Virtual law and you

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Businesses in recent years have increasingly turned to virtual worlds for opportunities in advertising, recruiting, and online expansion. As real-world money and people migrate online, new questions are being raised about the legal implications of virtual behaviour.

In a forthcoming book titled “Virtual Law”, cyberlaw scholar Greg Lastowka explores the future of virtual crime and how real-world legal cases involving property rights, criminal activities, contractual duties, copyright and trademark laws, have emerged from disputes in virtual worlds such as Second Life.

An associate professor at the Rutgers-Camden law school, Lastowka spoke with iTnews about his book, and what virtual law might mean for businesses.

What are the business potentials of virtual worlds?

Today, most virtual worlds are marketed as entertainment services. However, there seems to be an increased interest lately in virtual worlds that are oriented toward less structured and more social experiences.

In environments like Second Life, users have much more control over the world and there are no game goals that guide participant behavior. Virtual worlds like Second Life are not marketed as games, but as platforms where individuals and companies might pursue their own goals and businesses.

For instance, in Second Life, people sell personal services, engage in advertising, and seek profits from transactions in virtual property, all using a virtual currency that can be exchanged for real currency. So it seems the business opportunities in virtual worlds vary depending on whether you have a game world or a more social world.

Game worlds are primarily businesses for their creators and are usually built around a monthly subscription model and the sale of "expansion" software and additional services. Often, game worlds prohibit third parties from creating businesses on their platforms.

More social worlds might pursue subscription models as well, but they might also sell players virtual property, like the furniture that is sold to players in the world of Habbo Hotel. They also pursue advertising revenues.

The Second Life model of an open virtual world is perhaps the most interesting. Second Life sees itself as a platform on which third parties will make investments and try to build their own businesses. So the business model of the provider is tied to the business models of the participants.

What are the legal risks of virtual worlds for businesses?

Most subscribers to game worlds have rather small-scale monetary investments in them, so it seems doubtful that players would resort to litigation. But some do, and providers of game worlds generally design end-user license agreements and terms of service as a first line of defense.

Players must click through the agreements before installing the software and the game companies claim this is a binding contract. So far, game companies have been very successful in defending these licenses and contracts in litigation.

Providers of more open worlds, like Second Life, face potentially more significant legal risks because they attract greater and more concentrated investments. When a company or an individual has invested several thousand or more dollars in doing business in a virtual world, they will be more likely to bring a court challenge if they feel the game company has jeopardized their investments.

Additionally, because the virtual world acts as a host, it may find itself in the middle of disputes between competing investors. For instance, one business operating in the virtual world might claim that another business in the world infringed its trademarks or copyrights. In that case, they may want the platform owner to assist them in stopping the infringer. This might put the platform owner in a tricky position.

Finally, those who invest in more open virtual worlds may be taking substantial legal risks. As I said, the contract terms drafted by virtual world providers are generally very favorable to their interests. They make it difficult for third-party investors to make claims if troubles occur.

Obviously, if you are making business investments on a platform that you do not control and where the owner offers no real assurances, this can be risky.

Have there been any past legal cases relating to virtual worlds?

Yes, there are some cases now on the books, although the number is small, given the novelty of virtual worlds. I know of fewer than twenty lawsuits, though I imagine the number may be somewhat larger than that given that many suits have not been reported.

The cases I know of have dealt with various disputes: intellectual property issues, computer abuse issues, and enforcement of contracts, for instance. There was even one case that dealt with the issue of whether player volunteers should be understood as game company employees.

What happened in the most significant of these cases?

I do not know which case is really the most significant, but the recent case of Bragg v. Linden Research has attracted a good deal of attention. The Bragg case involved a participant in Second Life who happened to also be a lawyer. He sued Linden Research, the owners of Second Life.

Bragg alleged he had lost several thousand dollars worth of virtual property investments when the platform owner cancelled his account. He alleged that the company had essentially stolen or destroyed his personal property and he deserved compensation.

The owners of Second Life countered that their contract provisions controlled the dispute. According to the terms of the contract, the dispute needed to be submitted to arbitration in California.

Also, the contract drafted by the company seemed to say, essentially, that Bragg had no real interest in the virtual property. Linden also claimed that Bragg had exploited their software in order to purchase part of the property he alleged was confiscated. So they brought a counterclaim alleging that Bragg violated computer hacking law.

The suit was settled after Second Life brought a motion asking that the arbitration provision be enforced. The court denied that motion. The court stated that the term would not be enforced because it was "unconscionable". In other words, the court found the provision procedurally and substantively unfair to Bragg.

It is interesting that the court also seemed interested in reaching the deeper issues presented by the case. In its opinion on the arbitration provision, it said: "Ultimately at issue in this case are the novel questions of what rights and obligations grow out of the relationship between the owner and creator of a virtual world and its resident-customers."

What are some topics your book will cover - can you give us a preview of your favourite of these topics?

The book is going to tackle several issues. There will be some general material on the basic structure and types of virtual worlds, the history of the technology, and how virtual worlds work as businesses. There will be some more theoretical material on how law adapts to new technology and particularly internet technologies. I will also have discussions of virtual world litigation and how it has raised interesting questions in various legal fields, such as criminal law and intellectual property law.

One of my favorite topics is the question of how legal rules relate to rules of games. Strangely enough, the law seems to recognize and give some deference to private and traditional game rules. There is even a United States Supreme Court that, in deciding the interpretation of a federal statute, makes a serious distinction between the essential and non-essential rules of golf.

I find that real interesting. In the case of game-like virtual worlds, understanding the idea of a "jurisdiction of play" might be one key to making legal sense of these environments.

What has drawn your interest to the legal implications of virtual worlds?

One of my first experiences with a computer was when I was in elementary school in the late 1970's. As part of an enrichment program, I was allowed to play the text-game "Adventure" on an old mainframe computer that was programmed with punch cards. That game was the inspiration for a host of early virtual worlds.

I started programming similar games on an Apple II computer before I was a teenager. So you might say I have had a long fascination with virtual worlds.

As a law student, I was generally interested in questions about the interface of law and technology. In law school, I wrote a student publication on the new legal issues arising around search engines.

When I realized that there were also interesting issues being raised by online games and virtual worlds, I was eager to write about that as well. Luckily, I met Professor Dan Hunter (who is teaching now at the University of Melbourne), and we co-authored one of the first law review articles on law and virtual worlds.

In the past few years, I have explored about a dozen virtual worlds. Still, I think I am still something of a "noob". While really enjoy exploring the environments and learning about them, I am not a dedicated participant in any of these worlds at present. My family simply would not let me spend twenty hours a week in a virtual world – like many participants do.

What do you expect of the law and virtual worlds in the near future?

I expect the law in this area will get more interesting. Virtual worlds are interesting because they combine together aspects of creative fiction, games and real communities. Many of the rules of these environments are going to be flexible as both a matter of law and technology.

As bandwidth and participation both increase, we are going to see more interesting legal issues being raised. If we see the development of more virtual worlds that operate as open platforms for third-party investments, I imagine litigation activity will increase as well.

In the early days of the World Wide Web, I think few people realized how important e-commerce and internet law would turn out to be. I am not certain that Amazon.com will be replaced by a virtual bookstore (two dimensional space is sometimes easier to navigate), but we can be fairly confident that, over the next few years, we will see more courts and legislatures looking more carefully at disputes taking place in virtual worlds.
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