All right, everyone. Thanks for your patience, and thanks for joining us today. It's a busy time of year, so we're delighted that you carved some time out of your day to join us for Doing Business in the Metaverse-- Threats and Opportunities in Web3. I am one of your co-hosts. My name is Brent Arnold, and I am a litigator and a data breach coach in Gowling's Toronto office. Joining me for this presentation is Monique Couture from our Ottawa office from the intellectual property department there, and Monique is one of Canada's leading trademark lawyers practicing in that space and serving not only on our metaverse task force, as am I, but for the Canadian Bar Association's trademark counsel. Hello, Monique.
Hello, Brent. How are you?
Good, How are you?
Great. So diving in, welcome to the webinar. We're happy to have you here today. Diving in, what is the metaverse? Here's our agenda that we post to go through today, and we'll just dive right in. Brent, go to the next slide. What is the metaverse? The concept has been coined in science fiction novel, Snow Crash, by Neal Stephenson in 1992, and it was also depicted in the popular novel Ready Player One, which was also a movie. Some look at the metaverse as nothing more than a second life 2.0 and predict its demise as a flash in the pan or a mere fad. Others have a more expansive view on the space such as Hermann Narula with the quote that you see on the screen, who's saying, "Like the development of writing or the advent of the computer age, the dawn of the metaverse will be a grand pivot point in the history of humanity.
Today, we aim to give you a glimpse as to what is happening in the space and how it impacts business and legal issues to inform your own perspective. Another definition of the metaverse, which will be the next slide, is a massively scaled and interoperable network of real time rendered 3D virtual worlds. For now, the metaverse is aspirational, and it is not interoperable as we speak. A conceptual single iteration of the metaverse contrasts with the current state of numerous incompatible platforms that possess metaversal qualities.
The metaverse is constructed on existing infrastructure of the internet using technologies such as blockchain, cryptocurrency, and non-fungible tokens. The blockchain is not required, but it cannot be ignored as it underpins the ability to make payments possible and virtual economies will be reliant on digital assets like cryptocurrency and NFTs. So it may interest the audience to know that the metaverse was valued at nearly $23 billion last year and is expected to grow nearly 40% a year for the rest of the decade. There's a race to see which of the metaverse-aspiring companies will get a billion users first as this will inform a lot of what happens next. For the moment, there are different metaverses that we will explore today. There are also more detailed definitions and Brent will discuss. Over to you Brent.
So let's get into the-- thank you. Let's get into the weeds just a little bit. Here is a definition that I find helpful when I'm trying to picture this in my head. The metaverse is a digital reality that combines aspects of social media, online gaming, augmented reality, AR, and virtual reality, VR, and cryptocurrencies to allow users to interact virtually. Now, these are the two streams of the metaverse. Augmented reality overlays visual elements, sound, and other sensory input onto real world settings to enhance the user experience, and virtual reality is an entirely virtual platform that enhances fictional realities, and I'll show you a couple of examples of those that should be relatable.
Some of you may remember Google Glass a few years back, and some of you may remember a movie called The Minority Report going back 20 years, where Tom Cruise is running through a concourse, and as he's running through the concourse, hologrammed ads directed at his specific interests are being projected to him. Now, in the movie I think it's because he has an implant, but what we expect to see in the near future will be devices-- and these are in development now-- that will allow you to see as you see in this picture-- data overlaid over your reality as you move through the world.
Pokemon Go, for those of you with kids and grandkids, was another example. This is where you could move through your real world with your phone, and it would be imposing virtual characters on that space. Here are a couple examples of the VR aspect of this. On the left is Roblox, and again, if you've got kids and grandkids, there's a good chance they're playing on Roblox. It's an online gaming platform, and these characters are representative of what you look like when you create your avatar and move around in Roblox.
On the right is a CAPTCHA from my recent sashay through a platform called Decentraland, and that actually is my avatar, which is exactly how I look in real life. Decentraland is one of a few of the VR platforms we'll be discussing today. So what is the metaverse? We've set to come at this question a few different ways, but one way of looking at it is to say for the moment it's a concept. It's not a single place. It's not a single thing. And there's a lot of focus on the VR side. There's a lot of competing platforms, and here are some of them-- Decentraland, again, Sandbox, Roblox, Horizon Worlds, Blocktopia. Some of these are on blockchain, like Decentraland. Some of them are not, like Horizon World, which is Meta's. And Roblox is not on blockchain either.
Now, several of these platforms are currently working together because what we expect, or I expect at least, is that a lot of these platforms-- and this is just a sample. There's many more. It's going to be like the browser wars of a couple of decades ago. A few will be left standing. Or the social media competitions, where you had Google Plus fighting it out with Facebook to see who would emerge as the victor. But some of these companies are working together cooperatively in an open metaverse alliance for Web3, and if this goes forward the way they're expecting, it will allow, among other things, for people to move their avatars from one platform to the other seamlessly. So these worlds can coexist, and you can participate in them as basically you in any of them. That's the plan.
And of course, Meta, which used to be Facebook, Facebook is working aggressively to dominate the space. It's recently cut back its spending on it, but it's still the direction of the business it's decided it's taking. So how do I get started? And this isn't how I would recommend. I know we've got some banks and some other very big businesses and brands on the call today. This isn't how you get your company involved, but this is how you personally can explore this if you want to understand what we're really talking about and what the possibilities are.
Most of these platforms allow for a free or guest account, where you can go in, set up an avatar, and move around freely in the universe. If you want to do more in the universe-- like for instance transact. You want to pay to attend a concert, or you want to pay to buy, for instance, virtual clothing for your virtual avatar or do other kinds of transactions in the metaverse because brands are selling in the metaverse. You would set up a permanent account linked to a cryptocurrency wallet. That can be a bit of a challenge, but it's doable.
And if you're going to do business in the metaverse, like actually transact, again, you'll need to link to a crypto wallet so that you can actually buy and sell things, and it would also involve as a first step branding and promotional opportunities, virtual billboards, that sort of thing. It's a good way to get your feet wet in this world. If you're prepared to go further into it, and you want a more immersive experience, you would be looking at buying virtual real estate and setting up your virtual storefront or office or bank branch or event space.
So why would you do business in the metaverse? There's a bunch of possible draws here, depending on your business model. There's immersive entertainment. There's the possibility of business operations. We are guiding and coordinating field work. Imagine a worker let's say on an oil rig who needs to make a repair. He's wearing virtual goggles, and somebody can walk him through the steps of carrying out the repair without being there with them. Education and training-- a similar kind of experience. Enhanced-- just richer customer experiences.
Work meetings-- as we'd see with the work rooms that you see in Meta's virtual Horizon Worlds, advertising, branding and marketing opportunities, which we touched on, and setting up, again, digital locations, and new revenue streams. And if you look at a business plan for a typical VR platform, you'll see heavily trading on these concepts the idea of selling virtual real estate in the virtual world, collectible NFTs, and the clothing and accessories for avatars. That's what a lot of the revenue stream is on these platforms. And then in others like Roblox, the revenue stream is largely driven by advertising. Monique?
Thank you, Brent. It's always very interesting. And so we wanted to give you a glimpse into what brands are doing in the metaverse. So the promise of the metaverse relating to brands is the possibility of unlocking and unleashing brand value in new ways. And examples of brand forays into the field include the fact that Sony and LEGO earlier this year invested $1 billion each into Epic Games, which, of course, owns Fortnite. This was in the spring of 2022 to fund the metaverse. And they were quoted as saying, "This $2 billion investment will accelerate our work to build the metaverse and create spaces where players can have fun with friends, brands can build creative and immersive experiences, and creators can build a community and thrive."
And so for the brands who are on the call, it's a good moment to stop and have a look at your IP portfolios to see if there's a business interest. It's a good time to align it with your trademark portfolio, of course. We're seeing sports and apparel as another strong field. Nike is a big sophisticated player in the fields because sneakers are actually absolutely huge online. The Nike launched Nike Land in November, 2021.
It's an interactive world, where visitors get to play many games and indulge in a lifestyle that's centered on sport and play, and that Nike also has a Web3 platform called .Swoosh to enable customers to learn about collect and eventually help to co-create digital items and virtual shoes and jerseys, so that's an interesting interplay with the actual consumer. We're talking about co-designing. Fashion, of course, is an early adopter in the field. Gucci, Louis Vuitton, Burberry and all kinds of fashion brands have NFT wearables. Dolce and Gabbana took part in a metaverse fashion show. So that's on the brand consumer side.
Moving now to enterprise at an industrial metaverse. This is an aspect of the metaverse. That will be the next slide. So this is a very interesting development, where Interpol has launched an online virtual police force with implications for training and online enforcement, and there's a possibility to use your avatar to interact with other Interpol officials. And it highlights the use of the metaverse for training purposes that uses could include medical training, so surgical training, aerospace, and defense training. Boeing has invested in a company called Red Six that is going to develop this kind of metaverse training in the aerospace space. And already, interestingly, there's something called digital twinning which allows for simulations for training on optimization, and Nokia president and chief executive predicts that enterprise and industrial metaverse will come first and will trailblazer for the consumer metaverse.
It's already happening, and that digital twins, which are exact virtual replicas for companies, will allow them to engage in real time simulation to help them manage their operations while gathering data to drive performance. This is already happening. For example, Siemens manages entire factories of the digital twin. GE has built digital twins of jet engine components to predict their lifespan and optimize maintenance schedules, and the Vancouver airport here in Canada runs a 3D simulation or a digital twin of the airport, incorporating real time information used for training, optimization, future planning, simulation, and testing, et cetera. So that is a very interesting aspect of the metaverse that I think has been a bit overlooked till now, but companies are already doing it. Very, very interesting implications for everybody.
So turning now to pop culture for a bit of fun, we see what's happening. This is just an example purely for fun-- the Etro fashion show that happened during the first ever Metaverse Fashion Week, which is hosted in Decentraland in March of 2022. It was a four-day event, and it included all kinds of NFT purchasing and digital and virtual forms that were the evolution of the new form of communications-- immersive and pervasive. The idea is to extend the brand universe and to think of the metaverse as an ecosystem to engage digital savvy consumers and a destination to add to the journey of our customers.
One interesting aspect is that in terms of fashion, it certainly expands the new and extensive roots of creativity because budgets and physics and pedestrian concerns like gravity and fabrics don't constrain design choices. And so you can have all kinds of exciting things happening in the metaverse. It could not happen in real life. So turning to another pop moment, which was during COVID, which probably assisted, but this is still of the Travis Scott concert that happened in the game Fortnite. So this happened during COVID, but it was a first time ever an astronomical in-game experiential performance to premiere a song of the Scotts. So following that, the Scotts entered number one in the Billboard chart. It was the biggest Spotify debut of the year. 27 million people participated in this concert, and 45 million if you counted replays and another 77 million on YouTube.
Travis Scott himself gained a million people on his Instagram, and he earned possibly-- it's estimated $20 million for this performance. And the interplay of real life and this metaversal performance cannot be ignored. And so Travis being savvy leveraged all platforms and tailored content for each Fortnite for the live immersive show, YouTube and Twitch for replays, and Instagram for his community. And so this is a good example of the interplay between real life and a metaversal event.
And so turning to examples of NFTs-- so we have just on the sheet-- these NFTs are so volatile and have crashed of late, but just so you know, the first ever NFT artwork sold for $69 million, Jack Dorsey's first tweet for $3 million. There are virtual sneakers that are selling for lots. It's huge, and this is also the fact in the Foodverse. If you can go to the next slide. Brent, thank you. Where we have gateways to dining experiences-- so it's a new way for brands to raise awareness and promote their engagement with fans. So McDonald's has filed applications for McCafe. Conceptualizes a space for hosting online events and also for McDelivery, which is a metaverse restaurant, where visitors can order food to be delivered to real world locations.
And so the promise is to be a novel platform to engage with consumers. Not only meeting customer expectations for finding the presence of big brands in the expanding digital space, but also to allow them to engage with the brands in fresh and new ways. And so very quickly, the next slide would be Bored Ape, which is an NFT that you might have heard about, and we'll return to it later on when we talk about enforcement because it's now the subject of a great many lawsuits. And so it was an initial NFT collection of 10,000 unique NFTs. A lot of celebrities bought into them. Gwyneth Paltrow, Eminem, Johnny-- sorry, Paris Hilton. It was a very high profile NFT launch. And so we'll return to that.
Turning now to the legal and the business risks in the metaverse. So the slide sets out some areas of risk. I'll just give you a second to look at that. So as you can see, it's a very multi-jurisdictional experience in terms of the legal and the business risks, and we'll delve into these in further detail in the remaining of our presentation. I just wanted to flag for now the environmental aspect, the reputational aspect because this has been something that's been discussed because of the environmental impact of minting NFTs in the blockchain.
And so there have been developments in this. It's a rather technical discussion, but just to put it very quickly, there's a shift from what is called proof of work versus proof of stake, which is a way where miners set and develop these NFTs. Or the bottom line is that proof of stake is now replacing proof of work on Ethereum blockchain, and the net result of that is that it's a 99.95 cut in the power consumption on the Ethereum blockchain with the shift of proof of stake.
And so whilst the environmental and environmental impact has been of concern to brands for sure, it looks like this may be something that technology may actually solve, so it remains to be seen how this will actually play out. But other areas of risk, of course, include product liability, privacy, revenue streams, security, antitrust activities, and the list does go on. Brent is going to turn to some more concrete areas of risk and dive more deeply to examples of business and legal risks. Over to you, Brent.
Thanks, Monique. And yeah, just in case this isn't something you've been following, the environmental cost of the mining when we were doing proof of work as opposed to proof of stake on, for instance, the Ethereum chain, the combined energy draw of all that mining was larger than the electricity draw of certain entire European countries. So it's not a small change, and it's a welcome one. So here are some of the areas we're going to cover. I'm going to focus on the first two here-- cyber security and privacy regulatory and civil risks, and some of the regular bread and butter common law liability issues you're going to see-- good old-fashioned contract and tort problems that are now just complicated by the fact of the technology. And then Monique is going to take us on with the discussion of the intellectual property rights disputes that we are seeing and anticipating.
And not surprisingly, this is where the fight in the courts is already happening because folks are getting out there with their injunctions trying to preserve their rights early on faster than we are seeing in the typical civil realm so far. So let's talk about cyber security for a moment because this is-- cyber risk is business risk, as I'm sure everyone on this call understands. So what are some of the challenges specific to this platform? One, there's little or no moderation of content or behavior on these platforms. They tend to be permissive. There are codes of conduct, but if you're in there moving around in this virtual world, and you're lost or you have a question, or somebody does something to you that you don't like, there isn't a big red button to press. You're going to have to possibly go into the Discord for the decentralized autonomous association that runs the metaverse platform to get any sort of satisfaction.
So when you're there, you're moving around with other people. But in terms of your rights, you're on your own. There's an issue of access point compromise. Now, many of these platforms we're talking about, you can just use looking at your regular computer screen in your mouse, using your mouse and your keyboard. But if you are using virtual reality devices on top of that, like any other internet-of-things web-enabled device, security is always a concern. And the safety record for internet-of-things devices has not been impressive. It's not something where cyber security tends to be factored into the design. I'm not saying that's specific to the couple or three headsets that exist now that you can use, but it's a general problem for devices that are connected to the internet.
There's also this problem of anonymity and that insulates people from consequences for their behavior because when you're-- the old expression is no one on the internet knows you're a dog. Well, nobody knows that I'm not actually walking around with a kilt and a Mohawk, as you saw in the first slide with my avatar. I'm in there with a pseudonym. Nobody knows who I am. The platform has some record of it, but I've managed to register that account with very minimal information. So there's the risk of people milling about and conducting industrial espionage or just generally behaving themselves poorly.
Cyber security risk-- I mean, the basic problem with this is that if you're doing business on this platform, it's not your platform. You don't control the code, and you don't have much in the way of recourse if something goes wrong. So you can't be certain of the safety of your data or your customers' data, and you have to-- when you're thinking about data here, you're not just thinking about what did a person enter to set up an account with the platform. Everything they do in the platform generates data, and some of that might be used to identify that person. You've got anything about the contact data when you first set up the account but also your preferences, data from your reactions and interactions, biometric data, information about your crypto wallet if you've set one up.
You don't have any say in the security measures that are taken or ignored by a given platform because it's a take it or leave it account when you set up what these platforms. Why all of this? Because you don't control the platform. Some of the other risks-- the transactions if you're buying and selling, it's all crypto based. That's the coin of the realm. And so it's only a safe or reliable as crypto is, and that's something where in the last two or three years the initial promise that these cryptocurrencies and blockchain was unhackable. It's proven not to be true, and they're still susceptible to failures in code, just simple bugs, and cyberattacks.
Something for those of you to think about who are responsible for compliance in your organizations-- we have a new federal cyber security bill coming in that covers vital systems operators. This includes the financial sector, energy sector, transportation if it's a transportation that's federally regulated and so on. How are you going to-- and that bill contemplates among other things that you're responsible for the security of your supply chain and your vendors. Well, if you're doing business in the metaverse, You've Set up a virtual branch, store, whatever it is. They're part of your supply chain. How are you going to satisfy the government that you've imposed whatever obligations you need to contractually?
And of course, there's the privacy regulatory risks that dovetail with this. As you know, collecting, using, storing personally identifiable information that tracks privacy law regulations in most jurisdictions and certainly Canada. So when you're collecting and using and storing customers' data on that VR platform, are you going to be offside the privacy laws that apply to your business with respect to the security or let's say the transfer of data? Their [INAUDIBLE] right now has requirements about the transfer of data, and the new bill coming in, C27, has requirements around it but also exceptions. So you're going to have to think through where all of that falls.
How can you control that PII, whether it's retained or deleted or how it's retained or deleted when you don't control the platform? So how are you going to fulfill those basic obligations that you have under just about every privacy regime? We're going to be seeing we have this in Quebec already now, and federally with C27, we're going to be getting some form of moderate right to be forgotten and ability to request deletion of your data. How are you going to fulfill a deletion of data request from one of your customers or clients if it's the platform that holds all the data?
And let's talk about some of the just basic common law risks. I sometimes tell clients when they ask me, well, what are the risks of doing business on it? They are to a large extent the risks of doing business in the real world just grafted or mirrored in this digital realm. So we've got-- you're going to see regular corporate commercial disputes. I'm dealing with some of these now already. They haven't hit court yet, but wait and see. You've got deals involving-- basically, all of this involves experimental technology. And when you've got deals around experimental technology, almost inevitably you have disappointed expectations. Things don't work the way people thought they were going to or were promised, so you have claims of misrepresentation. You have deals blowing up, and then you have litigation. I'm dealing with one of these right now.
Disputes over who owns the code and the collected data. With a lot of these deals when it comes to dealing with financing or putting together mergers and acquisitions, that sort of thing, there's going to be a real question in a lot of these cases about does the company that has built the platform actually own the code? Because there's a lot of open source in there. So there's going to be fights over that. We're going to have a fight over virtual property that are going to focus on the question of what is it even. Do you have property rights as such for your virtual real estate? Can you expel trespassers who are wandering into your online business and harassing other customers? What rights do you actually have there? All this is going to have to get worked out.
And then there's the tort law risks, and this is an example of real world risks mirrored in the virtual universe because you move as a virtual body through the virtual universe, interacting with other virtual people. Some internet researchers who were looking into this observed the following on VR platforms, and this is a bit grim, so hang on there with me. You have had hate speech. We've had verbal harassment. We've had great graphic content. We had sexual groping. We've had gang rapes of avatars by other avatars. One researcher entered a platform, and within 60 seconds this was done to her avatar.
Now, this is a researcher who is going in part to see what happens, but you can imagine how this would affect a person who has a history of trauma and then finds themselves undergoing this in a platform with no apparent moderator insight to stop it. What happens if this happens in your virtual store, or your virtual bank branch, or at a virtual event that you're sponsoring or hosting? What could you have done to prevent it, given that you don't control the platform or the actions of other people moving through the platform? What's the platform going to do to help you either prevent these issues or deal with them as they happen?
And we have the regular problem of if you're setting up as a business in the metaverse, you're going to have presumably employees interacting with people, so you're going to have the usual problem of vicarious liability for bad conduct by employees in this space or misrepresentations made in good faith even. We've got the problem of physical injury, and you can-- when we're talking about using in particular the devices that facilitate this VR experience, but it could equally happen with the AR experience. The goggles we were talking about walking around in the world, so they're layering data on top of your lived experience.
You don't have to spend very long on YouTube to find videos of people setting up their headsets, getting into a game, and promptly falling over, falling down a set of stairs, and so forth. Who do they sue? It could be you if, again, this is an activity they're undertaking in some virtual event that you're putting on, or perhaps you're the manufacturer of the device and so on. Now, there are going to be some litigation challenges here that because of the dearth of case law on this so far are going to have to get sorted out.
Jurisdiction is a big one here. What courts have jurisdiction if a tort is committed in a virtual reality platform or some other form of conduct that you're going to want to sue for? Where is there? And let's use the example a bank or a business with branches or stores in the virtual metaverse. If something happens in one of those stores, which court in Canada-- let's say you're nationwide-- has jurisdiction? Is it where your head office is? Is it where your team that's running the virtual office out of? Who knows?
You can have evidentiary issues because the conduct that is going to give rise to this is going to have been recorded through the platform. And again, you don't control the platform. How are you going to get that data? What kind of cooperation can you expect? And there's just generally the lack of legal precedent around any of this. Makes it hard for lawyers to advise as the norms or predict what's going to happen with any of these things. So the technology is experimental, and we're at a phase now where there isn't much in the way of law to guide how people should protect themselves.
What about recourse against the platform? Let's say for some reason you believe that it is appropriate to sue the platform for a loss you've suffered or something that's happened to one of your customers or clients that you say is the platform's responsibility. Well, I'm giving a central terms here-- terms of use from Decentraland, and I'm not singling out Decentraland as being different. I'm just using it as an example. I think you'll find if you go through the terms of use or policies associated with these sites that you agree to when you sign up with your account, you're going to find some pretty common characteristics, and here are some of them.
Decentraland, for instance, is governed by what's called a decentralized autonomous organization. It's not a company. So there's no legal single entity that you can sue. You have to go over basically the people who composed the DAO. This is something that securities regulators in the States are trying to feel their way through right now. How do I regulate it if it's not a company, and who ultimately bears responsibility? And if you go into the terms on-- the decentralized terms of use, you'll see to begin there's a use at own risk waiver. You acknowledge that among other things it's as is, where is service that you're just-- that they take no responsibility for.
You acknowledge by accepting the terms the inherent risks associated with cryptographic systems, so this again is the problems with crypto. You acknowledge and agree to the risk of theft or loss of your cryptographic tokens or property. So essentially, someone could-- and this is happening on regular cryptocurrency platforms. Somebody tricks you into giving permission for a transaction, and all of a sudden your crypto is gone, and it's irretrievable. It's through the blockchain, and it's in Russia, or it's in China.
They say that they provide that there's no liability for the platform for third party vendor error, and this is a problem because a lot of the services on these platforms are add-ons provided by third party vendors. For instance, with Decentraland if you are going to hook it up to a wallet, you need to use-- there's a couple of options. One of them is a vendor add-in called MetaMask. So what happens if there's a problem with MetaMask? You can't hold the Decentraland responsible for it, according to the terms.
There's, of course, not unexpectedly a limited-- an exclusion of liability for indirect or reputational loss. There's limited liability-- limited to the greater of payments to the platform for the last 12 months from the incident for $100. So if you don't buy real estate from the platform or conduct some other transaction that involves giving money to the platform, the most that you would get under the terms of the contract to the extent that they're enforceable would be $100.
And of course, if you do want, if you're serious about taking the platform to court-- surprise, surprise-- you have a binding arbitration requirement. The seat of arbitration is Panama City in Panama, and you are agreeing to waive your class action rights. Now, as we know, some of these things are not enforceable. Some of these things the courts will disagree with, but we're going to have to go through the process of sorting all that out, much in the way we had with conventional websites and jurisdiction issues and these kinds of clauses in the real world so far. Back to you, Monique.
Brent, that's so interesting. All these things to think about. So turning now to the intellectual property aspect. I think what Brent and I are flagging is that there are so many considerations, and I just want to flag this. We're going to now talk about the intellectual property ones. Brent talked about the commercial, the tort, the cyber security, but these are all of the considerations that come into play when you're engaging in the metaverse. There is a whole host of issues that-- we're trying to coin the phrase. We call it under the hood. Think about the architecture of the metaverse itself, like minting NFTs or-- and these relate to commercial, security, money laundering, real estate, et cetera. And those we could not get into under the hood issues in this one hour webinar. I just want to flag that there are a host of other considerations as well but turning just to the IP considerations.
So for example, NFT considerations-- you have to look at the contract which Brent alluded to. We have to also think about acquisitions of rights. So turning to the contract, there are privacy issues. The limitation of digital contracts, of course, go back to fundamental first principles of contracts, and the principles of privity of contract dictates that a dealer who places contractual restrictions on a product that would prevent its resale and sells it to a customer subsequently violates those terms in the resale of the product may have recourse against the customer who purchased the product from them, but they have no recourse against the secondary purchaser.
Similarly, when you buy an NFT, the terms of that purchase are governed by the contract between the buyer and the seller, but rarely are the contracts governing the relationship between the primary and secondary buyers or subsequent buyers and any downstream purchasers. There's also no privity between initial issuer of the NFT and any downstream buyers of the token, particularly with regards to terms relating to the off chain promises. For example, when you're purchasing an NFT, does it come with the off chain perk of admittance to a community-- Discord channel by way of example. Does an NFT issuer have any obligation to downstream purchasers to provide access to this perk? Do their contractual obligation stem from an on chain agreement between them and the initial purchaser? As Brent said, there's not a lot of-- there's a positive case law at the moment. We will touch on some, but a lot of this remains to be litigated or a lot of the details are in the fine print.
In terms of click-wrap agreements, have all downstream purchasers seen and agreed to the initial terms of sale? An NFT must have terms of sale dictating rights of any legal enforceability, and if those terms or the off chain reference work change over time, downstream purchasers may fall victim to rental scams. NFT's are the product of contract law. The terms and conditions of the purchase of that deed dictate your ownership of the asset and the enforceability of the associated rights. So as always, and as Brent said, the devil's in the detail and in the fine print.
Turning to acquisitions of rights-- a very, very important concept when it comes to IP, of course. We're seeing that open off-chain intermediaries, such as OpenSea, have been able to interpret and solve some issues associated with falsely minted and stolen NFTs. It's proven to be possible to enforce, which is great. But something that I always think about is who owns the IP? This is a core question for any brand. Who owns the IP? Ideally, you own the IP. It's your IP. It's your brand. Do not give it away whatever you do. And for copyright, depending on the terms of sale of the NFT, an owner may get some restricted license to use the copyright potentially under further limited circumstances.
For example, going to Bored Ape, which we had shown that NFT at the very top of the slides. The Bored Ape NFT is an unlimited license to use, copy, and display, but the copyright remains with Yuga Labs, LLC who minted the NFTs. And so any creative work only has one copyright, which can be licensed an infinite number of times or assigned, and many NFTs are titled as creations of artificial intelligence, which raises its own issue. Who owns the copyright then? Can an AI own copyright? It seems like it might not be the case.
And so if you aren't buying the copyright with the digital art, you may not be buying anything at all, since you cannot own a URL or a hyperlink, and digital art is not a tangible asset. This is in contrast to art in the real world, where you're purchasing a tangible asset. Generally, you don't buy the copyright. And so all kinds of issues exist, but the bottom line take home is do keep your IP license. Don't give it away. And for the next slide, when it comes to NFTs, it's difficult not to talk about NFT projects and fraud. Of course, NFTs are not inherently fraudulent, but some NFT projects promote investments by promising real world utility, other NFTs to inflate the value and increase buyer interest.
Despite knowing that they cannot deliver on those promises, projects can be canceled after NFT purchases are made without fulfilling the promises laid out in the original project roadmap and without issuing any refunds, and there have been examples of that. For example, SwipaTheFox was an NFT project by NBA athlete, De'Aaron Fox, which had issues along those lines. In terms of consumer protections, do purchasers even know what they're buying? False promises from sellers and lack of understanding by purchasers abound. Are terms of contracts enforceable? Can sellers or minters prove that purchases actively assented to those terms? If you're minting or selling NFTs, always ensure that the buyer reads, understands, and assents to any terms.
A failure of programming, also known as a rug pull, can affect corrupt the source code, forking and breaking in the blockchain-- meaning it's no longer accessible. And so there's potential civil liability, or perhaps even criminal liability with large groups engaged in price fixing or market manipulation. And we're seeing this now, and we'll get to some more lawsuits shortly, but we're seeing some more enforcement in this field along these lines, in particular when it comes to pump and dump schemes. And we'll talk about the Ethereum Max Case that Ryan Huegerich's case shortly. And sock puppetting, which is where an individual creates fake accounts to sell their NFT to inflate prices and advertise higher transaction histories for their NFTs. They're not real in life.
And so what we're seeing, and we'll see when we go through the case law shortly is an increase in enforcement in the field. Well, it's a burgeoning enforcement in the field, and we'll touch upon that shortly. And so in terms of enforcement considerations, at the moment, as Brent has said, there are really very few guidelines designed specifically for virtual worlds. So we're going back to core principles, and the way copyright, trademark, and other intangible assets will be used and protected will develop in the coming years. We are starting to have some guidance in the case law, and certainly, here are some considerations to keep into mind at the moment now already. And for the in-house counsel and the lawyers on the line, if you are engaging in settlement agreements, ensure that your IP rights stay with you, and ensure that they cover NFTs, and we will see some cases that we'll talk about shortly, which illustrate why that's important.
A concern has been the unauthorized reproduction of NFTs. We are starting to see courts using core principles to treat NFTs as digital property and rely on trademark rights for takedowns, or even there's been the first ever injunction that happened from the Court of Rome just this week. And so we're starting to see core principles of IP apply to the enforcement and in the metaverse and NFT space, which is very interesting and heartening because those of us who are IP lawyers in the call this is a language that we speak. And so it's heartening to know that these principles can be applied to this new world.
In terms of the rights associated with the ownership of NFTs, they must also be specified. Does the ownership mean the right to the asset itself or to the underlying IP? Is it for resale, et cetera? If it's really more of a license that has to be stated and expectations have to be managed. Brent also talked of territoriality and jurisdiction as being an issue, and of course it's an issue for enforcement, and we will see this on these cases. With the headset on, as Brent said, where are you? If you're a party in the USA being harmed, if the harm is in the USA, and if that person's in New Jersey, we're seeing that the US court is likely going to want to adjudicate that.
It's being played out in territoriality decisions in the Berkin case we'll talk about. One case is in the Southern District of New York. They looked at the initial platform of the NFT, which is OpenSea, which is registered to do business in New York. And the plaintiff is in New York. And the harm took place in New York, and jurisdiction was established that way. And so even though OpenSea was not a party in this case, and we'll get to that, the defendant was a resident of California, New York still took jurisdiction. And so we're starting to see these arguments taking shape. We're trying to see how this happens.
And so the protection of your rights in the metaverse requires imagination and foresight, and the implementation of traditional IP strategies should anticipate a business objective including the metaverse plan. And again, we'll turn to the idea of filing and protecting for your IP. Legal considerations relating to IP assets must be identified before NFTs are minted or purchased by a consumer, of course. And of critical importance, of course, is the idea of what legal rights are granted with the underlying asset. Can the NFTs be resold or transferred? What rights are transferred with it? What are the terms of the NFT? And does ownership extend beyond the NFT to the underlying asset itself?
So lots of questions at the moment. More questions than answers. But the idea of starting with first principles is starting to flesh out. We're seeing NFTs being considered as a digital form of property. Injunctions are being granted based on trademark rights, and so this brings me to the next slide, which is because we're seeing that trademarks can be used as a way to enforce, it is a good moment for brands to think about their filing strategy and make sure that they don't have gaps in their own portfolios as to what they're doing currently and what the plans for the business are.
And so classes that we're seeing relating to the metaverse include those on the screen-- 35, 41, 42, 43, 45. All has to do with the activities of the metaverse world. Of course, it really does depend what is happening and what the plans for the brand are. But we have seen NFT and the metaverse related applications jump seven-fold in the first month of 2022, so people are getting into the space. And then the USA, it was up in 2021 by a huge leap. And so companies are turning their minds to this. And so if you are someone who isn't in charge of your company's portfolio, it is a good moment to pause, talk to the business, see what their plans are, and make sure that your portfolio is keeping up with plans.
And so the next slide, we have advertising issues. Advertising is, of course, huge in the metaverse. We're just touching on it very quickly here so that you have it in your mind. Issues include those in the screen-- influencer advertising, advertising to children, the implications of advertising claims, contest promotions, and ambush marketing. So we can move to the next slide, where we start to review groundbreaking cases. And so there were only a handful. The cases are starting to grow. These cases do not include the whole class action lawsuits that are sure to come with the whole FTX cryptocurrency meltdown that we've seen.
The ones we're going to talk about-- this is very IP focused because that's really where the first lawsuits have been because brands are valuable, and brands are diligent. And so turning to the first case, the Ryan Huegerich case-- so this is an interesting one. We have-- it's what you call a pump and dump scheme. So the class-- it's a class action with investors who purchased EMac tokens. And the claim is that celebrities and company executives collaborated to misleadingly promote tokens disguising their involvement and availability of tokens to artificially inflating price and interests. And defendants sold their tokens for profit. Most investors purchased losing assets.
So turning to the next slide, we have Kim Kardashian who agreed to pay a $1.26 million fine to the Securities and Exchange Commission to settle civil charges after she was found to have touted EthereumMax on Instagram. I'm sure for Kim that's just the price of doing business, but it still would be a rather large fine for a normal person. And turning next to another very interesting case, which is one of the very first cases that was in the internet in the metaverse world. It's the Hermes international versus Mason Rothschild case.
And here, we have brand owners becoming increasingly aware of the importance of protecting their IP property in the metaverse through trademark filings and enforcement actions, and we have the luxury brand Hermes, who created this, of course, famous Birkin person. Commenced a proceeding against the digital artist, Mason Rothschild, which arose from an NFT collection that Rothschild created and began selling, which depicted the bags that you see on the screen. Rothschild profited from the unauthorized sales and Hermes received no profits. The case is ongoing but has raised incredibly interesting questions about the scope of trademark protection, jurisdictional implications of virtual spaces, and liability of intermediary hosts and the application of trademark laws. And so it's a very interesting case that is still unfolding. We don't have a resolution for it then, and so it's ongoing-- to be followed.
The next one, also extremely interesting, is Nike or StockX. The detection of infringing content in the metaverse poses a significant challenge, and the use of AI to detect it is very important. Recently StockX, which is an online resale marketplace offered NFT a footwear featuring the Nike Swoosh design Mark without Nike's authorization. When determining possible remedies, there was discussion on whether an NFT can be the property subject of an order for destruction of goods, and by virtue of the encryption on the blockchain, NFTs cannot be destroyed, and they can only be blocked from being transferred.
And so this case is also ongoing, but it indicates litigation is happening in the space, and it's happening with IP. So with the next slide, again, another different case. It is this case alas has settled, so we'll never really how it would have been adjudicated by a court. But it's very interesting to know that the US District Court in the Central District of California was used because Quentin Tarantino attempted to sell his own Pulp Fiction NFT collection named Tarantino's NFTs. And each NFT represented a chapter from the Pulp Fiction script and included scanned pages from the original handwritten script. Miramax, however, owned all of the IP associated with the film, and Tarantino's contractual agreement reserved the rights to print publication, including without limiting screenplay publication in audio and electronic formats, et cetera.
Tarantino used Miramax's Pulp Fiction trademark and associates in selling NFTs, but Miramax is not the source of the NFTs. And so Miramax took great issue to this, and the question was the unregistered work of Pulp Fiction broad enough to cover these new forms of digital work? And so everyone was waiting to see how this would all happen. There were a number of other issues, of course, raised by this interesting case, but Miramax has now settled this case against the filmmaker. And so we will never really know, but does illustrate the importance of contracts and how they're drafted and covering off the minting of NFTs when you are dealing with talent, entertainment, settlement agreements, et cetera.
And so the next slide, we're back to our Bored Ape. And so the Bored Ape has been the source of a lot of litigation of late. You may have caught wind of this because Jimmy Fallon was on The Tonight Show with Paris Hilton, and they were comparing their Bored Apes. And so in this case, we have Bored Ape, which is minted by Yuga Labs and has sued the artist Ryder Ripps in the Los Angeles federal court to stop the trademark lawsuit. The artist asked a Los Angeles court to stop the trademark lawsuit brought by Yuga Labs, by the maker of the popular Bored Ape Yacht Club nonfungible tokens, arguing that his NFT of the Apes were a type of appropriation of art meant as criticism and protected by the First Amendment.
The artist, Ripps, doubled down on his allegations that the NFTs contained coded racist imagery and called Yuga Lab inc's lawsuit an attempt to silence an artist who used his craft to call out a multibillion dollar company built on racist and neo-Nazi dog whistles. So the issues raised here are serious and interesting. The case is quite new. We're following it closely. And as a parallel, an investigation has now been launched investigate whether Yuga Labs, which minted the reported NFTs, has violated federal securities laws in-- so this also remains to be seen.
So it's as to whether certain of its officers and directors and promoters and corporate insiders violated these federal securities laws. So this remains to be seen. These cases are all very interesting to follow, and they illustrate, A, the importance of IP, and enforcement in this space, and the importance of keeping a good eye on your own IP rights so that if you need to rely on them to sue, you have to rely on them to sue. And so this, of course, all ties to what the plans for the brand are, so we urge you to think about that.
And so with this review of the case law, we conclude the threats and opportunities of doing business in the metaverse. We wanted to give you simply a glimpse. An hour is not a lot of time. The issues, of course, are enormous. We really wanted to give you a glimpse into what's happening in space and give you a sense of the legal and the business risks. The topic is vast and evidently has more depth than we can cover just in this hour, but we hope that this has helped you have a perspective on what is happening, and we think the metaverse should be of use to you as an emerging multidisciplinary field and good legal advice, of course, in all the areas we flagged as is imperative. And over to you, Brent, for your own concluding remarks.
Thank you. I would add two things to that. One, do get in and play with this technology because it's really hard, I think, to understand-- all this seems very abstract until you actually get it and experience it for themselves. So I urge you to set up accounts, wander in, and just experience it. I also urge patience because it's a universe that's populating slowly. I've heard some complaints that well, I went in, and I didn't see much of anything.
It's under construction still, so I think going in and complaining about it is a bit like walking into a construction site, and saying, this is a lousy mall. Well, the mall is not finished yet. It's going to be filled in by content. It's going to be filled in as people purchase virtual real estate and pop up their businesses there. It's an iterative process, and it's also-- it's a very experimental technology with a lot of potential pitfalls, like any experimental technology. So go into it with your eyes open. Consider your business risks and your legal risks very carefully. And as Monique said, get lots of legal advice.
I did want to leave room at the end here to make sure we address some of the questions here, and we got at least two good ones here, and maybe more will come in before we finish. But first one I think I'll take from-- how can we enforce our rights within these virtual worlds when we're dealing with bad actors who are in countries with legal systems that aren't going to support us? This is for sure going to be a problem, and it's mirrored-- it's a mirror of the problem we have with just general law. How do you track down people and how do you serve people in countries where there isn't any sort of treaty in place for that? How do you get the cooperation of law enforcement if that's appropriate?
In a lot of these cases, I think, the answer is going to be you just don't. And that's going to, I think, prompt a lot of people to look to big pockets for remedies. So if something happens to one of your customers, I don't think that-- it's like the cyber attacks. They're not going to be going after the attacker. They're going to be going after the platform or the business that didn't stop it because they can find those people. So it's going to be difficult. I mean, basic things like how do we get the information from the platform? I need to locate individuals. How do I even serve them if they're a decentralized organization with no head office and no corporate identity?
So they're going to be a lot of problems here, and this is where I think buyer beware is hugely important because you may-- there are going to be situations where you're probably going to find yourself pretty much without recourse. Another question here-- well, I should ask you, Monique. Do you have a different view, or what can you tell us about enforcement of rights when it comes to the intellectual property side? I mean, the ones we've seen here where parties were identifiable parties, but what would you say to that?
They were identifiable party, which is really interesting. Of course, the risks that you raised, Brent, about anonymity and not being able to actually determine who it is you need to sue and where to find them and even how to serve them. Those certainly exist. But what we are seeing at the same time is that, for example, the New York Court has taken jurisdiction where the harm is happening in the US, and you're having a platform like OpenSea who can be identified, and the courts are taking jurisdiction.
So it's possible-- the US, of course, is always on the forefront of all this litigation. All the litigation I talked about, it's all happening in the US, and that's because they have a sophisticated-- the country very litigious one and are willing to take jurisdiction, but that does imply that there's someone to sue who you can find. And so this is-- maybe it's as you said, Brent. It's buyer be ware. When you are engaging, you really should know who you're engaging with.
Another question-- will smart contracts solve some of these problems, some of the legal issues that we're talking about? I think the answer is yes and no and not so much the ones that I have been worrying about in this presentation. Smart contracts are great for making sure transactions actually occur because essentially, for those that haven't played in this space before, smart contracts operate on the blockchain, and they essentially automate the performance of contracts. Good A is transmitted digitally to the person who's paying for it. Payment is then forced to happen automatically.
There isn't a way-- the contract is automated in self-performing, and there isn't a way of simply deciding not to pay or deciding not to go through with a transaction. That's good for, I would say, a fairly-- it will solve problems with all of the routine transactions that when the space is busy will be happening thousands or millions in an hour-- just the basic commerce transactions. I don't think it's going to be an answer to most of the kinds of disputes we were talking about today. Not IP, not tort litigation, not fights between the organizations that are using this technology, implementing this technology, and the companies that decide to partner with them, not in the universe itself, but building the actual business in the real world. Any thoughts on that, Monique?
I agree with you, Brent. And this smart contract, it automates trust. That's very convenient. It automates trust for the transaction, but the transaction is just a tiny portion of the things that we've been talking about today. It doesn't resolve the tort issues that we raised, the contract issues that you raised, the IP issues that I've raised. I mean, there's just a whole lot of meat in the sandwich.
It's a fair point. All right, I'm not seeing any other questions, so unless one pops up in the next second or two, we're leaving it with meat in the sandwich. I like that. And I just-- let me just close by saying thank you so much for joining us. I suspect this isn't the last that you'll hear from us on this topic. It's an emerging and fascinating space, and I commend you all for taking the time to get into it and get your heads around it, your arms around it at these early stages, so thank you everyone. Thank you, Monique.
Thank you, Brent. We hope you found it interesting.