The Metaverse: A Legal Primer for the Nonprofit Sector | Arent Fox Schiff
The Metaverse is widely seen as the next frontier of digital commerce, with organizations spending millions to secure their presence by buying digital real estate and investing in platforms to become market leaders. While it offers clear opportunities for nonprofit organizations, the Metaverse also presents distinct legal challenges. We highlight a few key legal issues for nonprofits to consider before taking the leap into the metaverse.
What is the Metaverse?
At its core, the Metaverse is the next generation of the Internet. Built largely on decentralized blockchain technology instead of centralized servers, it consists of immersive three-dimensional experiences with dynamic digital markets, persistent and traceable digital assets, and a strong social component. While some elements remain ambitious, consumers are already flocking to Metaverse platforms and spending large sums on digital assets. Meanwhile, many tech companies are working on next-generation consumer electronics, like smart glasses, which they hope will take e-commerce to the next level and make today’s two-dimensional web browsing a thing of the past.
The Business Case for the Nonprofit Sector
The Metaverse offers remarkable opportunities for the voluntary sector:
- Member Organizations can hold their annual meetings entirely in the metaverse.
- Educational institutions can offer virtual campus tours, admissions interviews, and conduct the entire registration process through them.
- Think tanks can present white papers and hold symposia in real time.
- Cultural institutions can organize exhibitions and offer performances, free of charge or subject to an entrance fee.
- Fundraising can become more efficient in general and more creative by using new development tools like non-fungible tokens (NFTs).
Before embarking on a Metaverse platform, nonprofits should consider these issues:
1. Register your intellectual property. Nonprofits should consider filing trademark applications covering core Metaverse goods or services and securing any available blockchain domains that can be used to facilitate Metaverse payments and direct users to content. of the blockchain, such as websites and decentralized applications. Reminiscent of the rush in the 90s to get various “dot-com” names, many organizations are filing for defensive action while their leadership deliberates how their institution should interact with the metaverse. Given the accelerated adoption of blockchain domains as well as the limited dispute resolution remedies available, we strongly encourage nonprofits to consider securing intellectual property rights now.
2. Protect and enforce your IP. The decentralized nature of the metaverse poses a significant challenge to intellectual property owners. Before proceeding with blockchain-based transactions, businesses should understand that the content recorded on a blockchain is there permanently and cannot be deleted. Restrictions on the use and resale of an NFT should be carefully considered and implemented before minting, because once the content is on the blockchain, there is little recourse. Additionally, nonprofits need to understand how others can bribe their identity or brands. Many nonprofit organizations are considering proactive measures to monitor and ensure that their intellectual property is not being hacked.
3. Reserve metaverse rights. Institutions that license their intellectual property, particularly those that do so on a geographic or territorial basis, should review existing license agreements to determine what rights, if any, their licensees have for related uses. to the metaverse. Going forward, we encourage nonprofits to expressly reserve rights for Metaverse-related uses and to exercise caution before allowing a third party to deploy your IP address on the Metaverse on your behalf.
4. Take custody of digital assets. Due to their digital nature, digital assets such as cryptocurrency and NFTs are particularly vulnerable to loss and theft. Before acquiring cryptocurrencies or NFTs, organizations will need to set up a secure “blockchain wallet” and adopt appropriate access and security controls.
5. Set up a dedicated legal entity. Institutions may consider creating a new subsidiary or affiliate to hold digital assets, protect other parts of their operations and staffing from metaverse-related liability, and deal with potential tax consequences.
6. Select the correct platform. There are several Metaverse platforms with different pros and cons. Some, including Roblox and Fortnite, offer access to more consumers but generally give less control over program content. Others, like Decentraland and Sandbox, offer greater control but smaller audiences and higher barriers to entry. Organizations should consider who their target audience is and their long-term Metaverse strategy before committing to a particular platform.
Other Nonprofit Concerns
The unique not-for-profit perspective of new technologies raised a few additional concerns:
1. Stability. Many boards are curious if the Metaverse is a “passing fad” and not worthy of attention. All experts agree that the Metaverse is a natural evolution of the Internet and is here to stay. While some platforms may become obsolete (remember AOL? Netscape?), the Metaverse will continue to grow and improve.
2. An environment-friendly platform. Much has been written about the power consumption of a blockchain-based transaction. Although the power consumption is considerable, it is still a great improvement over current practices. For example, a cryptocurrency exchange uses much less energy than the process of preparing, authorizing, sending, confirming, and booking a wire transfer. And Metaverse transactions are still nascent. Energy efficiency is a primary consideration in ongoing upgrades.
Ready to enter?
The Metaverse represents a tremendous opportunity for nonprofits to accomplish their mission in new, innovative, and interactive ways that were considered science fiction just a few years ago. But like every new frontier, technological or otherwise, there are legal hurdles to consider. Some are familiar, while others are new. ArentFox Schiff offers an interdisciplinary perspective to help nonprofit organizations and their partners offer practical strategies to take advantage of the opportunities created by the Metaverse.