Virtual legality and – Legal Issues 2 • dentons.com With predictions that the impact of Virtual Reality (VR) and Augmented Reality (AR) is comparable to the impact of the internet1 Dentons, as part of its on-going TechTalk series, thought it was timely to examine the legal issues associated with this relatively new technology. The hype is real at least. There are predictions of the AR and VR sectors generating $90 billion by 2023.2

This article aims to get you Are VR and AR the AR comprehensively up to speed and up to date. It will be of particular same thing? By contrast, Augmented Reality interest to anyone in sectors such (AR) supplements the real world. First – some definitions. as media, retail, hotels, education, The user sees the real world but manufacturing, finance and VR with the addition of computer healthcare. generated images which are Virtual Reality (VR) uses overlaid onto various real objects. Read on if you need a “VR and and devices to show (usually Augmentations can be sound, AR 101” session which gives you realistic) images, sounds and video, graphics or data. an overview and covers the legal other sensations (such as scent)3 issues. This article provides you AR achieves this by adding to replicate real or imaginary with what you need to know computer vision and object environments and to map the right now about: recognition to data about the real user’s physical presence in them. environment surrounding the user. VR’s aim is to be realistic and 1. What are VR and AR? AR presents that content overlaid immersive, and to simulate a onto the user’s real world view. 2. How does the VR/AR three dimensional environment The AR information itself can be technology work? and experience. VR does this either virtual or real data. 3. Who is who in the world by interactive software and of VR and AR? hardware which is controlled and AR devices range from experienced by movement of the and tablets (say, 4. Key legal issues associated human body, head or eyes. A VR for playing games like Pokémon with VR and AR. user can move or look around Go) to windscreens in vehicles 5. he future of VR and AR. and interact with the technology (for example, to display satnav via a screen or headset/ information) or HMDs worn (called a head-mounted display by the user (such as a harness, or HMD). or eyeglasses).

1. See “Digital Trends: Why 2017 Will Be Shaped By VR, AR, AI and Personalized Digital Assistants” published by Newsweek.com 3 January 2017 at http://europe.newsweek.com/virtual-reality-virtual-reality-sets-phones-technology-537969?rm=eu

2. According to “Augmented And Virtual Reality To Hit $150 Billion, Disrupting Mobile By 2020” dated 6 April 2015 by Tim Merel from @DigiCapitalist at https://techcrunch.com/2015/04/06/augmented-and-virtual-reality-to-hit-150-billion-by-2020/

3. Both scent and taste are current developments. See, for example, the VR experiment to taste virtual sushi and donuts which is described in the article “We Sampled The Gastronomic Frontier Of Virtual Reality” dated 29 January 2016 at http://www.npr.org/ sections/thesalt/2016/01/29/464885833/we-sampled-the-gastronomic-frontier-of-virtual-reality

dentons.com • 3 The AR device displays the a three dimensional space). AR content by projecting through 6DoF systems plot the user’s or by reflecting off the surfaces movements along x, y and z axes of the device. to measure in every direction.

In short, the main differences VR systems use a few mechanisms are that AR enhances reality to plot movement. These range whereas VR replaces reality with from light emitting diodes (LEDs) a simulated one. In doing so, Image of Sony PlayStation and cameras, to infrared sensors, there is a difference in the level of VR © 2016 Sony Interactive magnetometers, gyroscopes immersion of the user experience. Entertainment LLC or accelerometers. The aim is to minimise lag between How do AR and VR The experience of immersion user physical movements and actually work? depends on how wide the display image changes. The process of view is. A 360 degree display converting a user’s motion into VR and AR technology works in would be more immersive than commands in the VR computer slightly different ways. What they the 100 or 110 degree displays software is vital to the sense of generally have in common is the which are currently most common immersion. A low latency in terms need for a user to buy a device in VR HMDs. of lag is crucial to the quality and to download an app to it of the VR experience. Latency The headsets refresh the views as to get started. is usually measured usually in the user moves around. Users will milliseconds. feel disoriented and sick however VR if the field of view does not refresh VR systems mainly use one of two In VR, getting the maximum sense often enough. Companies such methods to track body motion. of immersion is key to a good as Sony impose standards on These are either optical tracking experience. its game developers to meet (using imaging devices to track certain frame rate per second body motion) or non-optical VR works by feeding video from (fps) requirements or they will not tracking (using other sensors a computer to the HMD or be certified on the PlayStation attached to the body such as /tablet —either by system.4 At least 60 frames per magnetic fields or sound waves). cable or wirelessly. The headsets second is needed to avoid user take the video feeds and send disorientation. Optical: them to a single display or to two A user will wear optical markers displays (one for each eye). How is motion tracked? (such as dots of highly reflective Sometimes the in an HMD material) on parts of their body, are adjustable to match the VR devices track the user’s head the HMD or handheld controller distance between a user’s eyes. or arm/hand/body movements and a camera maps their This helps the image to be as and through the software shift movement to three dimensional focused and shaped as possible the picture in the headset display space. and facilitates a “stereoscopic” as the user moves around. VR three dimensional image (created devices constantly trace and Non-optical: by angling the two separate two retrace the real world movements dimensional images to simulate through a process called spatial A user will wear equipment how human eyes have small mapping. Tracking is measured (such as an exoskeleton motion differences in the way each one according to a “six degrees capture suit system or HMD) or views images). of freedom” (6DoF) system (a use a handheld controller which reference to the freedom of contains micro-electromechanical movement of a rigid body in sensors (such as accelerometers,

4. See Charlie Hall’s article for Polygon, “Sony to devs: If you drop below 60 fps in VR we will not certify your game. You cannot drop below 60 fps. Period. Ever.” dated 17 March 2016 at http://www.polygon.com/2016/3/17/11256142/sony-framer- ate-60fps-vr-certification

4 • dentons.com gyroscopes and magnetometers). through a camera, webcam These sensors convert movement or phone. into electrical signals and so track motion. Some newer technology There are two main types of AR: interpret electrical impulses AR that is marker-based or AR that directly from muscles to enable is marker-less or location-based. gesture-based control of the Marker-based AR: VR software. • This type uses a camera and a How are eyes tracked? visual marker to determine the centre, orientation and range of Eye tracking is a newer VR frontier its spherical coordinate system. and involves use of an infrared The AR device is activated when sensor to monitor eyes and where an item (the marker) is placed the user is looking inside the in front of a webcam (which is HMD. This allows more precise connected to or embedded in reactions in VR imagery and a the AR device). The webcam depth of field that is more realistic. captures a video feed (by For example, the VR display might taking lots of photos in quick blur the foreground slightly if the succession) and processing or user is looking into the distance. recognising the information and – which is what naturally would patterns in the photos (such occur when eyes are looking into as a barcode or symbol). The the distance in the real world. This AR computer then recognises Image of Spyglass Compass and feels more natural to the user as that information and overlays GPS navigation app for iPhone and it replicates the way the human the marker with an image or iPad © 2016 Happy Magenta UAB brain works and so a user is less animation. A classic example likely to feel disoriented or dizzy. is the world record line which Who is in on the act? is dynamically added across Other senses: the lanes to show the current There are a number of key players VR devices are now aiming to world record in a broadcast of in the VR and AR sectors – either increase the sense of immersion a sports race. When a camera exploiting it, producing content by adding aural/video technology points at the marker, the digital or producing the hardware and and apps that give the user the image is overlaid at that point software. sense that sound or scent is onto the AR device’s screen. AR/VR Exploiters coming from all around them and Marker-less or location-based near and far away. AR: In 2016, the game, Pokémon Go, was such a craze that Nintendo’s AR • Marker-less or location- value doubled in a two-week based AR actively tracks and period.5 It worked by showing on AR, being VR’s real world cousin, recognises the real environment a user’s phone or tablet where works by a computer analysing without using markers. The Pokémon characters could be what is being viewed and the AR device records its position “found” and then “caught”. The position of it. AR applications in the real world and then gamer had to visit the physical superimpose two or three provides the data relevant location of the character to catch dimensional generated computer to that location (such as the the character, which was seen on imagery or descriptive information names of landmarks being a device screen via the Pokémon over real time images obtained viewed around a user). Go app when it was pointing in the

5. See “Thanks to Pokémon Go, Nintendo’s Market Just Doubled to $42 Billion” by Fortune dated 19 July 2016 at http://fortune.com/2016/07/19/thanks-to-pokemon-go-nintendos-market-cap-just-doubled-to-42-billion/

dentons.com • 5 right direction using AR. At various • Marriott uses VR ( Rift Card to reveal special offers “Poke Stops”, players checked in headsets) to showcase its hotels using AR. Lacoste has a virtual and could gather items useful to to potential guests. try-on experience using AR the game. Post peak-Pokémon-Go, where users can share their Shopping Centres: it is clear that the game exposed experience with their social millions around the world to AR. • London’s Covent Garden used network via their phone. AR for visitors to meet Santa The game has sustained its Children: in an interactive grotto and popularity, grossing US$176 million embark on an AR treasure hunt • BiCKids has released a in August 2019, Pokemon Go’s to catch reindeer hidden in the colouring book which uses highest grossing month since area. A giant Christmas tree was an AR app to enable kids to 2016.6 also digitally decorated with interact with the pages. special offers. This has caught the attention • The British Museum uses AR of brands who have started • The Galeries Lafayette store in to help children understand the to capitalise on AR and VR. Paris uses AR to animate a polar Parthenon gallery by enabling Some notable examples are the bear wandering through virtual statues from the museum’s following. snow in a 360 degree view collection to tell stories. in the store. Retail and Leisure: Other: • The Australian Pacific Fair • McDonald’s launched an • developed Word beachside shopping centre AR app that showed the as part of . provided an AR ‘12 Days of production process of its food. It enables a user to aim at Christmas’ experience featuring a foreign sign and have the • Coca Cola and Spotify three sleeping koalas and text translated into their own partnered to let users listen eight shimmering seashells language. to the most popular songs by which came to life as shoppers holding their phone up to AR- shopped. • Siemens uses AR to showcase enabled Coca Cola cans. its range of magnetic valves. Beauty: • Häagen-Dazs uses AR to For now, consumers are not • A number of beauty brands entertain consumers while generally paying for their initial have created AR apps to enable they wait for their icecream to AR and VR experiences other virtual sampling and try-on, become soft enough to scoop. than through the download of including Covergirl’s BeautyU, A virtual violin concerto is apps or the purchase of games Sally Hansen’s ManiMatch, and projected onto the top of a tub – as is often the case with new L’Oreal’s Makeup Genius app of icecream. consumer-appealing technology. which uses facial recognition New technology is often • Tesco uses AR so that technology to allow people to sponsored so that experiences customers can visualise sofas in virtually apply products. drive demand as consumers are their own home. Fashion: exposed to it. This may change in • Yelp uses AR with a feature the future — Gartner’s research called Yelp Monocle to • Rebecca Minkoff and Neiman analyst, Brian Blau, thinks that gives information about Marcus have AR powered consumers will be willing to local establishments when a interactive mirrors in their fitting pay more for quality VR and AR smartphone is pointed at them. rooms. New Look enables experiences in the future.7 users to use their phones to scan their New Look Student

6. See “People Still Play That? ‘Pokémon GO’ Just Made $176 Million In August, #1 In The World“by Paul Tassi September 21 2019 at https://www.forbes.com/sites/paultassi/2019/09/21/people-still-play-that-pokmon-go-just-made-176-million-in-August-1-in-the-world/

7. See the article on AR Blog Augmented Reality marketing resources, trends, videos and case studies: “5 top Virtual Reality & Augmented Reality technology trends for 2016” by Joe Bardi on 22 April 2016

6 • dentons.com AR/VR hardware • is another images and other information significant player who makes using AR. There is also speculation producers HMD virtual retinal displays that Apple will augment Maps which superimposes imagery for iPhones. Top VR and AR hardware over real world objects by producers are , the projecting a digital light field Facebook-owned , HTC AR/VR content into the user’s eyes. Vive, Samsung Gear VR, Microsoft producers HoloLens, Google Daydream • AMD has launched Sulon Q, View. Another key category is the a spatially aware headset that VR content and applications are branded headsets which pair with combines VR and AR. being released as consumer grade Sony PlayStation VR and Microsoft VR and AR products come down • Samsung produces the Xbox One. in price and mobile phone-based relatively affordable Samsung VR platforms bring greater ease of There is a wide range of devices GearVR headset which retails use, lower cost and a wide range and price points. More affordable around $50. of apps. VR and AR are expected devices are now proliferating • Google is another key innovator to rapidly expand to become although HMDs can still range – it has released a three a primary tool to interface with from as little as ten to thousands dimensional visual tracking social media and the internet. of dollars. device for mobile phones Originally content production for VR and AR was led by video • Oculus Rift VR is one of the and a VR HMD called Google games but that is broadening. leaders at present as they were Daydream View which retails Sony PlayStation VR is a smash early innovators with major for around $80. Google also hit but newer content is coming game developers. The headsets produces the through now also from marketers retail around $500. – an extremely low cost item which is a headset that pairs and other corporate creators. • HTC Vive retails for around with a smartphone and uses Some notable content producers twice the price of Oculus. the phone as its screen. are listed below: • Microsoft HoloLens is a wireless Windows 10 device • YouTube – which has a 360 VR with holographic capability video channel with a rapidly which integrates data from the growing catalogue of videos to sensors, handling tasks such watch. as spatial mapping, gesture • Sports organisations – this recognition and voice and sector was one of the first to speech recognition. enter with the use of AR during live broadcasts. NextVR has partnered with FOX Sports, The Google Cardboard headset Live Nation, NBC Sports, HBO/ Golden Boy, Turner Sports, Cardboard is designed specifically and CNN to provide scheduled for using VR apps on Android programmes and highlights smartphones and Google in VR (using either a Google encourages developers to make Daydream View or Samsung and sell VR apps for . Gear VR). A user can now Apple is said to be working on move to the action – such as to developing several prototype VR behind the goal posts or onto headsets and they are rumoured the basketball court and game to be developing a set of smart statistics can be displayed live that would connect on their devices. wirelessly to the iPhone like the • The New York Times and other The Oculus HMD Apple Watch. These would display companies such as Vrse and

dentons.com • 7 RYOT (which is owned by The new that laws may struggle a favourite brand’s logo on it Huffington Post) are producing to keep up. which is created by the user for VR films, documentaries and their avatar to wear online? The news. Vrse produces VR music Intellectual Property owner of the logo would consider videos, films, documentaries issues that it owned the copyright and and comedy. NYT VR produces trade mark rights in the logo VR reports where, for example, With the market for AR and VR on the virtual T-shirt. The usual viewers can be taken to the growing, the stakes are high – as intellectual property protection surface of Pluto. indicated by numerous court laws would be expected to apply in the VR world. In that case, • Google’s TiltBrush (for HTC proceedings dealing with the VR system providers would act Vive) is a very popular VR art intellectual property rights in AR as facilitators to allow users to creation app which enables and VR technology. In February virtually import or incorporate virtual painting with light. 2017 for example, Facebook was ordered by a US court to music, photographs, and brand • Jaunt is a VR app which mixes pay $500m to a US video game names or logos into their virtual films and videos from live company called ZeniMax after experiences. Both the VR platform concert performances. Facebook’s Oculus VR headset was and its users would need the permission of the brand owner • Pornhub needs a mention too found to have infringed ZeniMax’s 9 – it launched a VR category intellectual property rights. to use the logo virtually. in 2016 and this has since After this figure was later reduced IP legal issues get trickier, experienced growth in views on appeal, Facebook and however, when no such of 302%.8 Zenimax reached a settlement for permission has been obtained. One development to watch will an undisclosed amount.10 In this case, the rightful intellectual be the streaming of VR content. property rights owner will want to Away from the litigation dealing Oculus for instance, has tested enforce its rights against the VR with the rights in the underlying a VR streaming site. platform and its users. technological developments, the Key legal issues with VR legal issues relating to intellectual A practical problem is that VR users property in VR and AR can be log in from all over the world. They and AR categorised into two main areas: are hard to identify and pursue.

The growth in VR and AR is i. those relating to real world Another legal problem also welcome and exciting but there intellectual property rights surfaces because of the inherent are a variety of legal issues and and their role in the virtual difference between ethical challenges ahead. The or augmented world; and goods and the trade mark owner’s legal issues include those that real world goods. Virtual world ii. those relating to virtual world relate to intellectual property, goods are intangible. Real world intellectual property and their privacy, product liability, tax and goods are tangible. A trade mark role in the real world. crime – as well as issues which owner may well find the scope of come about simply because of Real world IP rights in the virtual its trade mark rights covers only the inherent nature of the new world: real goods. Could the trade mark technology and its ability to owner still sue for infringement for influence user behaviours while it Consider, for example, who might the virtual T-shirt despite no actual immerses them completely in the own the intellectual property T-shirts being produced when its experience. The technology is so rights in a virtual T-shirt with rights relate to actual T-shirts only?

8. According to “2016 VR Porn Statistics Say VR Is Hot “ dated 30 January 2017 by Steven Paterson at 360-Degree Movies at http://www.vrcircle.com/post/2016-vr-porn-statistics-say-vr-is-hot

9. See “Facebook ordered to pay $500m in Oculus virtual reality dispute” by James Titcomb dated 2 February 2017 at http://www.telegraph.co.uk/technology/2017/02/01/facebook-ordered-pay-500m-oculus-virtual-reality-dispute/

10. See “Facebook settles virtual reality lawsuit with ZeniMax over alleged theft of company secrets” by Mishelle Castillo dated 12 December 2018 at https://www.cnbc.com/2018/12/12/facebook-settles-virtual-reality-lawsuit-with-zenimax.html

8 • dentons.com A hurdle to the brand owner their rights to the intellectual has gone so far as to question obtaining damages for property created by them to the whether VR experiences may ever infringement also presents itself VR platform. In a few cases, the be “safe” from an ethical point where sales of real goods are not VR system will agree that users will of view.11 Madary calls for further impacted by the virtual goods. own their VR creations but grant research into the psychological How is damage to be proved? back to the VR platform a wide effects of long-term immersion It may be easier to rely on the licence to be able to exploit the in VR experiences and the way common law principles of passing user’s intellectual property created avatars can be used. Madary off claiming consumer confusion through the VR platform. It should has concerns about individuals about the association of the trade be borne in mind however that who strongly identify with their mark for the real goods with the users log in to VR platforms from own avatar and the “powerful virtual world goods. all over the world – and their local unconscious influence” of VR jurisdiction may have laws that on user behaviour. VR does and Virtual IP rights in the real override the agreement between can induce particular kinds of world: the VR platform and the user and emotions and can cause suffering Generally, under intellectual govern the ownership and use of as users will experience VR as real property laws, a creator of content the intellectual property. even if they know they are in a virtual environment. owns the intellectual property in As VR facilitates the creation of it. There are some exceptions, but very personal virtual worlds by the It is these inherent qualities of this is the usual position unless the user –users’ creations of different VR that causes a reconsideration creator has, by written agreement, identities and an alternate world of the traditional approaches to varied from it and assigned his or have the potential to be really crime in the VR world. There are her intellectual property rights in novel. Clarity about the ownership numerous notorious examples.12 their creation to someone else. of virtual assets in terms of use A female player called Jordan agreements with users is critical. A legal issue arising from AR Belamire playing a VR game called Because of the deeply personal relates to who owns the rights to QuiVr had her avatar’s virtual nature of virtual experiences and geo-tag real world locations. An crotch grabbed by another player the capacity of users to identify owner of a famous landmark may named BigBro442 while shooting with their virtual worlds, there well want to claim rights as to how zombies.13 For Ms Belamire, the may be pressure in the future for that landmark is to be identified virtual groping was the same as intellectual property laws which or have a grievance if false being groped in due to the rebalance the standard allocation information is given about it. psychological trauma inflicted. of the respective VR platforms’ or The criminal code would not treat There is no doubt however that users’ intellectual property rights. VR, rather than AR, has excited virtual assaults in the same way as more comment about the Virtual crimes real life assaults involving actual complex intellectual property physical contact. This may change issues as VR allows users greater The inherent nature of VR is said in the future as the VR technology scope to create images, virtual to lead to ethical challenges which develops in sophistication. Body property or other content by in turn an create fresh legal issues suit technology is developing through the VR system. when it comes to assessing to the point where the user may virtual crime. feel a kick or punch. VR content Most VR platforms will have terms providers are already considering of use where users agree to assign A for the European whether to provide in their Commission, Michael Madary,

11. See “Are Virtual Reality experiences safe from an ethical point of view?” by Michael Madary dated 9 March 2016 at https://ec.europa.eu/digital-single-market/en/blog/are-virtual-reality-experiences-safe-ethical-point-view

12. See “Sexual harassment in virtual reality feels all too real – ‘it’s creepy beyond creepy’” by Julia Carrie Wong dated 26 October 2016 writing for The Guardian at https://www.theguardian.com/technology/2016/oct/26/virtual-reality-sexual-harassment-online-groping-quivr

13. See, for example, “My first virtual reality groping” by Jordan Belamire dated 21 October 2016 at https://mic.com/articles/157415/ my-first-virtual-reality-groping-sexual-assault-in-vr-harassment-in-tech-jordan-belamire#.3x4yl7Kt5

dentons.com • 9 software code solutions against of thefts of virtual currency and expect to see more regulation in virtual harassment. Possibilities digital assets. Popular games such this area in the future. include virtual shields, expanded as Second Life and RuneScape super powers or extended allow ‘residents’ to buy and sell Taxing the virtual personal safe havens to prevent new virtual land, run businesses cyber assault. and trade with virtual currency Although virtual assets are difficult that can be converted to and from to deal with under traditional In 2013, an English game player real currency. criminal laws, that does not stop named Steven Burrell was governments looking to tax them. convicted after he “stole” virtual The European Union Agency The United States of America’s property.14 Burrell stole virtual for Network and Information tax authority (the IRS) has issued items (such as swords, capes, Security (ENISA) which is the guidance on the treatment of gold and armour) which were centre of network and information digital currencies in 201417 which virtually valuable in a game called security expertise for the EU has clarified that the IRS treats digital RuneScape after he hacked into called for regulation following currencies as capital assets which gamers’ profiles.He then sold the proliferation of “crypto- are subject to capital gains taxes. these virtual assets for money currencies” — that is digital virtual Similarly, Russian authorities in fan forums for the game. He currencies such as Litecoin, have also produced guidance was convicted, however, for Dogecoin, Ripple and Bitcoin. relating to digital currencies18 hacking rather than theft as the Bitcoin is a decentralised peer- as has Japan.19 Other countries items he stole only existed in the to-peer payment system from are grappling with the issues of virtual world of the game. The Hong Kong-based “crypto- virtual transactions too - such as virtual victims lost their gaming currency” exchange Bitfinex Australia who recently ended sales resources but had no redress. where electronic payments tax on digital currencies following are performed by generating a policy decision to encourage In 2017,15 two men pleaded guilty transactions that transfer Bitcoin investment by treating Bitcoins as to running an illegal betting coins (BTCs) among Bitcoin peers. a form of barter arrangement. website connected to a FIFA The regulatory environment is still VR game called FUT Galaxy. grappling with how and whether The popularity of Pokémon Go has They let players transfer virtual these crypto-currencies are to be led to growing calls for AR and VR currency out of the game and recognised as a form of money.16 transactions to be taxed although use that to bet on real-life football As illustrated by the Burrell case some thorny legal issues remain to games. Winnings would then be discussed above, they are not a be worked through: transferred back in the gamers’ form of real property which can accounts in the FIFA game – so • How should AR/VR content be stolen – the issues are complex and transactions characterised the FIFA virtual currency ended up when they are not legal tender having real world value. for the purpose of tax – as of any government or generally software, a digital product, The ability to purchase digital issued or controlled by centralised a service or intangible or assets that might have real world bodies. As existing criminal laws something else? value that has led to a growth do not cope well with VR, we

14. See “Computer hacker stole virtual property from online fantasy gamers to pay off REAL gambling debts” by Dan Bloom of Mail Online dated 6 December 2013 at http://www.dailymail.co.uk/news/article-2519425/Computer-hacker-stole-virtual-property-online-fan- tasy-gamers-pay-REAL-gambling-debts.html#ixzz4Xed19tYh 15. BBC News Online “YouTuber admits Fifa gambling offences” dated 6 February 2017 at http://www.bbc.co.uk/news/technology-38879969 16. As noted in “What The Heck Is Bitcoin? The Law Struggles For An Answer” by Daniel Fisher of Forbes dated 26 August 2016 at http://www.forbes.com/sites/danielfisher/2016/08/26/what-the-heck-is-bitcoin-the-law-struggles/#1902544bafaf 17. At https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance 18. As reported in “Bitcoin legal by default in Russia, confirms new federal tax document” by Cryptocoins News on 1 December 2016 at http://www.ewdn.com/2016/12/01/bitcoin-legal-by-default-in-russia-confirms-new-federal-tax-document/ 19. See “To tax or not to tax? Japan debates how to handle bitcoin” by Toshihisa Kinouchi dated 1 March 2016 at http://asia.nikkei.com/Politics-Economy/Economy/To-tax-or-not-to-tax-Japan-debates-how-to-handle-bitcoin

10 • dentons.com • What exactly is being exchange of Bitcoins as a pure At the same time as there are purchased and how in the payment instrument was sales more stringent privacy laws, virtual world e.g. software, tax exempt.21 the advertising and business virtual currency, digital assets models of many companies are or something else? Digital activities are growing. increasingly relying on obtaining Additionally intellectual property a unified profile of a user. VR • Where precisely do transactions owning entities in the VR and AR platforms store and process take place for tax purposes space have attracted negative substantial amounts of personal when the identity or location publicity for shifting revenues into data about individual users. Some of the user, owner of the low tax jurisdictions. It seems likely data may be more sensitive than intellectual property is not that there will be a reassessment others. Consider, for example, clear or where the user may of the tax rules for VR and AR. if a user’s reaction times or ease download in one jurisdiction but Future taxing authorities may well of movement could be sensitive transact virtually in another? take the position that an extensive health data or if facial recognition It is still unclear how the European collection of personal data in data could be sensitive personal Union will progress matters of tax a country triggers a taxable nexus data under data privacy laws. of the digital world. In 2014, the in that country — irrespective Eye tracking would be considered European Commission established of whether digital products, more intrusive than click a High Level Expert Group on streamed content, virtual currency tracking or cookies. Taxation of the Digital Economy or other types of virtual assets to examine ways of taxing the are involved. VR and AR providers will need digital economy in the EU.20 One to assess if they are excessively of the legal issues considered was Virtual privacy collecting, using, and sharing whether the collection, processing a wide range of users’ personal With the coming of reform of the and monetising of data should information without the privacy laws in the European Union,22 be reflected in the definition appropriate consents in place. the legal consequences of data of a taxable nexus. By way of Many VR games and applications collection and sharing practices, background, a taxable nexus focus on shared experiences user location tracking and privacy means that there is a taxable – which means that users may practices and policies associated presence to which profits could be sharing their details, such with AR and VR are significant. It be attributed and so taxes as location, with other users. is important to get this area right could be levied. Can a user’s VR footprint be – the new General Data Protection linked to their real identification? The Group’s report recommended Regulation in the European Union no change to the current tax rules imposes significant fines and Difficult choices are ahead. because they then considered the penalties for breach. Hardware, Insufficient or excessive VAT systems would adequately software and content providers will restrictions on VR and AR users address revenue concerns of need to assess the impact of VR can lead to backlash. Witness how countries where digital services and AR on the privacy of users and Facebook has needed to adjust and products are consumed. ensure that adequate safeguards its privacy settings for users many However, that assessment was are put into place for the type of times in recent times. In 2016, made before the 2015 Court of personal data being processed so The Independent newspaper Justice of the European Union that they are compliant with the claimed that Oculus Rift’s terms decision which held that the relevant privacy laws. and conditions allowed Facebook to monitor users’ movements and

20. See http://ec.europa.eu/taxation_customs/business/company-tax/tax-good-governance/expert-group-taxation-digital-economy_en

21. In case -264/14 Skatteverket v David Hedqvist (22 October 2015) where the CJEU held that the purchase and sale of Bitcoin units were exempt transactions.

22. See the Dentons article “EU Data Protection Reform: Political Agreement” by Nick Graham on 16 December 2015 at http://www. dentons.com/en/insights/alerts/2015/december/16/eu-data-protection-reform-political-agreement and his accompanying blog at http:// www.privacyandcybersecuritylaw.com/

dentons.com • 11 use it for advertising.23 Oculus VR platform developer or provider? standard for VR despite the fact responded at the time that it didn’t VR or AR system providers usually that violent and sexual content share any information with its ensure that their licences do not can have a greater impact on owner, Facebook, but expressed permit users to break the law the VR user than other modes of that it may have a desire in the and they usually disclaim the content such as ordinary video. future to do so. platform’s own liability if users do The VR industry has some self- so. It remains to be seen if more regulation. For example, Oculus We expect sensitivity about this would need to be done by the AR pre-approves VR apps and gives issue will continue to grow and providers to avoid liability. There experiences a “comfort” rating the issues will be more complex have been reports of distracted in its app store according to how because of VR and AR. It is not gamers walking in front of vehicles terrifying or sickening the content hard to imagine a situation where to catch Pokémon characters or will make a user feel. a house is geo-tagged by an AR mobile phones being stolen while user in a global without gamers were in unsafe locations We would not be surprised to the home owner’s permission. which they were encouraged to see extensions of the current Imagine if the house was travel to when playing the game. classification standards regime previously occupied by a criminal AR users playing at sensitive to deal with the inherent nature and the geo-tagger was reckless sites (such as churches or war of VR experiences and to ensure or malicious in applying the old memorials) have also attracted that this is taken into account information about it being the negative publicity. when content is rated. The home of a criminal to it? Current addictive nature of VR may also data protection in the European VR and AR systems should in cause regulators in the future to Union provides data subjects the meantime, at the minimum, consider regimes, such as those with a right to rectification of or incorporate appropriate warnings established for the gambling erasure of their incorrect personal and health and safety notices. industry, to require VR and AR data – but could that extend to Policing of virtual locations and companies to identify and help processing data about a location acting on trouble spots may be problem users. itself which is only coincidentally also necessary – or VR providers associated with an individual? may risk claims being made What does the future hold? Current privacy legislation does against them for negligence. not expressly deal adequately For VR and AR, two clear with these issues. Classification of VR megatrends are emerging. content 1. Mobile phone based VR Virtual liability platforms will continue to grow VR and AR are no different to An interesting aspect of AR is as they are easier to use, lower the real world insofar as their that the virtual and the real are cost and there is a proliferation potential for products with linked which raises the legal issue of applications. sexual or violent uses. VR has of who is responsible for injuries embraced teledildonics — a 2. More users will use AR to or trespass associated with the method for communicating touch access existing content and use of the technology. This is a electronically. The sex content services such as email or more significant issue if users can provider, PornHub, recently checking the best route to a interact with each other. Could announced a VR product which location —and enjoy having they threaten or hurt each other? is a “twerking butt” which creates dynamic AR data delivered directly to their device. Pokémon Go was criticised for its the illusion of sex for a user. potential to encourage trespass Below we list the top five forces Such developments serve to onto private land. Could a user’s that we think will shape events highlight that, at least in the UK, trespass incur liability for the VR in the VR and AR sectors in the there is no separate classification near term.

23. See The Independent’s article “Oculus Rift terms and conditions allow Facebook to monitor users’ movements and use it for adver- tising” dated 4 April 2016 by Andrew Griffin at http://www.independent.co.uk/life-style/gadgets-and-tech/news/oculus-rift-terms-and- conditions-allow-company-to-monitor-users-movements-and-use-it-for-advertising-a6967216.html

12 • dentons.com I. Bandwidth demand: The In part, the move to 5G may humans who are capable of 120 coming of the VR and AR era assist to grow VR as this will per degree, 230-degree requires responsive media involve speeds that will be up field of view and a variable which changes content to 100 times faster than most focus.29 The future will involve dynamically to fit a user’s existing 4G networks, although better lenses, less distortion situation and engagement. there remain some concerns and a marked increase in eye Because of this, it is relatively about how far the signals tracking and focus to take into easy to predict that there can travel or propagate. Fibre account the way the will be significant issues with networks may continue to changes shape to focus when bandwidth requirements. deliver content. However, it is looking at different distances. traffic management solutions, Current research is focusing Without moving your head, your compression algorithms and on “” which eyes can move across a field investment in low latency, high mimics human vision by only of view of at least 150 degrees throughput networks28 that are focusing on a small part of an horizontally and 120 degrees likely to come into their own as image. In the same way future vertically 100 milliseconds. the key for “last-mile” networks VR will render pixels in the area This means the ultimate display to cope with the demands of of focus only. will need around 720 million VR and AR. pixels for full coverage. Adding At present, streaming data to II. Wireless: Wireless is the next head and body movement headsets wirelessly in high big thing. Today’s premium VR exponentially increases the pixel resolution video through HMDs, such as the Oculus Rift requirement – even for a static existing wireless systems such and HTC Vive, use cables to image.24 A Forbes blogger, Bo as Wi-Fi is problematic as send high definition video to a Begole,25 calculates there will there is a need to compress user which limits movement. be a need for 5.2 gigabits per data to fit into the available VR users are demanding free second of network throughput bandwidth to ensure there hands, bodies and heads to soon to deal with VR.26 Begole is is no lag. Constraints with use as manipulators of the not alone raising flags about VR bandwidth cause lag and that technology. being the next major bandwidth kills the immersive effect. There

issue.27 This need also comes is some research however into This will happen at the same at a time when competition the application of a different time as improvements in field for bandwidth is intensifying wireless technology (called of view, resolution and pixel because of the internet of millimetre wave or mm Wave) density. At present, most HMDs things (IOT) and the number of which is in a higher band of the deliver around 15 pixels per connected devices and general frequency spectrum than that degree, a 90-degree field of move to streaming. Demands used by Wi-Fi.30 view and a fixed 2m depth will continue to grow for more of focus – which is inferior to bandwidth at faster speeds.

24. See “Why The Internet Pipes Will Burst When Virtual Reality Takes Off” dated 9 February 2016 by Bo Begole at Forbes at http://www.forbes.com/sites/valleyvoices/2016/02/09/why-the-internet-pipes-will-burst-if-virtual-reality-takes-off/#f73560464e8c 25. Bo Begole is Vice President and global head of Technologies’ Media Lab. 26. As per footnote 22 above. 27. See “ARRIS Gives Us a Hint of the Bandwidth Requirements for VR” at The Online Reporter dated 17 June 2016 at http://www.onlinereporter.com/2016/06/17/arris-gives-us-hint-bandwidth-requirements-vr/ 28. See “Virtual Reality Is A Good News, But Telecom Operators Still Have A Road Long To Travel” dated 16 February 2016 by Alexandre Pelletier (Head of innovation at Tata Communications) at Gizmodo India at http://www.gizmodo.in/indiamodo/Virtual-Reality-Is-A-Good- News-But-Telecom-Operators-Still-Have-A-Road-Long-To-Travel/articleshow/51011186.cms 29. See “This is what virtual reality will (probably) look like in 2021” 7 October 2016 by Hugh Langley at Wareable at https://www.wareable.com/vr/michael-abrash-what-vr-will-look-like-in-2021 30. See “How high-end virtual reality headsets could lose the cables” by the New Scientist author, Hal Hodson, dated 14 November 2016 at https://www.newscientist.com/article/2112622-how-high-end-virtual-reality-headsets-could-lose-the-cables/

dentons.com • 13 III. VR and AR for the enterprise: simulated movement in three range of the sensation-inducing As VR and AR are concepts that dimensions. Simply, humans can nozzles and their face is blasted many people get excited about, interpret the available data in VR with hot air when near a virtual they will become common in more easily. fire or with water if near a the corporate setting.31 AR and virtual waterfall. FEELREAL has VR are no longer just for gamers All this means headaches and removable smell cartridges in and consumers. Layering greater investment for the seven basic odours: Jungle, contextual information over average Chief Technology Burning Rubber, Flowers, a physical environment for a Officer – not just in dealing with Ocean, Fire, Gunpowder and presentation is an attractive an explosion of online learning. Aphrodisiacs or FEELREAL will business proposition. AR CTOs need to be thinking now custom make a smell for you. is relatively low cost and about their organisations’ future being used in a lot of training needs for VR and AR content The potential is mind boggling. applications. VR will become an creation, bandwidth needs and In 2011, the University of Tokyo aid to collaboration and analysis integration with legacy systems. conducted an experiment and in companies. Imagine people found that a VR scent system IV. Integration of VR and AR – remotely joining a meeting by fooled the flavour sense.36 The “”: The future virtually including their avatar to University concluded that what will also mean Augmented VR exchange information and ideas. you see and smell is what you (sometimes called Mixed VR or taste. The experiment involved Hybrid VR) – where virtual and Ford Motor Company is using a VR system which was able to real are mixed. Mixed VR will VR for designing vehicles at trick people eating a plain biscuit enable the virtual world and the the company’s Immersion Lab. into thinking the biscuit was of real world to combine so that an VR’s business applications another flavour. Similarly another artificially generated world will will accelerate with “Big Data” VR experiment, called Project be superimposed on the real initiatives.32 NewVantage Nourished, fooled people into environment. Imagine remote Partners’ 2016 Big Data thinking they were eating sushi colleagues joining your real Executive Survey of Fortune although it was only gelatine meeting as an avatar and that 1000 companies,33 noting the cubes – because a smell they appear solid in front of you. push in large companies for atomiser misted scent while they Or if you could pin, move, hold, more analytic tools, predicted were eating and looking at the shrink or enlarge or flip or flop that VR will have an impact. “sushi” with their VR headset on. virtual items in a real room in This is because there are front of the group.” inherent limitations in the VR may well be the next big amount of data that humans V. Senses: Finally, VR hardware will thing for dieters and gourmet can absorbed through a flat allows you to “feel” or “smell” experiences. VR could dispose computer screen. That can be in the VR world.34 One gadget, of unwanted side effects from overcome by immersing a user called “FEELREAL”,35 attaches foods – such as allergens or in a digitally created space with to a HMD. The user then puts kilojoules – yet still allow them to a 360-degree field of vision and his or her nose or mouth within be enjoyed to the full.

31. See “Augmented and virtual reality make a play for the enterprise” by Nicole Laskowski at TechTarget dated February 2016 at http://searchcio.techtarget.com/opinion/Augmented-and-virtual-reality-make-a-play-for-the-enterprise 32. According to “Beyond Entertainment: Enterprise Big Data Modeling with Virtual Reality” dated 20 May 2016 by Meg Cater’ a blogger with Signiant at http://www.signiant.com/blog/beyond-entertainment-enterprise-big-data-modeling-with-virtual-reality/ 33. See NewVantage Partners “Big Data Executive Survey - An Update on the Adoption of Big Data in the Fortune 1000” at http://newvantage.com/wp-content/uploads/2016/01/Big-Data-Executive-Survey-2016-Findings-FINAL.pdf 34. See “FeelReal Is An Oculus Rift Add-On That Lets You Smell Virtual Reality” by Josh Engen dated February 2016 at http://www.cinemablend.com/games/ 35. See http://feelreal.com/ 36. See “Virtual-Reality Scent System Fools Flavor Sense” by John Boyd dated 18 April 2011 at http://spectrum.ieee.org/computing/embedded-systems/virtualreality-scent-system-fools-flavor-sense

14 • dentons.com Conclusion

In summary, the future for AR and VR looks bright and interesting although there are a number of legal issues to overcome. We will continue to update this article and suggest you bookmark the Dentons web page for updates.

Contacts

If you have any queries or need advice or assistance in understanding the legal issues associated with VR or AR or any other technology, please contact:

Robyn Chatwood Partner D +61 3 9194 8330 [email protected]

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CSBrand-1856-VR-AR brochure_09 — 08/10/2019