The Metaverse is widely viewed as the next frontier in digital commerce, with organizations spending millions of dollars to secure a presence by buying digital properties and investing in platforms to become market leaders. While it offers clear opportunities for nonprofit organizations, the Metaverse also brings with it clear legal challenges. We’re highlighting some key legal issues that nonprofit organizations should consider before taking the plunge into the Metaverse.
What is the metaverse?
At its core, the Metaverse is the next generation of the Internet. Based largely on decentralized blockchain technology rather than centralized servers, it consists of immersive, three-dimensional experiences with vibrant digital marketplaces, persistent and traceable digital assets, and a strong social component. While some elements remain ambitious, consumers are already flocking to Metaverse platforms and spending significant sums on digital assets. Meanwhile, many tech companies are working on next-generation consumer electronics like smart glasses that 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 nonprofit sector:
- Affiliates can hold their annual meetings entirely within the Metaverse.
- Educational institutions can use this medium to offer virtual campus tours and admission interviews and handle the entire enrollment process.
- Think tanks can present white papers and host real-time symposiums.
- Cultural institutions can curate exhibitions and offer performances – free of charge or with admission.
- Fundraising in general can become more efficient and creative when new development tools such as non-fungible tokens (NFTs) are used.
Before jumping into a Metaverse platform, nonprofits should consider these questions:
1. Register your intellectual property. Nonprofits should consider filing trademark applications for core Metaverse goods or services and securing any available blockchain domains that can be used to facilitate Metaverse payments and direct users to blockchain content such as websites and decentralized applications. Echoing the 1990’s rush to secure various “dot-com” names, many organizations are filing an application as a defensive measure while their leadership considers how their institution should interact with the Metaverse. With the accelerated adoption of blockchain domains and limited dispute resolution options, we strongly encourage nonprofit organizations to consider securing intellectual property rights now.
2. Protect and enforce your IP. The decentralized nature of the Metaverse poses a significant challenge for intellectual property owners. Before proceeding with blockchain-based transactions, companies must understand that content recorded on a blockchain is persistent and cannot be deleted. Usage and resale restrictions on an NFT must be carefully considered and implemented prior to minting because once the content is on the blockchain, there is little recourse. Additionally, nonprofits need to understand how others can undermine their identities or brands. Many nonprofit organizations are considering proactive steps to monitor and ensure their intellectual property is not being pirated.
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 Metaverse-related uses. Going forward, we encourage nonprofits to expressly reserve rights to Metaverse-related uses and exercise caution before authorizing third parties to use their intellectual property on your Metaverse behalf.
4. Safekeeping of Digital Assets. Due to their digital nature, digital assets such as cryptocurrencies and NFTs are particularly vulnerable to loss and theft. Before acquiring cryptocurrency or NFTs, companies must establish a secure “blockchain wallet” and implement appropriate access and security controls.
5. Creation of a separate legal entity. Institutions may want to consider forming a new subsidiary or subsidiary to hold digital assets, shield other parts of their operations and foundations from Metaverse-related liabilities, and address potential tax implications.
6. Choose the right platform. There are several Metaverse platforms with different advantages and disadvantages. Some, including Roblox and Fortnite, offer more consumer access but generally give less control over the content within the programs. Others, like Decentraland and the Sandbox, offer greater control but smaller audiences and higher barriers to entry. Businesses should consider who their target audience is and what their long-term metaverse strategy is before committing to any particular platform.
Other charitable causes
The unique non-profit perspective on emerging technologies has raised some additional concerns:
1. Stability. Many trustees are curious if the Metaverse is a “passing fad” and not worth paying attention to. 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 evolve and improve.
2. An environmentally friendly platform. Much has been written about the energy consumption of a blockchain-based transaction. Although the energy consumption is significant, this is still a huge improvement over current practices. For example, a cryptocurrency exchange uses far less energy than the process of preparing, authorizing, sending, confirming, and posting a transfer. And metaverse transactions are still nascent. Energy efficiency is a key aspect of the improvements currently being developed.
Ready to enter?
The Metaverse represents a tremendous opportunity for nonprofit organizations to fulfill their mission in a new, innovative, and interactive way that was considered science fiction just a few years ago. But as with any new frontier, technological or not, there are legal hurdles to be aware of. Some are familiar while others are new. ArentFox Schiff provides an interdisciplinary perspective to help nonprofits and their partners develop practical strategies to capitalize on the opportunities created by the Metaverse.