If someone attends a concert in the metaverse from their home in the UK, where the metaverse is hosted on a South Korean server, the artist sings from her home in the US, and tickets are sold by the concert promoter in Canada, it’s hard to ascertain where the concert will be held and which court (The courts) may have jurisdiction over claims for losses arising in connection with this concert.
In the ninth article of our series, we explore how courts can grapple with this question of determining an appropriate jurisdiction for litigation arising from metaverses.
When someone believes that their rights have been infringed, and they want to enforce those rights or seek some kind of remedy to compensate them for their losses or injuries, they turn to the courts and tribunals. In the absence of a transnational element to the claim, the local courts and tribunals of the claimant are usually expected to assume jurisdiction over the claim. When there is a cross-border component (for example, the defendant in the lawsuit resides or does business in another country), things can get more complicated. States usually have rules in place to assist their courts in determining whether, and on what basis, they may exercise jurisdiction over a dispute. These rules tend to be guided by principles found in the UN Charter such as sovereign equality, non-interference, and territorial integrity. In addition, some states are parties to international agreements regarding jurisdiction over cross-border disputes and, in some cases, recognition and enforcement of judgments reached in those disputes. Cooperation in this area continues: the Hague Agreement on Provisions has been concluded until 2019.
However, things become more complicated when the complained events or behavior occur outside the physical world. The spread of the Internet, for example, has led countries to adapt their legal frameworks and create new laws to deal with disputes arising from its use. It is uncertain how these laws will apply to tokens that inhabit the metaverse and trade in digital assets, such as non-fungible tokens (“NFTs‘), which occurs within it. For example, English courts have recently shown their willingness to exercise jurisdiction over a claim relating to NFTs located in a market operated by a US company, on the grounds that it can be argued that NFTs are proprietary under English law. The Court found that the NFTs’ position is Where the owner lives.Similarly, we have seen UK tax authorities seize NFTs in connection with tax fraud.This is a rapidly developing area of law and there is real scope for international judicial disputes.
Damage to metaverses
The choice of jurisdiction depends to some extent on the nature of the dispute. In the context of grave infractions, jurisdiction rules usually require some degree of coherence between the wrongdoing and the country in question. Under the Brussels Recast Regulation that applies in the European Union, for example, jurisdiction over tort claims is determined by reference to the place where the damage occurred or the place of error that led to that damage. Similarly, in England and Wales, the courts may exercise jurisdiction provided that the damage is continuous in the jurisdiction, or that the damage results from an act committed there.
It is questionable how these principles can be applied to the grave breaches of metaverses. However, given the potential uses of the metaverse for social networking, work, gaming, shopping, commerce, and entertainment, it is likely that damages will be done in this virtual space. For example:
- A dishonest merchant selling merchandise in the metaverse may do the harm of scrolling if they incorrectly state that the merchandise they are selling is the merchandise of a (well known) third party. The damage done here is the third party’s right to a goodwill in their business, and the plaintiff is that third party.
- Misrepresentation tort (also known as negligent misrepresentation or tort by deception in other countries), where false statements are relied on to cause loss, can become common. For example, a company might buy ad “space” at a pop concert held in the metaverse based on false statements made by the concert promoter about seeing that ad space.
- Damage from negligence may also be relevant if courts recognize any new cases in which a duty of care may arise regarding the behavior of avatars in the metaverse. The metaverses themselves may be subject to statutory duties of care, at least in Britain if the Online Security Act is enacted into law, if not as a result of regulation by other countries as well.
In each of the areas listed above, courts will need to determine where the error was committed and who did it. Various considerations will apply. For example, the court may have to consider whether the person can have a separate legal personality attributable to them or be treated as a separate compensation. It seems more likely at this point that the avatar’s statements and behavior are attributed to the person controlling it, but if the avatar exercises independent decision-making (i.e. has artificial intelligence), the question could become more complex.
It will also be interesting to see how the courts determine where the ‘harm’ caused by the tort will occur. It will likely depend on the facts of the case. For example, if the third party trader in the scroll scenario described above is also a real trader, courts will need to determine whether the damage was done in the metaverse, in the real world or both. Meanwhile, if the third party is only operating in the metaverse, courts will need to examine whether the damage occurred only in the metaverse or in place of the ultimate (human) beneficial owner. The question will be more complicated if the company is a producer of artificial intelligence. Likewise, if the locus of both wrongdoing and tort are impediments, can current notions of jurisdiction be expanded to accommodate such harm?
Finally, there is the interesting possibility of creating one set of courts or tribunals exclusively to hear claims arising from behavior that occurs in metaverses. As part of this system, each state may agree to waive jurisdiction in such matters – or certain classes thereof – to the “Metaverse Courts”. Such a system may assist in managing cases where there are competing assertions of jurisdiction between courts of different countries. The metaverse courts themselves may operate within the metaverse. There is still no serious public debate about such an approach, but as the meaning crystallizes in the coming years, it may form part of the discussion.
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