Are antitrust concerns a built-in feature of the Metaverse? In two popular science-fiction novels, Neal Stephenson’s Snow Crash and Ernest Cline’s Ready Player One, the Metaverse is run by single companies, or “monopolists,” as antitrust lawyers might put it.1 In Ready Player One, a company called IOI even tries to get control of the monopoly to impose monthly fees on users and introduce advertising. Real-life antitrust regulators, sensitized by a perceived accumulation of market power in today’s online world, may picture similar scenarios in their minds when thinking about the Metaverse. By contrast, many companies active today in making the Metaverse emphasize their commitment to an open virtual space that everyone can freely access and build.2
Any analysis of potential antitrust issues linked to the Metaverse will hinge on the type of virtual space that will emerge. Will there be a multitude of separate virtual spaces, just as there are numerous websites hosted by different entities? Or will there be a single overarching Metaverse, from which others must rent their spaces, offering “shopping mall”-like access to all kinds of commercial and non-commercial offers? Will access to the Metaverse(s) be gateway agnostic for users and financial streams, or will some spaces in the Metaverse only be accessible through specific devices (such as VR headsets from certain brands)?
While the answers to these questions are not certain, antitrust law will certainly play a role in the development of the Metaverse. Two main aspects of this will be (1) interoperability and (2) dominance and monopolization.
Interoperability and the Metaverse
Interoperability is at the heart of what type of Metaverse will emerge. Interoperability describes when systems can exchange information in a way that allows one system to benefit from the functions of another system. With well-defined and open standards, interoperability would lower market entry barriers for Metaverse competitors and allow developers and other users alike to benefit from network effects. (A network effect occurs when a user’s utility of a service increases with the addition of more users to that service.) Potential features of the Metaverse, like primary and secondary markets for virtual goods (e.g., avatars and skins), would benefit from having more users participate in those markets. Those virtual goods will increase in value if interoperability links merchants’ and users’ transactions among different vendors’ spaces.
Decisions surrounding interoperability raise competing antitrust concerns. Even though most stakeholders benefit from interoperability, companies must be careful to avoid antitrust violations when agreeing on any standards with their competitors and potentially sharing strategic information. Antitrust agencies are often suspicious of such information sharing. Recent case practice in Europe has even suggested that anti-innovative standard setting by a handful of large players can constitute cartel conduct and lead to billion-dollar fines.3 At the same time, however, both regulators and private plaintiffs in the U.S. and Europe have tried to require that providers make their services interoperable.
Dominance and the Metaverse
Setting up the Metaverse and making it attractive for users will require enormous private investment that investors would seek to recoup. Antitrust law recognizes that early investors and the companies supported by them have a legitimate interest in monetizing the technology they create. However, competition economics suggest that markets with digital multi-sided platforms, on which network effects are particularly strong, are more likely to “tip” in the sense that a single offer becomes dominant—often because it offers a supreme and particularly innovative experience. Additionally, the owners of a given Metaverse or gateway to a Metaverse will have unique access to its users’ personal data, attention, and resources, which would make entry or expansion of competitors more difficult.
Existing antitrust laws address these issues to some extent (albeit not always effectively). If Metaverse companies are found to enjoy unchallenged market power over a significant period of time, they would be subject to the same catalogue of antitrust rules that apply to any other industry. Antitrust agencies around the world will enforce their respective laws to protect users in their jurisdictions. Based on previous antitrust regulation, investigations might address exclusivity requests by Metaverse platforms to downstream content providers,4 requirements that users buy certain proprietary gateway devices to access specific Metaverse spaces,5 self-preferencing by Metaverse platforms of their own content,6 refusals to grant access to a Metaverse space to a competitor,7 or even just raising entry barriers through data accumulation.8 A dominant Metaverse platform could also face private litigation (e.g., for controlling how players or competitors use data, for foreclosing access to IP or core functionalities, or for preventing multihoming).9
The current landscape could become more treacherous in the United States if lawmakers establish general requirements and prohibitions for large online platforms (“ex-ante regulation”). Senator Amy Klobuchar, Chairwoman of the Subcommittee on Competition Policy, has introduced the Competition and Antitrust Law Enforcement Reform Act, which would bring the United States closer to Europe’s (stricter) abuse of dominance standard than its analogue in (the more lenient) Section 2 of the Sherman Act.10
Stronger regulation will be coming online in the EU. The EU’s Digital Markets Act, which may enter into force in 2022, will impose significant restrictions on platform operators that the act deems to be “Gatekeepers.”11 Individual countries like Germany12 and South Korea13 have already enacted ex-ante regulations that impose special legal requirements on large digital platforms and the UK is likely to follow suit.14 Given the gigantic economic potential of the Metaverse, successful Metaverse companies will probably reach economic thresholds that result in stricter competition rules under these regulations.
Conclusion
The antitrust issues listed above are not exhaustive and are subject to revision based on new statutes or case law. In addition, standard antitrust rules will continue to apply in the Metaverse. Distribution of goods and services in the Metaverse will be subject to the same rules as other distribution channels (e.g., prohibiting suppliers from fixing resellers’ prices). Similarly, standard merger control enforcement will apply and antitrust authorities around the world have taken steps to closely scrutinize acquisitions specifically in online industries.15
Thus, two things are for sure: Antitrust regulators have many tools to regulate the Metaverse, including to prevent a small group of companies or even a single player from “owning” the Metaverse and abusing that position. Correspondingly, Metaverse developers must be ready to navigate a significant (and increasing) number of rules. On the flip side, if applied sensibly by the authorities, antitrust rules can contribute to making the Metaverse a more competitive, innovative, and open space, securing opportunities for many visionary businesses, big and small.
For more information on antitrust considerations related to the Metaverse, please contact Beau Buffier, Ken O’Rourke, or a member of Wilson Sonsini Goodrich & Rosati’s antitrust or electronic gaming practices.
[1] Neal Stephenson, Snow Crash (1992), in which the Metaverse is run by the Global Multimedia Protocol Group; E Ernest Cline, Ready Player One (2011), in which the OASIS called metaverse was created by Gregarious Simulation Systems.
[2] Mark Zuckerberg, Founder’s Letter 2021 (Oct. 28, 2021) https://about.fb.com/news/2021/10/founders-letter/; Andrew Hayward, “‘No Company Can Own’ the Metaverse, Says Epic Games CEO,” Decrypt (Nov. 17, 2021) https://decrypt.co/86323/no-company-can-own-metaverse-epic-games-ceo-tim-sweeney; Dean Takahashi, “Roblox CEO Dave Baszucki believes users will create the metaverse,” VentureBeat (Jan. 27, 2021) https://venturebeat.com/2021/01/27/roblox-ceo-dave-baszucki-believes-users-will-create-the-metaverse/.
[3] Thomas Martin Pflock, “EU Commission Breaks New Ground by Fining German Carmakers for Participation in a Cartel Restricting Technical Development,” Wilson Sonsini Alert (July 29, 2021) https://www.wsgr.com/en/insights/eu-commission-breaks-new-ground-by-fining-german-carmakers-for-participation-in-a-cartel-restricting-technical-development.html.
[4] E.g., Communication, Eur. Comm’n, Antitrust, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (Dominance Guidance), OJ C 45 (Feb. 24, 2009), para. 32 et seq.
[5] E.g., Dominance Guidance, supra n. 5.
[6] E.g., European Commission: Case AT.40437, Apple – App Store Practices (music streaming) (2020).
[7] Dominance Guidance, supra n. 5; Rule 52 Order After Trial on the Merits, Epic v. Apple, 4:20-cv-05640-YGR (N.D. Cal. 2021).
[8] E.g., First Amended Complaint, FTC v. Facebook, Inc., 1:20-cv-03590-JEB (D.D.C. 2021); Bundesgerichtshof [BGH] [Federal Court of Justice] Jun. 23, 2020, KVR 69/19 available at https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Entscheidungen/BGH-KVR-69-19.html;jsessionid=5A69217B6F96D3886E655568C48362EB.2_cid378?nn=4136442, KVR 69/19 (Ger.) (Facebook v Bundeskartellamt).
[9] Robin S. Crauthers, “Video Game Distribution: The Next Player to Attract Digital Platform Antitrust Scrutiny,” Wilson Sonsini Alert (May 14, 2021) https://www.wsgr.com/en/insights/video-game-distribution-the-next-player-to-attract-digital-platform-antitrust-scrutiny.html.
[10]Stuart Baimel, “Senate Legislation Introduced Presages Congressional Action to Reshape U.S. Antitrust Enforcement,” Wilson Sonsini Alert (Feb. 8, 2021) https://www.wsgr.com/en/insights/senate-legislation-introduced-presages-congressional-action-to-reshape-us-antitrust-enforcement.html.
[11] Cedric Burton, et al., “European Commission Proposes New Rules for Digital Platforms,” Wilson Sonsini Alert (Jan. 12, 2021) https://www.wsgr.com/en/insights/european-commission-proposes-new-rules-for-digital-platforms.html.
[12] Thomas Martin Pflock, “Germany Enacts Major Overhaul of its Competition Regime for the Digital Era,” Wilson Sonsini Alert (Jan. 20, 2021) https://www.wsgr.com/en/insights/germany-enacts-major-overhaul-of-its-competition-regime-for-the-digital-era.html.
[13] Jiyoung Sohn, “Google, Apple Hit by First Law Threatening Dominance Over App-Store Payments,” The Wall Street Journal (Aug. 31, 2021) https://www.wsj.com/articles/google-apple-hit-in-south-korea-by-worlds-first-law-ending-their-dominance-over-app-store-payments-11630403335.
[14] Deirdre Carroll, “Incoming: Increased UK Enforcement in Digital Markets,” Wilson Sonsini Alert (Apr. 8, 2021) https://www.wsgr.com/en/insights/incoming-increased-uk-enforcement-in-digital-markets.html.
[15] Joshua H. Soven, Jamillia P. Ferris, and Stuart Baimel, “President Biden Signs Executive Order on Promoting Competition,” Wilson Sonsini Alert (Jul. 12, 2021) https://www.wsgr.com/en/insights/president-biden-signs-executive-order-on-promoting-competition.html.
