When Worlds Collide – Virtual Property and Real World Legal Systems

May 25, 2008

1. Introduction


Virtual worlds are computer-generated, persistent online environments in which large numbers of interconnected users, represented by their ‘avatars’, socialise, participate in events and activities and, most interestingly from a legal perspective, create and trade virtual property like character accounts, currency, items and virtual real estate.[1]


The most ubiquitous examples of virtual environments are multiplayer online games such as the metaverse ‘Second Life’ and the Massive Multiplayer Online Role Playing Game (MMORPG) ‘Everquest’. Their popularity has grown at an explosive rate,[2] while the presented opportunities for cross-border social and commercial interaction still raise challenging, unresolved multi jurisdictional legal issues, which relate to, and have the potential to affect, every aspect of in-world life and commerce.


For those who are unfamiliar with virtual worlds, these problems may seem largely theoretical or of little economic relevance. However, in-world trade and intellectual property infringement (among other matters) have the potential to extend into – and have significant impact on – the real world. To exemplify, more than US $ 1 million change hands among Second Life’s residents on an average day[3] and the residents of Everquest produced with their labours in the year 2001 a GNP per capita somewhere between Russia and Bulgaria and became the 77th richest ‘nation on earth’.[4]


This article examines several pitfalls associated with virtual worlds from the nature and ownership of in-world assets and jurisdictional issues to the application of contract, and finally the use, exploitation and protection of intellectual property compared with the use and protection of virtual property.


2. Nature and Ownership of In-World Assets

2.1 Introduction


It is common ground that the existence of virtual property has to be recognised by reason that most virtual worlds allow for an in-world property model,[5] but the nature and ownership of virtual property is still contentious.


Although it is designed to operate like real world property,[6] virtual property is in the most popular virtual worlds governed under a system where initial rights are allocated to traditional intellectual property right holders, and subsequent rights are delineated by licence agreements[7] called End User Licence Agreements (EULAs) or Terms of Service (TOS).[8]


These licence agreements are virtual contracts that players must ‘agree to’ before entering a game environment,[9] by clicking an affirmation that they have read and accepted the terms and conditions outlined in the EULAs.[10] Virtual world operators have been systematically abolishing any emerging virtual property rights which game players may be entitled to by the use of EULAs.[11] However, virtual property is ‘somehow different’. It is not only that virtual property rights merely apply to rivalrous goods,[12] so that one person’s use of the code will impede another person from using it, they are also different in their scope of protection.[13] While virtual property rights (like real property rights) provide the right to use, exclude others from, and alienate or transfer objects, intellectual property rights only prohibit (simplified account) copying or producing of similar ideas, expressions, or products.


This section looks at the current reign of the EULAs and the underlying normative conflict over the allocation of property rights to conclude whether virtual property rights are a meaningful concept to compensate for the existing imbalance in resources and rights.


2.2 Intellectual Property

2.2.1 End User Licence Agreements


The vast majority of virtual world operators openly oppose or deny virtual property rights so that (e.g.) the MMORPG Everquest, developed and released by Sony Online Entertainment (SOE), includes the following in its EULA.[14]


Clause 8 states that SOE “retain[s] all rights, title and interest, including, without limitation, ownership of all intellectual property rights … [and that users] have not and will not acquire or obtain any intellectual property or other rights … in any character(s), item(s), coin(s) or other material or property, and that all such property, material and items are exclusively owned by [SOE].”


Whereas the operator of Second Life, Linden Lab (LL), purports to accept and even foster users’ property rights.[15] However, the ownership rights are also far from clear. From a strict contractual point of view, users may not own their in-world creations at all.


Clause 3.3 of LLs TOS state that “[LL] retains ownership of the account and related data, regardless of intellectual property rights you may have in content you create or otherwise own … Your intellectual property rights do not confer any rights of access to the Service or any rights to data stored by or on behalf of [LL].” In clause 5.3 LL specifically states that all “content, currency, objects, items, scripts, equipment, or other value or status indicators … may be deleted, altered, moved or transferred at any time for any reason in [LL’s] sole discretion.”


2.2.2 Enforceability of End User Licence Agreements


Although the customers/residents of virtual worlds are from all over the world, the game servers are often operated in North America. In order to avoid the application of foreign jurisdictions/laws, various operators determine in their EULAs that only the law of the state of their incorporation/domicile is valid,[16] but due to the principles of international private law the application of US law is not exclusive.


Notwithstanding the general domicile jurisdiction rule, the EC Regulation 44/2001 provides special jurisdiction rules in respect of consumer contracts, because the bargaining power can be assumed to be unequal[17] and, once the courts have jurisdiction, the Rome Convention on applicable law would apply, whereby even an expressed choice of law cannot deprive the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence.


Albeit the general acknowledgement of ‘click-through’ agreements,[18] one might argue that the EULAs of virtual worlds are unenforceable, since users have no choice but to accept the terms of these complicated contracts or be excluded from the virtual world altogether (Unfair Terms in Consumer Contracts Regulations 1999, regs 3(1) and 5). Furthermore, one might consider that users deserve to earn property from their labour in virtual worlds so that depriving them of any property rights without the opportunity to bargain might be unreasonable (within the meaning of the Unfair Contract Terms Act 1977, s 11).


2.2.3 The Use, Protection and Exploitation of Intellectual Property


Despite these doubts, we still have to cope with the reign of the EULAs. Considering intellectual property rights, this section focuses on copyright protection, since virtual worlds mainly consist of copyrightable images and text.[19]


Whatever the applicable jurisdiction[20] and applicable law[21] might be, copyright protection is afforded for ‘virtual items’ because the underlying code is a literary work and the digital images and building designs are artistic works (eg Copyright, Designs and Patents Act (CDPA) 1988, ss 1(1), 3(1)(b); 4).[22] However, the copyrightable work has also to be original (substantial degree of skill, labour and judgement) and fixed in a tangible medium.[23] All of the mentioned virtual objects are either temporarily stored in a random access memory (RAM) copy[24] or in internal storage on the server, but only some of these items will also reach the required level of originality. While most MMORPGs only offer their users a predetermined set of expressions to create content,[25] the metaverse Second Life provides an environment, where the abundance of creativity and user originality might reach the level of originality to be accorded copyright protection. However, the decisive question will be whether or not these intellectual property rights will have any extraordinary consequences.


It is conceivable that users without intellectual property rights are not allowed to sell their virtual items, because the practice of purchasing items for virtual coins not only requires the transfer of in-world assets but also the copying of object code representing those assets from one computer to another, from one server to a computer or from the computer’s hard drive to its random access memory. Considering the copying of copyright protected code, the selling user without intellectual property rights would be a secondary infringer (CDPA 1988, s 24(2)) and the purchasing users a direct infringer (s 17).[26] However, one might argue that the transfer of a virtual sword or gold piece from one user to another does not duplicate the item but instead moves it, as it were, from one folder to another, involving a procedure of trivial copying without any economic purposes.[27] Nevertheless, according to s 17(6), even ‘transient’ or ‘incidental’ copying infringes copyright if done without authorisation. Furthermore, any user with intellectual property rights should be allowed to sell ‘his/her’ virtual items.


However, not only intellectual property right holders trade virtual property. In theory this would require that every user has a relatively extensive knowledge of intellectual property law in order to determine what virtual property s/he can legitimately own and transfer. In conclusion, there is a growing demand not only to overcome the existing imbalance in resources and rights but also for legal protection and certainty.


2.3 Virtual Property

2.3.1 Rivalrousness, Persistence and Interconnectivity


‘Virtual property’ is rivalrous, persistent and interconnective. Joshua A.T. Fairfield says,


The rivalrousness gives me the ability to invest in my property without fear that other people may take what I have built. The persistence protects my investment by ensuring that it lasts. Interconnectivity increases the value of the property due to network effects – not least of which is the fact that other people’s experience of my resource may be such that it becomes desirable, and hence marketable, to them”.[28] 


Nevertheless, it is necessary to consider normative accounts of property to determine whether or not those virtual entities claimed as property are in reality property.[29] Regardless of the basic infinity of cyberspace, those property theories are applicable, because no modern virtual world allows for unlimited resource creation.[30] Virtual worlds mirror established characteristics of real world systems like the scarcity of resources in order to attract large numbers of paying users and be profitable.


2.3.2 The Property Theories


Some argue that due to the principles of property, virtual property cannot be said to exist. It has no physical being, it is not the result of the individual’s labour and it does not enhance the welfare of society. A closer look at these principles suggests that virtual property may be as real as any other. In real terms, virtual property may be no more than a collection of data on a server,[31] but the law has long recognised the ownership rights of intangible saleable interests,[32] such as leases of land and intellectual property.


According to Jeremy Bentham’s ‘felicific calculus’ and the utilitarian theory,[33] private property interests should be granted if it would increase overall utility and social welfare.[34] Bearing in mind that individuals place a high value on virtual objects they have created using time and money, and that society is just an aggregation of various individuals, this property theory provides an adequate justification for the creation of property.[35] In comparison, the altered personality theory[36] claims that property rights are related – either as necessary conditions for, or as connected to – human rights such as liberty, identity and privacy. Considering the strong emotional connection between the different individuals and their avatars, [37] this theory seems also to favour the granting of property rights in virtual worlds.


However, it is difficult to derive property rights in virtual objects by applying the Lockean labour-desert theory. This theory generally confers property upon those who labour to distinguish that which is appropriated from the common of natural resources;[38] but there are several related questions for application to be answered first, such as what constitutes the common, what counts as labour and what is the content of the property right acquired.


The primary problem for user claims to virtual property is the common, because most resources are produced (labour) and owned by the virtual world provider.[39] Often, even new, user-created content is simply a combination of these existing in-world products.[40] However, the virtual world of Second Life is rather different. There the common user has the opportunity to cultivate barren resources, and s/he is also enabled to upload, self-created virtual objects of previously unowned raw material from outside the given three dimensional modelling tools into the virtual world. To the extent that the world lies barren until the population creates value, there is a natural common of resources.[41] However, just because something is uncultivated does not imply that it is commonly owned, even if people are invited to cultivate it. Otherwise, users could claim property where labour creates value, [42] even if resources were previously owned.


Furthermore, in the context of the process by which one distinguishes goods from the common, labour is merely treated as a strict technical term. The requirement cannot depend on sweat, pain, or displeasure, because property would be then contingent on unhappiness and property pleasurably gained would be no property at all,[43] but nowadays even sportspeople get paid fortunes to play games.[44] Therefore, the operator has a strong labour-based claim to his world and the products he creates within them, but where users create entirely new in-world products from unowned resources, the claim to those products is much weaker.


After all, there are strong normative grounds for the acknowledgement of property rights in certain virtual assets. However, the results of this analysis do not confirm that virtual items must therefore be treated in a way equivalent to that of real-world property,[45] but suggest that the claim for property rights is sometimes stronger than the claim against it.

2.3.3 The Use and Protection of Virtual Property


Considering the current imbalance in resources and rights, the critical question is whether the allocation of virtual property would have any consequences for virtual worlds. First of all, property law would eliminate unconscionable, unreasonable contractual restraints on alienation and other disadvantageous contractual terms, it would limit the fragmentary effects of dead-hand control (through rules like the rule against perpetuities), and would not enforce novel contractual burdens on property.[46] Furthermore, different common law torts like nuisance and trespass to land as well as property offences (eg theft) in criminal law are conceivable. Finally, it has to be mentioned that the recognition of virtual property rights does not mean the elimination of intellectual property. Ownership of a thing is always separate from the ownership of the intellectual property embedded in the thing.


3. Conclusion


These recent developments illustrate the significance of changing social and legal conceptualisations of intellectual property and virtual assets. Although users sometimes contribute in meaningful ways to new formulations of intellectual property, they remain highly disadvantaged in their fight for ownership rights.[47] Furthermore it is not very promising to attempt to emulate community rules, like property law, tort law, criminal law, and even constitutional law via contract law, because in contrast to the sine qua non of property law, private agreements do not bind third parties. The acknowledgement of property rights would further help to delineate along these lines of property and contract law.



Stephan Buck is an LLM student at Queen Mary College, University of London.

[1]      Meehan, M. “Virtual Property: Protecting Bits in Context” Richmond Journal of Law and Techology 13, 7 (2006): 1.  

[2]      Available at <http://mmogdata.voig.com>.

[3]      Britton, B.CJ. “Does virtual reality alter the rules” Solicitors Journal 151, 365 (2007): 1214 at 1214.

[4]      Castronova, E. “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier” (CESifo Working Paper No. 618, December 2001): 1 at 33.

[5]      Horowitz, S.J. “Competing Lockean Claims to Virtual Property” Harvard Journal of Law and Technology Vol. 20 (2007): 1 at 2.

[6]      Fairfield, J.A.T. “Virtual Property” Boston University Law Review 85 (2005): 1047 at 1049.

[7]      Above at 1050.

[8]      EQ-EULAs available at <http://help.station.sony.com/cgi-in/soe.cfg/php/enduser/std_ adp.php?p_faqid=16210> and SL-TOS at <http://secondlife.com/corporate/tos.php>.

[9]      Grimes, S.M. “Online multiplayer games: a virtual space for intellectual property debates?” New Media & Society 8 (2006): 969 at 981. 

[10]     To simplify, EULA will substitute for both EULA and TOS.

[11]     Castronova, E. “The Right to Play” New York Law School Law Review 49 (2004): 185 at 196.

[12]     Above 6 at 1054.

[13]     Above 6.

[14]     Above 8.

[15]     Above 8.

[16]     Above 8. 

[17]     Sachdeva, A. “International jurisdiction in cyberspace: a comparative perspective” Computer and Telecommunications Law Review 13, 8 (2007): 245 at 251; Etablissements Somafer SA v. Saar-Ferngas AG (33/78) [1978] E.C.R. 2183. 

[18]     Devici, H.A. “Consent in online contracts: old wine in new bottles” Computer and Telecommunications Law Review 13, 8 (2007): 223 at 227, Klang, M. “Avatars: From Deity to Corporate Property. A philosophical inquiry into digital property in online games” Information, Communication Society 7, 3 (2004) 389 at 390. 

[19]     Adrian, A. and R. Gordon “Intellectual Property or Intangible Chattel?” Journal of International Commercial Law and Technology 1, 2 (2006): 52 at 56.

[20]     Gutnick v Dow Jones & Co Inc [2002] HCA 56.

[21]     Sterling, J.A.L. World Copyright Law. London: Sweet & Maxwell 2003, Chapter 9.32.

[22]     Above 19 at 52.

[23]     University of London Press v University Tutorial Press Ltd [1916] 2 Ch. 601.

[24]     Above 19 at 57.

[25]     Midway Manufacturing Co. v Artic International Inc., 547 Federal Supplement 999 (N.D. III. 1982).

[26]     Stephens, M. “Note: Sales of In-Game Assets: An illustration of the continuing failure of intellectual property law to protect digital-content creators” Texas Law Review 80 (2002) 1513 at 1515.

[27]     Dibbell, J. “Owned!: Intellectual Property in the Age of Dupers, Gold Farmers, eBayers, and Other Enemies of the Virtual State” in J.M. Balkin and B.S. Noveck (eds), The State of Play. New York: University Press 2006, 137 at 139.

[28]     Above 6 at 1054.

[29]     Lastowka, F.G. and D. Hunter “The Laws of the Virtual Worlds” California Law Review 92 (2004): 1 at 57.

[30]     Id at 41, dissent above 6 at 1064-1065.

[31]     Above 1 at 29.

[32]     Above 6 at 1089.

[33]     Bentham, J. An Introduction to the Principles of Morals and Legislation (1789), (J.H. Burns and H.L.A. Hart eds) London: Athlone Press, 1970, 12-13.

[34]     Posner, R.A. Frontiers of Legal Theory. Cambridge: Harvard University Press, 2001, 95 – 141.

[35]     Above 29 at 59.

[36]     Hegel, G.W.F. The Philosophy of Right (trans. T.M. Knox, 1967) available at <http://www.iep.utm.edu/h/hegelsoc.htm>.

[37]     Above 29 at 65.

[38]     Locke, J. Two Treatises of Government: The Second Treatise of Government, (P. Laslett eds) Cambridge: University Press 1988, § 27.

[39]     Above 5 at 10.

[40]     Above 25.

[41]     Above 5 at 12.

[42]     Waldron, J. “Two worries about mixing one’s labour” 33 The Philosophical Quarterly (1983): 37 at 37.

[43]     Above 5 at 12.

[44]     Above 29 at 62.

[45]     Above 11 at 191.

[46]     Merrill, T.W. and H.E. Smith “Optimal Standardization in the Law of Property: The Numerus Clausus Principle” Yale Law Journal 110 (2000) 27-29.

[47]     Above 9 at 987.