TCS Daily


Virtual Worlds, Real Disputes

By Michael Rosen - March 21, 2007 12:00 AM

Imagine a world where the Ben Folds Five perform; where Judge Richard Posner lectures; where MTV operates a dance club; where the W chain runs a hotel; where Rep. George Miller (D-CA) hosts a swearing-in party on Capitol Hill; where Toyota sells customizable Scion cars - and where the government can seize your property without compensation if you break the law.

Sound unreal? That's because it is. Or, more accurately, it's the virtual universe of Second Life, a "massively multiplayer online game" (MMOG) in which players craft their own characters and life stories.

MMOGs like Second Life - including rival games EverQuest II, World of Warcraft, and Ultima Online - have recently sparked a post-modern legal debate over their animating principles (so to speak): in simulating real life, these virtual games have imported existing legal disputes and spawned new ones.

World of Warcraft in particular brings new meaning to the term "massively multiplayer," boasting seven million players since its inception. Second Life, a creation of San Francisco-based Linden Lab, has seen a more modest 4.5 million people cross its virtual threshold with as many as 34,000 playing at any given time. In most of these games, players select an identity (known as an "avatar") that they can customize to their liking.

And in Second Life, players can purchase - with real money - features of their avatars, virtual land, and make-believe businesses. The Second Life economy currently involves more than $1 million of daily transactions and even offers a "LindeX Currency Exchange" with a floating exchange rate of about 270 "Linden dollars" to the U.S. dollar.

While other online games discourage the sale of virtual assets, Second Life expressly sanctions it. Linden's End-User License Agreement (EULA) "recognizes residents' right to retain full intellectual property protection for the digital content they create in Second Life, including avatar characters, clothing, scripts, textures, objects and designs." Moreover, "[t]his right is enforceable and applicable both in-world and offline, both for non-profit and commercial ventures. You create it, you own it - and it's yours to do with as you please."

In late January, CNET and Slashdot reported that eBay had decided to de-list all auctions relating to virtual property due to ongoing concerns over fraud. However, the online auction giant exempted Second Life from its virtual ban, claiming that it believes "there is an open question about whether Second Life should be regarded as a game." Thus, a virtual auctioneer of real-world goods banned the sale of virtual goods by real-world vendors - except for a world that hovers somewhere between the real and the virtual. It's enough to make your dragon head spin.

But this confusion extends to the universe of law as well. One fine day last year, Marc Bragg, a Pennsylvania attorney and online game enthusiast, apparently discovered a loophole in Second Life's virtual land-auction system that he exploited to buy property at a discounted rate. Linden exposed Bragg's strategy and terminated his participation in the game, reportedly pocketing what Bragg claims were $8,000 worth of the virtual assets he held.

Bragg filed suit in Pennsylvania state court in May 2006. Thought to be the first virtual world-related litigation, Bragg's complaint claimed fraud and breach of contract, among other causes of action. Earlier this year, a federal judge in the Eastern District of Pennsylvania recognized that damages could exceed $75,000.

In fact, virtual world disputes such as this one mark the intersection of several different legal categories: contracts, intellectual property, takings, and "choice of law."

First and simplest, when a user registers with Second Life and creates an avatar, she has entered into a contractual relationship with Linden. She must indicate that she has read and accepted the policies and terms governing Second Life as set forth in the EULA.

But, as with any contract, the language in an end-user license agreement can be susceptible to numerous interpretations. In the wake of Bragg's lawsuit, Linden revised the terms of its EULA to retain ultimate ownership of players' "account[s] and related data, regardless of intellectual property rights you may have in content you create or otherwise own." It isn't entirely clear what constitutes an "account" or "data" and what differentiates them from "content," but Second Life is trying to help users better understand these distinctions.

Furthermore, contracts can always give way to a court's finding that certain fine print is "unconscionable." As online EULAs become lengthier and more technical, the likelihood increases that companies might insert problematic language into the agreements. At the same time, the more that online users get used to accepting the terms of such contracts, the less plausible their claims that they were deceived by tricky verbiage.

Second, such disputes implicate intellectual property issues. Part of the allure of games like Second Life is the IP rights they purport to confer on gamers. The game's EULA devotes several lengthy paragraphs to setting forth exactly which "copyright and other intellectual property rights" are bestowed upon the user and which portions are retained by Linden.

But not all such contractual limitations are necessarily effective. Contract and IP law occasionally collide, most often where parties in possession of certain rights attempt to negotiate them away. One current related question is whether a patent licensee may bring a suit challenging the validity of the patent to which it owns a license: it's conceivable, under a recent Supreme Court opinion, that even if the license agreement includes a clause in which the licensee affirmatively acknowledges the patent's validity, it may still seek to invalidate the patent.

Thus, in a sense, a user's acceptance of EULA terms may not necessarily amount to a waiver of her IP rights. How exactly the courts will navigate the line between intellectual property and contracts in the virtual world is anyone's guess.

Third, perhaps more speculatively, MMOG legal clashes may involve real property and takings jurisprudence. Although businesses and land in Second Life are not "real" by our standards, an innovative user might advance the theory that Linden, as the "government" of Second Life, owes its "citizens" the obligation of compensating them for any property taken for public use. Linden's CEO has likened property rights in Second Life to those in developing countries, asserting that "[t]he fundamental basis of a successful developing nation is property ownership...We started selling land free and clear, and we sold the title, and we made it extremely clear that we were not the owner of the virtual property."

As a developing pseudo-nation, Linden might consider establishing its own courts, statutes, and common-law precedents according to which virtual disputes could be resolved; perhaps the virtual Rep. Miller could pass legislation and the online Judge Posner could preside over deliberations?

And these possibilities focus a fourth legal lens through which such disputes might be viewed: "choice of law." In the real world, contracts are sometimes entered into by parties incorporated in one state but headquartered in another, signing an agreement in a third state, agreeing to be bound by the law of a fourth state, but in the courts and under the jurisdiction of a fifth state. Precisely what body of law applies in these situations is generally a matter of furious debate.

But now imagine adding yet another dimension into the equation: the virtual world. If MMOGs like Second Life indeed develop their own bodies of law, what governs whether virtual or real-world principles apply? And if one user loses a suit to another inside the game, is the decision appealable to courts outside its virtual city walls? Also, what about taxation? Congress's Joint Economic Committee is reportedly looking into whether and how virtual economies might be brought into the ambit of the tax man.

These contingencies sound far-fetched. But law school faculties are increasingly staffing their ranks with experts on "emerging virtual worlds." Harvard, Stanford, and Boalt, among many other schools, house centers on Internet, society, and the law that engage exactly these issues. Law firms, too, have gotten into the act by stocking up on attorneys capable of bridging the legal and virtual worlds. Exciting - and lucrative - times surely lie ahead. So keep your rabbit eyes peeled...

Michael M. Rosen, TCS Daily's intellectual property columnist, is an attorney in San Diego.


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19 Comments

I think this is interesting.
What you are really selling is services. I read somewhere that there are companies in South Korea that have rooms of people building up characters then selling the "goods" on line.

I personally know of a guy who liquidated all his Ever "Crack" resources for 3,000 bucks. No kidding, it was for real. He had been playing for 2 years and had a Castle and land, which is a big deal, in that world.

I don't know if he paid taxes.

But what is cool about this, it is a whole new economic world and could create new services to buy/sold.

supplemental income
My sister is a stay at home mom, and she supplements her families income creating these online resources for several game and selling them.

She doesn't earn enough to support the family, but they have taken several nice vacations on her earnings.

Tech Blog, where is everybody?
And when a technology subject comes up, nobody comments..

Very strange.

Fiddling while Rome burns
I hate to mention this, guys-- but is this where TCS is headed?

The ship of state is foundering on our disastrous course of action, post-9/11, in the Middle East. The government reads everyone's mail, torture is now legal, the federal machinery has been infiltrated by incompetent amateurs (all with a great depth of experience) and a momentous national discussion is taking place now on whether we should continue to "stay the course" or whether we should try something else. In short, there is no shortage of subject matter for a site supposedly addressing the national dialog.

Into the fray comes an article by a frequent writer on national security describing an imaginary lawsuit in an imaginary world.

What's next? An estimate of the number of angels capable of dancing on a pinhead? I look forward with rapt attention to subsequent explorations of anything other than the multiple unpleasantnesses now taking place on Page One of the world press.

No, It's Theft, Not "An Exploit"
Re: "apparently discovered a loophole in Second Life's virtual land-auction system that he exploited to buy property at a discounted rate."

This is a description of the incident entirely from the plaintiff's side of the story, and is tendentious on the face of it.

What actually occured was theft, using an exploit.

The "loophole" is in fact a defect in the web-based auction program, an exploit which the software company since closed.

The "discount level" is in fact a price of $1.00, an error on a system that manifestly, always and everywhere, opens each bid of each simulator at *$1000.* not $1.00. So it's not a "discount" but an error discovered and then deliberately forced into action by Bragg accessing the system through an exploit in the web pages not intended to be used in this fashion.

The instructions to the auction; the past practices and prices; the current practices and prices; the closure of the exploit -- these all constitute evidence of a situation where Bragg's action can only be construed as theft.

It's like walking into a Radio Shack and finding out that a $1000 laptop is priced mistakenly at $1.00, checking out at a self-service cash register for that absurd amount, and then being stopped at the door by a security guard who checks the receipt and says, "Wait a minute, that's wrong."

It's like stealing a car that happens to have the keys left in it.

We all want a case that will recognize the reality of virtual property and give it value. We all want to have Linden Lab face accountability for its offerings of "land" which is server space, and have that offer not be reneged on for arbitrary or specious reasons.

This is not that case that will give us that recognition. If it does, it will come at the cost of giving a pass and a wink at outright theft and encourage hacking and exploiting of virtual spaces -- and hopefully no judge will countenance that offense.

TCS
The "T" stands for TECHNOLOGY.

Its where it should be in the first place. You are talking about pure politics and Socio-Economics. These are not really technology subjects.

So to emphisize it SHOULD be a tech page, or change the name.

Good point
Perhaps in the opinion of many it should be primarily a tech site. But we only have the number of comments a given topic accrues with which to gauge its popularity.

Since TCS began, the most popular topics have been politics and the economy, with a decidedly libertarian orientation, war and conquest, the evils of Islam and Communism, science oriented toward energy policy and global warming, and the whole evolution vs ID debate. Those are the topics that typically garner hundreds of comments.

The least popular subjects seem to be those having to do with European politics and economic matters.

If you want to register your desire to have them run more articles like this one, I think your best course of action would be to write Nick Shultz directly. He actually reads, and occasionally responds to, his mail.

Other bits...
It might interest you all to know there is a stock exchange in SL which is seeing smart traders make a decent amount of money. It has IPOs and everything else. Its a case of starting out small and growing your assets just like in the non-virtual one.

now that roy has let his paranoia and historical illiteracy run amok again, can we get back on subje
...

The next boom?
I suspect that as technology improves these virtual economies will become more and more important. It will be interesting to see where we are with all this in 20 years...

Anyone have any predictions?

I think it depends on the wording on Lindens EULA
If his actions were in clear violation of the EULA then I agree, however I'm not certian that's the case with all exploits. It'll be interesting to see how this ends.

I am sure there will be two very "real"
Life time experiences. One In Real Life and one Virtual. Most likely those who don't have some sort of virtual life avitar will find it harder and harder to function in the world, like not having an email address or access to the internet today.

More and more content will move to this format.

Blurring of Real and Virtual
Perhaps next we'll see the integration of virtual and VTC technologies to create hybrid office space for people who work at home. The potential is unlimmited... Is there really not tht much differnace between a service economy and a virtual economy.

Every new technology creat good effect as well as bad effect.
Every day my email box pour manipulating mail I spend lot of time to delete them. Iam helpless to to stop them.
Only solution for virtual world, avoid bad website and turn those website which you give brain storming.

Exactly, good post.
People working on line are providing a service. It doesn't mater if they are building a web site, reviewing a CT scan or playing a game to build a castle and sell it.

It sound strange on the face of it, but this is possible growth potential for the economy.

Growth Area for the Economy
An unlimmited amount of virtual worlds where people buy and sell virtual goods and services with real money. We are creating our very own Matrixes and using them to supliment real life work, social and entertainment... how far can we really take all this?

We also need to examine all the dangers of a virtual economy and develope strategies to mitigate those dangers. What happens when billions of dollars in virtual property are destroyed or stolen?

It could definatly stand a lot of improvement in the Technology areas...
How about some articles on quantum computing, cryptography, or even some that discusses lean prodution, six sigma, ITIL, ect...

Where technology meets commerce and society
Is the creedo here. Cryptography is a very interesting subject interms of how it should be handled by society.

That is all information.
Which is just like in the real world. You protect it, you back it up...

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