Competition/ antitrust in the metaverse

13.10.2022

It is worth starting by pointing out the obvious – competition laws will apply to companies operating in the metaverse in the same way that they apply to companies operating in any other industry. Whether a company provides a digital platform, sells consumer products, or builds housing developments, it still has to comply with competition law.

In the eighth article of our series, we focus on the competition law issues which may arise in the metaverse.

At a very high level, there are three heads to competition law in the EU, which are broadly similar to antitrust rules in other jurisdictions:

  1. Companies cannot abuse a dominant position;
  2. Companies cannot enter into anti-competitive agreements;
  3. Companies cannot merge or acquire other companies if doing so can be expected to significantly impede effective competition.

The metaverse may be the next phase of the internet, but a lot of the competition law issues that could affect it in the future are already issues today. Companies involved in research and development (R&D) for the metaverse should already be thinking about competition law issues in any licence agreements arising out of that R&D for example. However, as the metaverse develops, depending on exactly how it evolves, there are likely to be some key competition law issues that companies involved in the metaverse will need to consider carefully.

‘One true metaverse’

It’s possible that one company might manage to create a single metaverse used by the vast majority of consumers. If so, that company is very likely to hold a dominant position, and will therefore be under a special responsibility not to abuse its market power. It will have to consider how its actions could affect the end user and other businesses in all sorts of ways.

For example, it could be unlawful for the dominant company to refuse to allow other businesses to participate in the metaverse economy or to refuse access to data, or to favour its own products and other services in the metaverse (conduct known as self-preferencing).

The dominant company will also have to consider how its conduct affects any secondary markets that develop within the metaverse, or are related to it. It seems plausible that the company might run a marketplace in the metaverse where consumers can buy or sell virtual goods. Both the European Commission and the UK CMA are currently investigating Amazon Marketplace to assess whether Amazon is giving its own business or sellers that use its fulfilment services an unfair advantage compared to third party sellers. Similar sorts of issues could easily arise in the metaverse.

Multiple metaverses

Given the commercial potential of the metaverse, it seems more likely that more than one will evolve. After all, there are already a number of platforms out there claiming to be a metaverse (e.g. Decentraland, The Sandbox; Roblox is also taking steps in that direction, albeit without incorporating AR/VR at the moment).

One of the most interesting aspects of multiple metaverses is the question of whether it will be possible to travel seamlessly between them. It’s easy to imagine a hypothetical user wanting to have one metaverse avatar, and to use that avatar to go to a work meeting in the ‘Microsoft metaverse’ followed by meeting friends in the ‘Meta metaverse’. Crucially, our user would not want to have to log out of the Microsoft metaverse, swap from a Microsoft VR headset to a Meta VR headset, and then log-in to the Meta metaverse in order to do so. It’s also easy to imagine consumers wanting to be able to be able to use any metaverse products they purchase, whether these are digital goods such as specially branded outfits, or physical goods such as the VR headset, across all metaverses. This trend is already happening with current gaming platforms, leading to Fortnite skins and V-bucks in-game currency now being available cross-platform.

However, creating this kind of seamless transfer between metaverses would require them to be interoperable. Essentially, that means creating a common technical standard so that metaverses can exchange information and communicate with one another. Doing so would require each metaverse company to discuss commercially sensitive information about how their metaverse is currently designed to operate, or how metaverses should be designed to operate in the future.

Sharing technical information in this manner can be pro-competitive. Think about it in the context of mobile phones; it would be very frustrating if a user on the Vodafone network was unable to communicate with a user on the EE network, or if there were multiple competing versions of 4G and 5G, all with poor coverage. Companies involved in all parts of the mobile phone ecosystems, from network infrastructure, to chipsets, to handsets, all work together to create standards that each bit of equipment should meet in order to enable interoperability and solve these kinds of issues.

However, sharing commercially sensitive information can also be anti-competitive. In 2021 the European Commission fined car manufacturers more than €875 million for colluding on technical development on emissions – by exchanging information and reaching agreement on matters such as AdBlue tank sizes, they had avoided competing on the use of better, cleaner technology.

Metaverse companies would need to show that end consumers benefit from interoperability, and that they aren’t exchanging any more information than is necessary to create the required technical standards or using it as a means to preclude competition. Some metaverse companies may also be against the idea of standardisation, preferring to try and ‘lock-in’ users to their own system by making it the preferred choice of as many users as possible.

IP rights may also be relevant to any metaverse standards created. In the mobile phone context, thousands of patents are essential to the 4G and 5G standards, any one of which could be used potentially to obtain an injunction blocking sales of a phone that complies with the standard. As a result, patentees are required to license such ‘standard essential patents’ on ‘Fair, Reasonable, and Non-Discriminatory’ terms, to ensure they cannot take advantage of the standardisation process. Metaverse companies involved in creating standards may need to adopt a similar system.

Other issues to think about

Considerable new technology is being developed for the metaverse, often by start-ups. It seems likely that big metaverse companies may seek to acquire start-ups that have promising development pipelines (perhaps relating to more sophisticated avatar technology or better movement tracking for example). While such acquisitions can benefit competition by leading to new technology getting rolled out more widely, the acquirer could also side-line the technology to stifle competition, the threat of which is known as a ‘killer acquisition’ (see more on this here).

There is a general appetite in Europe at the moment for a push towards proactive regulation rather than reactive competition enforcement, which some consider comes too late to be effective. The EU is rolling out the Digital Markets Act, which imposes additional regulatory requirements on large online ‘gatekeeper’ platforms. This kind of legislation could also apply (or form the basis for new regulations) for the metaverse. Equally, there are also plenty of examples of current enforcement in the digital space, see e.g. the CMA investigating Apple for blocking cloud gaming services from the App Store, showing how interested competition authorities are in digital markets.

Overall, the likely scale of any successful metaverse(s) mean that they could easily have the potential to affect competition, and could easily draw the attention of competition authorities. That means competition law issues are always going to be something that metaverse companies have to bear in mind.

Still have questions? Be sure to read our metaverse articles below:

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