Earlier this month, a panel of legal experts met at the SIXR Legal Workshop to discuss legal challenges in VR and AR development and how to navigate them. While VR and AR startups have many of the same legal needs as other tech companies, there are some challenges that are unique to the VR and AR space. While the panel focused mainly on the US legal system, some of their guidance also applies in other countries. VR Does Not Fit into Any Existing “Work-for-hire” Category [caption id="attachment_58396" align="aligncenter" width="640"] Matt Hooper[/caption] Before the panel, Road to VR sat down with Matt Hooper, founding partner at IME Law, to discuss how VR is different from other fields when it comes to legal matters. One of the first things he mentioned was how copyright law applied to VR work. “There are only nine categories of work that can qualify as ‘work made for hire’ between independent contractors, meaning that if one contractor creates it, the other can own it without the need for a separate assignment. One of them is an audio-visual work, but one of them is not software code.” Currently, this is type of work is new territory for the United States Copyright Office, but it's something that could be cleared up in the future if the office issues an advisory opinion or adjusts their compendium. Hooper explains: “They could make a statement in the compendium saying ‘A virtual reality work qualifies as an audio-visual work’ or ‘a virtual reality work that is mostly software-based (like a game) does not, but a virtual reality work that is mostly film-based does.’ It’s going to be really interesting to see how they do that," he said. "They did have to address this issue with respect to video games. Often contracts provide that the content creator is both performing the work as a work-for-hire, and assigning all rights to the company commissioning the work, although this can create labor issues in certain states.” Biometric Data is Legally Protected According to Brian Sommer, of counsel at IME Law, VR and AR companies should be aware of legal protections regarding the collection and usage of biometric data. “There are certain things that you have to disclose, plus you need user permission, before utilizing biometric data. Often what happens is lawsuits stem from a company collecting this data without getting consent first.” In the US, both Illinois and Texas have laws pertaining to biometric data, and in Illinois, that law has been applied in a lawsuit against Snapchat; in this class-action lawsuit, the plaintiffs are alleging that the company failed to inform users that it was collecting facial data when using the app’s AR-powered facial filters. [irp posts="57866" name="HTC Vive GM on the New Vive Tracker & Privacy in VR"] Even determining what legally constitutes biometric data can be challenging by itself. Kent Bye recently spoke with VR investor and attorney, Sarah Downey about privacy in VR. “We have PII (personally identifiable information) which is a legal category when it comes to information protection, and that is very specifically laid out: what counts as PII and what doesn’t. There’s whole industries of people and privacy professionals whose jobs are around what counts as PII, what doesn’t, and how we protect that.” Operating Agreements Are Critical [caption id="attachment_58392" align="aligncenter" width="640"] Jerry Carleton[/caption] Beyond the specific VR and AR-related legal challenges, startups should also be mindful of the many traditional legal pitfalls to avoid. One of those pitfalls is going into business without first having an official operating agreement. Jerry Carleton, principal attorney at Immix Law Group says the agreement should contain not just intellectual property rights and how much partners are going to own, but also what is expected of each partner and what happens when someone needs to exit the partnership. To illustrate his point, he referred to two companies, one that had an operating agreement and one that didn’t. Both companies had problems with a minority owner, and for the company with the operating agreement, this was a simple 15-minute phone call. The company without an agreement ended up spending 18 months in court. “It was a total waste,” Carleton said. “Those resources could have gone to growing the company, to employing more people, or to pushing their technology out… Again, make sure you’ve got an agreement.” Continue Reading on Page 2 >> Don’t Raise Money Without Seeking Legal Advice First Whether it be through crowdfunding sites, institutional investors, or even a wealthy aunt, there are a lot of different paths for raising money for your VR or AR idea. Some of these options, however, come with legal requirements. [irp posts="56372" name="2016's Record Breaking VR Venture Funding Has Been Driven by Mega Deals"] “If someone gives you money, and they are looking to make money off of your efforts, that’s a security,” says Carleton. “If you haven’t done securities compliance and you’ve taken someone’s money, then you owe them a full refund plus interest, plus attorney’s fees. And if you can’t pay that back, someone could go to jail.” Resources Exist for Cash-strapped Startups During the question and answer session of the panel, an audience member brought up the concern that VR startups often have extremely limited resources and for many, consulting with a lawyer seems financially out of reach. Fortunately, the panel was able to offer some suggestions for young companies without a lot of spare cash. The first option, recommended by Carleton, is to seek out a legal clinic. Legal clinics will often provide pro bono services to clients that could not otherwise afford legal aid. There are also self-help resources available on the web, but he warns that “there are a lot that are terrible.” Another option is to contract with a startup lawyer that is willing to work on either a deferred or contingency basis. Matt Hooper explains: “Most good startup lawyers will say: ‘We’ll represent you, we’ll go ahead and get the documentation you need to take that money the people want to give you, and then you’ll pay us once you get the money.’” This allows startups that are “pre-money” to start the legal work that is best carried out sooner rather than later. For anyone who is still on the fence about starting the legal process for their company, Hooper says to remember that “it’s exponentially more expensive to fix something than it is to do it right in the first place.” The Legal Landscape Can Change [caption id="attachment_58395" align="alignright" width="325"] Yan Perng overviews the VR patent landscape.[/caption] Technology often outpaces the current state of the law and this is certainly the case with virtual reality. This disparity however presents an opportunity for pioneers in this field to help shape the law in ways that work best for the community. As Hooper puts it: “We have not been a place like this in creative arts since the advent of film. When you had film come in, it was a brand new platform. It was a wide open world and anybody could be successful in that world. Then once the studios developed, you got into this place where there were new platforms for audio-visual works, but they were all owned by the same basic people," he said. "If you took a movie and put it on a new technology like a VHS tape, it was still Warner Bros. making the money. DVD? Warner Bros. Video-on-demand? Still Warner Bros. and maybe Comcast... Now we are in this place with VR where we can rewrite the monetization structure because it’s a brand new platform for a brand new type of work that hasn’t existed before. I’m excited to be a part of that.”