The Good Life?

June 8, 2007

‘When a man is tired of London, he is tired of life; for there is in London all that life can afford’.  Samuel Johnson.


Johnson’s words may well have rung true for centuries, but where do you go when you’re tired of real life itself?  For millions of people, the answer has been to visit not London, but Linden Lab’s ‘Second Life’ – the online virtual world which has been hitting headline after headline in the mainstream media for the past year.  All human (and apparently non-human) life is there, giving participants and observers alike an insight into 21st Century existence – in a situation where that existence is apparently unencumbered by laws, rules and regulations. 


In just four years, Second Life has morphed from what was essentially a cult community to an online presence in which commercial organisations are clamouring to engage.  For the legal community, not just those lawyers whose online avatars offer legal advice within the virtual world itself, but also for those of us at our desks in the ‘first life’, Second Life has a special interest; the interest being that it brings together many of the most important issues arising out of the Web 2.0 movement and acts as one of the most important test beds for the interaction between the law of the real world and the sometime anarchy of the virtual world.


What Second Life is


For those who have not become Residents, a brief description of Second Life is probably welcome.  Second Life is an online virtual world developed by Linden Research Inc (generally known as ‘Linden Lab’s) in the US.  Users download a program provided by Linden Lab which enables them to interact with other users in Second Life (known in-world as ‘Residents’) using a customisable online avatar.  Avatars can communicate, trade, travel throughout the online world, do business, have fun and interact in a number of ways (many of which are less than suitable for discussion in the SCL magazine!). 


Two important factors in Second Life help to account for its popularity and differentiate it from many other online worlds.  First, Second Life has its own currency (the Linden Dollar) and economy.  Residents can create goods and services and sell them for Linden Dollars to other Residents.  So far, so good – this is little different from other online communities and online games (such as World of Warcraft where the currency is of the usual ‘bags of gold’ variety).  The differentiating factor however is that Linden Dollars are exchangeable on currency exchanges for US dollars.  So unlike many online games and worlds which actively discourage (if not ban, however unsuccessfully) the sale of online property, equipment and the like for hard cash, Linden Lab actively encourages this activity and provides or enables the exchange facilities to enable Residents to do so.


The second important differentiating factor is that, unlike the vast majority of other online games and worlds, Residents own the intellectual property rights in the things they create.  Moreover almost everything within the world has been created by Residents, making this a prime example of ‘user generated content’.  Residents can create virtual buildings, vehicles and all manner of items (including customisations for avatars) using a basic modelling tool.  These items are one of the main sources of economic activity within the virtual world.  Residents can also use more elaborate tools to create items, videos, music and such like outside Second Life and then upload them into the Second Life world.  This has allowed a number of live music performances to take place within Second Life and has led to it becoming a showcase for people who use it to demonstrate their real world talents.


The combination of these two factors means that not only are people showcasing their talents on Second Life, many are now making a real-world living from their virtual world activities.  There are a large number of exclusively in-world businesses being formed and operated, together with increasing participation in the Second Life world by well-known real-world organisations which have identified the value of the virtual world as a compliment to their more traditional operations.  American Apparel, amongst others, has opened a virtual store and there are a large number of virtual classrooms for universities and colleges and other educational establishments.  Indeed things have gone so far that, in May 2007, Sweden became the first country to open a Second Life embassy promoting the image and culture of Sweden and many of the US Presidential candidates have recently held online rallies 


On the face of it, it looks like Second Life is too good to be true – a community of technologically literate, creative and innovative people interacting in a virtual environment and being permitted to keep the fruits of their labours and make real life money from them.  The huge rise in the number of Residents over the comparatively short timeframe suggests it has a winning formula.  But there are signs that Linden Lab may be encountering problems which are exacerbated by the very factors which have led to its current success – and the way in which it will deal with these issues will be illuminating to both Residents and non-Residents alike. 


Some legal problems


There have been a number of instances over the last couple of years where these issues have come to the fore.  Taking the issue of IP ownership first, there is no doubt that there is a huge community of people making real-life money from their IP rights in their online world creations.  Residents own the intellectual property rights in their creations but do not own the ‘objects’ themselves.  An interesting case arose with dress designer, Veronica Brown, who made a real-life living (to the tune of approximately US $60,000 in 2006) from the sale of virtual lingerie and formal wear sold from her electronic store within Second Life.  In November 2006, the rather precarious position on which her livelihood was based became exposed when a program which copied animated objects (‘Copybot’) appeared within the online world.  Copybot allowed the creations of Residents to be copied and sold by others and as a result Veronica Brown and many others launched a general strike within Second Life until the issue was dealt with. 


The problem for Ms Brown and others within Second Life was that, if their creations were cloned, they lost their value and other Residents would no longer wish to pay for them.  In any other online game or world, making unauthorised copies would be an infringement of the publisher’s (not the player’s) copyright as invariably the publisher owns all intellectual property rights within the game.  To users of more traditional online games and virtual worlds, the existence of a Copybot would be little more than an ‘annoyance’.  However, within Second Life, the copies infringed Veronica’s copyright.  Moreover, her creations clearly have a real world value so, rather than merely an annoyance, this was a matter of great importance to her and to huge numbers of other Residents, all of whom were at risk from and could potentially lose money (and their livelihoods) if this situation was allowed to continue.  Whilst they could force Linden Lab to delete infringing copies from their servers under the notice and take down procedure in the Digital Millennium Copyright Act, the only way they could obtain financial compensation would be through the courts and, given the value of individual virtual items, this would hardly be worthwhile.


Linden Lab’s approach was interesting.  Given its wish not to adjudicate on copyright disputes (particularly because the ethos of Second Life is that it is a world created and run by Residents) and the difficulty of constantly having to respond to notices claiming infringement, they relied on their Terms of Service and banned the offending user’s account.  However, in the longer term, they have stated a wish to put in place a better system of identifying creators of in-world content, leading theoretically to situations where copyright owners can bring infringement claims against other users personally.  Ultimately they want to develop a system to enable residents to enforce intellectual property covenants within certain areas so that inhabitants will effectively self-police infringement within the virtual world. 


This discussion leads on to the interesting question of which laws actually apply to this online environment.  Take gambling: there are a number of casinos operated by Residents within Second Life.  Since Linden Dollars are used for gaming transactions and are convertible to real life currency, the question arises as to whether the existence and operation of Second Life casinos are contrary to US gaming laws.  The Second Life Terms of Service state that Second Life currency is a ‘limited licensed right available for purchase or free distribution at Linden Lab’s discretion and is not redeemable for monetary value from Linden Lab and it is regarded as ‘fictional currency’, as such the currency is ‘licensed content’ for which the licence can be revoked by Linden Lab at any time (and the Terms of Service allow Linden Lab to do this).  But it is currently being argued that Second Life casino operators may be conducting illegal gambling activities as the relevant statutes cover circumstances in which ‘something of value’ is wagered and Linden Dollars have such ‘value’ because they are convertible into US dollars.  Whilst Linden Labs is not itself an online gambling operator, it is at least debatable that they may have some liability for aiding and abetting Internet gambling activity or as a processor.  The FBI has been exploring Second Life’s casinos at the invitation of Linden Lab who are waiting for guidance and the outcome of this remains to be seen.  Again, Linden Lab could rely on its Terms of Service which prohibit any illegal activity and would allow them the right to terminate user’s accounts.


Despite Linden Lab’s wish not to interfere in the activities of Residents, it is clear that their methodology for dealing with problematic issues is to rely on their Terms of Service to deal with offending users and, if necessary, terminate their accounts.  Linden Lab has the right at any time and for any reason to suspend or terminate a user’s account and also an irrevocable right to delete user generated content (notwithstanding the ownership of that content by the user).  But this is being challenged in the US by an attorney, Marc Bragg, in a case where he identified means to purchase land in Second Life below market rates.  After purchasing thousands of US dollars worth of virtual property, Linden Lab terminated his account causing the loss of his business venture.  Under the Terms of Service, his only remedy was to invoke a costly arbitration procedure, but this was held to be unconscionable by the court.


The case continues, but the fact that Linden Labs so clearly relies on its rights under the Terms of Service to deal with potential problems makes this one to watch, not only by Linden Lab but also other operators of virtual worlds and online games.  If the Terms of Service do not ultimately stand, Linden Lab will need to employ much more creative methods of ensuring that when real life laws apply in their virtual world, they have the means to deal with it.  It could be a long and arduous task.  Of course, if they should eventually tire of Second Life, there’s always London.



Gillian Cordall is a Partner in the IP & Technology Department at Maclay Murray & Spens LLP, London.