Is it time for a test drive in the Metaverse? | Arent Fox Schiff
Car buying has evolved from the days of brick-and-mortar dealerships to e-commerce, where consumers can select their preferred dealership, reserve, order, finance and purchase a new or used vehicle on a transparent transaction. Is the Metaverse the next evolution for buying a car? While there’s no replacement for an actual test drive, the Metaverse offers a myriad of opportunities for dealerships to interactively engage with consumers beyond traditional advertising.
Consumers are already shopping online, and the appeal of immersive car shopping from the comfort of your home is undeniable. Manufacturers are already venturing into the Metaverse, including a Roblox-hosted Metaverse that allows users to experience the latest advanced racing technologies and motorsports available through the company’s latest high-performance car. It’s never too early for marketers to start exploring the metaverse to connect with consumers.
The Metaverse is an immersive 3D virtual environment that can support interactions between individuals and businesses using an avatar. Consumers will undoubtedly choose the virtual world where their friends play and hang out. The use of blockchain-facilitated cryptocurrency transactions allows a metaverse consumer to make virtual items exchangeable for real economic value beyond the virtual world. These secure transactions are recorded digitally on a distributed ledger. Users must have a digital or crypto wallet to play and do business in the metaverse. There are a variety of virtual worlds that users can select from, 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 needed.
Before dealers jump into the metaverse, there are several key issues to consider.
- Cyber security. It’s no secret that cyberattacks against corporate networks happen every week, and there’s no sign that those attacks are slowing down. In the context of these cyberattacks, it is safe to say that phishing attacks will increase exponentially. In the metaverse, these attacks include malicious schemes to trick people into gaining access to personal information and data or cryptocurrency wallets. Using vulnerable AR/VR devices can become a gateway for malware invasions and data breaches.
- No central authority. Since the metaverse is built using blockchain technology instead of centralized services, there is no designated administrator or authority; therefore, there is no possible way to recover stolen or illegally obtained assets.
- Privacy. Setting up a virtual dealership comes with confidentiality obligations, including based on customer residency (eg, California, Colorado, Connecticut, Illinois, Texas, Utah, and Virginia). Privacy considerations are integral, not only due to the increased amount of personal information collected in the metaverse, but also the additional categories of sensitive personal information involved, such as biometric data, which may be collected through the use of AR/VR headsets. The metaverse will allow virtual dealers to have the ability to track user interactions, track eye and body movements – types of personal information that dealers may not have been able to track before. Careful notification and consent, security and system control requirements should be considered in the early stages of setting up the concession, as notice should be provided at the time of collection and consent should be obtained before the collection of personal information.
- Set up a dedicated legal entity. Licensees may consider creating a new subsidiary or affiliate to hold future digital assets, protect other parts of their business from Metaverse liability, and deal with potential tax consequences.
- Taxes. The IRS treats “virtual currency,” including cryptocurrency, as property; therefore, general tax principles apply to real estate transactions using virtual currency. The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services could result in a tax liability. The IRS is making cryptocurrency fraud a priority and aggressively pursuing taxpayers who fail to report cryptocurrency-related income.
- Regulatory conformity. Motor vehicle manufacturers and dealers must comply with both the Federal Trade Commission Act and other regulations that deal with the sale, marketing and advertising of motor vehicles. Section 5 of the act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair acts or practices. In addition, the law prohibits unfair or misleading 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 state attorneys general begin looking into the metaverse to protect the motoring public.
- Metaverse advertising must be truthful and not mislead consumers.
- Claims about products or services must be substantiated, especially when they relate to fuel economy, safety or performance.
- Dealerships considering advertising offers in the Metaverse should consider placing clear and visible information. In 2013, the FTC updated its “Dot.Com Disclosures” business guidance document to advise digital marketers on how to provide clear and visible information about the information consumers need to make decisions. information about goods and services on the Internet. On June 3, 2022, the FTC requested public input on potential updates to this guidance document. Given that nearly a decade has passed since the guide was last updated, it doesn’t deal much with the new technologies that have emerged and the evolution of online advertising. With the request for comment, the FTC has identified sixteen key issues on which it has a particular interest in obtaining public input, including: and, if so, how should these issues be resolved? It’s clear that the FTC is already concerned about consumer advertising and marketing in the Metaverse and is 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 FTC’s green guidelines. It is misleading to claim, directly or indirectly, that a product provides an overall environmental benefit. Ads must qualify general environmental claims or avoid them altogether.
- Vehicle demonstrations must show how the product will operate under normal operating conditions. As mentioned earlier, regulators will scrutinize the Metaverse, and product demonstrations could be high risk if products are not demonstrated properly or if performance and safety claims in the demonstration are exaggerated.
- Class actions. False and misleading advertising in the metaverse can cause the FTC to join other law enforcement agencies (e.g., state attorneys general), and dealers can potentially face enforcement action or civil lawsuits with fines of up to $46,517 per violation if they occur.
- Intellectual property. Resellers should consider filing trademark applications covering metaverse goods and services and secure all blockchain domains available to process metaverse payments. See our previous Alert on Protection and Enforcement of Intellectual Property Rights in the Metaverse for more details.
- Location, location, location. What is the right metaverse for my virtual dealership? Each platform has its own advantages and disadvantages, including unique features such as games, creating your own avatars and building architecture, buying digital plots of land or accessing unique NFT collections .
Dealerships planning to move into the Metaverse must adhere to advertising laws and regulations when creating their long-term strategy for a virtual dealership. Even as the Metaverse continues to evolve, opportunities include the creation of a virtual dealership where customers can ask the dealer questions about their vehicles, take a test drive, or even just view vehicles.
Ready to enter the metaverse?
As automakers head into the metaverse to reach consumers, it’s only natural that dealerships also want a presence to connect directly with customers in the metaverse. As with all new and evolving technologies, there are legal and regulatory issues that need to be considered. ArentFox Schiff attorneys provide an interdisciplinary perspective to help auto dealerships develop creative and practical tactics to maximize the value of opportunities created by the metaverse.