The idea of the metaverse rose to prominence in the public discourse in 2021, most notably when Facebook renamed itself Meta and announced a new focus on launching a virtual, immersive world. The initial excitement around the metaverse has since faded, with worsening economic conditions having a particularly acute effect on companies in the technology sector. When Meta CEO Mark Zuckerberg announced in March 2023 that artificial intelligence (AI) was the company’s “single largest investment,” many took this as a sign of the company shifting focus away from the metaverse.
However, there remains significant interest in the metaverse from both businesses and consumers. Zuckerberg himself reaffirmed Meta’s focus on the metaverse, highlighting how developments in AI will improve virtual reality (VR) and augmented reality (AR) technology. Meanwhile, Roblox, a metaverse gaming platform, announced that in Q1 2023, its number of daily active users had increased to 66 million. Most recently, the announcement by Apple of its new ‘Vision Pro’ AR headset is reported to have renewed interest in the metaverse among developers.
A particular area of interest in the developing metaverse is digital fashion and retail. In its Metaverse Fashion Trends Report 2022, Roblox found that nearly three in four users aged 14 to 24 spend money on digital fashion items. Roblox itself has partnered with fashion brands Burberry, Gucci, Tommy Hilfiger, and others, to offer experiences and items for use on the platform. In March 2023, Decentraland, a metaverse platform with a decentralized governance structure, hosted the Metaverse Fashion Week, featuring brands such as Adidas, Coach, and DKNY.
As businesses continue to invest and look for opportunities to expand into the metaverse, whether through traditional e-commerce or more innovative digital asset offerings, it is important that they consider the ways in which new and existing laws apply to their activities.
This guide sets out how Thai law will apply to businesses looking to engage in retail activity on metaverse platforms, featuring video commentary from a number of experts across Tilleke & Gibbins’ Corporate, Dispute Resolution, and Intellectual Property practices.
What is the Metaverse?
In popular conception, the metaverse is often associated with particular platforms, such as Decentraland or Sandbox, online games, such as Fortnite or Roblox, or even with science-fiction, such as the 2018 film Ready Player One. In reality, defining the metaverse is a much more difficult task. Napassorn Lertussavavivat, from Tilleke & Gibbins’ Corporate and Commercial team, explains:
While certain metaverse platforms do already exist, the metaverse itself is better understood as a developing concept, with businesses and technology experts still seeking to form a consensus on the defining characteristics. It is generally agreed that the metaverse is an immersive and persistent virtual world that users can access in real time, often, but not exclusively, through the use of VR or AR technology. The metaverse may, but need not, utilize blockchain technology, although an internal economy, currency, and digital asset ownership are seen by many as key features.
In his 2021 essay, Framework for the Metaverse, Matthew Ball, venture capitalist and metaverse expert, captured many of these features in the following definition:
“The Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds and environments which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
Interoperability – the ability of users to move their digital assets from one platform to another in a manner akin to tangible assets in the real world – is often cited as a defining feature and benefit of the metaverse, although one that is proving difficult in reality with the growth of rival proprietary platforms. The Metaverse Standards Forum was launched in 2022 by companies including Meta, Google, Epic Games, Sony, and Tencent, to develop common standards to facilitate interoperability across platforms.
Regardless of how it is defined, businesses are continuing to explore investment opportunities in the metaverse, and technological developments in hardware, such as VR/AR and haptic accessories, software, and computational power, will continue to drive the growth of metaverse platforms.
Retail in the Metaverse
The metaverse has the potential to radically change retail and even supplant mobile as the primary channel for e-commerce. Immersive virtual worlds will allow for new and creative ways of marketing existing physical assets, as well as open the doors for the sale of digital items and entirely new retail practices leveraging developments in blockchain technology and smart contracts. Napassorn Lertussavavivat explains:
The virtual world of the metaverse will allow businesses to market their assets and brand through new and more immersive consumer experiences. In 2021, luxury fashion brand Gucci launched Gucci Garden in the Roblox metaverse, a digital recreation of the Gucci Garden Archetypes exhibition held in Italy. The American sneaker designer, Vans, similarly launched Vans World, a virtual skatepark, in Roblox. Many fashion brands have participated in events such as the Metaverse Fashion Week, hosted in Decentraland.
The metaverse and metaverse-linked technology also offer new ways for companies to promote and sell physical, tangible assets. Companies from Nike to Lancôme to IKEA already offer AR tools that allow consumers to project products onto themselves or their environment. In the future, improvements in VR and haptic technology could allow consumers to handle and “feel” real-world products in a virtual store.
Most prominently, however, brands are taking to the metaverse to launch new digital assets, often in the form of clothing or accessories to be used by consumers with their metaverse avatars. Brands from Nike and Adidas to Ralph Lauren and Forever 21 have launched digital clothing and accessories. Digital assets will typically be sold through marketplaces on specific metaverse platforms or through third-party marketplaces, such as OpenSea.
Many digital assets are sold as non-fungible tokens (NFTs), usually recorded on the Ethereum blockchain. The function of an NFT as a certificate of ownership may help to facilitate the interoperable use of the digital assets across different metaverse platforms. Moreover, selling digital assets as NFTs opens the door for new business models, such as the seller using the associated smart contract to secure royalties each time the NFT is resold.
The sale of digital assets online can also be tied to or help generate the sale of physical assets. In 2022, Nike announced Cryptokicks iRL, a limited run of NFTs where the holder will receive a physical version of the digital sneaker. Adidas is also selling physical clothing that was first introduced as digital wearables as part of its Into the Metaverse series.
Legal Issues in the Metaverse
As highlighted above, the metaverse has the potential to radically transform both e-commerce and social networking. The development of new commercial practices and types of assets gives rise to many challenging legal questions. In Thailand, as in most jurisdictions, no specific legislation has been passed to define or regulate activity on the metaverse. Businesses and consumers must, instead, rely on the application of existing laws.
As with social media and other online platforms, it may be challenging to determine what law governs interactions and activities in the metaverse. In the context of the sale of digital assets, it is easy to imagine a scenario where a retailer, a user, an IP owner, and the server on which the metaverse is hosted are all located in different jurisdictions.
As a starting point, any terms entered into between the platform and the user, between the platform and the retailer, and between the seller and the buyer, will likely contain dispute resolution and governing law clauses. Thai law provides contracting parties the freedom to select the form of dispute resolution and governing law, and their choice will be recognized by Thai courts, provided it is not contrary to public order or the good morals of Thailand.
A separate matter is the applicability of Thai legislation to activities in the metaverse. While rules on territorial scope will vary from one piece of legislation to another, all laws will apply within the territory of Thailand. Where activities in the metaverse have a sufficient nexus to Thailand, such as the seller and buyer accessing the platform from Thailand, the courts may determine that Thai legislation applies. Thai legislation can also have extraterritorial effect, in particular where the claimant is the Thai Government or a Thai national. However, to date, there is no precedent for the Thai courts accepting a claim against a metaverse operator with no presence in Thailand.
Direct sales and direct marketing
The sale of physical or digital assets via the metaverse, involving the marketing and sale of assets to remote consumers via the internet, constitutes a form of direct marketing under Thailand’s Direct Sales and Direct Marketing Act B.E. 2545 (2002). The Act requires any business engaging in direct marketing to register with the Office of the Consumer Protection Board (OCPB). Pongpalin Chantrapirom, from Tilleke & Gibbins’ Dispute Resolution team, explains:
Any business seeking to engage in retail on a metaverse platform must, therefore, obtain a license from the OCPB before commencing such activities.
As sales on the metaverse constitute a form of direct marketing, buyers also have a right under the Act to return the assets within seven days of receipt and receive a full refund. In relation to digital assets, there may be difficulties in determining what constitutes receipt for the purpose of calculating the seven-day period. In the majority of cases, this will be the point of sale or, if later, the point at which the digital asset can be used by the buyer.
As with operating a store in the real world, businesses looking to sell goods and services in the metaverse will need to ensure they have sufficient IP rights to protect against counterfeiting and infringement. There are a number of types of IP protections which businesses should consider when operating a retail store in the metaverse.
The Copyright Act B.E. 2537 (1994) provides that copyright vests automatically, usually in the author of a work. Chariyaphon Vachanavuttivong, from Tilleke & Gibbins’ Intellectual Property team, explains the types of metaverse-related works which will be eligible for copyright protection:
In Thailand, as in many jurisdictions, human authorship is required for a work to be eligible for copyright protection. This is a point that brands should consider when creating digital artwork or assets. Famous NFTs collections, such as CryptoPunks and Bored Apes, are algorithmically generated using a list of pre-defined traits. The use of AI to generate large volumes of digital assets could risk the works not being protected by copyright.
While recordation is not a prerequisite for obtaining copyright protection, a business can record a copyright with the Department of Intellectual Property to obtain a formal certificate recognizing their ownership of the copyright. A certificate will have important evidential value in the event that a dispute arises in relation to the ownership of a copyright, such as in connection with a work created in the metaverse by anonymized avatars.
The metaverse, being a virtual world, greatly enhances the scope for creativity that businesses have in offering digital assets and experiences to consumers. As the Thai Copyright Act predates this new mode of media, communication, and consumption, businesses will need to consider whether their novel creations are likely to be recognized and protected before commercializing them. In doing so, it is also important for businesses to ensure they are not violating the copyrights of other. Chariyaphon Vachanavuttivong explains:
With the growth of retail in the metaverse, many businesses have begun filing trademarks for use with digital goods and services. Applications are typically filed for computer software (class 9), retail store services (class 35), and entertainment services (class 41).
The sale of digital assets in the metaverse has already resulted in a number of high-profile trademark infringement claims. In February 2023, a jury of the US District Court for the Southern District of New York awarded luxury fashion brand Hermès damages for trademark infringement, trademark dilution, and cybersquatting in a claim against digital artist Mason Rothchild, the creator of the MetaBerkin NFTs. Nike has also claimed trademark infringement in an ongoing claim against online sneaker reseller StockX in relation to its Vault NFT collection.
In Thailand, trademarks can be registered for use with digital assets, and the descriptions of assets in the Department of Intellectual Property’s Trademark Examination Manual have been updated to reflect this. Chariyaphon Vachanavuttivong explains:
The growth and development of the metaverse will greatly depend on improvements in hardware. Most obviously, this will include improvements in VR/AR technology, as well as haptic technology and other accessories used to stimulate sensation when users interact with objects in the metaverse. More fundamentally, improvements in computer and networking hardware will be needed to facilitate the operation of persistent, real-time virtual worlds that are accessible to an unlimited number of users.
Under the Patent Act B.E. 2522 (1979), new inventions which involve an innovative step and which have industrial application are eligible for patent protection. As in most jurisdictions, computer software per se is not patentable, although inventions relating to computers or computer programs which provide a technical function or overcome technical problems can be patented. Companies may, for example, attempt to file patents for systems used to conduct crowd control in the metaverse or to block avatars.
Many businesses that are currently engaged in online retail will already be familiar with the importance of cooperating with e-commerce and social media platforms to tackle IP infringement, especially in cases where the infringer is anonymous. As is the case for traditional e-commerce, seeking to enforce IP rights can be complicated where the platform on which the infringement is occurring is hosted in a different jurisdiction from that in which the IP rights holder is based. In relation to the metaverse, additional enforcement challenges may arise when dealing with platforms which are governed by Decentralized Autonomous Organizations (DAOs) or where IP-infringing content is hosted on decentralized networks, such as the InterPlanetary Filing System. As brands continue to invest resources into retail in the metaverse, it can be expected that new laws and enforcement practices will develop.
Sale of assets in the metaverse
The types of contracts and contractual relationships involved in the sale of assets in the metaverse will be familiar to businesses that are already engaged in e-commerce.
As indicated above, digital assets in the metaverse will typically be sold via the marketplaces of metaverse platforms or through third-party platforms. In such cases, the seller and the buyer will be bound, first and foremost, by the platform’s terms of service. The level of involvement of the platform in the sale will vary from one platform to another.
In metaverse transactions, as in traditional e-commerce, the contract between the buyer and the seller will typically take the form of a pop-up clickwrap agreement. In Thailand, under the Electronic Transactions Act B.E. 2544 (2001), a contract can be validly formed through an offer and acceptance given through the transmission of data. Napassorn Lertussavavivat explains:
In contrast to traditional e-commerce, the sale of digital assets in the metaverse may be given effect by a smart contract deployed on the blockchain. Smart contracts are a form of computer code which give automatic effect to a particular transaction. As mentioned above, a smart contract may also be coded in such a way as to allow the creator of the digital asset to receive royalty payments from any future sale. Smart contracts will typically exist alongside traditional, off-chain contracts, which will make provision about matters such as the ownership and licensing of IP rights in the digital asset.
Retailers must, however, ensure that any use of smart contracts complies with consumer protection requirements. As discussed further below, under the Consumer Protection Act B.E. 2522 (1979), consumers have a right to receive adequate information about a product. Key terms which are written as code should also be included in natural language in the off-chain contract or otherwise explained to the consumer. Furthermore, as noted above, consumers have a right under the Direct Sales and Direct Marketing Act B.E. 2545 (2002) to return assets within seven days of receipt. The automaticity of smart contracts, coupled with the immutability of records on the blockchain, may make it difficult for sellers to comply with their obligation to refund consumers who elect to terminate the contract.
Many metaverse platforms have in-world virtual currencies or cryptocurrencies that can be used to purchase digital assets. In Thailand, the issuance of cryptocurrencies is recognized and regulated by the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018). The Securities and Exchange Commission (SEC) permits the use of certain cryptocurrencies as a means of payment within digital asset exchange platforms. However, beyond such exceptional cases, the Bank of Thailand discourages the use of cryptocurrencies as a means of payment for goods and services.
Ownership of digital assets
One of the more complex and contested issues in relation to retail in the metaverse is the question of what is being sold, and what ownership rights, if any, vest in the buyer at the point of sale. Different jurisdictions have established different tests for what constitutes property, ownership of which confers associated rights. Thai legislation refers variously to both “things” and “property.” Things are tangible objects, and therefore do not include digital assets. By contrast, property is defined more broadly, and recent first-instance judgments suggest that cryptocurrencies constitute property under Thai law.
It is often argued that NFTs, as a certificate of authenticity distinct from the IP rights in a digital asset, are property capable of ownership. Courts in both the UK and Singapore have found that NFTs are property for the purposes of issuing certain proprietary injunctions. Given the broader definition given to property under Thai law, it could be argued that NFTs are a type of property. However, given the test of tangibility, it is unlikely that NFTs would constitute things. This may pose challenges in relation to certain causes of action, such as unjust enrichment, which only apply to things under Thai law.
Even if NFTs were to be recognized as property, it is important to maintain a distinction between the NFT and the IP rights in any digital or other work to which it relates. NFTs are tokens recorded on a blockchain. The NFT will typically be governed by a smart contract, which will identify the work to which the token relates, such as a digital image or an item of virtual clothing. The work itself will usually be stored off chain, either on a decentralized network, such as the InterPlanetary Filing System, or on a central server. Unless agreed otherwise by contract, the IP rights in the work will normally vest in the creator or registrant. The smart contract, or more commonly a separate off-chain contract, may license or assign certain IP rights to the buyer of the NFT. Whether such a license, or any other exclusive benefits associated with ownership of the NFT, will transfer to any future buyer of the NFT will depend on wording of the relevant contracts.
Sellers of digital assets in the metaverse will need to ensure that any advertisements or representations made to the buyer, as well as the terms and conditions of the sale itself, reflect the legal and technical realities of digital assets.
Thailand’s Consumer Protection Act B.E. 2522 (1979) applies to the sale of digital assets in the metaverse. Piyawat Vitooraporn, from Tilleke & Gibbins’ Dispute Resolution team, explains:
Under the Act, consumers have a right to receive correct and adequate information about any assets they are purchasing. Consumers who believe their rights have been violated by a business are entitled to lodge a complaint with the OCPB, which can mediate the dispute and refer the matter to the Consumer Protection Board (CBP). The CBP may, if deemed appropriate, initiate civil or criminal action against a seller on behalf of the consumer. Furthermore, the Act prohibits the use of statements in advertisements which are false or cause a fundamental misunderstanding in relation to the assets or services being sold. The Committee on Advertisement can require that advertisements be corrected, prohibit certain statements or advertisements, or order the advertiser to issue a correction to consumers.
As noted above, the status of digital assets as property under Thai law is not yet firmly settled. As such, any claims in relation to “ownership” could leave sellers at risk of breaching consumer protection laws. To the extent that the transaction involves the licensing of IP rights, the seller should ensure that the consumer is made aware of any applicable limitations, in particular in relation to the platforms on which the consumer can use or display the digital asset and the transferability of the license to any future purchaser.
A related matter that should be addressed in the terms and conditions and drawn to the consumer’s attention is the issue of interoperability. Whether a digital asset can be used on a particular metaverse platform will depend, among other things, on the ability of the platform to recognize the data encoded within the NFT and the compatibility of the digital asset with the graphic style of that metaverse. Such matters rest within the control of the operators of the platforms, not the seller of the NFT. Sellers should be clear with consumers about these limitations and ensure that the terms and conditions sufficiently restrict their liability for matters beyond their control.
The metaverse is continuing to grow and take shape, both through advances in technology and changes to consumer behavior. The disruptive nature of the metaverse and rapid changes to consumer demands have seen many businesses make hasty attempts to enter the metaverse. However, as the discussion above indicates, it is important that businesses do so with clear commercial and legal strategies in place. Moreover, as investment in the metaverse continues, we can expect to see legislative, regulatory, and judicial interventions providing clarity on the rights and obligations of parties operating in such spaces.
Tilleke & Gibbins will continue to monitor legal and commercial developments relating to the metaverse and stands ready to assist clients looking to seize the new opportunities it presents.