Is it time for a test drive in the Metaverse? † ArentFox Schiff

Buying a car has evolved from the days of brick and mortar dealers to e-commerce, where consumers can select their preferred dealer, reserve, order, finance and buy a new or used vehicle in a seamless transaction. Is the metaverse the next evolution for buying a car? While there’s no substitute for a real test drive, the metaverse offers countless opportunities for dealers to interact with consumers beyond traditional advertising.

Consumers are already shopping online, and the temptation to buy a car submerged from the comfort of your home is undeniable. Manufacturers are already venturing into the metaverse, including a metaverse hosted on Roblox that allows users to experience the latest cutting-edge racing technologies and motorsports available through the company’s latest high-performance car. It’s never too early for dealers to start exploring the metaverse to connect with consumers.

Metaverse 101

The metaverse is a 3D immersive virtual environment that can support interactions between individuals and companies using an avatar. No doubt consumers will choose the virtual world where their friends play and hang out. Using cryptocurrency transactions facilitated by blockchains allows a consumer in the metaverse to make virtual items exchangeable for real economic value outside the virtual world. These secure transactions are digitally recorded in a distributed ledger. Users must have a digital or crypto wallet to play and do business in the metaverse. There are several virtual worlds for users to select, including Decentraland, Somnium Space, and The Sandbox. To access these virtual platforms, a user may need a virtual reality (VR) headset, augmented reality (AR) glasses or a smartphone. Decentraland is built on web-based 3D rendering software that enables interactions on the blockchain. No VR headset or AR glasses are required.

Before going into the metaverse for dealers, there are a few important things to consider.

  1. Cybersecurity. It’s no secret that cyber-attacks on corporate networks are happening on a weekly basis, and there’s no sign of these attacks waning. As part of these cyber-attacks, we can safely say that phishing attacks will increase exponentially. In the metaverse, these attacks involve malicious schemes to trick people into accessing personal information and data or cryptocurrency wallets. The use of vulnerable AR/VR devices can become a gateway for malware invasions and data breaches.
  2. No central authority. Because the metaverse is built using blockchain technology rather than centralized services, there is no designated administrator or authority; therefore, there is no way to recover stolen or illegally obtained assets.
  3. Privacy Policy. Setting up a virtual dealer involves privacy obligations, especially depending on the customer’s residence (e.g., California, Colorado, Connecticut, Illinois, Texas, Utah, and Virginia). Privacy considerations are integral, not only because of the increased amount of personal information collected in the metaverse, but also because of the additional categories of sensitive personal information involved, such as biometrics, that can be collected through the use of AR/VR headsets. The metaverse allows virtual dealers to track user interactions, tracking eye movements and body movements — types of personal information dealers may not have been able to track before. Careful notice and consent, security and system auditing requirements should be considered at the initial stage of dealership setup as notice should be given at the time of collection and consent obtained before personal information is collected.
  4. Establish a dedicated legal entity. Dealers may consider establishing a new subsidiary or affiliate to hold future digital assets, protect other parts of their business from metaverse-related liability, and deal with the potential tax ramifications.
  5. taxes. The IRS treats “virtual currency,” including cryptocurrency, as property; therefore, general tax principles apply to real estate transactions using virtual currencies. The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, may result in tax liability. The IRS is making cryptocurrency fraud a priority and aggressively pursuing taxpayers who fail to report crypto-related income.
  6. Regulatory Compliance. Motor vehicle manufacturers and dealers must follow the Federal Trade Commission Act as well as other regulations pertaining to the sale, marketing and advertising of motor vehicles. Section 5 of the law allows the FTC to act in the best interests of all consumers to prevent deceptive and unfair acts or practices. In addition, the law prohibits unfair or deceptive advertising in any medium. Historically, the FTC has been extremely aggressive in enforcement actions against dealers for misleading price advertising. It’s only a matter of time before the FTC and the state’s attorneys general start investigating the metaverse to protect auto shoppers.
  • Advertising in the metaverse must be truthful and not mislead the consumer.
  • Claims about products or services must be substantiated, especially if they relate to fuel economy, safety or performance.
  • Dealers considering advertising offers in the metaverse should be mindful of posting disclosures that are clear and eye-catching. In 2013, the FTC updated its business guidance document “Dot.Com Revelations” to advise digital marketers on how to provide clear and eye-catching information consumers need to make informed decisions about goods and services on the Internet. On June 3, 2022, the FTC requested public input on possible updates to this guidance. Since it’s been nearly ten years since the guide was last updated, not much is given about the new technology that has emerged and the evolution in online advertising. In soliciting comment, the FTC identified 16 key questions for which it has a particular interest in obtaining public opinion, including: “Should the guidance address issues that have arisen regarding advertising appearing in virtual reality or the metaverse? , and if so, how should those problems be addressed?” It’s clear that the FTC is already concerned about advertising and marketing targeting consumers in the metaverse and making it a priority.
  • Virtual dealers must comply with the Truth in Lending Act (TILA): Regulations M and Z.
  • Environmental claims. Electric and hybrid vehicles are here to stay. Claims about the environmental benefits of these vehicles must comply with the: The FTC . Green Guides† It is deceptive to misrepresent, directly or indirectly, that a product provides an overall environmental benefit. Ads must qualify broad environmental claims or avoid them altogether.
  • Vehicle demonstrations must demonstrate how the product will perform under normal use. As mentioned, regulators will investigate the metaverse, and product demonstrations can be at great risk if products are not demonstrated correctly or if performance and safety claims are exaggerated within the demonstration.
  • Class actions. False and deceptive advertising in the metaverse could lead the FTC to associate with other law enforcement agencies (e.g., prosecutors), and dealers could face enforcement actions or civil lawsuits with fines of up to $46,517 per violation if they occur.
  1. Intellectual property. Dealers should consider filing trademark applications for metaverse goods and services and secure all available blockchain domains to process metaverse payments. See our previous Alert on Protect and enforce IP rights in the metaverse for more details.
  2. Location, location, location. What is the right metaverse for my virtual dealership? Each platform has its own pros and cons, including unique features such as gaming, creating your own avatars and building architecture, buying digital plots or accessing unique NFT collections.

Dealers considering opening a store in the metaverse must adhere to advertising laws and regulations when creating their long-term strategy for a virtual dealer. While the metaverse is still in development, there are opportunities to establish a virtual dealership where customers can ask the dealer questions about their vehicles, take a test drive, or even just view vehicles.

Ready to ride into the Metaverse?

As automakers drive into the metaverse to reach consumers, it’s only natural that dealers also want a presence to connect directly with customers in the metaverse. As with all new evolving technology, there are legal and regulatory issues to consider. The attorneys at ArentFox Schiff provide a multidisciplinary perspective to help auto dealers develop creative and practical tactics to maximize the value of the opportunities created by the metaverse.

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