IP Metaverse Series – Part IV: Pitching Metaverse Advertising in Canada – Opportunities and Legal Considerations

This is the last article of a four-part IP Metaverse series exploring intellectual property (IP) protections for Metaverse-related technology and consumer-facing brands (see our third published article “IP Metaverse Series – Part III: Industrial Design Protection in the Metaverse”).  In this article, we explore the opportunities and legal challenges Canadian brand owners and advertisers may face when advertising and promoting within the metaverse.

Introduction

The idea of the metaverse has moved from being purely conceptual to a “virtual” reality. As mentioned in Part I of our IP Metaverse series^[1], the metaverse is still being shaped. However, like any emerging consumer industry, the first movers usually have the advantage of building brand recognition and attracting customer loyalty.  According to a March 2022 report from Metaversed^[2], there are 400 million monthly active users across different metaverse platforms. Acumen Research and Consulting predicts that the global metaverse market will surpass $1.3 trillion by 2030^[3]. The fact that more individuals (and not just your kids) are choosing to “plug in” to the metaverse means that immersive, hyper-realistic virtual worlds present significant “real” world opportunities for companies to increase brand awareness and generate revenue from new marketing channels. Inevitably, companies are exploring how to engage users through virtual advertising, but they may not be fully aware of potential legal issues that may ensue in the virtual world.

Opportunities

Some of the largest or most popular metaverse platforms include Meta’s Horizon World, Minecraft, Fortnite, Roblox, Decentraland and Sandbox. On most platforms, brand owners and advertisers have the opportunity to create their own branded immersive environments or brand-specific play spaces, “mini games”^[4], stores, products, billboards or signs within pre-built game worlds.   NIKE, Inc. for example, launched NIKELAND in November 2021, an interactive, sports-focused virtual world hosted on Roblox.  Users not only had a chance to play sports-themed mini games within the NIKELAND virtual community, but their avatars could be outfitted with Nike-branded gear that resembled those found in the real world. Millions of users have visited NIKELAND since its launch.  

Chipotle Mexican Grill introduced a mini game on Roblox called “Burrito Builder” earlier this year wherein players were challenged to “roll up” digital burritos within a virtual Chipotle restaurant and earn virtual currencies called “Burrito Bucks”. The first 100,000 Roblox players in the U.S. and Canada to successfully roll a burrito were eligible to exchange their Burrito Bucks for a code to redeem actual food at participating Chipotle restaurants.  Top leaderboard players could win free burritos for a year.^[5]

Luxury fashion brands Dolce & Gabbana, Philipp Plein and Etro have all hosted virtual fashion shows and offered in-game avatars a chance to try on and purchase branded virtual apparel.  Electronics giant Samsung and auction house Sotheby’s have built replicas of their flagship stores and art galleries within the Decentraland metaverse where guests can purchase collectible NFTs using cryptocurrencies.  On the same platform, Proximo Spirits opened a Jose Cuervo-branded virtual distillery that took players through the tequila-making process and served them virtual cocktails through a Jose Cuervo digital bartender. Rapper Travis Scott grossed $20 million after performing a 10-minute virtual concert on Fortnite that attracted 27 million attendees.  It's no surprise that virtual concerts, events and interactive experiences within the metaverse present huge opportunities for advertisers, brand owners and celebrities to engage with consumers in a fun and meaningful way without having to deal with on-site event logistical nightmares.     

Legal Issues

While the marketing possibilities within the virtual world seem endless, the regulation of these advertising efforts still appears to fall back on establishing principles from the real world. When it comes to regulation, companies advertising in the metaverse should be aware of federal and local competition laws, advertising rules and guidelines from self-regulating bodies.  Regulators in the EU, U.K. and U.S. have started to call for more stringent regulation of advertising content in the metaverse, but we have yet to hear similar news from the Canadian Competition Bureau. As the popularity of the metaverse continues to grow, discussing the challenges and “reality” of enforcing acceptable advertising practices rules in immersive, virtual environments will become unavoidable. In the meantime, Canadian advertisers should continue to follow the rules of the deceptive marketing practices provisions of the Competition Act as they apply to anyone promoting a product, service, or any business interest by any means.

Marketers should also become familiar with policies, terms of service and user agreements of the metaverse platforms they intend to advertise on.  These agreements outline acceptable advertising and marketing practices and govern user activities within the metaverse space.  User penalties for violation of these terms may include banishment from the platform and seizure of in-world assets.

False or Misleading Advertising

Under the Canadian Competition Act^[6], brand owners must ensure that all advertising is not materially false or misleading. The interactive and immersive nature of the metaverse will require companies and advertisers to consider three-dimensional, auditory, visual and performance aspects of claims made to players.  Given that some ads within the metaverse depict actual products found in the real world, it may be difficult to distinguish whether a performance claim relates to a virtual good, or the actual product in real life.  If the average consumer is more likely to believe that it applies to the latter, that performance claim must be based on adequate and proper testing^[7].  

All advertising must also be presented in a way that avoids deception and provides clear disclosure as to whether content is entertainment or advertisement.  As outlined in the Competition Bureau’s guide on Influencer marketing and the Competition Act^[8], it’s misleading if it’s not clear that online content is actually advertisement. When virtual influencers are used however, it’s often difficult to tell the difference.

Virtual influencers have been described as computer-generated photorealistic “AI robots”.  Large luxury retailers such as Gucci and Chanel have used virtual influencers such as Lil Miquela on digital billboards within the metaverse, but these influencers can be seen donning brand names on social media as well.  To the average consumer, these influencers may seem human given life-like appearances and portrayals within social media and ad campaigns.  To avoid deceiving consumers, advertisers using these virtual influencers should consider fully disclosing that the influencers are computer generated and any reviews or testimonials from them are not based on “actual experience”.

In the United States, the courts have addressed the concept of false advertising within the metaverse, blockchain, and related NFTs but Canada has yet to hear a single case.^[9]  As mentioned in Part I, Nike launched its own metaverse-related lawsuit for trademark infringement and dilution. Nike claimed that StockX created NFTs of shoes that prominently display Nike’s trademarks without Nike’s authorization. On May 25, 2022, Nike filed an amended complaint to include claims of counterfeiting and false advertising alleging that StockX knowingly deceived consumers with false and/or misleading statements about the authenticity of the virtual goods for sale on its platform to attract consumers and induce purchase of supposedly authentic Nike goods.^[10]  A decision has not yet been rendered.

Contests / Sweepstakes / Giveaway

The Chipotle “Burrito Builder” Roblox mini game example above relates to a giveaway contest opened to U.S. residents aged 13 years old and older.  Participants in the leadership board challenge were eligible to win free burritos for a year, and the details of the giveaway were found on the Chipotle website.   Should a contest within the metaverse be open to Canadian residents, sponsors must comply with the promotional contest provisions of the Competition Act.^[11]  Those provisions state that adequate and proper disclosures of contest rules must be made in a reasonably conspicuous manner prior to the potential entrant being inconvenienced in some way or committed to the advertiser's product or to the contest.  Within the metaverse, there are several creative ways to meet this criteria without having to inconvenience a player to visit an outside website.  This includes programming a non-player character (NPC) to “explain” the rules to contest entrants within the mini game or including short “mini” rules within accessible notification buttons on the player’s screen.  To avoid offending the Criminal Code, participants should not be required to purchase any digital currencies as a condition of entry.  This includes exchanging in-game currencies such as “Robux” or “Minecoins” for contest eligibility. Many platforms do not allow developers to sponsor contests, games or sweepstakes on the platform that offer in-game currencies as a prize.^[12]

Advertising to Children

Children are some of the earliest adopters of metaverse platforms, and an estimated 67% of Roblox users are under the age of 16.^[13]  The market research firm SuperData reported that in 2019, 26% of all 7-12 year old’s play Fortnite whereas 24% play Minecraft^[14].  Currently, there are no separate laws for advertising to children within the metaverse in Canada but we should be guided by real world rules including the Broadcast Code for Advertising to Children (Children’s Code) and Canadian Code of Advertising Standards (Ad Code).  Both are published and administered by Ad Standards, Canada’s ad industry self-regulatory body.  The Interpretation Guidelines to the Ad Code^[15] include several prohibitions relating to children’s advertising including using content that might result in harm to children, showing products being used in an unsafe or dangerous manner and advertising products not intended for use by children.  It goes without saying that virtual environments, mini games and digital goods sponsored by alcohol, tobacco, cannabis or gambling companies should not be shown nor made available to any player considered too young to consume those products.   For other types of goods, creating age-appropriate content protects both advertisers and younger audiences.  This may include blocking the use of swear words or inappropriate slang, never showing NPCs or avatars with unhealthy habits (such as smoking, using drugs or alcohol) and avoiding the use of visuals that portray realistic violence or gore.  Targeting children under the age of 13 with advertising is usually prohibited in any case.  The province of Quebec does not permit any commercial advertising to children.

In the United States, the BBB National Programs' Children's Advertising Review Unit (CARU) issued a “Compliance Warning” putting advertisers and brand owners on notice that CARU’s Self-Regulatory Guidelines for Children's Advertising applies to children under the age of 13 in the metaverse^[16].  The warning draws parallels between marketing in virtual worlds and advertising in digital spaces such as smartphone apps and social media.  Some warnings overlap with those set out in the Influencer marketing and the Competition Act guideline above, but also advise against the use of “dark patterns”^[17].

Final Comments

To some brand owners, retailers, advertisers and legal practitioners, navigating the metaverse may seem confusing, and a fad some hope would just go away.  However, given that over half of U.S. children play Roblox^[18] today (Canadian figures are likely comparable), the next generation of consumers are already familiar with the concept of digital products and in-game shopping experiences such that they may expect advertising to continue within their virtual worlds as adults.   Realizing the possibilities and limitations of the metaverse becomes more important than ever now for companies who want to develop long-last relationships and brand recognition with younger clientele.   For those readers who seem apprehensive of the metaverse, you may want to start paying attention to, or even step into, the virtual world.