In December Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit attended a conference sponsored by Creative Commons, the nonprofit alternative copyright foundation, to promote his new book, Not a Suicide Pact: The Constitution in a Time of National Emergency. Over the course of the question-and-answer session, Posner gave the assembled group his thoughts on topics ranging from the USA Patriot Act to copyright protection in a digital world. The judge's words were punctuated by the occasional heckler throwing exploding fireballs from the sky. Posner was also distracted by a 6-foot raccoon. The giant animal claimed to be an intellectual property attorney from Washington, D.C.
"I like your tail," Judge Posner told him.
The event took place entirely within Second Life, a three-dimensional online virtual world created in 2003 by Linden Research, Inc., a small San Francisco start-up doing business as Linden Lab. The 67-year-old judge's appearance in the world via a bespectacled avatar, or digital character, highlighted Second Life's growing significance as both social forum and marketing tool. The questions asked by Posner's audience for the most part were very serious. What place does the fair use doctrine have in Second Life? How should property rights be distinguished from IP rights in a virtual world?
More than 2.5 million people have visited Second Life, with 15,000Ð20,000 playing at any given time. Each person has an avatar that they use to walk, fly, or teleport around islands full of clubs, shops, and businesses that other users have created. A big part of Second Life's popularity stems from the possibility of virtual sex: By adding digital genitals to the standard avatar's crotchless body, users can simulate sex without real-world limitations like disease or gravity. (A separate Teen Second Life exists for those under 18 years old.) Second Life is often grouped with online games known as MMORPGs, or massively multiplayer online role-playing games, such as Blizzard Entertainment's 7 millionÐplayer World of Warcraft. But Second Life differs from other MMORPGs in several crucial respects that have both helped to make it a success and opened it to a host of new legal disputes in an area still largely uncharted by the courts.
Instead of showy graphics and rapid-fire gameplay, Linden chief technology officer Cory Ondrejka decided that Second Life would offer its players something no other video game company had: intellectual property rights over their own creations within the virtual world. Players can endlessly customize their avatars and set up businesses on the virtual land they buy. In a 2003 article published in the New York Law School Law Review, Ondrejka wrote that the results of Linden's IP policy "will be closely watched for years to come."
He was right, but it is the presence of real money invested in Second Life that has attracted so much attention. Second Life residents can buy and sell each other's creations using so-called Linden dollars. Where other games like Warcraft have long had unsanctioned gray markets where players buy and sell virtual goods for real cash, Linden made the market a fundamental aspect of Second Life. It is an economy that currently trades more than $1 million each day, at a floating exchange rate of about 270 Linden dollars to the U.S. dollar. Players can use a credit card or PayPal to buy and sell currency through the company's LindeX currency exchange. They can also use third-party online exchanges from companies like IGE Ltd., or even eBay Inc., to trade their virtual goods and currency.
Second Life's vibrant economy has encouraged corporate America to get virtual. MTV Networks Company opened a club in Second Life. Then American Apparel, LLC, opened a T-shirt store, selling its digital, sweatshop-free clothing to avatars for about one U.S. dollar. Toyota Motor Corporation sells digital Scion cars, which it encourages residents to customize. International Business Machines Corporation moved in last December and bought 12 new virtual islands, opening all but one to the public and reserving the last as a business meeting place for IBM employees.
These companies pay Linden a commission on transactions and rent on the virtual land they occupy, often hiring third parties to build out their virtual real estate. Their presence also prefigures a future for Second Life that goes beyond entertainment and small business. Its founders see this online world as the next phase of the Internet, the evolution from Web 2.0's social networking sites and wikis, or collaborative Web sites, to Web 3.0, where Web surfers who want to buy a book on Amazon.com would walk into a 3-D virtual bookstore instead of clicking through the Amazon site. Even if Second Life is eventually eclipsed by some future competitor, the legal precedents it helps establish will affect the future of online development.
Linden's Ondrejka and its CEO Philip Rosedale, both of whom declined to comment for this story, have publicly made much of the fact that their terms of service agreement "recognizes residents' right to retain full intellectual property protection for the digital content they create in Second Life, including avatar characters, clothing, scripts, textures, objects, and designs." Writing Linden's IP policy fell to vice presidentÐinternational and general counsel Gene Yoon, a former attorney at Venture Law Group who joined Linden after serving as GC at wireless company Airespace, Inc. (Yoon also declined to comment for this story.) The policy says these rights are enforceable both within the game and offline, for both nonprofit and commercial ventures. As Linden's Web site states: "You create it, you own it--and it's yours to do with as you please."
Sounds simple, but what does that mean in practice? The Linden terms of service agreement has little precedent, says Kenyon & Kenyon associate S. Gregory Boyd, who coedited Business & Legal Primer for Game Development. "It isn't like movie film law, which has been established for decades. We're looking for precedent and doing the best we can." That uncertainty opened the door to Linden's first lawsuit. In May 2006 Marc Bragg, a solo attorney in West Chester, Pennsylvania, and onetime Second Life denizen, filed a complaint against Linden in the court of common pleas of Chester County. Bragg had discovered a loophole in the game's virtual land auction system and bought properties on the cheap before other players could make a bid. Linden eventually caught on and kicked him out. Bragg sued, arguing that the company was blocking him from $8,000-worth of in-game assets, the "land" that he owned.
Bragg's lawyer, Jason Archinaco, is also an online game enthusiast. Apartner in Pittsburgh firm White and Williams, Archinaco says thecase highlights a discrepancy in the Second Life terms of service. WhileLinden management espouses a magnanimous view of its users' IP, its end-userlicense agreement reserves the right to shut down any user's account at anytime.
"There's no way, under the law, that you can get away with the forfeiture penalty clause that they think they have," says Archinaco.
Many Second Life residents say that Bragg's land purchases were wrong, and they agree that Linden was right to cancel his account and put his land back on the market. "I think I speak for the majority of Second Life players when I say . . . this guy is an idiot," wrote user Kadre North, using his avatar's pseudonym, in a message board. "He presented his case on our forums . . . but was shouted down by 70 percent of the community." But Archinaco calls the company's actions a troubling precedent. "Assume [Bragg] is the worst human being on the entire planet," says Archinaco. "Does that mean they can go back and take the property he owns, sell it to the highest bidder, and keep the money for themselves? No."
Linden's attorney, Andrew Soven, a partner at Reed Smith in Philadelphia, has filed to remove the case to an International Chamber of Commerce arbitration in San Francisco, as specified by a provision of the Second Life terms of service. Relying on the ICC gives Linden recourse in the event of complaints brought by Second Life users in other countries, but it also helps resolve disputes without setting federal precedent. Soven would not comment on the case, citing the pending litigation. On January 4, Eastern District of Pennsylvania judge Eduardo Robreno certified federal jurisdiction for the case, acknowledging that damages could exceed $75,000. A hearing on Linden's motions to dismiss CEO Rosedale from the case and compel ICC arbitration is set for February 5.
After the Bragg case was filed, Linden updated its terms of service agreement to explicitly state that the company retains ownership of player accounts and related data, "regardless of intellectual property rights you may have in content you create or otherwise own."
"[Linden] should be commended for giving [the IP policy] a shot," Kenyon & Kenyon's Boyd says. "There was no other way to feel it out without testing it." But the innovative policy is due for an update, says Boyd, starting with the way Linden management presents it to the public. He says that Linden has run into this legal trouble because the sound bite version of their IP policy--"you create it, you own it"--which garnered the company its publicity, doesn't reflect the reality of what the company is trying to do. "The way to look at their promise for IP is that you have certain IP rights as long as you play within our other rules," Boyd says.
Gary Morris, a Kenyon & Kenyon partner, is more blunt. "[Second Life's terms of service agreement] was a position on IP made by someone who didn't necessarily understand the implications of what ownership means," he says. "This whole notion in Second Life is [that users] get stuff that [they] own. That's okay and all, but you can find yourself stuck if you make that representation."
But Roxanne Christ, a Latham & Watkins partner whose video game clients include Konami Digital Entertainment Inc., adds that Linden must make a long-term commitment to its players' IP rights. Users have virtual property rights, she says: "So if you're going to tell someone that they've got to pay for something, and they spend time [creating a character], you have to give them some way to cash out if they leave without breaking the rules."
The stakes are getting higher: Opening shop in Second Life is the corporate marketing trend du jour, and in December, Linden statistics showed 90 avatars earning more than $5,000 each month. Also in December, a German woman, Aileen Graef, announced that she had earned $1 million from Second Life real estate investments by her avatar, Anshe Chung, building on an initial investment of $9.95 two years before. Anshe Chung Studios Ltd. now has 20 employees in Germany and China developing virtual real estate and creating fashion designs.
But residents such as Chung who create outfits, jewelry, or pets for sale to other avatars faced a day of reckoning on November 13, when a new program called CopyBot was unleashed. An open source group called libsecondlife had been creating new software tools for Second Life with Linden's blessing, including one program that could make temporary clones of other avatars. When an unknown programmer altered the group's open source code to compile a program to make permanent clones, CopyBot was born. Within hours of its first reported use, designers and shop owners stopped selling en masse to avoid the risk of copied inventory. Second Life's economy ground to a halt.
Ondrejka wrote an official response on the Linden blog on November 14, noting that "copying does not always mean theft." This seemingly neutral stance on CopyBot garnered nearly 1,200 comments from worried users. "This product makes content creators very vulnerable," wrote user Sachi Vixen, using the name of her avatar. "[Linden Lab], you really need to give a little more thought for those talented people who create content and help to make Second Life what it is." Another player, Troy Vogel, wrote: "What's the long term solution to the technical problem? How is it going to be implemented? . . . How will [Linden Lab] proactively protect its users' copyrighted content? These major issues are still up in the air."
Ondrejka responded that, as on the Internet, it will never be possible to prevent data that is drawn on a screen from being copied. "While Linden could get into an arms race with residents in an attempt to stop this copying, those attempts would surely fail and could harm legitimate projects within Second Life," he wrote on the blog.
Then Ondrejka encouraged residents to think of ways to respond to infringement beyond the Digital Millennium Copyright Act. The 1998 law criminalized technology used primarily to circumvent copyright protection, such as Napster, but also limited the liability of online providers for infringement by their users, as long as they take down infringing content when notified. Ondrejka wrote that Linden would add time stamps to show when users had created their content as a way of distinguishing fakes from original creations, and he encouraged the use of Creative Commons attribution licenses, which allow free copying and modification of works, as long as they are attributed in the manner specified by the author or licensor.
Within days of the CopyBot outbreak, players were forced to click through a new agreement that specifically banned the use of such software. Protesting shopowners have reopened their businesses, and the most visible evidence of the CopyBot's disruption is the ubiquity of anticopying measures that can slow activity in Second Life. As avatars move about the virtual world, they now frequently encounter scripts, or software code, placed near shops to disable the CopyBot before it can be used. The scripts appear as text shouted at residents, and now punctuate conversations between players--Second Life's equivalent of e-mail spam.
But behind the scenes the controversy had a more lasting effect. Peter Ludlow, a University of Michigan philosophy professor and editor of The Second Life Herald, an online tabloid that tracks news inside the virtual world, calls it "an attitude of extreme suspicion" toward Linden that many Second Life content creators now share. "It was a breach of faith," he says. Residents now realize the tenuousness of their work. The value of their IP is diminished by the uncertainty surrounding its protection.
Furthermore, Second Life's potential copyright and trademark problems go beyond CopyBot. In Second Life, "copying of brand names and designs is rife," says Philip Cooper, a British IP attorney whose firm, Crossguard, maintains a virtual office there. "You can buy a virtual Ferrari or DKNY fashion garment."
Will the same brand owners that have spent millions trying to crack down on counterfeit goods in real-world venues like China be forced to take the fight to Second Life, too? Kenyon & Kenyon's Boyd says Second Life and other MMORPGs are enjoying a honeymoon period when it comes to IP infringement and other types of regulation. "In the next decade, these worlds will certainly garner more attention as their population grows and as the value of virtual property within the worlds increases," he says. "That increased attention will almost certainly result in companies searching those games more diligently for infringement."
With all these legal controversies, it's no wonder that some lawyers are setting up shop in Second Life. Cooper's avatar, Philip Gloucester, wears a suit and tie, and appears to be a close digital representation of the man himself, albeit with more digital hair. Cooper was one of the first IP attorneys to open a virtual office in Second Life, where he solicits online and offline clients for his U.K.Ðbased firm, Crossguard. He typically spends his working hours in the real world, playing in Second Life at night. Crossguard's spacious virtual office has Old Master reproductions hanging on the walls, and recently had a Christmas tree and a Santa Claus out front. Potential clients press a button in the office to page Cooper via e-mail.
(Not every self-described law office in Second Life is what it purports to be, however. Avatar attorney Onoto Arbusto advertises a practice called Second Life Legal Services. But in teleporting to Arbusto's office this December, a visitor discovered instead a gingerbread "Kinky Cottage" and found his own avatar forced into a suggestive pose on all fours. As throughout the Internet, adult content is sometimes difficult to avoid in Second Life.)
Cooper's more conservative office attracted the attention of other IP lawyers entering the virtual realm. Stevan Lieberman, a partner in D.C. IP boutique Greenberg & Lieberman, has had an office in Second Life since March 2006. He met Cooper online, and the two now send offline referrals to each other. They're also generating business within Second Life. Lieberman has written standard business contracts for two clients in Second Life, programmers he met through their avatars. He spoke with one of his clients by phone; the other matter he handled exclusively via Second Life and e-mail. He created a special payment structure for that client, accepting 90 percent of his bill in U.S. dollars, and the rest in Linden dollars. Lieberman used the virtual cash to furnish his Second Life office, a wooden octagon floating 300 feet in the air.
What has taken more of Lieberman's time, however, is trying to create a Second Life arbitration system, to better handle internal disputes. One complicating factor is jurisdiction. Linden currently operates under California and U.S. law. British IP attorney Cooper says that virtual worlds like Second Life need a form of international arbitration. "If I get . . . an Australian operating a business in Second Life, asking me, a U.K. attorney, how he can best protect his business within Second Life, how do I answer him?" he says, citing one query that he has received. But Cooper sees a model in the uniform dispute resolution policy (UDRP) for Internet domain names. Created in 1999 by the Internet Corporation for Assigned Names and Numbers (ICANN) in cooperation with the World Intellectual Property Organization, the UDRP created an international solution to issues like cybersquatting of domain names that were difficult or impossible to resolve in regional courts.
Cooper, Lieberman, and other interested avatars, including the Second Life Bar Association and many non-lawyers, are now working together to formalize online arbitration as a required first step to handle Second Life disputes, without resort to real courts and their costs. Together they are lobbying Linden to include arbitration in its terms of service agreement. Meanwhile, Lieberman's group is introducing its proposed arbitration into the virtual world, hoping that other users will try it out and find it fair and useful.
Kenyon & Kenyon's Boyd applauds the effort: "It's too complicated to resolve these [disputes] outside of [Second Life]. Hopefully you're going to see arbitrations."
Until the company creates its own dispute resolution system, Lieberman says that disgruntled users can threaten real-world court battles against fellow residents and Linden itself to protect their assets. "Second Life is no different than the rest of the universe," says Lieberman. "People will go where they have the greatest advantage."
On the other hand, Ludlow of The Second Life Herald points out that some activities are no more streamlined online than they are in reality.
"Who's gonna get paid to sit there and listen to these problems?" he asks. "Lawyers' time is just as expensive in the world and out of the world." Perhaps Judge Posner will volunteer.
