SCHALAST | METAVERSE
In today’s technological landscape, the metaverse is gaining ever more traction. Events such as the FrankfurtVirtual Book Fair and Gucci’s fashion show in 2020, the sale of nearly US-$70 million in digital artwork by artist Beeple as an NFT in March 2021, and professional soccer player Kevin-Prince Boateng’s wedding in the metaverse in June 2022 are raising consumer and business awareness of the metaverse’s opportunities. The metaverse consists of a variety of virtual services and platforms.
Users can virtually engage with their avatars. The metaverse allows for an even closer merger of the physical and virtual worlds than previously possible. It is far more than a single virtual environment or digital and virtual market.
The metaverse offers a wide range of options for virtual and digital interaction, mostly in three-dimensional space. Digital assets and marketplaces are rapidly emerging in this “space.”
1. Intellectual Property im Metaverse
Trademark (law) in the metaverse
Brand owners are encountering new challenges in the metaverse. They should examine their trademark portfolio and adapt it to the requirements of the new virtual environment. Such review should not only be aimed at enabling future business activities under one’s own brand in the metaverse, but also at laying the groundwork for taking action against any infringing use by third parties in the metaverse.

Review and augment brand portfolios
One of the initial questions relates to whether a trademark, such as “Levi’s,” which is registered for “clothing” in Trademark Class 25, also covers the trademark owner’s use for virtual clothing. The European Union Intellectual Property Office (EUIPO) issued specific guidance on this topic on June 23, 2022. It classifies virtual goods as proper to Class 9 because they are treated as digital content or images. NFTs (non-fungible tokens) authenticate digital items but are distinct from those digital items (EUIPO, Newsflash, June 23, 2022, Virtual goods, non-fungible tokens and the metaverse). (EUIPO, Newsflash vom 23.06.2022, Virtual Goods, Non-Fungible Tokens and the Metaverse).
Conflicts between physical and virtual goods
Where there is no trademark protection for virtual goods (yet), the question arises whether a trademark owners can use their trademark registered for physical goods to take action against infringers using the same trademark in the metaverse to identify virtual goods.
The existence of likelihood of confusion is required for trademark infringement, which not only relates to identity or similarity of the conflicting marks, but also identity or similarity of the opposing goods. As a result, courts and trademark offices must decide whether, for example, physical jeans and virtual jeans offered in the metaverse as fashion for avatars can be categorized as “similar goods” within the meaning of trademark law. Determining whether there are companies in the business world that offer both products in the same way is an important criterion to relevant decisions. Particularly in the consumer goods sector, there appears to be a tendency of owners of well-known brands to also offer their products in the metaverse under the same brand. Presuming that this trend continues, this would be a strong case for product similarity.
Cases that would create precedents are currently pending at the EUIPO, the German Patent and Trade Mark Office, and European courts. In view of these uncertainties, it is prudent not only to expand current trademark protection for real goods, but also to seek further protection by filing new trademark applications for digital content in Class 9.
Distinct position of well-known brands
Well-known brands also enjoy additional protection of their trademarks against reputation exploitation and dilution caused by the use for goods outside the scope of similarity. In such instances, trademark infringement claims are likely to be easier to establish than claims on the basis of likelihood of confusion.
Hermès International, for example, recently asserted its rights to the “Birkin” handbag brand against the artist Mason Rothschild in a U.S. court. Under the name “MetaBirkins,” the artist had created an NFT collection showing images of Hermès’s iconic Birkin bags covered in fur in various colors and offerings and made this collection available for purchase on various metaverse platforms. The jury returned a verdict on February 08, 2023 and Rothschild was ordered to pay damages of USD 133,000 for trademark infringement (1:22-cv-00384(SDNY)).
In which countries are new trademark applications useful?
It also needs to be determined in which countries trademark applications are useful or even necessary. In theory, offers and content on platforms that enable a connection to the metaverse may be accessed or used from any country on the planet. Trademark protection, on the other hand, remains territorial, that is, bound by national borders. Trademark owners should aim to file new trademark applications not just in countries that represent key (future) sales markets for their products or services, but also in countries where they operate their important manufacturing sites, and, additionally, in countries where product piracy is a possibility.

Design law and copyright law, protection against imitation under competition law
Where the metaverse is concerned with the protection of virtual goods rather than trademarks, i.e. goods identification, design law, copyright law and competitive imitation protection are relevant.
Design law in the metaverse
Design law protects two-dimensional and three-dimensional product appearances that are novel and have individual character (as defined by design law). In addition to creating protection as a national or European registered right, European law provides the option of an unregistered Community design as a Europe-wide, informal protection option. An unregistered Community design is established merely by the disclosure of a design and triggers protection for three years from the date of disclosure of a novel design having individual character.
Whether or not the display of a virtual product in the metaverse can result in the protection of an unregistered Community design is still up in the air. One potential stumbling block in the metaverse is that an unregistered Community design loses protection upon disclosure outside of European Community territory. The registered design variant, however, does not face this obstacle.
It is an advantage of design law that the appearance or aesthetic features of the product are protected. In contrast to trademark law, design law is unaffected by the juxtaposition of a real and a virtual product in infringement cases. It’s not always clear, however, if the conditions for novelty and individual character protection are met. When it comes to novelty for later protection as a design, for instance, it is currently unknown whether or when making a product available within the metaverse may be detrimental.
Copyright law in the metaverse
As a form of “applied art,” the creation of virtual goods may also be shielded by copyright law. It requires, among other things, that the design has reached the requisite creative stage, which necessitates that it be an original intellectual innovation that exceeds merely standard craftsmanship. Where this is the case, copyright protection is automatically established without the need for registration filing.
Shielding against imitation in the metaverse under competition law
It is also possible that a product virtually enjoys protection against imitation under competition law. Where there is a risk of deception as to the commercial origin or exploitation of the reputation of the original goods, it is illegal under German competition law to offer imitations of the original goods to the public. The question of whether goods marketed exclusively in the metaverse may qualify as suitable imitation goods in this sense remains unanswered, though. If the answer to this question is yes, it is unclear if the distribution of imitation goods in the real world can be considered an unfair imitation of goods previously only sold online.
Who can be held legally accountable for rights violations in the metaverse?
The perpetrator, the participants (in the case of aiding and abetting or inciting), and, where applicable, other parties participating in the act (referred to as “interferers”) may all be held liable in the event of infringements in the metaverse. Anyone who actively participates in an infringement, such as by offering infringing goods for sale, may be held liable for that infringement. The situation with regard to metaverse operators is murkier. Metaverse operators may also be held liable for the violation depending on how much they knew about it and how actively they participated in it. They could also be held liable under the legal construct of “interference liability.” It remains to be seen whether courts will extend the liability standards and privileges established for platform operators and online markets, or even for access providers, also to metaverse operators.
In which courts can lawsuits be filed for rights infringements in the metaverse?
When a trademark infringement case goes to court after a warning letter fails to resolve the dispute, the next step is to select the court in which the infringement will be asserted. Generally speaking, a case may be filed in either the infringer’s home or business court. Lawsuits abroad may, however, be unattractive for a variety of reasons, including high fees and lengthy trials.
The place of the tortious act may open an additional legal venue. Article 125(5) EUTMR and Article 82(5) CDR both refer to the location of the infringing act. According to Article 7(2) Brussels I Regulation, a person domiciled in a Member State may be sued in another Member State in matters relating to tort in the courts for the place where the harmful event occurred. In the case of metaverse infringements, however, there are significant variances in the interpretation of these provisions that may come into play.
In which courts may companies operating in the metaverse be sued?
Conversely, such expansive jurisdictional provisions create significant risks for metaverse commerce. A German supplier with an English-speaking flagship store in the metaverse could, for instance, face trademark infringement or unfair advertising allegations from nations like India, New Zealand, Canada, or Hong Kong. Until a trustworthy legal or legislative framework is formed in this field, businesses should take steps to restrict their offerings in the metaverse to specific countries or categories of addressees.
2. FinTech and Payment; Virtual Assets
The metaverse is a playground for capital market activities. Blockchain technology and the tokens and cryptocurrencies based on it enable the creation and tradability of virtual assets. Non-fungible tokens (NFTs)are used to ensure ownership verifiability of digital assets.
Due to the NFT’s singularity as a token, authentic NFTs may be differentiated from counterfeit NFTs. Since copies and replicas can be easily identified as such, virtual assets can gain market value.

In the metaverse, users may have more than just a claim under the law of responsibilities against the particular platform operator in the event of a dispute over the ownership of virtual commodities, unlike in centralized virtual worlds with paid content (items). The ultimate goal of blockchain technology is to allow the free transfer of digital assets.
Land and renewable energy plants are two examples of tangible commodities that could be offered for purchase as tokens. The holder of a land token would have complete ownership rights to the land’s digital image. Land NFTs may be transferred between users so long as they have access to their wallet. The token holder and third parties may engage with the land virtually so long as there is a platform to digitally map the images of the land. The securities trading regulations of MiFID and MAR must be taken into account where secondary market transactions take place; insider trading is also possible in the metaverse.
Aside from electronic securities that can tokenize physical assets, individuals issuing crypto assets or providing services linked to crypto assets in the EU must comply with the new Markets in Crypto-Assets Regulation (MiCAR). Token-based trade of virtual assets in the metaverse requires companies to consider whether or not MiCAR is applicable to their operations.
Additionally, Sections 327 et seqq. German Civil Code on consumer contracts for digital products are supposed to govern digital content in the metaverse. This is the only method to guarantee full consumer protection. Business owners must therefore take into account increasing requirements. This includes, for instance, adapting warranty law to the digital space with respect to product defects in accordance with Section 327 e Civil Code.
Schalast Law | Tax accompanies you as you create and use digital assets in the metaverse. We design legal solutions to protect your virtual assets and provide guidance with our legal expertise as you successfully monetize them. We assist businesses in all relevant industries, sectors and application areas within and in connection with the metaverse.
3. Big data, data resources and data protection
The metaverse also provides extensive and, in some cases, novel opportunities for the collection, analysis and use of data and (other) information through the use of technologies such as virtual reality (VR), augmented reality (AR), and mixed reality (MR) by combining data mining from virtual realms with the real world.

The possibilities for collecting and exploiting data, and potential data resources, are taken to new levels by virtual environments and their interactions, the application of artificial intelligence (AI), healthcare services or the trade in virtual goods, and the use of avatars (digital identity).
Quantitatively speaking, this is true since new information may be derived from the ever-growing mountain of data. The aforementioned technologies in the context of the metaverse frequently enable a significantly higher level of detail in data collection, including but not limited to the analysis and evaluation of virtual as well as real machines, the recording of the tiniest movements (for example, through eye tracking), facial expressions, or even a person’s emotions while wearing VR glasses, the precise tracking of an avatar’s paths and movements, or the comprehensive recording of (virtual) consumer behavior. Due to the intimate nature of such information, however, it is often considered highly sensitive.
New opportunities – increased demands
While this creates new, exciting opportunities for monetizing the data obtained in the metaverse, there are also new or more stringent legal standards that need to be met. When collecting and exploiting data from the metaverse and designing (or using) appropriate big data technologies and data-driven services, compliance with the obligations of statutory data protection is a must. At the same time, increasingly sensitive (personal) data will have to be taken into account.
Moreover, data also needs to be protected in the physical sense, from theft and misuse by third parties, because most legal systems associate the safeguarding of possession and ownership with the physical character of assets. This means that data and (other) information often lack equivalent effective legal protection. Data must be protected in a tangible, accurate, and effective manner, either through appropriate technical and organizational means or through legal measures, to maintain its long-term value to the enterprise.
Protection of own data (resources)
Movement data, health information, operating data of virtual machines (or real machines operated in the metaverse), consumer behavior data, and much more are all examples of the types of data generated in the metaverse. New, potentially extremely useful data sets are also produced by evaluating, combining, and enriching such information.
Machine data is not covered by the (respective) data protection law but only personal data. Therefore, machine data is not shielded by any (present) overarching legal requirements. Currently, there is no general concept of “data ownership.”
In other words, special technical protection against unauthorized access or unauthorized use is just one component of a solution that should be implemented “by design” to ensure the safety of a company’s own data (resources), particularly in the context of the monetization of such data as a digital service. A structured data collection can provide the additional legal protection afforded to databases (Section 87a German Copyright Act); however, this protection extends only to the dataset as a whole and not to any individual records within it. Where necessary, design strategies can be used to keep such information private.
Third parties can be given permission to use the company’s own data collections under the terms of a contract. While the scope and parameters of data use can be specified with great accuracy, a number of legal and judicial standards must be met to ensure the effectiveness and enforcement of such usage agreements.
From data to monetization: the legal framework of data-driven services
Data-driven services rely heavily on their meticulous design, which must take legal considerations into account. In particular, legal considerations should be factored into the digital services design to ensure that compliance with applicable laws and data privacy regulations does not provide a barrier to providing or using the service, but rather enhances its value to users. This necessitates taking into account the legal hurdles inherent in the design of digital services at an early stage.
Particular difficulties may arise in the metaverse for data-driven services and the underlying business structures. These occur, for instance, because multiple legal systems may apply, because users may adopt virtual identities, or because there may be increasing demands for the design of services that adhere to data protection regulations.
We create your metaverse digital services with a view to all relevant legal requirements. Depending on your specific requirements, we monitor how well your digital services are performing. We assist you with the strategic and content-related design of your services, with the development, launch, and distribution of those services, all while solving specific legal issues.
Data protection challenges
The “marketplace principle” or “establishment principle” of Article 3(1), (2) of the EU General Data Protection Regulation (GDPR) is also usually applicable in the metaverse. Therefore, the GDPR will generally apply where the data processor’s registered office is located inside the EU or where the respective services in the metaverse are (also) directed at persons in the EU (or if such persons’ behavior is observed). There may, however, be additional data protection provisions that apply, depending on the specifics of the situation. Future developments in the architecture of data-driven services may also be affected by emerging legal rules such as the Data Governance Act or requirements for AI systems derived from law or case law.
Therefore, it is important for metaverse digital service providers and operators of virtual platforms to consider their obligations under data protection law. Companies employing the services should verify their ability to be used in a way that is compliant with data protection laws. The fact that data processed in the metaverse can be acquired both in the metaverse and the real world (through biometric identification systems, for example) presents unique difficulties. This generally raises the issue of when and to what extent personal data is involved that is subject to legal protection. When gathering environmental data, for instance, persons who are not directly involved may also be included. For data processing to be in accordance with the law, additional steps, such as data extraction or (partial) anonymization, may need to be taken.
The importance of fundamental privacy principles such as “privacy by design” for data-driven services in the metaverse cannot be overstated. There are both new opportunities and new constraints in the metaverse for satisfying information obligations under data protection law. Furthermore, it may be necessary to comply with the data processing requirements of any third-party platforms via which services or virtual goods are offered.
We create metaverse-based solutions for your digital services and technologies that adhere to data protection standards, turning data security from a potential liability into a competitive advantage. Our advisory services make it possible for users to make ethical and lawful use of the metaverse’s digital services and platforms.
If you are working on creating or utilizing Big Data technologies or data-driven services in the metaverse, Schalast Law | Tax has your back. We help you successfully monetize your data (resources) by providing you with legal solutions to protect them. We support all relevant industries, sectors and application areas within and in connection with the metaverse.
As part of a comprehensive advisory strategy, we factor in compliance with data protection laws. We provide solutions for your data-driven services and technologies in the metaverse that adhere to data protection standards in a way that does not hinder their usability but is instead viewed as an asset.
Our advisory services make it possible to use metaverse-based digital services in accordance with all applicable laws and data privacy regulations.
4. Service provision, e-commerce and contract design
The unique possibilities and conditions of the metaverse call for different needs in the presentation of goods and services for sale and the creation of contracts than those of the “two-dimensional” social media platforms. This applies not just to the issue of whether laws apply, but also to the particulars of how those laws are implemented in the appropriate jurisdiction.

While it is possible to use virtual currencies to do business in the metaverse, doing so is subject to a variety of regulations. The Digital Services Act (DSA) and the Digital Markets Act (DMA) are two examples of recently enacted legislation that may need to be considered alongside future legislative initiatives, such as those dealing with artificial intelligence. The present criteria for “digital products,” among others, must be taken into account when drawing up consumer contracts. Some metaverse applications must also comply with laws aimed at the protection of minors.
The legal framework of the relevant platforms and the distribution and usage agreements is also affected by the shifting nature of the metaverse’s product and service offerings and the purchase of goods and services. User contracts, for example, for digital commodities, must be meticulously crafted for the specific uses in the metaverse and beyond. Data protection law has unique difficulties that must be overcome for each product and service design. This is especially true for the big data services of the present and future.
The key to successful sales in and for the metaverse is the careful design of products and services, offerings, sales agreements, and related contracts.
Online platforms in the metaverse
B2B platforms such as purchasing portals, spare parts platforms, or data analytics portals must meet a number of requirements for their success, in addition to complying with the various legal and regulatory requirements imposed by the metaverse on the design and operation of online platforms for consumers.
If you want to successfully establish and operate a communications or sales platform in the metaverse, you must take into account a wide range of legal considerations, including corporate and tax law issues, liability minimization, data protection, regulatory requirements (such as the DSA and DMA), competition law issues, and much more. As long as the unique features of the metaverse are taken into account, tried-and-true “recipes for success” for the legal design of online platforms and accompanying contracts can be applied there as well.
Digital identities
In the metaverse, people typically take on the roles of their “digital representatives,” or “avatars.” Problems occur when attempts need to be undertaken to determine who is behind an avatar and who is responsible for their statements when they are made in this environment. These unique aspects must be considered while establishing contracts for the metaverse.
Digital identities and their owners may need safeguards, however, such as the right to ownership or use of an avatar. The fact that countries have varying rules and regulations concerning digital identities and the privacy of their associated data just adds to the complexity. In addition, according to Section 327(2) sentence 1 Civil Code, a consumer’s avatar will generally be treated as digital content with all the legal ramifications that classification entails.
Digital content and services for consumers
The German Civil Code now includes general provisions on digital content and service contracts as of January 1, 2022. In introducing these rules, the legislator clearly had consumer protection in mind, but they do not reflect any new categories of contracts. Any consumer contract in which digital products are offered in exchange for cash or for personal data of the consumer falls under the purview of the new legislation. This means that the metaverse is also subject to the rules.
Section 327(3) Civil Code explicitly recognizes personal data of consumers as consideration for the first time. This accounts for the common practice of providing digital goods “for free,” but actually in exchange for the consumer’s personal data. One of the major issues in this area concerns the extent to which the customer’s consents regarding data protection are in fact “voluntary” as understood by the GDPR and the impact this may have on a potential claim by the entrepreneur against the consumer.
The legal requirements, especially those of consumer protection and data privacy, should be taken into account with such skill that they do not turn out to be an obstacle, but present themselves as a quality feature, in offering and distributing digital content and services to consumers in the metaverse. Therefore, we assist you in developing and distributing your products and services in the metaverse, with an eye on maximizing your revenue.
5. Aspects of tax law in the metaverse
Historically, tax law has had a close connection to concrete locations, such as a company’s headquarters for income tax or a vendor’s warehouse for value-added tax. In a totally digital and virtual world, physical factors like these have no place. At the turn of the millennium, similar concerns were voiced in the context of e-commerce and international trade. These talks and actionable items are becoming increasingly relevant due to the rapid development of digital products and virtual cooperation, also from the perspective of criminal law, as tax evasion is punishable.
Revised definition of factors for qualifying as a tax subject
The taxpayer’s domicile, registered office, or primary residence is typically the linking factor for determining income tax liabilities. The specifics are laid forth in Sections 8, 9, and 11 German Tax Code. In the case of natural persons or companies, this may be quite simple to ascertain.
Management, as specified by Section 10 Tax Code, however, is relevant to the question of taxation in the relevant jurisdiction. Where the relevant day-to-day operations of a business are decided by a large number of people who do not all operate in the same jurisdiction, this is not so simple to determine. In this case, it must be examined whether individual persons do constitute a permanent establishment and, to this extent, a part of the profit must be allocated to them. Conventional wisdom holds that permanent institutions are connected to HR management. Where services are provided by servers or other technical tools, however, the question arises as to whether or not they can function as a permanent establishment, and if so, how profits are to be distributed – especially if it is not possible to control or trace via which server the respective function or service was actually provided. This problem of permanent establishments without a personnel role has already been addressed by the OECD and the German Federal Ministry of Finance in letters dated December 17, 2019, but without disputing the concept of a permanent establishment as such.
Recalibration of profit allocation or profit distribution
Profit allocation is based on the value contributions made by the individual operating units.
- On the one hand, if taxability and unambiguous allocation or traceability of the provision of the value contribution or service are lacking, it will be difficult to determine these permanent establishments.
- On the other hand, the metaverse consists of a compilation of many different performances, and as this is a collaborative process, it is impossible to pinpoint exactly who contributed to which performance.
As a result, it is no longer possible to categorically assign assets, income, or expenses to one jurisdiction over another. Profit sharing policies therefore need to be established. The implementation of consolidated corporate tax base procedures is now underway, and it needs to be seen whether those or the procedures from global trading used by banks are to be applied. Until this issue is resolved, however, these procedures are likely to remain a tried and true method of dividing up assets, profits, and expenses. This has also implications for corporate transactions, especially transformation deals.
Possible lack of tax relevance of virtual assets, expenses, and income
Especially in the realm of video games, the metaverse also offers closed spaces. The issue at hand is whether or not assets, rights, and obligations that are created or arise solely in this closed virtual world can be taxed at all, or whether or not they become relevant only when they are transformed into the conventional world, for example, by immediate convertibility into a state currency. The Federal Finance Court’s decision on value-added tax (January 18, 2021 – Case V R 38/19) is indicative of this trend; in it, the Court draws a line between the in-game (digital) and real worlds, concluding that transactions that take place within the former, such as the leasing of land, are not to be considered revenue within the meaning of value-added tax law.
The topic of whether or not cryptocurrencies have any value as an economic good was only recently affirmed by the Federal Finance Court (Case IX R 3/22). If it is something that people are willing to pay money for, then it has economic value. It is possible that the degree of transformation or convertibility into real-world instruments (like money) will be a factor here as well. There is some analogy with the VAT viewpoint, but it is unclear whether this also applies to currencies that are not listed on a stock exchange and do not have a liquid market, as may be the case with pure gaming coins.
The government introduces a wider range of regulatory mechanisms
It is becoming apparent that the tax authorities will create control opportunities for themselves through reporting responsibilities in the absence of physical points of contact for control. The Platforms Tax Transparency Act, which went into effect on January 1, 2023, and the explanatory letter from the German Federal Ministry of Finance, issued February 2, 2023, both draw inspiration from an international anti-abuse legislation referred to as DAC 7, and both contribute to this end. These reporting requirements have thus far been extended to a digital representation of traditional business procedures. One might expect, however, that at least the conversion process from the digital world will be subject to similar reporting requirements.