In his 1992 sci-fi thriller Snow Crash, author Neal Stephenson allowed his characters to escape from a dystopian Los Angeles into a completely virtual realm he called the metaverse. Thirty years later, in the age of the internet, apps, and social media, fantasy has become reality. Companies are introducing new technologies like virtual and augmented reality, cryptocurrency, and non-fungible tokens (NFTs) at an ever-accelerating pace.

Those companies are ready to welcome us as we move more of our lives online each year. The best-known of these is, of course, Meta, Inc. (previously known as Facebook), but a phalanx of others, ranging from Web3 companies like Coinbase, Autograph, and Decentraland to more traditional brands like Volkswagen, Roblox, and even HSBC, are working to take advantage of the public’s newfound enthusiasm for all things metaverse and present cutting-edge marketing and branding experiences.

For example, last year, Yahoo, Selfridges, Pokémon, and fashion designer Charli Cohen developed a metaverse experience known as ElectricCity, which allowed consumers to simultaneously purchase real and digital copies of the same piece of clothing by making use of an interoperable virtual avatar. These branding campaigns have grown so ubiquitous that industry publication AdAge is keeping a continually updated list of how brands are using NFTs.

Below, we discuss some of the legal issues that may come up in this still-evolving area as more brands enter the metaverse and start to use NFTs for advertising, branding, and promotional opportunities.

What Are the Legal Implications of Advertising in the Metaverse?

While the metaverse may open an exciting new universe of marketing opportunities, few of the legal rules that will apply are new. Indeed, many of us have applied federal and state advertising laws to new media and technologies multiple times over the last 20 years – first with the broad adoption of the internet, then the introduction of social media (in various formats), advances in mobile advertising, and so on.

In fact, we have been discussing how to apply these laws to “virtual worlds” since the launch of “Second Life” in 2003. Moreover, the Federal Trade Commission (FTC) made it clear in truth in advertising guidance such as “.com Disclosures: How to Make Effective Disclosures in Digital Advertising,” which is currently being updated for the third time in two decades, that regardless of the technologies involved, many of the concerns will be the same.

  • Ensure your advertising is truthful and not deceptive, and all disclosures are made in a clear and conspicuous manner
  • Acquire the necessary intellectual property (IP) rights
  • Recognize and disclose endorsements
  • Follow the rules for promotions, where applicable, including the prize promotion and gift laws
  • Ensure that contract issues are addressed, including terms of use and privacy issues

Advertisers must still concern themselves with running afoul of federal advertising statutes (such as the FTC Act and the Lanham Act) and state consumer protection laws that forbid deceptive advertising in the metaverse. And the same regulators and industry watchdogs, such as the FTC, Consumer Financial Protection Bureau, state Attorneys General, and National Advertising Division, are continuing to pursue bad actors there. That said, new (or rarely seen) players, such as the Securities and Exchange Commission, have pursued actions involving claims by celebrity endorsers about investing in cryptocurrencies, taking the position that they should be regulated as securities. Moreover, there are certain types of claims that may be at higher risk of regulation.

What Does False Advertising Look Like in the Metaverse?

Metaverse and NFT legal issues are drawing considerable attention from both regulators and class action lawyers. For example, a class action was filed against online retailer StockX in the U.S. District Court of Miami, alleging, among other things, that StockX was misleading customers concerning its NFT products. Specifically, plaintiffs alleged that StockX made false and misleading statements concerning the availability of the products that customers were supposed to be able to redeem for their NFTs, and the authenticity of the products themselves. These actions, according to plaintiffs’ complaint, were in violation of Florida’s Deceptive and Unfair Trade Practices Act.

Similarly, in January 2022, the rapper Lil Yachty filed federal and state false advertising claims against Opulous and Ditto LTD in the U.S. Central District of California. In that case, Lil Yachty alleged that Opulous used his image, name, and trademarks without his consent in various advertising and promotion for an NFT drop by Opulous, and falsely represented that the NFTs being advertised were endorsed by Lil Yachty and that buyers would be able to purchase Lil Yachty’s copyrighted works.

These types of claims are cropping up with increasing frequency as companies try to quickly pivot to take advantage of the perceived profitability of the metaverse.

Be sure to read Part 2 of our series, “Branding the Future: Advertising Law, the Metaverse, and NFTs.” We’ll discuss sweepstakes, endorsements, and intellectual property in the metaverse.