I
From PLI’s Course Handbook
Technology and Entertainment Convergence 2008: Business and Legal Issues for the Next Stage of “Technotainment”
#17006
13
no man is an island, not
even in a virtual world
Leonard T. Nuara
Daniel A. Feuerstein
Kristin M. Bohl
Claude W. Roxborough, III
Thacher Proffitt & Wood LLP
Copyright 2008 Thacher Proffitt
All mankind is of one author, and is one volume; when one man dies, one chapter is not torn out of the book, but translated into a better language; and every chapter must be so translated
. . . As therefore the bell that rings to a sermon, calls not upon the preacher only, but upon the congregation to come: so this bell calls us all: but how much more me, who am brought so near the door by this sickness. . . No man is an island, entire of itself . . . any man’s death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee.
This is a quotation from John Donne (1572-1631). It appears in Devotions Upon Emergent Occasions, Meditation XVII.
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Lennie Nuara is Chair of Thacher Proffitt's Technology and Intellectual Property Practice Group and practices in the areas of intellectual property and information technology. He represents vendors and purchasers of computer and communications systems, and other outsourced services. In addition, Mr. Nuara handles transactions involving the negotiation of license and development agreements for emerging technology companies and for established companies.
An experienced trial lawyer, Mr. Nuara handles disputes involving licensing, misappropriation of trade secrets, copyright and trademark infringement, and anti-competition matters, with a particular emphasis on information systems and Internet businesses. He has also litigated software vendor claims arising out of two of the nation’s larger outsourcing transactions. His defense of these claims against the outsourcing customer by the software vendor included a nationwide fact finding investigation of mainframe software vendors to develop evidence.
Recent Experience
Mr. Nuara gained the most pertinent experience for his technology practice following the tragic destruction on September 11, 2001 of Thacher Proffitt's main office located in the World Trade Center. Fortunately, no employees of the firm perished, but the complete destruction of the twin towers resulted in the loss of essentially all of the firm's technology infrastructure.
On that date, Mr. Nuara interrupted his day to day practice of law and became the CIO of the firm for the following six months. He was responsible for all decisions necessary for the interim survival and ultimate rebuilding of the firm's technology, including:
• Equipment specification and acquisition
• Conversion of the firm's applications palette
• Extensive outsourcing of such IT functions as help desk and infrastructure management.
This experience of being the buyer, instead of being the buyer's "counsel," has given Mr. Nuara valuable technology insight. He frequently speaks on the lessons that he learned from this experience at seminars throughout the U.S. and Europe.
Selected Publications / Articles
• How To Contract for a Successful E-Commerce Development Project: Beating the Odds(November 01, 2002)
• Colocation / Web site Hosting Agreements: An Overview(May 01, 2001)
• Hey! You! Get Off of My Cloud! The Protection of Digital Sweat(May 01, 2001)
• Internet Privacy: It`s The Position That Matters, Not Merely the Policy(May 01, 2001)
A nationally recognized author and lecturer about legal matters related to computer technology, Mr. Nuara is also on the advisory and editorial boards of various technology publications, including the Bureau of National Affairs' Computer Law Reporter, Glasser Legal Work's Cyberspace Lawyer, Aspen Publishing'sLicensing Journal, its E-Commerce Law Journal and its IP Litigator. He is a monthly columnist for theLicensing Journal and is an annual contributing author for the Internet and Multimedia chapter of the Licensing Deskbook.
Mr. Nuara was Co-Chair and a contributing editor Achieving Legal Business Order in Cyberspace: A Report on Global Jurisdiction Issues Created by the Internet, issued by the Intellectual Property Section of the American Bar Association. He has also prepared the chapter on "Obscenity and the Internet" for the Aspen Law and Business treatise on The Law of theInternet.
Events / Speeches
• Practising Law Institute's Understanding the Intellectual Property License Seminar 2007, Topic: "A Mock Negotiation of a License Agreement," New York, NY (November 12-13, 2007)
• VANJ Fall 2007 Entrepreneurs Expo and Elevator Pitch Olympics, Moderator, Morristown, NJ (October 29, 2007)
• "Getting the Most of Your Technology Vendor Relationships...And Avoiding Surprises," Baltusrol Bank Senior Management Seminar, Springfield, NY (October 2, 2007)
• Practising Law Institute's Understanding the Intellectual Property License Seminar, Topic: "A Mock Negotiation of a License Agreement," New York, NY (November 27-28, 2006)
• VANJ Fall 2006 Entrepreneurs Expo and Elevator Pitch Olympics, Moderator, Morristown, NJ (October 30, 2006)
• Benjamin N. Cardozo School of Law, Presentation: "Identity Theft and Personal Data Security," New York, NY (October 27, 2006)
• Gemcon, Topic: "The Rules of the Game: Privacy and Data Security," Park City, Utah (October 9-11, 2006)
• Pennsylvania Bar Institute, Topic: "Technology Law Forum," Philadelphia, PA (August 8 - 9, 2006)
• Practising Law Institute Seminar, Topic: "Understanding the Intellectual Property License 2005," New York, NY (November 17-18, 2005)
• e-Discovery Spring Congress 2005 sponsored by ALM and Business Development Institute, Topic: "Electronic Data Preservation and Discovery," San Francisco, CA (April 13, 2005)
• Legal Tech NY 2005, Topic: "60 Legal PC Tips, Gadgets and Websites in 90 Minutes" and "Microsoft's Spotlight on the Legal Industry," NY, (January 31, 2005 - February 2, 2005)
• 2004 Intellectual Property Law Summit, Topic: "Software Issues," Princeton, NJ (December 2, 2004)
• Pennsylvania Bar Institute's Business Law Institute 2004, Topic: "Identity Theft," Philadelphia, PA (October 22, 2004)
• PLI Seminar - Understanding the Intellectual Property License 2004, Topic: "The License Agreement" (October 19, 2004)
• NJ League Tech Seminar, Topic: Negotiating Better Deals...Getting the Most of your Technology (October 14, 2004)
• Identity Theft and Liability for Computer Technology and Privacy Breaches, Pennsylvania Bar Institute's Technology Law Forum, Philadelphia, PA (August 19, 2004)
• Practising Law Institute, Topic: Intellectual Property (July 15, 2004)
• "Identity Theft," sponsored by Thacher Proffitt and the Business Development InstituteNew York, NY (April 29, 2004)
• New Jersey Institute for Continuing Legal Education's 5th Annual Internet Law Symposium: Music Piracy and Beyond (April 14, 2004)
• Practising Law Institute's 24th Annual Institute on Computer Law, New York, NY (March 26, 2004)
• ABA Tech Show, Topic: Backups, Chicago, IL (March 25, 2004)
• Legal Tech, Topic: Mobile Lawyering (February 3, 2004)
• China / U.S. Economic and Trade Conference "Go Global: Where China and the U.S. Meet, Where Your Opportunities Arise" (November 18, 2003)
• LegalSpace Conference, New York Hilton, New York, NY (November 13, 2003)
• LegalTech, Chicago, IL (October 29, 2003)
• PLI Seminar "Understanding the Intellectual Property License 2003" (October 20, 2003)
• American Bar Association' s Annual Meeting 2003, San Francisco, CA (August 08, 2003)
• Pennsylvania Bar Institute's Technology Law Forum, Philadelphia, PA (July 23, 2003)
• Chair and speaker at "What Every Litigator Must Know About Intellectual Property," hosted by the Practising Law Institute (July 17, 2003)
• 4th Annual Internet Law Symposium (March 28, 2003)
• LegalTech NY (January 27, 2003)
• The CBANYS 109th Annual Convention (November 20, 2002)
• New Jersey Bankers Association and New Jersey League's Bank Technology and Operations Conference and Expo (October 25, 2002)
• Conducted two seminars in New York City for the Practising Law Institute (October 22, 2002)
• Joined the Business Law Symposium presented by the New Jersey State Bar Association (October 11, 2002)
• Spoke on two panels at LegalTech New York (September 19, 2002)
• Conducted a workshop on "Privacy Concerns" at the Technology Institute 2002 (August 01, 2002)
• Chairman of the PLI Conference on "What Lawyers Need to Know About The Internet" (June 19, 2002)
• LegalTech's General Counsel Conference, New York, NY (June 11, 2002)
• Participated at a lecture hosted by the American Institute of Marine Underwriters (May 20, 2002)
• Panel participant at PLI's 22nd Annual Institute on Computer Law (March 18, 2002)
• Hosted a workshop at the Technology Institute Workshop in Philadelphia, PA (February 13, 2002)
• Spoke at seminar "The Law of Cyberbanking and Electronic Commerce," Washington, DC (February 07, 2002)
• LegalTech show, New York, NY (February 05, 2002)
• Chaired PLI seminar focusing on "What Lawyers Need to Know About the Internet" (December 19, 2001)
• Co-chaired Pennsylvania Bar Institute's Conference, Philadelphia, PA (August 16, 2001)
• Spoke at PLI's seminar on "What Lawyers Need to Know About the Internet: Powerful Strategies and Practical Uses" (June 20, 2001)
• Community Bankers Association of New York's 2001 Management Conference (May 10, 2001)
• Fifth Annual China International Electronic Commerce Summit, Beijing (April 05, 2001)
Mr. Nuara has been an Adjunct Professor of Law at Seton Hall University School of Law in Newark, New Jersey. He teaches various courses in Computer Law. Between 1996 and 2000 he was also an Adjunct Professor for Seton Hall University Graduate School of Business, offering a Computer Law course for the MBA program.
Professional / Civic Affiliations
• American Bar Association
o Litigation Section
o Science and Technology Section
o Intellectual Property Section
o Torts and Insurance Section
o Antitrust Section
o Business Law Section, Cyberspace Law Committee (Web Reporter)
o Intellectual Property Sub-Committee for Cyberspace Law (Co-Chair)
• Computer Law Association
Former Chair, Public Relations Committee
TABLE OF CONTENTS
Page
Part I. Introduction 1
Part II. Property Rights – Real and Virtual 5
Part III. The Terms of Service. 6
(a) Whose Property Is It Anyway? 6
(i) Right to Use. 6
(ii) The Right to Transfer. 8
(iii) Right to Exclude. 11
(b) Enforceability of the TOS 12
(c) The TOS as a Dynamic Document 17
Part IV. Real Property Issues 18
(a) Business Participants in Second Life 18
(b) Are Real Property Rights Real in Second Life? 20
(c) Made In China 25
Part V. Intellectual Property in Virtual Worlds 26
(a) U.S. Copyright Law and the TOS 27
(i) Copyright Issues & Disputes in Second Life 29
(b) U.S. Trademark Law and the TOS 33
(i) Trademark Issues & Disputes in Second Life 34
(ii) Trademark Protection Under the TOS 36
(c) Practical Guidance: Protecting Real and Intellectual Property Interests in Virtual Worlds 39
Part VI. Conclusion 40
Part VII. Endnotes 41
No Man Is An Island, Not Even In A Virtual World
Introduction
In the first steps one takes as an “avatar”[i] in the virtual world called Second Life, there exists one embarrassing truth: nudity.[ii] While this may cause the participant to be slightly uncomfortable in her new surroundings, a quick look around reveals that all other fledgling Second Lifers start out in the same state. So fear not. Remember that this is a computer-generated reality, or a so-called virtual world. With just a few clicks of the mouse[iii], she can find Prada clothing, a Rolex watch, a new pair of Nikes and even a brand new Ferrari.[iv] Commerce abounds in Second Life, and some companies have jumped at the opportunity to capture a thriving new market. But what happens when your fancy Prada outfit or your shiny Ferrari were not actually sold to you by Prada or Ferrari? When commercial entities have no established presence in virtual worlds, but see their products up for grabs, an entirely new host of legal issues is raised.
This scenario represents the latest technology frontier. Forget what you once knew about e-mail, Instant Messenger and online chat rooms and step into the virtual worlds of Second Life, World of Warcraft, , or EverQuest, to name a few. Virtual words typically take the form of “massively multi-player online role playing games” or MMORPGs (pronounced “Morpegs”).[v] While the name MMORPG suggests a competitive gaming environment, many of the most popular programs are more fairly characterized as social networking sites, where interaction, business, communication and play are encouraged and fostered.[vi]
Along with their revolutionary approach to internet gaming, MMORPGs have also introduced several new vocabulary terms into the mainstream computer-user’s lexicon. Many of today’s most popular MMORPGs arose from an idea originally found in the 1992 science-fiction novel Snow Crash, by Neal Stephenson.[vii] In Snow Crash, Stephenson created a “metaphysical universe”, or “Metaverse”, which is essentially an online “alternative earth”[viii] where human beings interact through their online selves, or avatars.[ix] Other common terms include (i) “in-world”, referring to the virtual space within the MMORPG, (ii) “RL”, or Real Life, (iii) “rez”, or the slow appearance and resolution of the computer screen when an avatar arrives in a new virtual space and (iv) “griefers”, residents who participate in MMORPGs solely as a medium of harassing others and causing trouble.
At first blush, all this may seem like nothing more than a fantasy playground, and for some, it is. However, participation statistics suggest that virtual worlds offering forums geared more toward social networking are on the rise. Wikipedia reports that there are currently more than 11.5 million accounts registered on Second Life.[x] Similar estimates are qualified by the fact that many registrants do not actively participate. That qualification notwithstanding, in December 2007 Second Life claimed that over 1.5 million people had logged onto the service during its most recent 60-day period[xi] and 46,875 people were logged on to Second Life at the same time as the author.
Further, one must realize that the Second Life experience happens in “real time”. When the author was in Second Life, the other 46,875 “users” were real people scattered around our planet sitting at their computers. Each real person controlled his/her avatar and had it interact with the other avatars in the Second Life community. When the author’s avatar walked into a shopping mall or dance club, he decided if his avatar would walk over to converse with another avatar. The other real person then decided if he/she wanted his/her avatar to engage the author’s avatar or simply walk away (just like in real life). All facets of the avatars’ virtual experience - the communication, “body language”, dress, -- are dictated by the real people behind the avatars, in real time.
The exponential growth of sites such as Second Life,[xii] a product of Linden Lab in California, is indicative of more than just online chatter and hanging out. For those activities, AOL’s Instant Messenger (AIM), , or , would suffice. Instead, Second Life, just like the real world, offers the chance to pursue happiness and wealth through the accumulation of property, the running of a successful business or the provision of a desirable service — all without the monotonous, earthly inconveniences of gravity and physics (one main form of transportation in Second Life is flying). In short, Second Life promotes a prosperous, commercial and creative existence in an environment where boredom, annoyance or exhaustion can be resolved by simply logging off.
The popularity of Second Life has caused entrepreneurs to flock to this virtual world. As of December 2007, over 48,000 business owners were operating within Second Life[xiii] and a total of 16 million commercial transactions took place.[xiv] Business is so good that people are turning to Second Life as either a supplement to or a primary source of income. The top 10 individual entrepreneurs within Second Life are currently earning an average of approximately $200,000 (U.S. dollars) per year.[xv] In fact, real world commercial entities like Disney, Reebok, Dell and Cisco have or had a presence in Second Life. Since the population of Second Life is growing at 39% per month, there is a steady stream of newcomers to foster increased commerce and potential.[xvi] This is only the beginning. In 2006, Linden Lab’s Chairman of the Board stated that “it’ll take around 15 more years for virtual environments to move from the technology margins to the mainstream.”[xvii]
Based upon the above statistics, it is clear that entrepreneurs and real world businesses understand the great potential for marketing and sales in this booming virtual economy.[xviii] But just like in the real world, the allure of making money in the virtual world causes legal issues to arise. Vastly different than the real world, however, is the fact that other than the Terms of Service (“TOS”) and/or the End User License Agreement (“EULA”; collectively, the “TOS”), to which all Second Lifers must agree in order to set up an account, there is no “virtual law” in the virtual world. Therefore, disputes in Second Life over issues such as real or personal property, trademarks and copyright present unique questions for the legal community.
This is not to minimize the resourcefulness of the TOS. On the contrary, the TOS is emblematic of the core concepts giving life and resilience to virtual worlds. In order for virtual worlds to exist and succeed, participants must play by the rules. The TOS supplies an overarching framework to facilitate an orderly society and thriving commerce. Though the TOS is not free from critique, as will be discussed below, it stems from the prudent understanding that virtual worlds, like the real world, operate better with a spoonful of rules.
This article takes a look at some of the commerce-related issues and complications that might arise in virtual worlds, and offers some practical advice and guidance for navigating this relatively uncharted legal landscape. Specifically, Parts II and III examine the concepts of property ownership generally and in the legal framework of the rules that govern virtual worlds: the TOS. Part IV surveys the complicated world of virtual personal and real property. Part V analyzes potential intellectual property issues in virtual worlds, focusing on copyright and trademark. Parts IV and V also seek to illustrate what other real world laws might apply to the virtual world medium, and how they might expand the protection offered by the TOS.
This article seeks to facilitate a further discussion of the topics addressed herein. Two certainties exist in this nascent legal field: there will be disputes and there will be many questions. We do not yet have the resolutions to these disputes nor answers to these questions. Our goal is to raise awareness about this phenomenon and to shed some light on where the discourse may go. There is great promise for both businesses and individuals in the virtual world, and with that comes the rare opportunity to imagine what clever solutions will be developed. One must always be mindful that the activities in these virtual worlds are real, and affect real individuals and businesses. Therefore, as in real life, no man is an island.
Property Rights – Real and Virtual
The following sections address the creation and allocation of property rights in virtual property across several popular virtual world platforms.[xix] The question is whether a TOS, using Second Life as an example, creates an effective legal framework on which users, especially businesses, may rely and engage in commerce, and otherwise protect their rights in the real estate or personal property created in those virtual worlds.
Within online platforms that encourage creation, virtual world participants are expending substantial amounts of time creating items they claim to own. That is, through game mechanics of the software platform provided, they are able to create, use, transfer and exclude other participants from virtual items they possess.[xx] This belief of “ownership” is arguably rooted in the Lockean concept of property that “an individual owns their own labor, and when an individual uses that labor to create something from the commons, the property right extends to what the individual created.”[xxi] Participants in virtual world platforms are spending a great deal of time and money in online worlds and believe they are entitled to have their “property” rights protected.
In the early twentieth century, Wesley Hohfield[xxii] analyzed the notions of legal “rights” and “duties”, breaking them down into a framework of claims, privileges, powers, and immunities on the one hand, and opposing duties, no-rights, liabilities, and disabilities on the other. Property was not spared from this analysis.[xxiii] Hohfeld felt that “what the owner of property has is a very complex aggregate of rights, privileges, powers and immunities”, not in a thing (in rem) but rather against other people (in personam).[xxiv] This notion of a complex aggregate of rights eventually became known as a bundle of rights that exist within an individual as against others in society. That is, to the extent that a person retains the bundle of rights with respect to a particular thing, that thing is that person’s property.[xxv] The bundle of rights is comprised of the right to exclude, the right to use, and the right to transfer interest to another.[xxvi]
The Terms of Service.
Accepting the belief that what one creates in the virtual world is owned by that creator, how then are such rights implemented? The answer is in part, the TOS. However, the TOS is an imperfect, and often incomplete mechanism.
1 Whose Property Is It Anyway?
1 Right to Use.
The Terms of Service or “TOS”[xxvii] serves as the overarching legal framework for each virtual world. It sets forth the rights of users and then creates tools to protect them. If it can deliver on the bundle of rights - rights to use, transfer and exclude - then its virtual world users will “own” their property. Each TOS explicitly or at least impliedly grants participants the right to use the avatar associated with their accounts and the right to use the virtual items associated with those avatars within the context of the game.[xxviii] By agreeing to the Second Life TOS, users are granted a “nonexclusive, limited, revocable license” to use the Second Life software and programming, so long as the user remains in compliance with the TOS.[xxix] If the user breaches the agreed-upon terms, however, Second Life can revoke his/her license without notice, refund or liability.[xxx] As a service provider, it allows people[xxxi] to use that service to interact online regarding topics and content[xxxii] chosen by users of the service.[xxxiii] Furthermore, the Second Life TOS acknowledges that users can alter the service environment on a real-time basis.[xxxiv] The Second Life TOS grants residents the right to use the Second Life service provided by Linden Lab, as well as its software and the “online environments that support the service”. It also states that since Linden Lab is a service provider and not a content regulator, it exercises “very limited control” over the quality and morality of the topics users choose to communicate.[xxxv] Residents of Second Life, therefore, enjoy considerable freedom in the subject matter they contribute to the service.
However, one common feature among all TOS in the various virtual worlds is the way in which they place restrictions on use. For instance, all TOS restrict the right of use by establishing a code of conduct.[xxxvi] In Second Life, for example, “you agree that you shall not: take any action. . . as determined by Linden Lab, at its sole discretion, that is harmful, threatening, abusive, harassing, causes tort, defamatory, vulgar, obscene, libelous, invasive of another’s privacy, hateful or racially, ethnically or otherwise objectionable; or take any action . . . that would violate any right or duty under any law or under contractual or fiduciary relationship. Any violation by you of the terms of the foregoing sentence may result in immediate and permanent suspension or cancellation of your account.”[xxxvii] A termination of your account would mean the immediate termination of all use of your virtual property. The Community Standards delineate six prohibited types of conduct: Intolerance[xxxviii], Harassment[xxxix], Assault[xl], Disclosure[xli], Indecency[xlii] and Disturbing the Peace[xliii].
Although it might seem that these standards are excessively strict, these prohibited actions are essential to the maintenance of an orderly [virtual] society and thus, an effective environment for commerce; not unlike the real world. Notwithstanding these conduct limitations, the TOS provides the virtual world participant with a right to use, and thus, the first tenant of ownership exists.
2 The Right to Transfer.
A majority of popular platforms place a total restriction on the right to transfer. For instance, in World of Warcraft, the virtual world provider (“Blizzard”) owns, has license to, or otherwise has rights to all of the content that appears in the platform.[xliv] Therefore, users have no right in or title to any such content, including the virtual goods or currency appearing or originating in the World of Warcraft.[xlv] Even within virtual worlds like Entropia Universe and EverQuest II, which do allow transfers of virtual items and avatars for real world currency, the method of transfer is restricted to their online system.[xlvi]
The inability to transfer an interest in virtual property without the assistance of the virtual world provider raises doubts as to whether an absolute right of transfer is granted by certain TOS. Recognizing the uncertainty as to who owns the virtual property, eBay banned the sale and purchase of virtual property associated with platforms such as EverQuest, World of Warcraft and Entropia Universe.[xlvii]
Although Second Life has similar restrictions in the right to transfer a participant’s account,[xlviii] it does expressly provide for the transfer and currency within Second Life. The Second Life TOS also explains the rules and rights in connection with in-world fictional currency, Linden Dollars, which is freely transferable between participants. Users can purchase a limited right to use (i.e., license) Linden Dollars. Occasionally Linden Lab, in its sole discretion, distributes the currency free of charge. Residents use Linden Dollars to facilitate in-world transactions for goods, land, etc., which Linden Lab administers through LindeX, Second Life’s currency exchange.
Linden Dollars and LindeX play an important in-world role, but also provide a great example of how the membrane separating Second Life and the real world can be broken. The TOS allows residents to convert Linden Dollars into U.S. Dollars, and vice versa, on the LindeX Currency Exchange, and the in-world currency has maintained a fairly stable rate of approximately 250 Linden Dollars to the U.S. Dollar.[xlix] Since Linden Dollars are tradable with other real world currencies, the translation from in-world achievements to real world profit is tangible and near-immediate.[l] This authorization to transfer currency supports the second tenant of ownership, and more support exists below.
One of the most important rights provided by the TOS allows users to retain copyright and other intellectual property rights to any content they create in Second Life.[li] This is an intentional relinquishment of Linden Lab’s rights to derivative works created using its platform. In the context of copyright law, however, the fruits of one’s labor using another’s software platform are not always yours alone to exploit.
In Micro Star v. Formgen, Inc.[lii], a case involving a game called Duke Nukem 3D, players were encouraged by Formgen to create new levels.[liii] With this encouragement, players posted their new levels on the internet for others to download. In granting this license, however, Formgen was not abandoning its copyrights. Formgen sued when Micro Star, a computer software distributor, began selling CDs upon which it had downloaded 300 of these user-created levels.
The court held that the new product was in fact Formgen’s derivative work[liv] and protected under the Copyright Act[lv]. The court held that stamping newly created MAP files[lvi] (designed to interact with the Duke Nukem 3D library) onto a CD, substantively incorporated protected material from preexisting work onto a concrete or permanent form.[lvii] Although the MAP files contained no image of the Duke Nukem 3D game, the product infringed upon protected expression — the Duke Nukem 3D story itself[lviii]. Though users were given building blocks to create new levels, the game provider retained ownership rights in those levels.
Linden Labs could have, but did not exercise a similar right to own participants’ creations even though such creations are produced by participants using Linden Lab’s tools, and incorporate protected materials from the preexisting work – namely the Second Life platform (software, graphics, etc.) Instead, subject to some minor conditions, it grants full “ownership” to participant’s creations.[lix]
Once a resident creates an in-world object in Second Life, the system helps protect a creator’s exclusive rights to property by allowing the property to be marked “no copy”, “no mod” (no modification of characteristics) or “no trans” (the owner can prohibit transfer of the object to another resident).[lx] In addition, the TOS grants users a license to use Linden Lab’s textures and environmental content to help in their creation of other in-world content. Second Life is ahead of other virtual worlds due to its granting copyright and other intellectual property rights to its users.[lxi] This is probably due to the fact that, unlike other MMORPGs, user content creation is a fundamental component of participating in Second Life.[lxii]
In practice, personal property and real property from Second Life is commonly transferred (sold) on eBay. In fact, such practice is encouraged[lxiii]. Linden Lab’s relationship with eBay provides comfort to businesses seeking to conduct business within Second Life, and for assets therein.
Due to Second Life’s granting participants the right to own the intellectual property in their creations, engage in currency exchanges, and otherwise “transfer” rights to creations and currency, the Second Life service supports the second element in the bundle of rights associated with ownership.
3 Right to Exclude.
As revealed in the prior section, Linden Lab expressly acknowledges the intellectual property rights of Second Lifers’ creations. This necessarily includes the right to exclude, which is afforded to intellectual property owners under the applicable federal statutes. Moreover, Linden Lab includes technical mechanisms which allow Second Life creators to exclude others not authorized from using creations; creators may choose to mark their creations as no copy, no mod or no trans. These powers provide the creators with the right to exclude others from enjoying their creations. Hence, Second Life participants have the benefit of the right to exclude, and thus, the third tenant of the bundle or rights is present.
Therefore, Second Life participants’ belief that they “own” their creations is supported using the bundle of rights analysis, as well as in practice, due to the fact that Linden Lab supports those rights expressly in its TOS and with the technical mechanisms in Second Life.
2 Enforceability of the TOS
Since Second Life participants can exercise the rights to use, transfer and exclude, and therefore enjoy ownership rights in their creations, the next step in the analysis is whether the TOS is enforceable especially as against Linden Lab. Can a user rely on the TOS and enforce rights? Although there are only a few opinions regarding virtual world legal disputes, they provide valuable insight for those seeking commerce opportunities or otherwise seeking to protect their ownership rights in the virtual world. The TOS states that “Linden Lab has the right at any time for any reason or no reason to suspend or terminate your Account, terminate this Agreement, and/or refuse any and all current or future use of the Service without notice or liability to you”.[lxiv] Moreover, users agree to abide by certain rules of conduct, but whether a resident has violated one of these rules is “determined by Linden Lab at its sole discretion.”[lxv] Linden Lab also reserves the right to “halt, suspend, discontinue, or reverse”[lxvi] any currency transaction based on mere suspicion of fraud or violation.
Furthermore, the TOS allows Linden Lab to amend the terms therein “at any time in its sole discretion,” and requires only that the amended terms be posted at a specified URL or communicated to the user through an established written contact method.[lxvii] The user, therefore, is forced to accept any revised terms that Linden Lab may desire.
These terms may seem onerous, but are common for most internet commerce websites. The difference, however, is that seeing such provisions on a traditional ecommerce website would not raise an eyebrow, since the users of such websites rarely contribute content, or engage in commerce thereunder. In contrast, the users in virtual worlds spend substantial time, and often real money to establish themselves, and their businesses. Therefore, is it appropriate for the service provider, here Linden Lab, to have the ability to, potentially, terminate at will? A closer examination of the TOS reveals a few real issues.
A user is expected to read the TOS upon signing up for Second Life service. In order to open an account the user must agree to all terms and conditions set forth in the TOS.[lxviii] No opportunity to negotiate any of those terms is granted. Electronic contractual agreements of this nature are quite common, and they have been dubbed “click-through agreements” or “click-wrap agreements”.[lxix] One party (e.g., Second Life) offers its electronic form agreement, and the other party (the user) assents to that agreement by either clicking a button or typing a particular set of words into a box.[lxx]
A seminal decision on the issue is ProCD v. Zeidenberg. There, the 7th Circuit Court of Appeals overturned a district court decision which found that a shrinkwrap license created by ProCD, a compiler of telephone directories’ databases, was unenforceable. The district court found that shrinkwrap licenses are not contracts because they are inside the box and not printed on the outside. That district court also held that federal law forbade enforcement even if the licenses were contracts.[lxxi]
The Court of Appeals overturned the district court on both grounds, finding that “Shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (e.g., if they violate a rule of positive law, or if they are unconscionable).”[lxxii] Click-wrap agreements are the electronic equivalent of shrinkwrap agreements, and there have been a string of cases since ProCD establishing the enforceability of electronic online contracts.[lxxiii] Therefore, click-wrap agreements are usually enforceable.[lxxiv]
Even though courts have historically upheld click-wrap agreements, they have on occasion found grounds for attack for example when the user “is not required to at least view the terms of the proposed agreement before assenting to them.”[lxxv] Second Life does not currently require a new user to view the entire TOS prior to his/her assent. A user can either check the “I agree to the Terms of Service” box and actually skip reading the terms or press a link to read them. Because of this option, the user is not forced to see the actual terms. Therefore, there exists a reasonable challenge to the enforceability of the Second Life TOS.
Further, if Linden Lab were to ever act arbitrarily or capriciously in acting in its “sole discretion”, it may also be vulnerable to claims that it did not comply with its general obligation of good faith and fair dealing. The Restatement Second of Contracts, section 205 states: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”[lxxvi] This implied covenant is said to dwell in all contracts[lxxvii], and is “designed to effectuate intentions and reasonable expectations of parties reflected by mutual promises within contract.”[lxxviii]
One useful comparison is other club-like contractual agreements, such as codes of conduct or by-laws at a golf or country club. Whereas Second Life’s TOS grants Linden Lab the right to terminate a user’s account, there tends to be more “process” at country clubs. One such club’s terms regarding involuntary termination are as follows: “A membership may be terminated for cause by a secret ballot of the Board of Directors. . .Cause shall be defined as conviction of any criminal offense or any conduct which, in the sole discretion of the Board of Directors, is prejudicial to the good order, discipline, morals, reputation or general welfare of the Club” (emphasis added).[lxxix] Although, like Second Life, judgment as to whether certain conduct is prejudicial to the club’s reputation remains within the sole discretion of the Board of Directors, a member of this club cannot have his/her membership involuntarily terminated “at any time for any reason or no reason.”[lxxx] Nor can it be done “without notice”, since this club’s rules also state that a member cannot be terminated until after a hearing “at which the member shall be given the opportunity to appear and to present a defense as to any of the matters complained against said member.”[lxxxi]
The Second Life TOS appears similarly unforgiving when compared to other licensing agreement situations. Consider, for example, a ticket to a football game. The 2007 Club Seat Licensing Agreement for the Cincinnati Bengals reads as follows: “Should [a] Club
Patron . . . create a disturbance, engage in disorderly conduct or cause objects to be thrown or dropped from the Seats or any other part of the Stadium, [the] Team, in its sole discretion, shall have the right to eject the parties responsible for such action from the confines of the Stadium, and exercise any of Team's rights . . .including without limitation, termination of this License . . .”[lxxxii] (emphasis added). Green Bay’s Lambeau Field prints the following disclaimer on every ticket: “This ticket is a revocable license. Admission may be refused or ticket holder ejected at the sole discretion of the Green Bay Packers, Inc. (“Packers”), subject to refund. The Packers may refuse admission to, or eject, any ticket holder without refund who is deemed to be disorderly, or who fails to comply with these terms or any and all security measures”[lxxxiii] (emphasis added).
Like the Second Life TOS, both the Bengals and the Packers offer their patrons a revocable licensing agreement. However, in neither of those licenses can the rights of the ticketholder be terminated without cause. Moreover, Lambeau Field may even offer refunds to spectators it ejects from games. Similar rules apply to a visitor’s conduct in amusement parks or at ski resorts — one’s rights of entry and use can usually be revoked only upon a violation of the rules or other misconduct.
Thus, an issue of fair dealing and good faith would not arise if a Second Life user knowingly violated an express rule, and was aware that Linden Lab would view it as such. “Where an agreement explicitly allows for a result, triggering such result is ‘clearly within the parties’ reasonable expectations. . .[S]uch conduct can never violate an implied covenant of good faith and fair dealing.’”[lxxxiv] However, although Linden Lab is essentially free to terminate users at will (Linden Lab determines violations in its sole discretion and need not offer reasons for termination), this right is tempered by the obligation of good faith and fair dealing especially in light of other forums such as clubs or stadiums.
On the issue of enforceability, at least one court viewed the Second Life TOS as a contract of adhesion.[lxxxv] In Bragg v. Linden Research, Inc. and Philip Rosedale[lxxxvi], Bragg challenged the enforceability of the TOS’s arbitration provision. The Bragg court issued a surprisingly harsh rebuke to Second Life’s TOS, and seemed to go out of its way to dissect sections not relevant to the jurisdictional issue before the court. Because a new Second Life user could only opt to either adhere to the TOS or reject it, the court found the TOS procedurally unconscionable. Since procedural unconscionability alone was not enough to determine the unenforceability of a contract[lxxxvii], the court also examined whether the TOS was substantively unconscionable. “Substantive unconscionability focuses on the one-sidedness of the contract terms”, and the court, guided by five different analysis points, determined that the TOS failed to give “participants an effective means of resolving disputes with Linden.”[lxxxviii]
The five factors the court examined were as follows: First, the court examined the mutuality of the provision. Specifically, the court analyzed whether the arbitration provision forced Bragg (the supposedly weaker party) to submit to arbitration while at the same time granting the stronger party (Linden) the choice of forum. Second, the court assessed the costs of arbitration and fee-sharing. Third, the court addressed the topic of venue, and the forum selection of California in particular. Fourth, the court examined the arbitration provision’s confidentiality requirement. Finally, the court analyzed whether Linden could fall under California’s “margin of safety” for “legitimate business realities”.[lxxxix] Considering each of these factors together, the court did not enforce the TOS’s arbitration clause, stating that it was not designed to provide an “effective means of resolving disputes with Linden.”[xc]
3 The TOS as a Dynamic Document
Although criticism may be fairly leveled at the Second Life TOS, critics should remember that this is a pioneer effort, on a pioneering platform. There are bound to be some bumpy wagon trails. To its credit, Linden Lab has adopted a progressive strategy towards responding to both user complaints and the recent litigation. In the wake of Bragg, Linden Lab revised the TOS, demonstrating a willingness to follow real life laws and offer a fair agreement to its users. For example, on September 18, 2007 Linden Lab removed the challenged arbitration provisions from under the “General Provisions” heading of the TOS and created a new “Dispute Resolution” section. The new section clearly lays out the claims process, governing law (California), the jurisdiction and venue (city and county of San Francisco) and the conditions for optional arbitration for claims under $10,000.[xci]
Linden Lab may continue to face enforceability problems as use of the service grows. The TOS is important because it creates a structure for the enjoyment of the game and encourages commerce and ingenuity. All in all, despite its limitations, the TOS enhances the environment and spirit of Second Life. Moreover, there might be considerable chaos if it did not exist. The problem with the TOS, however, is that it is incomplete. The real world has countless laws, and at some point the growing reality of Second Life may require that the TOS incorporates more than just copyright and trademark. The more real this virtual world gets, the more likely the TOS will have to contemplate real world laws of contract, tort, property and criminal regulation.
The issues above are more illustrative when examined in light of actual events. Part IV of this article seeks to highlight these issues in the context of real and personal property. Part V examines issues concerning copyright and trademark issues arising in Second Life.
Real Property Issues[xcii]
1 Business Participants in Second Life
User-created content represents the very basic fiber of Second Life, and is what separates it from other MMORPGs as a service. Second Life encourages innovation, entrepreneurship and business savvy opportunists. Many residents are able to supplement their real world incomes with earnings from their Second Life businesses. In fact, last year Second Life welcomed its first real world millionaire.[xciii] Anshe Young is a virtual land baroness (a.k.a. Ailin Graef in real life) whose initial Second Life investment of $9.95 to open an account developed into over a million dollar net worth (U.S., not Linden) in just two and a half years.[xciv] Anshe started out with small purchases of virtual real estate, but today her operations include large scale property projects for real world corporations.[xcv]
As a result of successes like this, both individuals and businesses are racing to establish a Second Life presence. American Apparel, a clothing retailer, set up a Second Life virtual shop in July of 2006 offering their slim-cut, colorful attire to residents.[xcvi] Although the store has since closed its virtual doors, its farewell press release implied that American Apparel will return to Second Life.[xcvii] In September of 2006 Starwood Hotels launched a Second Life hotel, “Aloft”, over a year before the real world hotel was scheduled to open. The company “test-marketed” the hotel’s design and received feedback from avatars that visited the hotel.[xcviii] However, since avatars do not need to sleep, Starwood began to see less interest in the hotel after its initial, widely publicized entrance. The company has since made plans to pull their operations out of Second Life.[xcix]
Other well known companies are getting their foot in the virtual door. Coca-Cola, News Corporation, Adidas and General Motors have all established a Second Life presence.[c] Wells Fargo once had a virtual banking training ground set up in Second Life.[ci] The country of Macedonia has set up a virtual mission.[cii] In October of 2007, the hit CBS show, CSI: Crime Scene Investigations, aired an episode where a killer was pursued into Second Life. Even Barack Obama and John Edwards have campaign offices within Second Life, and have unfortunately suffered virtual “vandalism”.[ciii] The virtual world possibilities, it seems, are infinite.
One of the most popular ways to establish a business in Second Life is to buy an island. As of December 2007, islands were priced at $1,675 (U.S. dollars) for 65,536 square meters (about 16 acres) and the monthly land fee owed to Linden Lab for maintenance was $295 (U.S. dollars)[civ]. One individual (known as Ham Rambler in Second Life) constructed a virtual representation of Dublin city centre within Second Life. Through a virtual mayor named Mahon, he earns revenue by renting prestigious virtual properties near historic landmarks to businesses.[cv] However, recognizing that Linden Labs is the provider of the Second Life service, and has extensive rights regarding the creations therein, could it confiscate Ham Rambler’s Dublin?
2 Are Real Property Rights Real in Second Life?
Marc Bragg v. Linden Research Inc. and Philip Rosedale[cvi] brought to the forefront the issue of whether real estate developed in Second Life was “owned” by its creator, Marc Bragg. Plaintiff, Marc Bragg, Esq., claimed that he acquired an ownership interest in a parcel of virtual land named “Taesot” when he purchased it for $300 on April 30, 2006. Thereafter, however, Linden Lab discovered that Bragg had purchased the land outside Linden Lab’s authorized property transfer system, by exploiting a flaw in the system. In response, Linden Lab seized the property and froze Bragg’s account by asserting its rights under Section 2.6 of the TOS, which states that “Linden Lab may suspend or terminate your account at any time, without refund or obligation.”[cvii] Bragg’s lawsuit claimed that Defendants, Linden Research Inc., owners of Linden Lab and its CEO, Philip Rosedale, unlawfully confiscated his virtual property and unlawfully denied him access to the virtual world by freezing his account.
Having been an active participant of Second Life, Bragg exploited his knowledge of the Second Life system and was able to view land up for auction that was not announced to the greater Second Life community. Bragg was thus able to purchase land at very low prices since only a few of the Second Life residents knew of this flaw. Linden Lab considered this to be a violation of the TOS, and terminated his account.[cviii] Thus, before the court stood the question of what rights and obligations grow out of the relationship between the owner/creator of a virtual world platform and the users invited to interact within that platform. Although the action settled early in discovery after a motion on jurisdiction, details in the pleadings illustrate the legal issues facing virtual real estate developers.
Bragg’s complaint contained counts under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (73 P.S. §201-1, et seq.)[cix], the California Unfair and Deceptive Practices Act (Cal. Bus. & Prof. Code 17200)[cx], the California Consumer Legal Remedies Act (Ca. Civ. Code §1750, et. seq.)[cxi], Fraud and/or Fraud in the Inducement[cxii], the California Civil Code[cxiii], Conversion[cxiv], Intentional Interference with Contractual Relations[cxv], Breach of Contract[cxvi], Unjust Enrichment[cxvii] and Tortuous Breach of the Covenant of Good Faith and Fair Dealing (California Law)[cxviii].
Defendants raised counterclaims under Federal Computer Fraud, California Statutory Computer Fraud, Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, California Statutory Unfair Competition and Declaratory Relief. In support of their counterclaims, Defendants, noted that pursuant to the TOS, Bragg agreed that he would not:
a) Take any action or upload, post, email or otherwise transmit content that violates any law or regulation[cxix];
b) Take any action that would violate any right or duty under any law or under contractual or fiduciary relationships[cxx]; or
c) Interfere with or disrupt the “service” or servers or networks connected to the “service”, or disobey any requirements, procedures, policies, or regulations of networks connected to the “service”[cxxi].
Thus Linden Labs confirms that by executing the TOS, a user is not merely signing up to an internal closed world of rules. The user, and Linden Lab, will be bound by all external laws/regulations, etc.. In essence, Linden Lab fills the gaps in its TOS by reference to real world law. This is a critical development, and most helpful since the TOS could not fairly be construed to be the sole statement of rules or laws applicable to users.
Notwithstanding its incorporation of external laws, Linden Lab further defined its position regarding real estate in Second Life. Linden Lab distinguished “objects” from “virtual land” to show that full property rights (i.e., intellectual property rights) exist in one (objects) but that only a license to use is granted in land. Defendants defined “objects” as digital representations of many real world items, such as cars and clothing, as well as embodiments of fantasy that do not exist in the real world created by Second Life users.[cxxii] Defendants admitted that they recognize a user’s intellectual property rights in “objects” and other content of a user’s original creation, but that these rights do not extend to virtual land within Second Life.[cxxiii]
Defendants admitted that Rosedale made references “selling land free and clear” and selling “title” but further argued that such statements were metaphors or analogies to the concepts of ownership of real property.[cxxiv] They further stated that virtual land is not property to which one may take title.[cxxv] Instead, one may be given a license of access to Linden Lab’s proprietary servers, storage space, bandwidth, memory allocation and computational resources of the server, which together generate the virtual land.[cxxvi] Having access to these proprietary resources, in the opinion of Linden Lab, merely enable the “experience of land and the things that one can do with land on the Second Life platform.”[cxxvii] To illustrate what constitutes the “experience of land” within Second Life consider the following: Bragg in his complaint argued that within a virtual land owner’s unbridled discretion and control, he may split the land in varying sizes and parcels, resell it to other participants and convey title, build upon it, restrict what can be built upon it, change the shape of the land, rent it, lease it and/or exclude all other users or just some of the users from trespassing on it.[cxxviii] Bragg’s complaint goes on to state that all such discretion takes place independent of Linden Lab. Linden Lab simply continues to create new land to sell.[cxxix] Once this land is sold it continues to exist and is not deleted by Linden Lab.[cxxx] Bragg alleged that all of the tenents of the bundle of rights discussed in Parts II and III were present. His virtual land within Second Life was unique, just like real land. Therefore, real property law principals should apply.[cxxxi] That is, when Bragg purchased the land he purchased all title and interest in that land as he would any other piece of property.
Bragg also argued that intellectual property rights could equally apply to virtual land. That is, not only is virtual land unique, but the person that makes it unique is the user since he has such freedom to manipulate the shape and character of the land. The argument followed that Bragg developed intellectual property rights in the land by spending time creating new shapes and details with respect to the land. These rights were thus violated when Linden Lab seized the property and resold it.
Defendants denied that virtual land, regardless of how it is manipulated, is content created by a user. Rather, virtual land “is a graphical representation of server space in the form of land features that are produced by Linden Lab”.[cxxxii] Each server contains two or more CPU cores that each represent a particular amount of virtual land.[cxxxiii] When Linden Lab creates new regions of virtual land, it must install new computer servers containing CPU cores for those regions.[cxxxiv] Linden Lab sets the opening bid at $1,000.00 (U.S. dollars) simply to cover the cost of obtaining and installing this hardware for each new region. In light of the above, defendants believe that virtual land is “created” by the virtual world provider, not by the users. They then denied that “Linden no longer owns the very world they created.”[cxxxv]
Defendants argued that a user does not obtain or retain intellectual property rights in virtual land within Second Life. What a user actually obtains as a result of purchasing virtual land in Second Life is a license to have its created environment hosted on a dedicated and designated portion of Linden Lab’s proprietary servers, storage space, bandwidth, memory allocation, and a portion of the computational resources of the server.[cxxxvi] That is, a user who purchases virtual land does not obtain rights in or control over Linden Lab’s server software itself. This remains Linden Lab’s intellectual property.[cxxxvii]
Therefore, although not yet reflected in the TOS, Linden Lab’s position is that it is retaining its copyright rights to derivative works on real estate. In essence, Linden Labs is granting users a limited license to create such derivative works which are real property, but ownership of those works remain with Linden Lab, and the creator only has a temporary, limited right to use. However, despite Linden Lab’s aforementioned arguments, the user does have a full bundle of rights to use, transfer and exclude, and thus, it would appear ownership. Moreover, the TOS does not differentiate between real estate creations and other object creations. Therefore, it comes as no surprise that Linden Lab and Bragg settled this matter with Bragg receiving a re-activation of his account and the regained access to his developed real estate and the parties announced that there was merely a miscommunication between them.
3 Made In China
Similar ownership claims arose in a matter involving the theft of virtual personal property in China in 2003. There, a Chinese court ordered an online video game company to return hard won virtual property, including a make-believe stockpile of biochemical weapons to a player whose game account was looted by a hacker.[cxxxviii] In reaching this decision, the court emphasized that the participant, Li Hongchen, had spent two years, and 10,000 yuan ($1,210) on pay-as-you-go cards to play, amassing weapons and victories within the computer game.[cxxxix] Recognizing that Li Hongchen expended his labor, time, wisdom and money to obtain these items, the court held that he had ownership rights in such items. In so holding, the court disregarded the company’s arguments that virtual property existed only in the game and was just piles of data on its operating system.[cxl] The court ordered the company to restore the player’s lost items, finding the company liable because loopholes in the server programs made it easy for hackers to break in and commit the theft.[cxli]
This holding lends further support for the proposition that virtual world participants have enforceable property rights in their creations. However, this matter is distinguishable from Bragg and Linden Lab’s positions stated therein because Li Hongchen was only claiming ownership of objects — not land (i.e., real property). The question remains as to whether the Chinese court would come to the same conclusion regarding land developed by Li Hongchen.
Where does this leave property owners in virtual worlds? It appears that their rights do exist, although enforcement is challenging, especially when the service providers have powerful self help mechanisms which they can use to “turn off” a property owner’s rights. Courts are recognizing these rights, but the legal costs to enforce may outweigh the value of the virtual property.[cxlii]
Intellectual Property in Virtual Worlds
As mentioned above, Second Life’s TOS grants explicit protection to the content creations of its residents. But is the TOS sufficient to deliver bona fide security to copyright and trademark rights? And what about the intellectual property of individuals and businesses who have never even visited Second Life? As of May 2007, more than 50 stores in Second Life carried virtual sunglasses by brands that appear to have never endorsed, sponsored or licensed the stores to do so. Although avatars can purchase bargain Gucci, Prada and Nike shoes, Apple iPods or Ferrari cars (one model sells for $1,995 Linden Dollars, or about U.S. $7.75),[cxliii] it is unlikely that any of those real world vendors have ever read (or cared about) the TOS and may not even know their trademarks are being misappropriated. In this scenario, how could the TOS possibly afford protection to entities who are not a party to its terms?
As stated above, the TOS needs to be read as incorporating the real world laws of copyright, trademark, torts and contract. Even as we assume that the TOS is enforceable, there will always be a gap in the legal remedies available therein for Second Lifers and aggrieved outsiders. Therefore, it is unavoidable that those seeking protection will be forced to consult real world concepts of law.
This section first examines potential copyright and trademark issues as well as some of the related disputes. It explores the utility of these real world legal theories for protecting virtual world intellectual property rights.
1 U.S. Copyright Law and the TOS
Second Life’s TOS grants express ownership of copyrights to the residents who created the content.[cxliv] What does this mean in the context of a virtual world? In a social networking program like Second Life, much of the user-created content takes the form of goods that are bought and sold between residents. As mentioned above, many avatars began their Second Life without clothes. One way to remedy this condition was to use Linden Dollars to purchase a wardrobe. All of the clothing available for purchase in Second Life had to be created at some point. If this clothing was user-created, Second Life’s TOS dictates that the user owns the copyrights to that clothing.
United States copyright law (17 U.S.C. §106 et. seq., “the Copyright Act”) protects the expression of an idea, not the idea itself. For example, a resident might create and design a pair of jeans in Second Life. Assuming the Copyright Act applied, upon creation the resident would own “the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies . . ., (2) to prepare derivative works based upon the copyrighted work, (3) to distribute copies . . .of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending, (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures [all of which exist in Second Life] and other audiovisual works, to perform the copyrighted work publicly and (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly.”[cxlv] The resident does not, however, own the copyright to the idea of creating jeans. Therefore, other residents are free to express their creativity by making their own kinds of jeans, but any of the five activities mentioned above done without the permission of the copyright owner is a copyright infringement.
The Second Life TOS does not, however, explicitly state that the Copyright Act applies to Second Life. Instead, the TOS states “You retain copyright and other intellectual property rights with respect to Content you create in Second Life, to the extent that you have such rights under applicable law.”[cxlvi] Furthermore, the TOS maintains that users are “solely responsible for understanding all copyright, patent, trademark, trade secret and other intellectual property or other laws that may apply” to their virtual world content creations.[cxlvii]
These excerpts suggest that the TOS incorporated real world sources of law as being applicable to in-world situations. But other than the TOS clarification that “This Agreement and the relationship between you and Linden Lab shall be governed in all respects by the laws of the State of California,” the real world supplementary law is not specified.[cxlviii]
1 Copyright Issues & Disputes in Second Life
Not surprisingly, many copyright issues surface as we cross the membrane separating the real world to the virtual world. For example, one user may decide to create content in Second Life in the form of clothing. The creator will use “prims”, the basic building blocks of Second Life, to manufacture anything from tuxedo jackets to underwear, as well as buildings, cars and landscaping vegetation. Once the clothes (and maybe some accessories) are created, the creator will try to sell them for a profit. But what happens when the creator’s avatar is strolling (or flying) through Second Life and happens upon a vendor selling exact duplicates of his/her clothing creations? Or what if an avatar’s original music is copied, one’s car design is replicated or a sex toy device is copybotted[cxlix]?
Several real world disputes over virtual world copyright infringement have surfaced. An example is the unauthorized duplication and sale of content created by Second Life resident Kevin Alderman (a.k.a. Stroker Serpentine in Second Life), who creates and sells virtual adult products.[cl] Earlier this year, Alderman discovered what he claims are exact copies of his products circulating through Second Life. Second Life user Thomas Simon (a.k.a. Rase Kenzo in Second Life) allegedly exploited a fairly well known Second Life software flaw which allowed him to make unauthorized copies of Alderman’s creations.[cli]
In this dispute Alderman, along with five other Second Life merchants, filed a formal complaint in New York Federal District Court.[clii] The plaintiffs alleged that Simon “has been making and selling, and continues to make and sell, numerous unauthorized copies of Plaintiff’s virtual products within Second Life” in violation of the Copyright Act.[cliii] Between the six plaintiffs, their products ranged from adult-themed objects, clothing lines, home furnishings, footwear and avatar skin designs. The plaintiffs also claimed Simon “has been and continues to act in concert and conspiracy with a number of other Second Life users” to distribute the unauthorized copies through Second Life “yard sales.”[cliv]
The plaintiffs alleged that pursuant to the defendants’ violations of the Copyright Act and civil conspiracy, they have been and continue to be damaged irreparably “through the diversion of sales, profits and consumer interest from plaintiffs to defendants.”[clv] Furthermore, as to the copyright cause of action, the plaintiffs allege that the defendants’ infringements were willful and that “as a direct and proximate result of defendant’s conduct, Plaintiffs have suffered damages.”[clvi] As a remedy, the plaintiffs demanded actual damages and any additional profits, including other costs and fees, as well as the “impounding and destruction of all infringing copies . . . and of all articles by means of which infringing copies of the Plaintiff’s Items may be reproduced.”[clvii]
The plaintiffs filed their complaint on October 24, 2007. The court entered a judgment by consent on December 3, 2007. Pursuant to the judgment, Simon agreed to a number of terms and conditions, including the following: (1) to pay $525 as restitution for the profits he made from the unauthorized copying and distribution, (2) to represent, under penalty of perjury, that no one assisted him in the copying and distribution process, and that the $525 comprises all of the profits he derived from the infringement, (3) to represent, under penalty of perjury, that he destroyed all remaining unauthorized copies of plaintiffs’ creations in his possession, (4) to inform the plaintiffs if he uses any alternative accounts in Second Life and (5) before year-end, to show plaintiffs and their attorneys his transactional records on PayPal. All parties also agreed to not make any further comment or discuss the terms of the Order.[clviii]
Alderman was also involved in another copyright infringement claim against a Second Lifer named “Volkov Catteneo”, whose real identity was never positively verified but is referred to as “Leatherwood”.[clix] Like the Rase Kenzo situation, Alderman claimed that Catteneo duplicated and sold unauthorized copies of his SexGen Bed, which Alderman produces and sells as “no-copy” objects.[clx] A video description of Alderman’s two disputes is available at .
Alderman’s complaint against Catteneo was very similar to his complaint against Simon. Alderman brought a cause of action based on copyright infringement under the Copyright Act, , alleging that Catteneo willingly infringed on his rights. Since Catteneo never answered the complaint, the Florida court entered a default judgment in favor of Alderman on November 16, 2007.[clxi] The default judgment functions much like a judgment on the merits in favor of Alderman, as it enables him to seek damages, fees and injunctive relief from the defendant Catteneo. An unfortunate consequence of the default judgment, however, is that the court never addressed the novel issues raised in this case.
Another example of infringement arose from a real world book that appeared without authorization in Second Life. John Norman, pen named John Fredrick Lange, Jr., is the author of the Gor series of fictional books.[clxii] The Gor series enjoyed immense popularity in the 1960’s and 1970’s, and for the last year avid Gor fans have waged a battle over the ethics of distributing Gor novels in Second Life. Because the Gor series “are real books, and clearly covered by modern real world copyright laws”[clxiii], the unauthorized distribution of their copies on Second Life is an infringement. As the creator of Gor, Norman owns the exclusive rights to reproduce and distribute the works. At the very least, therefore, Norman must authorize the books being copied and distributed in Second Life. At this stage, however, no formal complaints have been filed. If a court had spoken on Alderman’s or Norman’s causes of action, what kind of analysis could we have expected? Alderman took both of his infringement claims to court, Norman did not, but are there other avenues available to pursue a remedy? According to Second Life’s TOS, Alderman and Norman retain their copyrights with respect to any and all content they created. But how can they and other future claimants enforce the rights granted to them through the TOS? Alderman claims that he “begged” Linden Lab to take action, filed abuse reports and wrote a personal letter to Philip Rosedale and Robin Linden, all of which received no response.[clxiv]
Besides general references to “applicable laws” that can be used to protect and enforce the rights of its residents, the Second Life TOS explicitly advises that users with copyright infringement claims that fall under the Digital Millennium Copyright Act (DMCA) shall comply with the processes of that Act.[clxv] The DMCA provides a copyright owner with a process for reporting alleged infringement. Second Life has its own webpage dedicated to explaining how a resident files such a claim.[clxvi]
Alderman maintains that he submitted DMCA claims to Linden Lab prior to instituting both of his lawsuits, but received no response to either claim.[clxvii] In fact, Alderman stated that he filed the complaint in the Rase Kenzo case only after six weeks of failed “negotiations”; he and the other plaintiffs had wanted to avoid formal legal action.[clxviii]
If Linden Lab did not respond to Alderman’s takedown claims under the DMCA, then it loses the protections afforded by the DMCA.[clxix] Since Linden Lab has every incentive to comply with both its TOS and the DMCA, this leaves us with the assumption and hope that Linden Lab may still be on the upward slope of the learning curve for its enforcement mechanisms. In the meantime, these failures highlight the fact that notwithstanding Linden Lab’s claimed respect for copyright rights, enforcement of those rights present some challenges. These issues are reminiscent of the “early days” of the Internet so businesses should proceed with caution. After the next section addresses similar deficiencies in trademark protections, this article will offer some practical guidance for individuals and businesses with interests in virtual worlds.
2 U.S. Trademark Law and the TOS
Similar to the hurdles involved in protecting copyrights, trademark enforcement is complicated in a virtual world. A trademark is a distinctive indicator which identifies the source of goods or services.[clxx] Consumers use brand names to differentiate among the products they purchase and producers try to create identifiers for their goods and services that will distinguish them from those sold by others. The idea of trademark flows from the concept of good will in commerce, and the law is intended to protect a person or company’s right to preserve that good will. Since it would be unfair to both McDonald’s and the consumer if another company started selling hamburgers of inconsistent quality under the McDonald’s mark, the law attempts to protect the good names companies and individuals make for themselves in commerce.
U.S. trademark rights are covered by the Lanham Act (15 U.S.C. §§ 1114-1127, the “Lanham Act”), which contains the federal statutes for U.S. trademark law.[clxxi] The United States Patent and Trademark Office (the “USPTO”) administers the Lanham Act and the courts vested with jurisdiction over trademark matters have the power to grant injunctions to prevent violations.[clxxii] Unlike copyright law, which provides for criminal sanctions as well as civil damages for violation,[clxxiii] the responsibility for trademark enforcement lies solely with the mark owner, and is enforced only through private suit.
As with copyright law, the Second Life TOS does not explicitly refer to U.S. federal or state trademark law. Users are “solely responsible”[clxxiv] for understanding and enforcing their own trademark rights when such disputes arise in the virtual world.
1 Trademark Issues & Disputes in Second Life
Trademark issues arise in virtual worlds in two contexts. First, similar to copyright infringements, content creators in Second Life use trademarks for their virtual products, just as real world producers. The fact that Second Life promotes a commercial environment is important in this context because liability only attaches to trademark infringement if that trademark is used “in commerce.”[clxxv] If the infringement occurs in a space that would not be considered in commerce, in a search engine or in a metatag, such as the space provided by many internet service providers (ISPs) like Google and YouTube, a trademark claim might not survive.[clxxvi] A sly Second Life infringer using, but not selling with, a trademark of another might well claim the use is not “use in commerce”. However, commercialism defines Second Life and most use of trademarks therein are for the sale of products and services; therefore there appears ample support for a claim of infringement.
The now familiar cases of Kevin Alderman discussed above contained trademark as well as copyright claims. Alderman brought both causes of action under the Lanham Act.[clxxvii] He offered factual evidence to demonstrate that his company, Eros, LLC, uses a particular trademark in Second Life, which the complaint called the “SexGen trademark” (the “Mark”), and that this Mark was used to sell his products in Second Life.[clxxviii] He also asserted that as one of Second Life’s most successful merchants, his Mark carried great weight among virtual consumers. The defendants’ usurpation of his Mark, then, caused considerable customer uncertainty as to the source and quality of his products.
Like copyrights, Alderman claimed that trademark rights derive from the TOS, which states that he owns the intellectual property that he creates in the Second Life world. His complaint alleged claims under federal law, but since these were not substantively addressed by the court it is unclear what type of resolution the court would have reached.
The second and perhaps more pressing trademark issue is one faced by not only Second Life residents, but by companies that may have never heard of Second Life. Imagine the following fact pattern: “Mucci” is an extremely high-end clothing and accessories manufacturer known world-wide for its quality, solid name and elite prices — in other words, it relies on its trademark to capitalize on its good will in commerce. Mucci sells sunglasses, purses and shoes in the real world, and they are coveted for their chic and fashionable style.
Mucci has never visited Second Life, but one day its media department stumbles onto a web-story about the fabulous Mucci items available for purchase in the virtual world. Avatars can wear Mucci shades for a mere $125 Linden Dollars, the equivalent of U.S. $0.75. After investigating more closely, Mucci representatives learn that over 100 Second Life stores sell virtual versions of nearly every hot product it manufactures.
While the fabulous Mucci trademark described above is not a commercial reality, the real world Gucci experienced the very same set of facts. As did Chanel, Timberland and Apple. In May of 2007, Virtually Blind (a blog devoted to reporting on business and legal issues in virtual worlds) randomly surveyed ten Second Life “shopping malls” and found seven stores offering goods that “exhibited obvious trademark infringement.”[clxxix] According to that article, “misappropriation of major corporations’ trademarks in Second Life is so ubiquitous, so safe, and so immensely profitable, that it has become a wholly transparent part of Second Life’s bustling commercial landscape.”[clxxx] For example, Second Life designer “Elexor Matador” sells knockoff Cartier jewelry as limited editions for $10,000 Linden Dollars, the equivalent of about U.S. $40. If she sells all twenty-five of her jewelry sets, Elexor stands to earn just under U.S. $1,000. It may not seem like much, but one month prior the most expensive infringement item reported in Second Life was a Ferrari which sold for less than $8.00.[clxxxi]
Obviously, a similar type of infringement exists against Second Life residents who have developed in-world brands like Kevin Alderman. However, unlike residents, corporations with no Second Life presence are not parties to the TOS. So what options are available to real world companies who want to protect against trademark infringement in virtual worlds?
2 Trademark Protection Under the TOS
Although real world companies may not be parties to the TOS, this does not mean they are not contemplated therein. Under the section entitled “Conduct By Users of Second Life”, the TOS states that residents shall not “take any action or upload, post, e-mail or otherwise transmit Content that infringes or violates any third party rights.”[clxxxii] This provision suggests that Linden Lab will attempt to protect third party rights under the terms of the TOS. But since the TOS also refers to outside law, this provision should also be read to welcome the application of real world legal theories to protect the rights of third parties injured by trademark infringement in Second Life.
According to one blog called Orient Lodge, Linden Lab has taken a surprisingly proactive role in protecting the rights of non-Second Life (real world) companies from trademark infringement.[clxxxiii] As explained by the blogger, “the head of a prominent company in Second Life received an email” from Linden Lab had received notification that the company had infringed the trademark of a non-Second Life company within the Second Life environment.[clxxxiv] In accordance with its policy to respect the “rights of both Second Life residents and trademark owners,” Linden Lab asked the virtual company to discontinue the use of the mark in Second Life.[clxxxv]
The Orient Lodge blog felt that Linden Lab had overextended its policing power. First, the blogger accused Linden Lab of failing to provide an adequate notice period to the virtual company in which it could either refute or in some way respond to the claim. Second, Linden Lab’s TOS states that it is a service provider and “generally does not regulate the content of communications between users or users’ interactions with the Service.” Orient Lodge believed that, contrary to its statement, Linden Lab in fact exerted very deliberate control over content, and otherwise took the side of the claimant over the Second Life business.[clxxxvi] Furthermore, Orient Lodge was offended by the TOS’s assertion that it protected user intellectual property rights, yet Linden Lab was ready to remove the trademark and creations of the virtual business without so much as an answer or defense from that party.
What Orient Lodge does not recognize, however, is the fact that Linden Lab has a vested interest in limiting trademark infringement within Second Life. To be a strict enforcer of the rights it grants in the TOS, Linden Lab needs to move swiftly to deal with purported infringements. Although content regulation is not a primary objective of Linden Lab, the TOS states that Linden Lab “generally does not regulate the content. . .”[clxxxvii] (emphasis added). Linden Lab’s use of the word “generally” provides it with latitude in certain situations (e.g., infringement). To continue attracting real world companies to join Second Life’s economy, Linden Lab cannot ignore trademark claims against Second Life residents.
If Linden Lab refuses or is unable to enforce trademark protection under the TOS, the most logical recourse for a real world company is to bring a trademark infringement under the Lanham Act against the infringing Second Life user. In the Mucci example above, the claimant would have to prove that the Second Life resident used Mucci’s trademark in commerce (without the consent of Mucci) and that it was likely to confuse, cause mistake or deceive.[clxxxviii]
Some real world companies have taken a different approach. Instead of enforcing their legitimate trademark claims against Second Life infringers, they have decided to grant express licenses to use their trademarks. Coca-Cola, for example, which did have a Second Life presence but encountered trademark infringement there nonetheless, has allowed products with its trademark in the virtual world.[clxxxix] The permission granted to virtual merchants is subject to certain conditions. Instead of fighting the infringers (which it had done previously by having the items with its trademark removed from the SLExchange[cxc]), Coca-Cola ultimately decided to embrace the Second Life community.[cxci] Technically Coca-Cola did not release its trademark to residents, but Second Lifers are free to use it and have been granted substantial latitude (e.g., license) in how they do so.[cxcii]
3 Practical Guidance: Protecting Real and Intellectual Property Interests in Virtual Worlds
Like it or not, the economy of Second Life is very real. Users exchange Linden and U.S. dollars at ever-increasing rates, and the magnitude of real sales in virtual goods and services is following suit. Therefore, it is helpful to propose a few practical steps that companies and individuals might take when confronted with issues regarding virtual worlds.
Even if a business chooses to avoid willful participation in virtual worlds, the sheer volume of activity makes it advisable to monitor activities therein. An additional reason to monitor commercial activity in virtual worlds is to track the participation of one’s competitors. The entrance of similarly situated entities into virtual worlds could signify new marketing frontiers, or opportunities that are being missed. Scrutinizing the entrance/exit of competitors into virtual worlds will allow businesses to stay current with trends in the marketing and sales of their industries’ products.
Entities considering establishing a major presence in a virtual world, such as the development of retail space and thus, real estate, must recognize the inherent limitations in the standard TOS. They should consider negotiating direct agreements with the virtual world service provider (i.e. Linden Research for Second Life or other service providers therein[cxciii]). By doing so, they can specifically and clearly establish and therefore protect their rights in the real estate or personal property created in the virtual world.
It is undeniable that virtual worlds present some usual challenges to owners of intellectual property. Often, these virtual worlds can affect IP owners’ interests even without their knowing participation.
Even if a company decides it will not establish a presence in a virtual world, it must remain ever vigilant and monitor commerce therein. it Otherwise, they might face defenses of abandonment or latches if they take no action
Companies and individuals should also consider going beyond mere acknowledgement of virtual worlds and actively engage in them. This does not necessarily mean setting up a virtual store to market and sell goods. Rather, it could mean that when confronted with issues of intellectual property right infringements, instead of filing complaints or taking other legal action, companies and individuals could embrace the exposure of their products. The Coca-Cola situation discussed above is a case in point. Granting a limited license to use a trademark in a virtual world may in fact be one of the best ways to protect one’s rights, all the while avoiding costly litigation. Moreover, such a license may avoid trademark dilution because the licensor will have some control over how it is used and the quality of the virtual goods or services used thereon.
Conclusion
A final aspect to keep in mind is that commerce in virtual worlds such as Second Life have only just begun to develop. There are more changes to come and an accompanying set of questions that will follow. As real world people and businesses, we can observe the advances made in the virtual economies and recognize that such activities therein have an impact far beyond their borders. The participants therein are real people and their actions affect mankind. Thus, we all must remember that, no man is an island, not even in a virtual world.
Endnotes
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[i] “Avatar” is a Sanskrit word which commonly refers to the “bodily manifestation” of a supreme being on the planet earth. See “Avatar”, Wikipedia, .
[ii] In 2007, Second Life began supplying a modest wardrobe to its residents. Some new residents, however, might still prefer to be naked, since the styles are bland at best. Second Life is a service of Linden Lab, which is owned by Linden Research, Inc.
[iii] See .
[iv] See “Rampant Trademark Infringement in Second Life Costs Millions, Undermines Future Enforcement”, May 4, 2007 at .
[v] See “Virtual Worlds Alongside the Real World: Do You Know Where Your Clients Are?”, D. Benjamin Beard & Christina L. Kunz, ABA Section of Business Law: Business Law Today, Vol. 17, No. 2, November/December 2007, .
[vi] See “Second Life”, Wikipedia, . Linden Research Inc., owners of Linden Lab
[vii] See The Unofficial Tourists’ Guide to Second Life: The Essential Guide to an Amazing Virtual World – with Millions of Users, Paul Carr & Graham Pond, St. Martin’s Press, New York, 2007, p. 19.
[viii] See generally Synthetic Worlds: The Business and Culture of Online Games, Edward Castranova, University of Chicago Press, Illinois, 2005.
[ix] See Carr & Pond, at 19.
[x] See “Second Life”, Wikipedia, .
[xi] See Beard & Kunz.
[xii] While there are numerous virtual worlds, including but not limited to Second Life, World of Warcraft, , Whyville, Entropia Universe and ViOS, for purposes of our analysis we will most often utilize Second Life as the reference point. It is by no means an endorsement of, nor criticism of the other wildly popular and equally effective virtual worlds.
[xiii] List of in-world business occupations founded by residents include: party and wedding planner, pet manufacturer, tattooist, nightclub owner, automotive manufacturer, fashion designer, aerospace engineer, custom avatar designer, jewelry maker, architect, XML coder, freelance scripter, game developer, fine artist, machinima set designer, tour guide, dancer, musician, custom animation creator, theme park developer, real estate speculator, vacation resort owner, advertiser, bodyguard, magazine, publisher, private detective, writer, gamer, landscaper, publicist, special effects designer, gunsmith and hug maker. See e.g. .
[xiv] See . For additional statistics regarding the economy, see .
[xv] See http:// enn.ie/article/9853686.html.
[xvi] Id.
[xvii]
[xviii] See “Virtual Worlds and Digital Rights: Can Stealing An Online Gamer’s IP Or Magic Sword Mean Real-World Legal Hot Water?”, Sean F. Kane, Internet Law & Strategy, Vol. 3, No. 9, September 2005, stating that “if the proliferation of online entrepreneurship continues, the games [MMORPGs] will likely be more focused on commerce, research and work or work-related activities.”
[xix] For instance, Second Life is a platform for social interaction and creation within the platform whereas World of Warcraft focuses on combat and working with other participants to overcome various obstacles for the purposes of collection virtual items commonly referred to as “loot”.
[xx] See discussion on “no mod” and “no copy” in copyright section above in article. See also, Sheldon, David P., Claiming Ownership, but getting Owned: Contractual Limitations on Asserting Property Interests in Virtual Goods, UCLA Law Rev., 761 (February 2007). See also James Grimmelmann, Virtual Worlds as Comparative Law, 49 N.Y.L. Sch. L. Rev. 147, 150-152 (2004) where he describes the different ways that the code reinforces exclusive possession (“If I own an enchanted sword, I am guaranteed to be the only player who can use that sword…The game’s interface typically won’t even have a command allowing another player to attempt to use the sword; such a concept is inexpressible within the game’s interface.”).
[xxi] John Locke, Two Treatises of Government bk. II, para27 (Legal Classics Library 1994) (1648). Note applicability to World of Warcraft is slightly different since that is a combat/collection virtual world (different theme).
[xxii] Wesley Hohfield was a well known legal realist and Yale professor whose most lasting contribution to legal scholarship was his two-part article “Fundamental Legal Conceptions as Applied in Judicial Reasoning,” 23 & 26 Yale L. J. 16 & 710 (1913 & 1917). In it, Hohfeld analyzed the notions of legal “rights” and “duties,” breaking them down into a framework of claims, privileges, powers, and immunities on the one hand, and corresponding duties, no-rights, liabilities, and disabilities on the other.
[xxiii] Mossoff, Adam, What is Property? Putting the Pieces Back Together, 45 Ariz. L. Rev. 371, 373 (2003).
[xxiv] Id., citing Walter Wheeler Cook, Introduction to Wesley N. Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning 14 (1919).
[xxv] Sheldon, David P., Claiming Ownership, but getting Owned: Contractual Limitations on Asserting Property Interests in Virtual Goods, UCLA Law Rev., 760 (February 2007).
[xxvi] Mossoff, Adam, What is Property? Putting the Pieces Back Together, 45 Ariz. L. Rev. 371, 374 (2003) citing Thomas C. Grey, The Malthusian Constitution, 41 U. Miami L. Rev. 21, 30 (1986). However, it should be noted that unlike all of the other rights in the bundle, the right to exclude, as stated by the Supreme Court, in recent years is “one of the most essential sticks in the bundle of rights that are commonly characterized as property. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 433 (1982) (quoting Kaiser Aetna v. United States, 444 U.S. 164, 176 (1979)); see also Dolan v. City of Tigard, 512 U.S. 374, 394 (1994) (holding that a taking had occurred because a property owner's “right to exclude. . .would be eviscerated” under local regulatory requirements). The right to exclude certainly is an essential characteristic of property--at least by the lights of those individuals who created our Constitution and who implement this document today on the Supreme Court. Indeed, other scholars maintain that the right to exclude is the essential characteristic of property among a mere assortment of contingent rights and obligations. See Thomas W. Merrill, Property and the Right to Exclude, 77 Neb. L. Rev. 730, 730 (1998) (“[T]he right to exclude others is more than just ‘one of the most essential’ constituents of property--it is the sine qua non.”). See also J.E. Penner, The Idea of Property in Law (1997) at 103 (“the right to property should be conceived as the right of exclusive use”).
[xxvii] For purposes of this article, both the Terms of Service and the End User License Agreement will be encompassed in the meaning of TOS.
[xxviii] Sheldon, David P., Claiming Ownership, but getting Owned: Contractual Limitations on Asserting Property Interests in Virtual Goods, UCLA Law Rev., 760, 764 (February 2007) (Although different virtual worlds have different themes, there remain a number of similarities that exist in terms of the allocation of property rights in virtual property within these games.)
[xxix] See Second Life Terms of Service at .
[xxx] Id.
[xxxi]Additionally, the TOS addresses various service-related issues. For example, the TOS reserves Linden Lab’s right to interrupt service with or without prior notice to residents. Users are also expected to comply with all billing policies related to aspects of the service that Linden Lab provides for a fee. With respect to user registration requirements, the TOS states that users of the service agree to provide accurate and complete personal information, including their age. The TOS prohibits users under the age of 13 to participate, and restricts users under the age of majority in their jurisdiction to the “Teen Area.”
[xxxii] Content is defined in Section 3.1 of the Second Life TOS as any graphics, sound effects, music, video, audio, computer programs, animation, text and other creative output accessible by the Linden Lab service.
[xxxiii] See Section 1.3 of the Second Life TOS.
[xxxiv] See Section 1.2 of the Second Life TOS.
[xxxv] See Second Life Terms of Service at .
[xxxvi] See Sheldon, David P., Claiming Ownership, but Getting Owned: Contractual Limitations on Asserting Property Interests in Virtual Goods, UCLA Law Rev., 760, 764 (February 2007).
[xxxvii] See Section 4.1 of the Second Life TOS at .
[xxxviii] Intolerance is “[A]ctions that marginalize, belittle, or defame individuals or groups inhibit the satisfying exchange of ideas and diminish the Second Life community as whole. The use of derogatory or demeaning language or images in reference to another Resident's race, ethnicity, gender, religion, or sexual orientation is never allowed in Second Life.” See .
[xxxix] The Community Standards recognize that “harassment can take many forms.” It goes on to define it as “[C]ommunicating or behaving in a manner which is offensively coarse, intimidating or threatening, constitutes unwelcome sexual advances or requests for sexual favors, or is otherwise likely to cause annoyance or alarm is Harassment.” See .
[xl] Assault means “shooting, pushing, or shoving another Resident in a Safe Area (see Global Standards below); creating or using scripted objects which singularly or persistently target another Resident in a manner which prevents their enjoyment of Second Life.” See .
[xli] A protection against violations of a users disclosure is an attempt by Second Life to recognize that “[R]esidents are entitled to a reasonable level of privacy with regard to their Second Lives.” The Community Standards go on to state that “[S]haring personal information about a fellow Resident --including gender, religion, age, marital status, race, sexual preference, and real-world location beyond what is provided by the Resident in the First Life page of their Resident profile is a violation of that Resident's privacy. Remotely monitoring conversations, posting conversation logs, or sharing conversation logs without consent are all prohibited in Second Life and on the Second Life Forums.” See .
[xlii] Under the category of Indecency, Second Life acknowledges that it is “an adult community,” but that “Mature material is not necessarily appropriate in all areas. Locations within Second Life are noted as Safe or Unsafe and rated Mature (M) or non-Mature (PG), and behavior must conform to the local ratings. Content, communication, or behavior which involves intense language or expletives, nudity or sexual content, the depiction of sex or violence, or anything else broadly offensive must be contained within private land in areas rated Mature (M). Names of Residents, objects, places and groups are broadly viewable in Second Life directories and on the Second Life website, and must adhere to PG guidelines. See .
[xliii] Examples of “Disturbing the Peace” include “[D]isrupting scheduled events, repeated transmission of undesired advertising content, the use of repetitive sounds, following or self-spawning items, or other objects that intentionally slow server performance or inhibit another Resident's ability to enjoy Second Life”. See .
[xliv] See Section 8 of the World of Warcraft Terms of Use at .
[xlv] Id. See also Section 9 of the EverQuest User Agreement and Software License at (“You may not buy, sell or auction (or host or facilitate the ability to allow others to buy, sell or auction) any Game characters, items, coin or copyrighted material.”)
[xlvi] Sheldon, David P., Claiming Ownership, but getting Owned: Contractual Limitations on Asserting Property Interests in Virtual Goods, UCLA Law Rev., 760, 767-768 (February 2007).
[xlvii] See, e.g., , and see, e.g., (“A spokesman for eBay said the decision to pull these items was due to the 'legal complexities' surrounding virtual property. It's unclear as to who actually owns the intellectual rights to the property in question. He further pointed out that in reality, the company is just following through with a pre-existing policy, as opposed to creating a new one. The [eBay] policy on digitally delivered goods states: "The seller must be the owner of the underlying intellectual property, or authorized to distribute it by the intellectual property owner." It makes sense, really; if an MMO publisher ever decided that players were infringing their rights by selling in-game items outside the game, eBay has lots and lots of money and would be a prime lawsuit target.”)
[xlviii] See Section 2.4 of the Second Life TOS
[xlix] See Second Life Currency Exchange at .
[l] See “Real Profit in a virtual world” at .
[li] See Second Life Terms of Service at .
[lii] Micro Star v. Formgen, Inc., 154 F.3d 1107 (1998).
[liii] Id. at 1109 (The game included a feature known as a “build editor”, a utility that enabled players to create their own levels.)
[liv] 17 U.S.C. § 101 (1994) The Copyright Act defines a derivative work as a work based upon one or more preexisting works such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is “derivative work”.
[lv] See, e.g. 17 U.S.C. § 106(2) (1994) (A copyright holder enjoys the exclusive right to prepare derivative works.)
[lvi] A MAP file describes the audio-visual display in a given level down the last detail. When a new level is selected that MAP file sends a series of instructions to the game engine which tells the processor to access the art library within Duke Nukem 3D. The art library then provides back instruction on how each pixel on the screen must be colored in order to paint that image.
[lvii] See, e.g. Micro Star v. Formgen, Inc., 154 F.3d 1107, 1110 (1998).
[lviii] The Duke Nukem 3D story itself is a story about a commando type named Duke who wanders around post-Apocalypse Los Angeles, shooting cops with different types of guns and grenade launchers, lobbing hand grenades, searching for medkits and steroids, using a jetpack to leap over obstacles, blowing up gas tanks, avoiding radioactive slime and laying booby traps. See Id. At 1112. The court held that a copyright owner holds the right to create sequels, citing Trust Co. Bank v. MGM/UA Entertainment Co., 772 F.2d 740 (11th Cir. 1985).
[lix] The ownership rights to intellectual property are notable because they are an explicit concession by Linden Lab, with notable qualifications. Although the TOS protects intellectual property rights, these rights are not guaranteed. Due to flaws in the system, some users (whom we might call griefers) have exploited flaws in the system software to allow them to copy the otherwise protected (i.e., items marked “no copy”, “no mod” or “no trans”) creations of other residents. The TOS may assert that these rights are protected, but the system itself is imperfect. This may call for technical as well as legal mechanisms to be installed in order to protect the creator’s rights.
[lx] See “Second Life”, Wikipedia, .
[lxi] Movable Life is a web-based Second Life viewer that allows users to log on to Second Life and perform some basic functions. Unlike Second Life, however, Movable Life’s TOS claims ownership of all intellectual property created by residents using the Movable Life client. “Movable Life’s Terms of Service Claim Ownership of Intellectual Property Created Using Viewer”, at .
[lxii] The State of Play: Law, Games, and Virtual Worlds, Jack M. Balkin and Beth Simone Noveck, New York University Press, 2006, pp. 168-169.
[lxiii] As of December 2007, Linden Lab’s home page had links to land auctions “powered by eBay technology” ; see also, (“Traditionally, virtual items are banned from eBay; however, the company said Monday that it would exempt items from the popular Second Life virtual world. The change in policy comes from a reconsideration of what the company considers a “game.” An eBay spokesperson says that there is a question as to whether or not Second Life is actually a game, so it will refrain from pulling listings for the time being.”)
[lxiv] See Second Life Terms of Service at .
[lxv] Id.
[lxvi] Id.
[lxvii] Id.
[lxviii] Id.
[lxix] See generally “Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent”, Christina L. Kunz, Maureen F. Del Duca, Heather Thayer and Jennifer Debrow, ABA, The Business Lawyer, 57 Bus. Law. 401.
[lxx] Id. at 1.
[lxxi] ProCD, Inc. v. ZEIDENBERG, 86 F.3d 1447 (1996), 1449-1450.
[lxxii] Id. at 1449.
[lxxiii] See “Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent”, Christina L. Kunz, Maureen F. Del Duca, Heather Thayer and Jennifer Debrow, ABA, The Business Lawyer, 57 Bus. Law. 401.
[lxxiv] See also Moore v. Microsoft, 741 N.Y.S.2d 91 (App. Div. 2002) (holding click-through agreement not a deceptive trade practice) and Scott v. Bell Atlantic Corp., 726 N.Y.S.2d 60 (App. Div. 2001) (holding click-through agreement not false or deceptive conduct, a breach of warranty, or a breach of contract in spite of enthusiastic Web site advertising that was at odds with the disclaimers in the accompanying agreement).
[lxxv] See “Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent”, Christina L. Kunz, Maureen F. Del Duca, Heather Thayer and Jennifer Debrow, ABA, The Business Lawyer, 57 Bus. Law. 401.
[lxxvi] Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 683, 254 Cal.Rptr. 211, 765 P.2d 373.
[lxxvii] Restatement Second of Contracts, section 205, p. 99.
[lxxviii] Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 768, 206 Cal.Rptr. 354, 686 P.2d 1158; Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818, 169 Cal.Rptr. 691, 620 P.2d 141,
[lxxix] Membership Rules, Western Racquet Club, Brookfield, Wisconsin.
[lxxx] See Second Life Terms of Service at .
[lxxxi] Membership Rules, Western Racquet Club, Brookfield, Wisconsin.
[lxxxii] Cincinnati Bengals 2007 Club Seat Licensing Agreement, available at .
[lxxxiii] Lambeau Field Ticket, available at .
[lxxxiv] See Carma Developers (Cal.), Inc. v. Marathon Plaza Development California, Inc. (1992) 2 Cal.4th 342, p. 376.
[lxxxv] See Bragg v. Linden USDC E.Pa., May 30, 2007.
[lxxxvi] For a factual discussion of the Bragg matter, see Part IV (b), infra..
[lxxxvii] “Even if an agreement is procedurally unconscionable, ‘it may nonetheless be enforceable if the substantive terms are reasonable’”. Bragg v. Linden.
[lxxxviii] Id.
[lxxxix] Id.
[xc] Id.
[xci] See Second Life Terms of Service at and , a blog which tracks changes to Second Life’s TOS.
[xcii] Meaning issues with real estate in virtual worlds, and real [big] issues with virtual property generally.
[xciii] “Second Life’s First Millionaire”, Rob Hof, Business Week, at .
[xciv] Id.
[xcv] Id.
[xcvi] See “American Apparel's Virtual Clothes”, Reena Jana, Business Week, at .
[xcvii] See .
[xcviii] See .
[xcix] “Beyond Second Life: Companies thinking twice about the popular virtual world are finding more security and flexibility in alternatives”, June 11, 2007 at .
[c] See “Second Life”, Wikipedia, .
[ci] See .
[cii] See “Second Life”, Wikipedia, .
[ciii] I Leslie Suzukamo, Geek Island Odyssey: Best Buy Enters Virtual World of Second Life, Creating an Online Playground for Geek Squad Agents and Technophile Visitors, St. Paul Pioneer Press, (Apr. 7, 2007), at 1C.
[civ] See what is/land pricing.php
[cv] .
[cvi] The case was initially brought against the Defendants in the Court of Common Pleas of Chester County, Pennsylvania, the county in which the Plaintiff resides. Defendants were granted their motion for removal to federal court and within a week moved to compel arbitration. See Bragg v. Linden Opinion at 2.
[cvii] See Section 2.6 of the Second Life TOS at .
[cviii] Linden Lab uniformly holds land auctions that frequently result in sales for more than $1,000.00 U.S. currency. See Bragg v. Linden Counterclaim (Preliminary Statement) at para 19.
[cix] See Bragg v. Linden Complaint at para 139-159 (“The representations of Defendants were false as to the virtual land, property items and intellectual property rights and violated at a minimum, 73 P.S.§201-2(4): (v), (ix) and (xxi).”).
[cx] Id. at para 160-170 (“One who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.”)
[cxi] Id. at para 171-177 (“The acts, statements and material omissions of Defendants constitute violations of this act.”)
[cxii] Id. at para 178-181.
[cxiii] Id. at para 182-194 (“California Civil Code §1812.600, et. seq., governs auction transactions in or originating from State of California”).
[cxiv] Id. at para 195-202 (“Plaintiff held all title, interest and possessory rights to the virtual land, items and intellectual property…that was acquired from Defendants”).
[cxv] Id. at para 203-210 (“Plaintiff possessed all intellectual property rights in the virtual items he created in Second Life and had the exclusive rights to exploit such copyrights and/or intellectual property rights.”).
[cxvi] Id. at para 211-223 (“Defendants agreed to provide all right, title and interest to the virtual land and contrary to such agreement did not provide such right, title and interest.”).
[cxvii] Id. at para 224-229 (“Defendants not only took Plaintiff’s virtual property from him, but also resold it to the highest bidder.”).
[cxviii] Id. at 230-239 (“There is, implied in every contract, a covenant of good faith and fair dealing”).
[cxix] See Second Life TOS para 4.1(iii).
[cxx] Id. para 4.1(vi).
[cxxi] Id. para 4.1(viii).
[cxxii] See Bragg v. Linden Answer at para 7.
[cxxiii] Id. at para 11. See also Defendant’s denial that intellectual property rights extend to virtual land in para 21.
[cxxiv] Id. at para 48.
[cxxv] Id. at para 8.
[cxxvi] Id. at para 80 (“[V]irtual land is the output produced by Linden’s computer software and hardware.”). To further support the claim that only a license of access is provided to Second Life users, one need only to turn to the Second Life TOS. Before signing the TOS, a user must acknowledge that Linden Lab is a “service provider” (Section 1.2 of TOS). The service that they provide is access to any software provided by Linden Lab, the online environments that support the service, including, without limitation, servers and access to websites and services from the domain and subdomains of (Section 1.1 of TOS). In order to access this service, one must establish an account (Section 2.1 of TOS). Linden Lab has the right at any time, however, to take that account away, refuse any and all current or future use and provide no refund with respect to the assets in that account (Section 2.6 of TOS). Moreover, the TOS explicitly states that a user has a non-exclusive, revocable license to use Second Life while they are in compliance with the Terms of Service (Section 3.1 of TOS).
[cxxvii] See Bragg v. Linden Answer at para 8.
[cxxviii] See Bragg v. Linden Complaint at para 80.
[cxxix] Id.
[cxxx] Id.
[cxxxi] Id.
[cxxxii] Id. at para 16.
[cxxxiii] Id. at para 12.
[cxxxiv] Id. at para 20.
[cxxxv] See Bragg v. Linden Complaint at para 17 and the Bragg v. Linden Answer at para 17.
[cxxxvi] See Bragg v. Linden Counterclaim at para 12.
[cxxxvii] Id. at para 13.
[cxxxviii] See (“Online gamer in China wins virtual theft suit”).
[cxxxix] Id.
[cxl] Id.
[cxli] Id.
[cxlii]Note that Mr. Bragg was an attorney handling much of his litigation himself. He posted a message on his website seeking donations to defray the cost of his litigation.
[cxliii] See “Rampant Trademark Infringement in Second Life Costs Millions, Undermines Future Enforcement”, May 4, 2007 at .
[cxliv] See Second Life Terms of Service at .
[cxlv] See 17 USC § 106.
[cxlvi] See Second Life Terms of Service at .
[cxlvii] Id.
[cxlviii] As noted above, Linden Lab has explained its position regarding intellectual property in the Bragg pleadings, but the TOS has yet to be amended to reflect these revelations.
[cxlix] A “copybot” is a program which allows the making of copies without permission from the creator. Copybots are banned in Second Life, but Linden Lab has yet to fully rid them from the program.
[cl] Alderman created the first virtual sex bed allowing for avatar intercourse through built-in sex position animations. The Amsterdam sim — a digital city — Alderman’s creation sold for $50,000 on eBay. “Stroker Serpentine, Second Life's Porn Mogul, Speaks”, March 30, 2007, Wired at .
[cli] See “Six Major Second Life Content Creators Sue Alleged Copyright Infringer in NY Federal District Court”, October 27, 2007 at .
[clii] Id.
[cliii] Eros, LLC, Linda Baca, Teasa Copprue, Shannon Grei, Kasi Lewis and De Designs, Inc. v. Simon, Complaint, at .
[cliv] Id.
[clv] Id.
[clvi] Id.
[clvii] Id.
[clviii] See .
[clix] Alderman was originally unable to confirm the real world identity of Volkov Catteneo, as Catteneo refused to supply this information. “SL Business Sues for Copyright Infringement”, July 3, 2007, Reuters/Second Life at . In compliance with a subpoena filed by Eros, Linden Lab and PayPal provided Catteneo’s IP address to Alderman. Alderman identified the real world person behind Catteneo to be Robert Leatherwood, but Leatherwood denies that he is Catteneo. “Defendant Named in Eros Intellectual Property Suit”, October 25, 2007 at .
[clx] “SL Business Sues for Copyright Infringement”, July 3, 2007, Reuters/Second Life at .
[clxi] See .
[clxii] See “John Norman”, Wikipedia at .
[clxiii] See “Gorean Copyright Fight”, Second Life Herald at .
[clxiv] Philip Rosedale is the creator of Second Life. See “Philip Rosedale”, Wikipedia at . Robin Linden (a.k.a. Robin Harper in real life) is the Senior Vice President of Community in Second Life. See “Robin Linden”, Wikipedia at .
[clxv] See Section 4.3 of the Second Life TOS.
[clxvi] With respect to the DMCA process, Second Life’s webpage states that when a valid DMCA notification is received, Linden Lab will respond by taking down the offending content. Once the content is removed pursuant to the DMCA process, Linden Lab will take reasonable steps to notify the owner of the removed content so that a counter-notification may be filed. If Linden Lab receives a valid counter-notification, it typically restores the content in question. If, however, the original notification provider informs Linden Lab that a legal action has been filed seeking a court order to restrain the alleged infringer from engaging in the infringing activity, it will not restore the content. See .
[clxvii] See “Six Major Second Life Content Creators Sue Alleged Copyright Infringer in NY Federal District Court”, October 27, 2007 at .
[clxviii] Id.
[clxix] See 17.U.S.C. § 512, which limits the liability of service providers such as Linden Lab provided they take certain actions when notified about alleged infringements.
[clxx] See “Basic Facts About Trademarks”, Website of United States Patent and Trademark Office at .
[clxxi] 15 U.S.C. §22, et. seq.
[clxxii] 15 U.S.C. §1116.
[clxxiii] See generally Title 17 of U.S.C.
[clxxiv] See Second Life Terms of Service at .
[clxxv] See 15 U.S.C. §1114; The Lanham Act.
[clxxvi] There is a heated debate surrounding this issue and is beyond the scope of this article.
[clxxvii] 15 U.S.C. §22, et. seq.
[clxxviii] Eros, LLC, Linda Baca, Teasa Copprue, Shannon Grei, Kasi Lewis and De Designs, Inc. v Simon, Complaint, at .
[clxxix] See “Rampant Trademark Infringement in Second Life Costs Millions, Undermines Future Enforcement”, May 4, 2007 at .
[clxxx] Id.
[clxxxi] See “Expensive Luxury Knockoffs in Second Life Raise Trademark Stakes”, June 21, 2007 at .
[clxxxii] See Second Life Terms of Service at .
[clxxxiii] See “Trademark Issues in Second Life,” Aldon Hynes, November 3, 2007 at .
[clxxxiv] Id.
[clxxxv] Id.
[clxxxvi] Id.
[clxxxvii] See Second Life Terms of Service at .
[clxxxviii] 15 U.S.C. §1114.
[clxxxix] See “Coca-Cola gives away its trademark in SL?”, Reuters/Second Life, June 28, 2007 at .
[cxc] SLExchange is a marketplace for buying and selling goods run by Second Life. It claims to offer more convenient and time efficient shopping than many Second Life Stores. See .
[cxci] See “Coca-Cola gives away its trademark in SL?”, Reuters/Second Life, June 28, 2007 at .
[cxcii] See “Coca-Cola Releases Trademark to Second Life Merchants”, at . Trademark releases and implied licenses to use (if a company knew its trademark was being infringed but did nothing about it) might raise issues of trademark dilution, but this topic is beyond the scope of this paper.
[cxciii] There are vendors within Second Life that rent space, perform development and provide numerous other services.
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