There is a flurry of new EU initiatives to regulate the metaverse. Last week, the European Commission launched a public consultation (open until May 3, 2023) to “develop a vision for emerging virtual worlds (e.g. metaverses), based on respect for digital rights and EU laws and values” such that “open, interoperable and innovative virtual worlds … can be used safely and with confidence by the public and businesses.” This initiative follows closely on another EU public consultation on allocating costs of expanding network infrastructure (open until May 19, 2023). As explained by the EU’s internal market commissioner, Thierry Breton, the increased data required by new technologies such as the metaverse necessitate transforming the underlying digital infrastructure. Separately, Commission President Ursula von der Leyen launched last September a non-legislative initiative on the metaverse. Similarly, the European Parliament is also working on its own-initiative report on opportunities, risk and policy implications for the metaverse.

As EU officials grapple with potential regulatory constraints as well as policy building blocks for the metaverse, they will need to address issues common across the globe: how to take advantage of the technological inflection point offered by the metaverse, while ensuring competition, privacy, and cybersecurity, among the many legal topics raised by the metaverse.

Metaverse Prospects

This rapidly increasing regulatory attention is unsurprising as the metaverse is estimated to generate up to $5 trillion in global market impact by 2030 and already in 2022, investments into the metaverse doubled compared to the previous year, reaching over $120 billion. As a multifaceted and complex digital ecosystem, the metaverse provides a wide array of investment opportunities as, in principle, nearly anything done physically could be done meta.

Virtual worlds are already creating new business opportunities: trade in non-fungible tokens, which has already experienced occasional daily trading volumes in excess of $200 million; virtual property sales which has created over $500 billion revenue; and a virtually endless stream of smaller transactions raising around $50 million daily on various platforms. The metaverse will accelerate the current trends for increased digital communication, consumption of user-generated content, and the development of new markets based on digital platforms (such as the trade of items that exist only in the metaverse, or for used goods between consumers). 

However, the content and activity carried out within the virtual worlds is only one of several layers that constitute the metaverse and that provide the opportunity for investment. The development of platforms and content requires significant investment into hardware and other forms of infrastructure. This includes not only the network infrastructure needed to technically support the metaverse but also infrastructure that connects the virtual and physical worlds – such as consumer electronics to access the metaverse, payment systems to connect virtual and physical economies, and physical delivery networks that can deliver goods traded on the metaverse. Each of these elements is essential to the development of the metaverse and present different opportunities for investment and development. The metaverse will become increasingly attractive to both consumers and businesses, as it provides countless opportunities in the space of entertainment, gaming, travel, and shopping, as well as industry.

The metaverse also gives rise to a number of legal and regulatory issues, including those relating to privacy and cybersecurity, payment protection, digital identity security, content moderation and protecting children online. Many of the policies that the EU and other jurisdictions are proposing in relation to the metaverse are aimed at tackling these issues.

European Union

The European Commission is leading the charge on regulating the metaverse in Europe, and perhaps globally. In her speech on the State of the Union, Commission President Ursula von der Leyen, proposed a new initiative on virtual worlds including the metaverse. This initiative, which is set to be published by May 31, will fall under “A Europe fit for the Digital Age” and will contribute to Europe’s goals of digital sovereignty by 2030. The 2030 Digital Compass provides the plan for how to achieve these aims and will likely influence the initiative on virtual worlds and the development of the metaverse in Europe. In particular, the Digital Compass sets out to improve the digital skills of the European citizens and emphasize the development of more skilled digital professionals; transform the EU’s digital infrastructure landscape; and enhance European cybersecurity by improving data infrastructure to enable data to remain within the EU and not be stored in third countries. 

The plans of the Commission President are echoed by Thierry Breton, Commissioner for the Internal Market. In his blogpost on “Europe’s plan to thrive in the metaverse,” Breton highlights the need for a metaverse that is focused on European values and rules, as well as the need to prevent the development of new private monopolies in the digital space. To that end, Breton mentions how the Digital Services Act and Digital Markets Act provide the EU with the necessary tools to achieve this. Breton also emphasizes the need for the EU to improve its knowhow in the digital space and as a means to achieve this, Breton presents the Virtual and Augmented Reality Industrial Coalition, which brings together industry and research stakeholders to develop the necessary technologies to further develop the metaverse.

The plans outlined by the European Commission build on previous efforts by the Council of the EU and the European Parliament. In March 2022, the Council published a paper on the key challenges and opportunities presented by the metaverse. In particular, their paper highlighted the burgeoning regulatory challenges that stem from a fully immersive digital world and how these will affect the EU. The Council argued that standard setting will be vital to make the metaverse “European,” rather than having to solely rely on innovation elsewhere. EU member states have held sessions on a wide range of topics raised by the metaverse, including issues such as terrorism.

A key aspect of the metaverse is the virtual economy that is created within the virtual world— which are, in some cases, run on crypto-assets. Crypto-assets are set to be regulated by a new Markets in Crypto-Assets (MiCA) Regulation, which will create an EU-wide framework to regulate certain types of crypto-assets. Political agreement on the MiCA Regulation was reached in July 2022, and it is expected to be put to a vote in the European Parliament’s plenary in April 2023, for adoption later in 2023.

In addition, the European Parliament is currently in the process of drafting an own-initiative report on the metaverse, with the Renew MEP Laurence Farreng appointed as rapporteur for the project. The report will focus on the opportunities, risks and policy implications of the metaverse and is the latest step in the growing EU interest around this issue. It will also build on the European Parliament Research Service’s briefing on these topics, focusing on the broader effect the metaverse will have on variety of regulatory fields, including competition law, data protection, finance, and life sciences. 

In response, the European institutions are gearing up to facilitate (and most likely regulate) the development of the metaverse in Europe.  This includes the development of digital infrastructure, education of citizens and companies, and highlighting the potential to improve the lives of citizens and the daily operations of industry. 

Next Steps

A fully immersive metaverse remains a thing of the future—for the time being. Europe is taking its first steps to ensure it is at the forefront of this digital revolution.  The projected value created in the metaverse, as seen with transactions already happening today, will make this a key space for future regulation.  Although the EU has yet to present concrete legislative proposals aimed directly at the metaverse, the Commission and Parliament are taking the lead in developing a regulatory framework to consider. Covington’s Global Public Policy and Data Privacy & Cybersecurity teams are closely tracking these developments and can help advise clients on legal implications and potential engagement opportunities.

__________________________

Lasse Luecke of Covington & Burling LLP contributed to the preparation of this article.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Sam Jungyun Choi Sam Jungyun Choi

Sam Jungyun Choi is an associate in the technology regulatory group in the London office. Her practice focuses on European data protection law and new policies and legislation relating to innovative technologies such as artificial intelligence, online platforms, digital health products and autonomous…

Sam Jungyun Choi is an associate in the technology regulatory group in the London office. Her practice focuses on European data protection law and new policies and legislation relating to innovative technologies such as artificial intelligence, online platforms, digital health products and autonomous vehicles. She also advises clients on matters relating to children’s privacy and policy initiatives relating to online safety.

Sam advises leading technology, software and life sciences companies on a wide range of matters relating to data protection and cybersecurity issues. Her work in this area has involved advising global companies on compliance with European data protection legislation, such as the General Data Protection Regulation (GDPR), the UK Data Protection Act, the ePrivacy Directive, and related EU and global legislation. She also advises on a variety of policy developments in Europe, including providing strategic advice on EU and national initiatives relating to artificial intelligence, data sharing, digital health, and online platforms.

Photo of Dan Cooper Dan Cooper

Daniel Cooper is co-chair of Covington’s Data Privacy and Cyber Security Practice, and advises clients on information technology regulatory and policy issues, particularly data protection, consumer protection, AI, and data security matters. He has over 20 years of experience in the field, representing…

Daniel Cooper is co-chair of Covington’s Data Privacy and Cyber Security Practice, and advises clients on information technology regulatory and policy issues, particularly data protection, consumer protection, AI, and data security matters. He has over 20 years of experience in the field, representing clients in regulatory proceedings before privacy authorities in Europe and counseling them on their global compliance and government affairs strategies. Dan regularly lectures on the topic, and was instrumental in drafting the privacy standards applied in professional sport.

According to Chambers UK, his “level of expertise is second to none, but it’s also equally paired with a keen understanding of our business and direction.” It was noted that “he is very good at calibrating and helping to gauge risk.”

Dan is qualified to practice law in the United States, the United Kingdom, Ireland and Belgium. He has also been appointed to the advisory and expert boards of privacy NGOs and agencies, such as Privacy International and the European security agency, ENISA.

Photo of Bart Szewczyk Bart Szewczyk

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He…

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He also teaches grand strategy as an Adjunct Professor at Sciences Po in Paris and is a Nonresident Senior Fellow at the German Marshall Fund.

Bart recently worked as Advisor on Global Affairs at the European Commission’s think-tank, where he covered a wide range of foreign policy issues, including international order, defense, geoeconomics, transatlantic relations, Russia and Eastern Europe, Middle East and North Africa, and China and Asia. Previously, between 2014 and 2017, he served as Member of Secretary John Kerry’s Policy Planning Staff at the U.S. Department of State, where he covered Europe, Eurasia, and global economic affairs. From 2016 to 2017, he also concurrently served as Senior Policy Advisor to the U.S. Ambassador to the United Nations, Samantha Power, where he worked on refugee policy. He joined the U.S. government from teaching at Columbia Law School, as one of two academics selected nationwide for the Council on Foreign Relations International Affairs Fellowship. He has also consulted for the World Bank and Rasmussen Global.

Prior to government, Bart was an Associate Research Scholar and Lecturer-in-Law at Columbia Law School, where he worked on international law and U.S. foreign relations law. Before academia, he taught international law and international organizations at George Washington University Law School, and served as a visiting fellow at the EU Institute for Security Studies. He also clerked at the International Court of Justice for Judges Peter Tomka and Christopher Greenwood and at the U.S. Court of Appeals for the Third Circuit for the late Judge Leonard Garth..

Bart holds a Ph.D. from Cambridge University where he studied as a Gates Scholar, a J.D. from Yale Law School, an M.P.A. from Princeton University, and a B.S. in economics (summa cum laude) from The Wharton School at the University of Pennsylvania. He has published in Foreign AffairsForeign PolicyHarvard International Law JournalColumbia Journal of European LawAmerican Journal of International LawGeorge Washington Law ReviewSurvival, and elsewhere. He is the author of three books: Europe’s Grand Strategy: Navigating a New World Order (Palgrave Macmillan 2021); with David McKean, Partners of First Resort: America, Europe, and the Future of the West (Brookings Institution Press 2021); and European Sovereignty, Legitimacy, and Power (Routledge 2021).

Photo of Sebastian Vos Sebastian Vos

Sebastian Vos is co-chair of the firm’s public policy practice, and heads up its European division. He has extensive experience in the European Union and advises clients as they navigate and manage today’s global regulatory and policy challenges.

Sebastian provides clients with strategic…

Sebastian Vos is co-chair of the firm’s public policy practice, and heads up its European division. He has extensive experience in the European Union and advises clients as they navigate and manage today’s global regulatory and policy challenges.

Sebastian provides clients with strategic public policy, regulatory, and communications advice on a range of competition, trade, transactional and sectoral issues. Sebastian has particular expertise in advising companies in the technology, financial services, energy and transport sectors.

Sebastian was formerly a partner at a leading global public affairs consultancy. Prior to this, he was head of the competition practice at a strategic communications agency. He worked as an attorney at a magic circle firm, specialising in Antitrust, Competition and Trade law, as well as being a member of the Public Policy practice. He has also worked at the European Commission, and was part of its Delegation to the United States in 2000.

Sebastian has written articles on legal and political developments in various publications, including Europe’s World, Bloomberg Business Law Review and European Competition Law Review. He has also been a commentator on broadcast media including CNBC and Bloomberg TV.