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Legal challenges facing AR and VR

(Image credit: Image source: Shutterstock/Halfpoint)

The rise 

A recent wave of popular gaming franchises offering virtual reality (‘VR’) experiences, coupled with an increasing range of applications in social media, has sent sales of VR headsets soaring.  This year’s third quarter saw total shipments exceed 1 million for the first time, with signs that uptake will continue over the holiday period as several manufacturers cut their prices for Q4.  Gaming and social applications are merely the tip of the iceberg as VR is set to penetrate new markets such as accommodation rental: allowing guests to virtually preview the space on offer in three dimensions before booking.   

VR’s march toward widespread adoption is shadowed by the slow early uptake of augmented reality (‘AR’) ‘wearables’ which have suffered a handful of notable false starts.  Early success of AR is perhaps most obvious on the smartphone platform, where users enjoy augmenting their pictures and surroundings through the use of filters and ‘lenses’.  However, the underwhelming early adoption of AR wearables masks a quiet trend of significant investment, indicating investors’ confidence in the technology’s importance and prevalence in the mid to long-term.  Rather than relying on the smartphone, many believe AR will become a robust platform in its own right, ripe for novel forms of commercial exploitation.  With a bright future forecasted for both AR and VR, those engaging with the technologies should be aware of the legal challenges facing these new mediums. 

Intellectual property, licensing and distribution 

We have identified two trends helping to guide digital licensing and distribution on AR and VR platforms.  The first is a gravitation toward intuitive and immersive experiences in digital engagement, with the end goal of bringing augmented and virtual reality into people’s daily lives.  The second is a shift in the way companies and consumers communicate, work, engage and conduct business over the internet.  Content was previously shared and consumed predominantly via text; now video is the primary medium.  AR and VR has been heralded by DigiCap as the “fourth platform shift”.  As barriers to access such as price, size and weight are reduced, we may see AR/VR emerge as a primary platform for communication, commerce and content. 

It is crucial that rights holders and licensees pay careful attention when negotiating agreements so as to ensure valuable IP (either existing now or in the future) is allocated appropriately.  Such IP may include copyright in content or software, database rights, confidential know-how and inventions which may be protected with patents. 

To ensure successful monetisation of these rights, it will be necessary to modify existing business practices so that they are fit for augmented and virtual environments.  Currently, rights in IP are purchased in respect of clearly defined use cases, for example: a fee per ‘play’ of audiovisual content; a monthly licence fee for access to software by a defined number of users; or a fee for the use of personality rights (the right to use someone’s name, image or other aspect of their identity) in respect of a defined category of merchandise.  However, the freedom ascribed to a consumer exploring a virtual environment may result in drastically different commercial outcomes.  The consumer may watch hours of audiovisual content – or none at all.  They may engage extensively with software integrated into his environment – or ignore it altogether.  In such circumstances elements such as pricing, delivery and confidentiality will be difficult to negotiate.  Although this is just one example of the practical challenges posed by AR and VR, it is illustrative of issues licensors, licensees and distributors will need to address when engaging with the technologies. 


Businesses have already begun experimenting with marketing through virtual showrooms, virtual product launches, and the integration of branded products into the augmented environment of the consumer through smartphone applications.  The ability to deliver advertisements to consumers which are not only targeted to their characteristics and preferences but also to the specific tasks or elements of their environment with which they are engaging is an attractive prospect. 

However, technology moves faster than the law.  When devising creative marketing solutions, agencies and businesses should be wary of the fact that bodies such as the Advertising Standards Authority (‘ASA’) in the UK are already claiming AR and VR marketing as falling within their regulatory remit.  The risk to businesses is that current rules, written before the advent of AR and VR, will be forced upon technologies not originally envisaged at the time of drafting.  For example, advertisements in the UK must be ‘obviously identifiable’ as advertisements and the consumer must be made aware of the fact that they contain commercial content.  In the absence of any specific guidance on how the current rules apply to AR and VR technology, compliance exercises will undoubtedly present challenges.  The levels of immersion a consumer experiences in a virtual reality environment would be severely hampered by prominent warning text identifying a certain aspect of the environment as marketing material.  However, the sanctions for non-compliance can be significant.  The ASA can require the amendment or withdrawal of a non-compliant ad.  If a case is referred to the Trading Standards board, unlimited fines, prison sentences of up to two years and confiscation of financial assets may be ordered.  Businesses would be wise to conduct compliance exercises to ensure their marketing practices comply with the rules enforced by the ASA, and ensure that they keep abreast of any law and regulation specific to AR and VR which may be introduced. 

Looking forward 

These are just two broad categories in a range of legal considerations the proliferation of AR and VR presents.  Compliance with the increasingly stringent data protection requirements, liability for personal injury of consumers, taxation of virtual assets and virtual crime are all areas which must be carefully assessed by businesses seeking to participate in AR and VR. The increasing popularity and opportunities for consumers to access augmented and virtual experiences will spur further innovation and creativity across a broad range of industries.  Ultimately, governments and regulators will enact legislation, produce regulations and draft guidance appropriate to augmented and virtual reality. Until then, businesses must move with the tide and ensure compliance with the current legislative and regulatory frameworks as far as possible. 

Gregor Pryor, Partner and Hunter Thomson, Trainee, at Reed Smith 

Image Credit: Halfpoint / Shutterstock