Metaverse series #3: Looking at metaverse(s) with antitrust (3D) glasses

As we identified in our Tech Legal Outlook 2022, and further explored in our Mid-Year Update, the metaverse is the word on everyone’s lips and a key trend in tech. Today, we look at the implications of metaverse(s) with our antitrust (3D) glasses on.

What is the market definition of the metaverse?

A key parameter of any competition law analysis, is first to identify the relevant market definition. However, to date, there is no firm industry definition, let alone a market definition for the “metaverse sector”.

So how will the market come to be defined? In competition law, there are two main ways for an authority to define a relevant market: (i) through the analysis of a merger between two entities or (ii) through the launch of an antitrust investigation or market study.

The concept of metaverse could raise a number of interesting questions for the delimitation of the relevant product and geographic markets for the purposes of the competition analysis. But one could ask whether the authorities should even define new relevant markets (e.g. real estate in the metaverse) on the grounds that metaverses are intended to be virtual replicas of our world, and therefore most markets are likely to be already defined in the competition authorities’ case law. 

The key question is likely to be whether there will be one market for artworks (for example) in the metaverse and another outside it?

What are the potential competition law issues? 

In principle, the competition rules should apply to the metaverse in the same way they do elsewhere but there will most certainly be challenges in applying them. The French Competition Authority has already identified that blockchain – a key component of metaverse technology – could give rise to competition law issues in its Opinion 21-A-05 of April 29, 2021 on the sector of new technologies applied to payment activities.

“The competitive risks that may arise from the use of blockchain technology […], may fall under the rules prohibiting anti-competitive agreements and abuses of a dominant position, and may be caused by the actors controlling the access to the blockchain, the users of the blockchain or the 'miners'.” (p.6).

While this Opinion does not include any reference to the metaverse, EU Competition Commissioner Margrethe Vestager has already identified controlling access to the metaverse and closed ecosystems as a key concern. In the meantime, in the United States, the FTC is reportedly conducting an antitrust enquiry into practices in relation with virtual reality headsets which notably have  implications in the metaverse. 

• Potential abuses of dominant position (Article 102 TFEU) 

Commissioner Vestager has considered herself that “there will be a marketplace where someone may have a dominant position”. In EU law, dominance is a position of economic strength which allows a company to behave independently of its competitors, customers and, ultimately, consumers on its market. Being dominant is not illegal – an infringing company must have abused its dominant position.

In order to prove that a company has abused its position, it must first be established that it holds a dominant position in the market.  And Commissioner Vestager appears to indicate that a company could be dominant on a market within the metaverse.

• Self-preferencing 

Metaverse platforms are intended for ecommerce and all sorts of online transactions such as the sale of real estate in the virtual space. Metaverse platforms may also enable users to create and sell their own assets, such as NFTs, thus acting as third-party sellers, independent from the operator.

Again, a metaverse platform operator holding sufficient market power will have to ensure not to abuse such market power by favouring its own sellers over third-party sellers on the platform. The recent “Google shopping” judgment of the General Court confirmed that certain dominant (online) companies bear an equal treatment obligation and cannot discriminate in favour of their own sevices (read more).

A metaverse operator preferentially favouring its own sellers in the metaverse, to the detriment of other sellers, could also amount to conduct prohibited by competition law.

• Refusal of access

The “essential facility” (an asset or infrastructure to which a third party needs access to offer its own product or service on a market) doctrine could apply to the metaverse, but theoretically only if the metaverse becomes become “owned” by a single company (which at this stage looks highly unlikely). 

In such a case, should such company block the entry or access of other companies to its platform(s), then possibly, the essential facility doctrine might find an application in the metaverse, implying interoperability issues.

• Tied-selling

At present one of the key ways to access the metaverse platforms is through virtual reality devices (such as 3D glasses).

One potential abuse would be for a dominant company conditioning access to its metaverse platform through its own virtual reality devices.

• Abuse by third parties within the metaverse   

In line with the above considerations, a third-party - independent from the operator - which holds a dominant position for an economic activity within a metaverse (should the relevant market be defined) should not use its dominance to harm its competitors.

For example, we notice today that some big companies are buying virtual real estate in the metaverses on a large scale. Should one of these companies be in a dominant position in one (or several) virtual real estate market(s), it would bear a special responsibility to compete on the merits and not to exploit its position to the detriment of other users.

Potential unlawful agreements between undertakings (Article 101 TFEU)

The Commission's draft guidelines on horizontal cooperation (read more) explicitly provides for the possibility of information exchanges through a platform: "an online platform can also act as a hub” in order to relay information.

If the use of metaverse platforms becomes widely adopted in ecommerce, it cannot be ruled out that unlawful agreements between competitors could take place within the metaverse. In this case, metaverse participants will need to ensure that any information exchanged with its competitors does not allow them to collude.

In addition, with regard to standard-setting, competition law is likely to regulate the setting and openness of such standards.

How would merger control apply to the metaverse?  

Any transaction involving a metaverse platform or participant meeting the relevant jurisdictional thresholds (including considering the Commission’s new approach to Article 22 referrals) would have to be reviewed by relevant competition authorities.

This would entail a classic review of the facts of the case, the definition of the applicable relevant markets and the application of classic merger control rules.

Finally, what about new regulation of Big Tech?

The EU’s Digital Markets Act (DMA) was passed on Monday 18 July, following final approval by national governments. The DMA imposes a suite of hard and fast ex ante rules on designated digital “gatekeepers”. The largest metaverse services may be regulated by the DMA when it enters into force, although it’s not clear what services would be plausibly caught by the DMA as it currently stands.

Looking forward

As is often the case in the tech sector, the market positions of competitors for/on the metaverse(s) are expected to consolidate rapidly. As a result, it is likely that antitrust enforcers will try to jump in before the market(s) tip, and in fact may already be geared up to do so in Europe with the DMA.

Read the full Metaverse blog series here Contemplating the metaverse: Opportunities and risks (linklaters.com)