Ananya Malhotra
5th Year Law Student
Christ Deemed to be University
Bangalore, IndiaNo longer a fantasy of science fiction, the Metaverse is an increasingly fast-growing virtual world in which individuals live, trade, and produce via virtual avatars. The Metaverse has also established a lucrative marketplace for virtual goods, from non-fungible token (NFT)-hooded clothes to virtual real estate. However, a pressing question comes along with more customers paying real currency for these virtual goods: Do they actually own what they purchase?
In the real world, such laws as first sale and exhaustion give consumers power by restricting control that the owners of intellectual property (IP) retain once they sell their products. IP rights are not offended if you give away a video game, resell a book, or distribute a branded product. But those same legal safeguards somehow have a tendency to vanish when we are talking about the Metaverse. The customers may not be able to resell, donate, or even use their purchases in their entirety because most virtual goods are subject to license agreements and not ownership.
This article talks about how conventional IP norms are difficult to enforce in online environments, particularly when ownership and access are obscured by tech platforms and NFTs. The need to rethink and possibly re-envision how we establish ownership in the virtual world grows as digital markets expand and the gap between law and technology widens.
Metaverse can be understood as a massive, interactive virtual world where people can chat, play, shop, and create using avatars and virtual personas. Think of it as the next level above the internet, where individuals interact with each other and their environments in real time, often through virtual or augmented reality, as opposed to scrolling on screens. Early examples include platforms like Decentraland, Roblox, Fortnite, and Meta's Horizon Worlds, which provide virtual products like digital artwork, virtual real estate, clothes (for avatars), and even experiences like concerts.¹
These virtual commodities may first seem exactly like physical commodities: you might buy a virtual shirt, skin, or piece of land. Here's where it becomes complicated, as the Metaverse concept of property is extremely different from the physical world. If you buy an actual commodity, you usually end up with ownership of that specific commodity and can give or sell. Alternatively, you often only gain a permission to utilize a virtual object with particular limitations from the platform upon acquisition. That suggests that you own few rights and that the IP owner or the platform might subject your use and transfer of the digital product to limitations.
Intellectual property (IP) legislation becomes crucial in this situation. Virtual commodities are more than just lines of code; they are frequently covered by trademarks, copyrights, and occasionally even patents.² Even after a sale, the creators or owners of the rights maintain control over how these assets are used. For instance, you only have restricted usage rights when you buy a designer skin for a game; you are not granted the freedom to copy, alter, or sell it.
Due to the unclear application of existing intellectual property doctrines such as exhaustion (which restricts rights after a sale) and first sale (which permits resale), the Metaverse poses new legal issues.³ Knowledge of how IP rights operate in this field is crucial for creators and platforms, and for the millions of consumers and companies betting on the future of virtual worlds, as digital economies expand and individuals spend considerable amounts of real money on virtual goods.
We first need to consider how intellectual property (IP) rights work in the actual physical world, that is, under the principles of exhaustion and first sale, to understand why ownership in the Metaverse is so complicated.
The first sale doctrine tells us that once a copyright owner sells or transfers a legally created copy of a work, the owner loses his control over what the buyer will do with the copy. What this means is that you do not need to ask permission from the copyright owners to resell, lend, give away, or even dispose of your copy of a book, CD, or DVD. Just like patents and trademarks, the concept of exhaustion ensures that the rights owner cannot limit further use or distribution after the initial authorized sale.⁴
When you purchase a printed novel from a bookstore, for instance, you are the owner of the physical copy, which you can give to a library, sell on eBay, or lend to a friend. A lawfully purchased video game disc or a branded handbag can also be sold again because the IP owner's ownership over that particular item is deemed “exhausted” following the initial sale.⁵
To counterbalance the rights of creators and consumers, these theories are necessary. Otherwise, producers or right owners would retain full authority over all products, banning libraries, second hand stores, resale markets, and even private lending. Essentially, first sale and exhaustion protect consumer sovereignty, promote market competition, and enable fair use.
But since copies are simple to create and purchases occasionally involve limited licensing agreements instead of outright ownership, these doctrines, which were established for physical items, are tricky to apply tidily in the digital realm. In the Metaverse, this tension is acutely felt.
In the Metaverse, purchasing a virtual skin, NFT artwork, or even virtual land entails that what you actually obtain is, at best, a limited license. Depending upon the rules of the platform where the purchase is made, you would actually only be allowed to use the item and not buy it as per the defined guidelines.
One important difference is that, unlike a tangible book or purse, you do not own the digital file. Unless specifically permitted by the platform or rights holder, you are not permitted to freely resell, lend, alter, or distribute these digital works.⁶ The nature of intellectual property law explains why businesses usually keep all underlying rights.
The nature of intellectual property law is that, since digital goods are so easily copied, firms generally hold all underlying rights and merely license⁷ limited use to consumers. This setup also explains why doctrines like first sale or exhaustion usually do not apply in the Metaverse. Under U.S. law, the first sale doctrine applies only when there is a lawful sale or transfer of ownership, not when there is merely a license. So, even if you’ve paid real money for a virtual asset, you typically cannot invoke these protections because you were never the legal owner—you were just a licensee.
It has a significant impact on consumers. It means that if a platform shuts down, your account gets suspended, or the terms of service get updated, you may no longer be able to use it. Virtual goods are usually neither resalable nor giftable, which leads to a closed system in which companies still have control despite "selling" digital products. Fundamental questions about consumer rights during the digital age are raised by this difference between virtual and actual possession.
In contemporary society, NFTs tend to capture people's attention as assets “owned” by users on the blockchain, where music, art, or even virtual estates are definitively distinct and owned. However, NFTs do not legally grant full ownership of the content they contain.⁸ Instead, you receive a unique token that verifies your ownership of a specific digital file but does not grant copyright or reproduction rights to the artwork.
For example, when purchasing NFT art, you become entitled to that specific token, but the artist still legally retains copyright. Therefore, you cannot freely sell or duplicate copies of the artwork without consent. Similarly, Roblox, Fortnite, and Meta’s Horizon Worlds enforce copyright laws and heavily regulate virtual items purchased by users within their world.⁹ Even though you spend real currency on those purchased assets, your usage of it becomes limited access to those assets governed by terms of service you have no choice but to abide by—basically making it a gated ‘walled garden.’
In summary, the Metaverse's promise of digital ownership is often more myth than reality. Users remain dependent in the absence of meaningful legal rights or platform compatibility. Although blockchain technology and NFTs are often promoted as instruments of user empowerment, the effective control over digital assets is often in the hands of centralized platforms that can modify, limit, or even withdraw access. Further, the absence of standardized procedure and cross-platform interoperability leaves users with little of what they actually "own" in one virtual space being considered as valuable in another. Without effective legal frameworks and true decentralization, the fiction of digital ownership stands to turn into mere marketing fiction.
Legal frameworks have yet to develop an intellectually reasonable solution to the Metaverse, NFTs, or any other digital assets in contrast with physical property. Users intending to purchase virtual items today find themselves bound by stringent licensing deals that sit at odds with their purchase, essentially meaning they do not actually own whatever virtual item they 'purchased.'
Some scholars claim that a theory of a 'digital fatigue' should be dealt with in order to resolve the gaps in the system. Allowing users to exercise dominion over assets freely, the digital exhaustion principle gives authority for unrestricted resale, lending, and transfer of recourses that had been securely acquired and should be legislatively protected.
Implementing the theory is more challenging than one would think. From a business perspective, assets that are inherently deemed digital disqualify the item from resale due to the unlimited capacity for replication. On the flip side, consumers perceive modern licensing restrictions as stifling and consider themselves trapped in proprietary systems designed by dominant technology firms.
In addition to digital fatigue, potential reforms might include tougher consumer protection regulations to avoid abrupt loss of access to acquired goods or interoperability standards to allow users to transfer assets between platforms. By balancing the interests of creators and users, these adjustments may promote innovation and guarantee equitable treatment. In the end, legal systems around the world need to reconsider outdated frameworks to reflect the reality of digital life, where ownership ought to signify more than just a license.
In addition, the courts and legislators need to address the uncertainty of the legal status of virtual assets, especially regarding creating definitive property rights. As opposed to physical goods, virtual goods tend to reside in enclosed ecosystems where ultimate control is maintained by the platform providers with users having scant recourse if a problem arises. A redefinition of property in the digital space—maybe through statutory recognition of ownership of digital assets as with tangible property rights—would assist in anchoring user entitlements. Such a transformation would require harmonization across jurisdictions to support the inherently borderless nature of digital interactions and commerce so that digital ownership is meaningful and enforceable globally.■
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