Settlement at the other end of the horizon: Is Arbitration in the Metaverse a distant reality?

The Author, Vanshika Tuteja, is a 2nd Year law student at National Law University, Jodhpur. She is currently interning with LatestLaws.com.

Introduction

A decade ago, I would believe that it was absolutely impossible to step into the dreamy spaces and be around my favourite avatars that Walt Disney had curated. With the evolution of the fourth generation of the virtual world, more popularly referred to as Web 4.0, it’s safe to say that none of it seems like a distant dream. The metaverse allows users to now experience stepping inside the virtual reality, instead of just accessing it via electronic devices and digital platforms.

Metaverse is a virtual universe wherein one can interact with different users in the form of avatars, and perform an extensive range of actions, including selling or purchasing different products (even virtual immovable property), and attending concerts, fashion shows, among others. It provides a deeply engaging experience to the users within a shared digital space. The term ‘metaverse’ was first coined by Neal Stephenson in his 1992 dystopian fiction novel, ‘Snow Crash’. Metaverse has been defined as ‘A (hypothetical) virtual reality environment in which users interact with one another’s avatars and their surroundings in an immersive way, sometimes posited as a potential extension of or replacement for the internet, World Wide Web, social media, etc’.[1]  It is modelled by integrating Augmented Reality (AR), Virtual Reality (VR), Blockchain Technologies, and Artificial Intelligence (AI). Our digital assets in the metaverse are encrypted in the form of Non-Fungible Tokens (NFTs) and Cryptocurrency.[2]

This virtual landscape is rapidly making its way into our lives. Recently, Qatar hosted the first EA Sports FIFA Metaverse tournament, wherein viewers received free NFTs exchangeable for merchandise and player interactions. Earlier this year, Decantraland hosted its second Metaverse Fashion Week, allowing visitors to virtually participate in runway shows, panel talks and shopping experiences.[3]

It’s pertinent to note that the transactions taking place in the metaverse go beyond the customised avatars, digital assets and elegant virtual venues, for behind these fancy screens, there is a human being wearing a VR headset in front of a giant screen from across them, controlling their actions in the metaverse. Of course, not all the entities in the metaverse would be working with the help of human intervention and control, owing to the presence of AI bots and artificially created figures. Since our virtual identities work on the actions of our physical, real-life identities, we know that we are bound to share space at some point with another human being in the metaverse. Humans will take a comfortable seat in their living room and indulge in a wide range of personal or professional transactions in the virtual world, which would lead to exchange of ideas, information, assets, among other things. In order to execute a smooth and successful transaction, humans will then abide by the stipulated terms and conditions, or obligations posed onto them by virtue of using the metaverse market place. At this point, humans are working with each other in a shared, digital space, and as Shakespeare puts it, to err is human. Disagreements, disputes and disparities are bound to arise when people start sharing any kind of space together, regardless of that space existing physically or virtually. The metaverse cannot be a safe space for us unless there exists regulatory authorities and rules to abide by. This is where dispute resolution takes up a considerable chunk of this space.

Dispute resolution in the Metaverse

The transactions taking place in the metaverse vary significantly from those in the real world, as metaverse transactions, more often than not, are in the form of smart contracts which are coded and employ blockchain technology in order to get executed. Owing to the technicalities of these virtual dealings, and the prolonged pendency of cases in the real-world that they would contribute towards, it is believed that the traditional dispute resolution systems, including courtrooms, or conventional alternative dispute resolution mechanisms, including arbitration, mediation, conciliation, negotiation or adjudication may not be the appropriate fora for catering to metaverse disputes. Additionally, the important issues of governing laws, jurisdiction etc. would be complex to settle in the virtual world, which transcend real individual identities and geographical boundaries.

 Keeping in view the versatile, multifaceted nature of the Metaverse, there are endless possibilities of disputes to arise. These may stem out of real-estate conflicts, intellectual property infringement, security or privacy breach, and several other civil and criminal claims.[4] For instance, a claim for trademark infringement and cybersquatting in the metaverse was raised in Hermès Int’l v. Rothschild,[5] wherein an artist was selling “MetaBirkins”, a series of NFTs that depicted fur-covered handbags intentionally resembling the iconic Hermès Birkin bag. Further, there could be two kinds of Metaverse related disputes- ‘inter-user’, referring to disputes between different users, or ‘user-platform’ disputes, relating to conflicts between the user and the platform. In Doe v. Roblox,[6] a class action lawsuit was instituted against the Metaverse developer on account of removing or deleting certain virtual products that had been purchased by the users, without offering any reimbursement.

The nature of such claims suggest that it may be more suitable to have an in-built dispute resolution mechanism within the metaverse which could adequately resolve its conflicts. In such a scenario, ADR methods may be used for successfully resolving these disputes. Arbitration has been a  preferred mode of dispute settlement, and has enormous potential to resolve conflicts in the virtual landscape.

Arbitration as a method of resolving Metaverse related Disputes

Arbitration is a mode of Alternative Dispute Resolution, in which a neutral third party, known as the Arbitrator, adjudicates upon a dispute submitted to them by the parties. It is a private, consensual, less-expensive, confidential and efficient mode of resolving conflicts out of the courts. The Arbitrator usually has relevant expertise in the particular field of the disputed matter for which they are appointed. There are domestic and international laws, regulations in place for this mechanism. The Arbitration and Conciliation Act, 1996[7] is the governing law for Arbitration in India. Arbitration has proven to be successful in resolving disputes relating to several sectors and industries, including trade and commerce, construction, intellectual property, real-estate etc., due to its efficient functioning and perceived advantages. Over the course of time, Arbitration has made its way into the digital era by way of transitioning from on-site proceedings and hearings into online ones. The onset of the CoVid-19 pandemic sparked the need for Virtual Arbitration,  which came with its sack of advantages. Some of these included overcoming geographical barriers, convenience of the parties to attend the meetings at the comfort of their personal spaces, reduced travel and logistics costs, flexible timings and scheduling, among others.

What’s more amazing is that instead of logging into an Online Arbitration Session on Zoom or Skype, we can now step into the Virtual Arbitration Venue [personalised as per our preferences] and interact closely with the other parties in the form of Avatars. What makes this experience surreal and more immersive than an online meeting is that we can employ the Virtual Tools in a way that suits us. For instance, customising the virtual environment as per the specific requirements of the Arbitration, by way of incorporating animations, videos, visual representations for producing evidence, using spatial audio to localize the voices of the participants in order to create a sense of immersion, customising one’s own avatars with such gestures and facial expressions which would allow for a smooth exchange of non-verbal communication during the session. Further, virtual whiteboards, chat and polling features can make the process a lot more interactive.[8]

The pertinent question that comes to the fore is, how will Arbitration cater to Metaverse disputes in a time-bound and effective manner? It’s important to first understand that a majority of the Metaverse transactions take place in the form of Smart Contracts. A Smart Contract incorporates contractual provisions integrated in technology and computer programs. It works on a computerized algorithm which automatically executes the terms of the contract, once the predefined terms stored on the Distributed Ledger Technology have been satisfied[9]. These Metaverse transactions, in the form of smart contracts, can be resolved through Blockchain Arbitration.

Blockchain Arbitration refers to a tokenised dispute resolution mechanism wherein jurors are crowdsourced based on the amount of cryptocurrency staked instead of being personally appointed.[10] A Blockchain is a shared database comprising multiple confirmed and encrypted entities. In simpler terms, it refers to ‘blocks’ that get added to the ‘chain’ of transaction records.[11]  Blockchain Arbitration platforms are encoded as an oracle within the smart contract, which automatically redirects the dispute to be resolved, upon the initiation of proceedings by the parties. The Arbitral Award is subsequently rendered in an automatic manner using blockchain technology. Further, the oracle within the Smart Contract ensures that the Award is enforced accordingly, thereby eliminating the stage of enforcement of Arbitral Awards as per the domestic laws through traditional Courts.[12] There are several platforms rendering Blockchain Arbitration services, including Kleros, Jur and Argon.

Kleros as a Blockchain Arbitration platform has emerged to be successful in recent times. The initiation of a blockchain arbitration at Kleros is marked by incorporating a reference to the arbitration protocol by the parties (in the form of legal agreements or smart contracts). Disputants are required to make payments in Ether, which get transferred to the appointed juror. For a juror to be appointed in a proceeding, they have to purchase a Kleros crypto asset, ‘Pinakoin’, which is then staked to join the pool of Jurors. The appointed juror decides the case based on the arguments and evidence submitted by the parties. After the award is rendered, the dissatisfied party may appeal against that decision and have the dispute ruled again. Each new appeal instance will have twice the previous number of jurors plus one.[13]

Now that we have established how Arbitration potentially works in the Metaverse, do we know for sure if it’s actively being manifested in the realm of the virtual universe? Recently, the Dubai International Arbitration Centre launched its metaverse platform for effective dispute resolution, while promising  AI-driven analytics, enhanced security measures and personalised avatars for better user experience in conflict resolution. The Dubai Metaverse Strategy aims to create 40,000 virtual jobs and add $4 billion to the emirate’s economy over the next five years.[14] The ADGM Arbitration Centre has also launched the world’s first “mediation in the metaverse” service to revolutionise the delivery of mediation across the globe, thus taking dispute resolution beyond the realm of the physical world.[15] In February 2022, the first ever International Arbitration Gathering took place in the Metaverse in a hybrid format, exploring the scope and potential of having Arbitration in VR. “In some ways, it feels more natural than seeing people in 2D on Zoom”, remarked the host of the event.[16]  It’s evident that initiatives are being taken up by Arbitration centres and practitioners across the world in order to venture into the virtual landscape. It’s not far-fetched to hope for fully equipped and established Arbitration proceedings in the Metaverse in a short span of time.

Advantages of Metaverse Arbitration

Arbitration in the Metaverse could offer a more flexible, convenient and personalised setting as compared to the traditional mechanisms of Arbitration. One of the major benefits of resorting to Metaverse Arbitration would be increased accessibility. When geographical restrictions are eliminated, people from across the globe can share the common virtual space for dispute resolution. Additionally, it provides for a cost-effective solution as the virtual environments are dynamic in nature and can be customised as per the needs of the session, and users can gain access using affordable hardware and internet connections.[17] It also cuts down on the travel, logistics and other costs which may be involved while conducting on-site Arbitration. It offers flexibility in communication and scheduling appointments as well. The Metaverse venues are modelled in such a way that would allow for streamlined communication, real-time collaboration, and quick access to digital documents or evidence, thereby making the arbitration process more efficient and time-effective.[18]

Second, when it comes to resolving disputes, Metaverse Arbitration could cater to both virtual and real-world disputes, once fully equipped. This way, an extensive range of disputes could be resolved within the virtual landscape.

Third, it has the potential to offer transparency within the mechanism itself: the appointment of Arbitrators using Blockchain technology, for instance, works on automatic selection from a pre-constituted pool of Arbitrators, and the chosen Arbitrator may be required to preserve their anonymity during the course of the meeting. This would lead to the appointment of neutral, unbiased adjudicators who do not have any knowledge of, or interest in the outcome of the proceedings. Additionally, the awards are automatically enforced by way of being encoded in the smart contracts, making the enforcement process smoother and more efficient.

Lastly, Metaverse Arbitration allows for a proficient mechanism for the collection and examination of evidence.[19] The smart contracts function in accordance with their stipulated terms and conditions, allowing for accessing, controlling and monitoring the digitally recorded evidence in real time, all in an effortless manner.

Potential Shortcomings posed by Arbitration in the Metaverse

The process of Arbitration in the virtual reality paints a glossy picture when we explore how it works- with the level of comfort, exposure and efficiency that it promises to hold. It seems to be straight out of a Disney Movie. However, when we delve a little deeper into the intricacies of the entire procedure, it gives the impression that the glossy picture might be smudged to some extent. Metaverse Arbitration seems to bring along its own set of challenges or drawbacks. The most important issue that must be addressed are the legal complexities involved in the process of Arbitration. The governing laws, jurisdiction, enforcement procedure, considering that there are no clear protocols in place as of now, to effectively administer a Metaverse Arbitration hearing, is one aspect to focus on. The users may choose to abide by the rules of the inbuilt arbitration platforms, but there has to be a proper regulatory system in place which renders the process safe and fair for the parties to engage in.

Second, the issue of party anonymity takes away the authenticity from the entire process. One can interact with the use of Avatars in the metaverse, which conceals the actual identity of the person. Hence, the users will not be aware if they are collaborating with the correct representatives of the disputed matters.

Third, the absence of knowledge as to who the Arbitrator might be, not only takes away the crucial right of the parties to appoint an Arbitrator, but also poses questions onto the credibility of the automatically selected Arbitrator.

 Fourth, in a virtual setup, especially being aware of the fact that none of the participants would be aware of each other’s true identities, it is nearly impossible to build a rapport or gain trust of the parties.

Fifth, an Arbitration proceeding involves the sharing of sensitive, private information that could be under the constant threat of being stolen or leaked if there’s a cyber-attack or if the system gets hacked. Digital documents may be transferred in less than a second to third parties, thereby placing the risk of a potential security concern in the minds of the users.

Sixth, a major drawback in virtual proceedings will always be that of frequent technical glitches or interruptions in the internet connections of the participants. Additionally, everyone may not have equal access to the internet connection or the required hardware (which is considerably expensive) for participating in the Arbitration process in VR.

Being able to truly convey one’s intent, emotions or ideas through Avatars is also not very easy. While sharing her experience on the International Arbitration Gathering in the metaverse, Lizzie shares, “The avatars are not entirely natural. No one has legs! Only floating torsos. And as a friend commented, it’s hard to make your avatar look older than twelve years old”.[20] Additionally, Avatars may not accurately represent the diversity of the parties involved. They may be designed using pre-set templates, and may not provide for an inclusive environment.[21] Most of all, can the virtual universe ever account for a substitute to the real-life human presence?

Zoom vs Metaverse: How different is the Arbitration process?

Parties to an online Arbitration proceeding, which may be conducted on various video conferencing platforms like Zoom, Microsoft Teams, Skype, or an institutional software, would have the same option of logging in from their personal spaces as the Metaverse users do. Since the mode of both, Metaverse and Online Arbitration remains virtual, it’s fair to question what makes the two experiences so different. Moreover, the idea of switching to Metaverse Arbitration, which may be new and require some preparation, must have the incentive of having a more efficient setting than a regular virtual meeting. Arbitration in the Metaverse varies significantly from an Online Arbitration Session.

The most apparent difference is in terms of how the two modes operate: while online arbitration would imitate (almost) the exact stages of physical arbitration over the internet, Arbitration in the metaverse would take place in a completely different virtual environment, using personalised Avatars, and provide a more engaging experience by making users feel like they are quite literally in the same room. Professor and Arbitrator Anthony Daimsis shared his experience of the University of Ottawa’s first moot court trial conducted in the Metaverse as being pretty remarkable, as the technology allowed users to closely feel the presence of one another even when documents or exhibits were being handed over. He added that the haptic technology even presented an opportunity for the judges to use a virtual gavel against a sound block! “The most significant difference between virtual reality and Zoom is that when you’re sitting in a virtual reality hearing room, you actually feel like you are in a hearing room. What’s more, the people you’re interacting with are in the same room as you”,[22] he shared.

Another difference lies in terms of the procedural aspects: while in an online Arbitration, the Arbitrator is most likely to be known to one or all of the parties, the process in the Metaverse is quite different, as none of the parties are aware of who may be presiding over their case, owing to the process of automatic selection and appointment of Arbitrators using Blockchain technology.

There is full knowledge of the authority of the representatives present in an online arbitration, unlike a Metaverse hearing, where party anonymity prevails over knowing each other’s real identities. The process of document sharing and recording of evidence becomes a lot more efficient when taking place in the Metaverse, as it provides for well-established monitoring systems, virtual projectors and other document-sharing tools in real-time, unlike in an online arbitration platform, wherein users may have to submit electronic evidence before or after the commencement of proceedings, or share their screens during the course of the meeting.

While an online Arbitration session may present obstacles of smooth verbal and non-verbal communication, owing to the fact that the parties may be not present in the same room and having an in-person interaction, the Metaverse Arbitration makes the process significantly more immersive and impactful. In terms of enforcement of the Award, the parties to an online arbitration meeting will have to follow the traditional procedures by issuing requisite applications to the authorities, while Blockchain Arbitration could resolve that issue by way of automatic enforcement of awards (until proper laws and regulations are in place pertaining to the same). While both the procedures devoid the parties of personal engagement and direct communication, they vary significantly in terms of their procedural aspects. Metaverse and Online arbitration are both virtual ways of making people connect, but they take them in two entirely different spaces, providing entirely different experiences.

Conclusion

One cannot be entirely sure of what the future holds, but at this point of time, it may be all right to include the virtual landscape as part of our future. The Metaverse in itself is yet to be made fully developed and accessible to those who wish to experience and associate themselves with it, it’s fair to assume that the process of Arbitration may take an additional few years to emerge as a solid, effective mechanism which could successfully cater to disputes in or around the V-Universe. As discussed over the course of this article, there are certain pressing issues which need to be addressed before we can extend our horizons into the Metaverse.

 Cyber-security, transparency and maintaining confidentiality as part of the process of Arbitration in the Metaverse need to be worked upon. The Metaverse creators must ensure that the environment that is being provided to the participants is user-friendly, safe and within their reach, in terms of controlling their actions in the virtual space. It goes without saying that one cannot reach at their desired destination without properly mapping out their journey- the Metaverse Arbitration will end up being a farce if the requisite legal considerations revolving around it are not effectively addressed. The States which aim to recognise and allow their citizens to engage in Arbitration proceedings in the virtual realm will have to set out clear protocols in terms of the regulating/ choice of law, jurisdiction, appointment and enforcement mechanisms, appellate system, kinds of disputes which could be dealt by way of Metaverse Arbitration, among others. The issue of the governing law in cross-border transactions accordingly needs to be decided.

Further, the dissemination of information regarding this extraordinary platform and its facilities would make people aware of such an opportunity existing in the first place. Before the initiation of the actual Arbitration proceedings in the Metaverse, it may be convenient for the parties to hold a pre-arbitration meeting wherein they could get accustomed to the tone of the session, new virtual environment, the tools and features which could be used during the course of the proceeding, among other factors. Since it will almost always be a fairly new and unique experience to the users, there must be adequate information or assistance on part of the Metaverse creators, so as to make the participants feel safe and comfortable while stepping into the virtual universe.

In an increasingly digitalised world, where almost everything we want is now just a few clicks away, it won’t be surprising to have an autonomous robot, sent straight from the virtual space knocking at our door someday, in an attempt to deliver important Arbitration related documents. Till that day arrives, one can only hope that the feeling of sealing a deal with physical handshakes and in-person smiles is never taken away from us in its entirety. While the process of Arbitration in the Metaverse holds a promising future for dispute resolution, it must always complement, and never constitute as an alternative to Arbitration in the real world.