The Age of the Avatar
This week, let’s highlight the legal issues associated with avatars.
Threshold Question: Web 2 or Web 3?
Avatars have become integral to our digital personae across both Web 2.0 and Web 3.0. When considering avatars, context is crucial, and you need to understand the technology that underlies them. Depending on the environment where the avatar resides, the issues surrounding avatars vary.
Web 2.0 Avatars: In Web 2.0, which is the version of the Internet most of us interact with daily, avatars are primarily used in chatrooms, gaming platforms, and on social media sites. There, they most often serve as digital representations of particular users (though now we are facing a rise in virtual avatars created through generative AI – more on that later).
Web 3.0 Avatars: In Web 3.0, which includes decentralized platforms and blockchain, avatars are not just representations of users, but are tied to digital assets, including non-fungible tokens (NFTs), which can represent ownership of certain digital content.
There are many technical issues associated with Web 3.0 avatars, including the programming of the smart contracts on which they are built. Indeed, smart contracts can be programmed with specific rules that are automatically executed under certain conditions—one common application being the automatic distribution of royalties upon the transfer of an NFT. For this reason, the definition of “ownership” in Web 3.0, as it relates to digital art and content, has additional dimensions that are still evolving.
Moreover, there are additional legal issues that may require specialized counsel, such as those associated with securities laws, money laundering, and Office of Foreign Assets Control ("OFAC") sanctions, along with issues we touch upon below.
In short, understanding the technology underlying your avatar is essential for understanding the relevant issues.
Issues:
Ownership: “Ownership” of an avatar isn’t cut and dried. In Web 2.0, rights in and to avatars implicate both intellectual property (IP) law and contract law. In Web 3.0, there are also ownership issues associated with smart contracts underlying the NFTs as they can be programmed to, as previously mentioned, distribute royalties every time the NFT is transferred.
IP: Avatars may incorporate elements subject to copyright, trademark, or even patent law. For example, an avatar that represents a celebrity's likeness or a fictional character can raise copyright (and sometimes trademark) concerns, while the use of logos could also infringe on trademark rights. Additionally, avatars created using proprietary technology could lead to patent issues.
Contracts: Terms of Service or other service agreements may define users’ rights to their avatars, addressing such issues as how avatars can be created, modified, and used. Typically, such terms on Web 2.0 platforms offer users a license for personal and noncommercial use, while retaining rights to user-generated content.
Privacy: Privacy considerations are integral to the conversation about avatars because avatars themselves can indirectly identify an individual. Avatars can hold and display a variety of personal data, from physical likeness to behavioral patterns. This association means that avatars fall under the category of personal information, thereby implicating privacy laws.
The Federal Trade Commission (FTC) recognizes the complexity of avatars with respect to personal data. Last year, a landmark privacy case involving Microsoft and its Xbox gaming system highlighted these issues. The FTC accused Microsoft of violating the Children's Online Privacy Protection Act (COPPA) Rule. The crux of the alleged violation lay in Microsoft's collection of personal information from minors, which notably included avatar data, without obtaining the requisite parental consent. This case underscores the challenges and responsibilities companies face with privacy issues.
A link to the FTC’s Complaint Against Microsoft follows:
https://www.ftc.gov/system/files/ftc_gov/pdf/microsoftcomplaintcivilpenalties.pdf
Virtual Avatars, Deepfakes, Advertising, Endorsements, Impersonation and Fraud: Influencer marketing / content creation has seen a rise in virtual and deepfake avatars as individuals and companies have sought to engage audiences with AI-generated images. This trend raises substantial issues around advertising, endorsements, impersonation, and outright fraud, prompting regulatory action.
In February, the FTC, recognizing the potential for consumer deception, proposed an amended rule to protect consumers from AI impersonation threats. This initiative reflects a broader regulatory effort to ensure that endorsements and advertising maintain transparency and truthfulness, as alluded to in the FTC’s announcement which you can access by clicking on the following link to the press release, entitled “FTC Proposes New Protections to Combat AI Impersonation of Individuals”:
Moreover, the FTC’s updated Guides Concerning the Use of Endorsement specifically state that endorsements must be genuine reflections of the endorser's experience with the product or service at the endorsement's time. Advertisers are also bound by the requirement to believe in good faith that the endorser continues to be an actual user of the advertised product or service for the duration of the advertisement's life. These stipulations are designed to uphold consumer trust and prevent misleading advertising practices.
For a deeper exploration of how to avoid the pitfalls of undisclosed endorsements and testimonials, consider reviewing our previous Privacy Plus+ post, "Avoiding the Consequences of Undisclosed Endorsements and Testimonials," available on the Hosch Morris website. You can find further insights and guidance by clicking on the following link:
https://www.hoschmorris.com/privacy-plus-news/endorsements-and-testimonials
Other harms: As avatars become more pervasive in our online experiences, more issues (and harms) will emerge. As an example, you can read this disturbing article from Forbes, regarding a “virtual rape” of an avatar in the metaverse:
Our Thoughts:
Avatars are no longer just pixelated personae. AI has turbocharged them from cartoon images to realistic reflections of people, complete with voices and mannerisms, just as they have emerged as part of our identities online. Whether we confront the complex legal issues associated with avatars in the relatively familiar terrain of Web 2.0 or the frontiers of Web 3.0, we see multifaceted issues surrounding avatars that demand careful consideration, especially as the risks for impersonation, deepfakes, and other virtual bad acts increase.
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Hosch & Morris, PLLC is a boutique law firm dedicated to data privacy and protection, cybersecurity, the Internet, and technology. Open the Future℠.