more complex. As cryptocurrencies become mainstream, it would not be surprising to see avatar lawyers. For example, New Jersey-based law firm Grungo Colarulo has already opened an office in Metaverse^[13]. An AI digital lawyer can be very different from the digital twin of a human lawyer, depending on the type of the case and certain factors. Considering the different technological configuration of each metauniverse, these are some critical issues to deal with.

Arbitrating Digital Disputes:

In the next few years, many people may be in the metaverse and investments in the digital assets will increase substantially. With growing popularity of metaverse, the number of disputes will also increase exponentially and there will be a shift from the traditional dispute resolution mechanism. Therefore, it is pertinent to have in place a robust dispute resolution mechanism in the metaverse by leveraging technology for resolving such disputes which is also affordable, flexible and encourages party autonomy. This is where blockchain based arbitration platforms come into the picture that can provide efficient and affordable dispute resolution. A platform where parties can virtually meet in the metaverse, hearings can take place in an NFT room and subject expert arbitrators can be appointed randomly on blockchain from a pre-existing pool of arbitrator. Importantly, a platform wherein Arbitral Awards for monetary compensation can easily be enforced on Blockchain as smart contracts. In India, platforms like Jupitice have already started harnessing the blockchain technology to provide arbitration services.

Most metaverse platforms already provide arbitration clauses in their terms of service which shows that international arbitration has already entered the virtual world for instance, section 18 of Decentraland's terms of use provides multi-tiered ICC arbitration clause.^[14] Similarly, other platforms like Oculus and Roblox provide for AAA's Commercial Arbitration Rules and Supplementary Procedures for Consumer Related Disputes.

Conclusion:

It is not possible to comprehend the future of metaverse and the challenges that users will encounter in the virtual world however, one thing is clear that technology will play an important role in resolving disputes arising in the metaverse. Also, arbitration will certainly be a preferred mode of dispute resolution in the metaverse.

A word of caution for the investors is that before investing in the metaverse market, carefully examine the applicable terms of use, if any. In particular, the dispute resolution mechanism of the platform should be considered before making an investment. On a separate note, it would be interesting to see if the disputes of the real world can also be resolved in the metaverse.

Tariq Khan is Registrar IAMC and Anand Kr. Maurya is Student Chandigarh University

Views are personal.