By Bryan Tan, Partner at Reed Smith (www.reedsmith.com)
The term ‘metaverse’ loosely refers to a single, shared and immersive virtual platform, accessible anytime from anywhere through the use of virtual reality tools. While it may typically align itself closer to the gaming or entertainment industry, this future iteration of the internet is starting to attract interest from the hotel industry; with big names like Marriott and Citizen M investing in web3, purchasing land and even looking to build hotels and luxury resorts in the metaverse. It is all about the experience – and a digital, interactive experience at that.
As a purely digital world, the metaverse offers both an endless number of possibilities and legal risks to the hospitality sector. These are uncharted waters for any business looking to take the plunge, and it is vital to consider the smart contracts governing these virtual interactions, how intellectual property operates in the metaverse, as well as the lack of regulation surrounding these virtual world platforms.
Smart contracts
From check-in to check-out, a customer’s hotel experience – whether in real life or online – is governed by a series of contracts, be it purchasing from the mini-bar or dining in the hotel restaurant. In the same vein, virtual hotels must get up to speed with the risks posed by ‘smart contracts’ – a self-executing contract where terms of agreement are written directly into a series of code on the blockchain – to mitigate any potential pitfalls that may arise.
As well as the danger of blockchain fragmentation, the technology responsible for smart contracts is vulnerable to hacking, where hackers may be able to access funds stored within these contracts, as well as risks posed by bugs and human error. As a result, hotels must acquire the expertise needed to deal with blockchain technologies to ensure these issues are adequately dealt with.
Commercial risks may also arise when dealing with smart contracts – similarly to transaction fees in the traditional banking system, ‘gas fees’ exist in the virtual realm, requiring users to pay a fee to network validators whenever they seek to execute a function on the blockchain. Hoteliers must take these volatile and often costly considerations into account when investing in the metaverse.
Intellectual property and data
Intellectual property issues are another potential hotspot for litigation that hoteliers should be aware of. A newly virtualized Hotel Metaverse is likely to face difficulties in transferring real-life IP rights to an online world, having to obtain the necessary licenses to digitally emulate things in the virtual world; ranging from the music played or the furniture used.
We have already seen instances of this happening in the video game industry – in AM General v Activision, AM General, manufacturers of the Humvee, sued the makers of popular military video game franchise Call of Duty for copying their design of the military vehicle.
There is high potential for cases of a similar nature to arise within the metaverse, and as such hotels must be adequately prepared for such challenges by obtaining the necessary clearance before planting their flag in the virtual landscape.
Portability issues are another consideration hotels must have. Like in the real world, we are likely to encounter customers who move between properties in various different virtual worlds or across hotel chains. Thus, hotels must be aware of the data portability requirements in relevant legislation (such as the UK’s Data Protection Act) and make sure that their data policies comply.
Regulation incoming
At the same time, the hospitality sector can expect to see the development of regulatory frameworks governing the space; taking the form of either user-driven regulation, industry-led regulation, self-regulation or guidance driven by governments. Chances are the latter will prevail, with examples including the European Digital Services Act.
Such a framework, or frameworks, no matter the form, will have to address issues such as anonymity or digital-only identities, duties imposed on platform owners, as well as the legal repercussions of virtual actions – such as those taken by Mr. Bungle in online community LambdaMOO in the 1990s. The hotel and wider hospitality sector must take note of developments in this nascent area of regulation to effectively mitigate any risks this may pose.
Overall, the metaverse will introduce users to a totally novel, fully immersive experience, and while this may excite many within the hotel industry, hoteliers must remain vigilant in mitigating the possible risks that may arise.
