1. Virtual Worlds
Robert Blamires
Digital Media Lawyer, Technology Law Group
Field Fisher Waterhouse LLP
robert.blamires@ffw.com
Presentation to Cambridge University
24 February 2009

2. Contents
• Introduction to virtual worlds and Second Life
• Applications
• Commerce
• Key legal issues
• Spotlight on intellectual property
• Conclusions

3. Virtual Worlds: Introduction
• Virtual Worlds
• Some goal-based
• Some free-form
• Characterised by persistence, interactivity, large
numbers of simultaneous users
• Second Life
• Informed estimates suggest US$2 billion real
money on MMOG in-world transactions between
users in 2007

4. Virtual Worlds: Introduction

5. Virtual worlds: Second Life
• One of many synthetic
worlds
• Established in 2003
• Now more than 16.5
million registered users
• More than 8 million
unique residents
• 112 million user hours
per quarter
• More than US$33 million
spent per month in-world

6. Second Life: Real life presences
• Universities
• Religious institutions
• Nicolas Sarkozy
• Unofficial US Presidential Campaigns
• The Maldivian Embassy, the Swedish Embassy
• Dublin, Venice, Knightsbridge, Tokyo

7. Second Life: Real life businesses and brands

10. Second Life: Applications
• Real time collaboration / communication between
multiple participants
• Political, social, cultural and artistic activities
• Games and entertainment
• Training and education
• Researching new concepts / products
• Selling goods and services

11. Second Life: Applications
Real time collaboration/communication

12. Second Life: Applications
Political, cultural, social and artistic activities

13. Second Life: Applications
Games and entertainment
[Picture of games and entertainment]

14. Second Life: Applications
Training and education

15. Second Life: Applications
Training and education

16. Second Life: Applications
Training and education

17. Second Life: Applications
Training and education

18. Second Life: Applications
Training and education

19. Second Life: Applications
Training and education

20. Second Life: Applications
Researching new concepts / products

21. Second Life: Applications
Researching new concepts / products
[Pic of researching new concepts]

22. Second Life: Applications
Researching new concepts / products

23. Second Life: Applications
Researching new concepts / products

24. Second Life: Applications
Second Life:
Transactions may take place into the services
Selling goods and real world

25. Second Life: Commerce
• In World: Consumer to consumer
• In World: Business to consumer
• In World: Business to business
• Into the real world
• In secondary markets

26. Second Life: Commerce
In-world: consumer to consumer

27. Second Life: Commerce
In-world: consumer to consumer

28. Second Life: Commerce
In-world: business to business

29. Second Life: Commerce
Into the real world

30. Second Life: Commerce
Into the real world

31. Second Life: commerceCommerce
Second Life:
Into the real world
Transactions may take place into the real world

32. Second Life: Commerce
Secondary markets

33. Second Life: Commerce
Payments
Transactions can be paid for:
• ‘in-world’ in Linden $
• ‘round world’ via transactional website from SL
hyperlink, generally in US $
Linden $ are exchangeable for US $

34. Second Life: Commerce
Applicable rules
Which rules apply to Second Life commerce?
• Technology
• Second Life Community Standards
• Behavioural guidelines (the ‘Big Six’): Intolerance, Harassment,
Assault, Disclosure, Indecency, Disturbing the Peace
• Second Life Terms of Service
• Vendor contractual terms imposed in world and via
transactional websites accessed from Second Life
• Resident custom and practice?
• Applicable law (the law doesn’t stop on entry)

35. Second Life: Commerce
Applicable rules
Applicable law?
• Challenging area
• Affected by:
• nature of issue at hand – contract, tort, crime
• where contracts are involved, whether dealing with a consumer
and/or on standard terms, and
• willingness of local courts to exercise extra-territorial jurisdiction
• Complicated by:
• anonymity, and
• lack of jurisdiction information

36. Legal issues
1. Ownership of assets
2. Consumer protection
3. Regulated activities
4. Employment
5. Tax
6. Competition
7. Content liability
8. Privacy
9. Crime
10. Intellectual property

37. Legal issues
Compounded by:
• Anonymity
• Global nature
• cross-border issues
• lack of jurisdictional information
• Problems of enforcement

38. Legal issues (1): Ownership of assets
• Nature of in world assets and transactions
• Ownership of assets
• “Second Life is a 3-D virtual world entirely built and
owned by its Residents … Because Residents retain
the rights to their digital creations, they can buy, sell
and trade with other Residents.”
(http://secondlife.com/whatis/)

39. Legal issues (1): Ownership of assets

40. Legal issues (1): Ownership of assets
• “Second Life is a 3-D virtual world entirely built and owned
by its Residents … Because Residents retain the rights to
their digital creations, they can buy, sell and trade with
other Residents.”
(http://secondlife.com/whatis) [2007]
• Second Life® is a 3-D virtual world created by its
Residents … Because Residents retain the rights to their
digital creations, they can buy, sell and trade with other
Residents.”
(http://secondlife.com/whatis) [2008]

41. Legal issues (1): Ownership of assets
• Under the Terms of Service
• Users own all IP in content they create
• However, Linden:
• reserves rights to terminate accounts and hold onto
assets without reimbursement
• reserves rights to deny, block or reverse Linden $
transactions, and
• takes broad licences of all IP in content

42. Legal issues (2): Consumer protection
• Application of contract
and general consumer
protection law
• Application of specific
ecommerce and
distance selling
regulations

43. Legal issues (2): Consumer protection

44. Legal issues (3): Regulated activities
• Regulated activities: for example gambling, sale of
prescription medicines, financial services, etc

46. Legal issues (3): Regulated activities

47. Legal issues (4): Employment

48. Legal issues (5): Tax

50. Legal Issues (5): Tax
The Electric Sheep Company
• IRS ruling that ESC “greeters” for its CSI:NY promotion were
“employees” rather than independent contractors
• Under IRS rules, companies must:
• withhold income taxes
• withhold and pay Social Security and Medicare taxes, and
• pay unemployment tax
on wages paid to an employee, but not on wages paid to a
contractor.
• IRS can impose fines, penalties, and back taxes for misclassifying an
employee as an independent contractor

51. Legal issues (6): Competition

52. Legal issues (7): Content liability
• For example, defamation, obscene publications etc

53. Legal issues (8): Privacy

54. Legal issues (9): Crime
• Paedophilia
• Theft
• Phishing
• Hacking
• Fraud

55. Legal issues: Crime (9)
Hacks and cheats – system hacks

56. Legal issues: Crime (9)
Phishing

57. Legal issues: Crime (9)
Consumer fraud – pyramid schemes

58. Legal issues: Crime (9)
Consumer fraud – empty box scams

59. Legal issues: Crime (9)
Consumer fraud – island scams

60. Legal issues (10)
Spotlight on intellectual property
A. IP refresher
B. IP in virtual assets
C. Ownership of IP in
virtual assets
D. IP ‘tour’
E. Recommendations

61. Legal issues (10):
Spotlight on intellectual property
A. IP refresher (1)
• Broad range of legal rights that attach to inventions, software,
artistic and musical works, performances, brands, data bases,
designs etc
• Do not protect ‘ideas’ on their own: only the expression of those
ideas
• Protect inventors, programmers, authors, artists, brand owners
• Generally tradable and transferable
• Generally jurisdictionally specific
• A shield and a sword

62. Legal issues (10):
Spotlight on intellectual property
A. IP refresher (2)
• Monopoly rights
• Ability to exploit
• Right to prevent infringement:
• Injunctions
• Damages
• Seizure / accounting for profits
• Sometimes punitive damages available

63. Legal issues (10):
Spotlight on intellectual property
B. IP in virtual assets
• Typically Copyright and Trade Mark
• Copyright protects:
• Creative and artistic works (eg literature, software, movies,
music, art, photographs, performances, broadcasts and film
and sound recordings)
• In Second Life, copyright will protect virtual buildings and
items, textures, scripts and software, ‘performances’
• Trade Mark rights protect
• ‘signs’ (eg words and logos) used in the course of trade to
distinguish one traders goods and services from others

64. Legal issues (10):
Spotlight on intellectual property
C. Ownership of IP in virtual assets (1)
• Copyright
• Typically copyright owned by creator
• Exception: copyright in works created by employees will be owned
by employer if created in the ‘course of employment’
• Commissioned works!
• Trade Mark
• Registered marks owned by registered proprietors
• Unregistered marks

65. Legal issues (10):
Spotlight on intellectual property
C. Ownership of IP in virtual assets (2)

66. Legal issues (10):
Spotlight on intellectual property
C. Ownership of IP in virtual assets (3)
Second Life® is a 3-D virtual world created by its
Residents … Because Residents retain the rights to their
digital creations, they can buy, sell and trade with other
Residents.”
(http://secondlife.com/whatis) [2008]

67. Legal issues (10):
Spotlight on intellectual property
• Under the Terms of Service
• Users own all IP in content they create
• However, Linden:
• reserves rights to terminate accounts and hold
onto assets without reimbursement
• reserves rights to deny, block or reverse
Linden $ transactions, and
• takes broad licences of all IP in content

68. Legal issues (10):
Spotlight on intellectual property
C. Ownership of IP in virtual assets(5)
• ‘You agree that even though you may retain certain copyright or
other intellectual property rights with respect to Content you
create while using the Service, you do not own the account you
use to access the Service, nor do you own any data Linden Lab
stores on Linden Lab servers …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 Linden Lab.’
• ‘When using the Service, you may accumulate Content,
Currency, objects, items, scripts, equipment, or other value or
status indicators that reside as data on Linden Lab's servers.
THESE DATA, AND ANY OTHER DATA, ACCOUNT
HISTORY AND ACCOUNT NAMES RESIDING ON LINDEN
LAB'S SERVERS, MAY BE DELETED, ALTERED, MOVED
OR TRANSFERRED AT ANY TIME FOR ANY REASON IN
LINDEN LAB'S SOLE DISCRETION … AND WITH NO
LIABILITY OF ANY KIND.’

69. Legal issues (10):
Spotlight on intellectual property
D. IP infringement ‘tour’
• Infringing virtual assets
• Infringing physical assets marketed in Second Life
• Enforcement
• Recommendations

70. Infringing virtual assets

71. Infringing virtual assets
Virtual Worlds: IP Challenges

72. Infringing virtual assets

73. Infringing virtual assets

74. Infringing virtual assets

75. Infringing virtual assets

76. Infringing virtual assets

77. Infringing physical assets marketed in Second Life

78. Infringing physical assets marketed in Second Life

79. Infringing physical assets
marketed in Second Life

80. Infringing physical
assets marketed in
Second Life

81. Infringing physical assets marketed in Second Life

82. Enforcement: Role of the platform operator?
Second Life Terms of Service enable Linden to
take action against IP infringement:
• Users agree not to transmit content that infringes or
violates any 3rd party rights (and Linden may suspend
or terminate their account for breach)
• copyright-infringing materials can be identified and
removed in accordance with Linden Lab’s Digital
Millennium Copyright Act compliance process
But…

83. Enforcement: Role of the platform operator?
Linden’s intervention not necessarily satisfactory, at
least not for all IP owners:
• IP owners lack contractual rights under the Terms of
Service to require Linden to remove infringing content
(the IP owners may not even be Second Life
residents)
• A resource intensive task, therefore
• probably unmanageable, and, in any case
• unlikely to produce solutions acceptable to all
relevant IP owners

84. Enforcement: Role of the platform operator?
• Linden not well placed to determine whether IP
infringement is taking place – Linden is not a
court or authorised dispute resolution body
• Linden unable to provide or enforce financial
remedies
• Platform operator unlikely to be generally willing
or able to provide necessary resolution

85. Enforcement: Eros v John Doe
Possibly the first Second Life copyright infringement claim
Eros created and sold “SexGen” virtual products, including a
virtual bed for $45
“Volkov Cattaneo” selling a similar virtual bed for $15
Eros: “has been damaged, and continues to be irreparably
damaged by the diversion of sales”
Sued for damages equivalent to three
times Cattaneo’s estimated profit.
Suing John Doe…

86. Enforcement: Marvel v Cryptic Studios
Virtual world based on
superhero comic books
Users creating avatars
based on characters
trade marked by Marvel
Trade mark infringement?
Probably not because not
use in commerce

87. Virtual Worlds IP: Recommendations
• Monitor and manage use of your brands and content in
virtual environments
• When building a virtual worlds presence:
• Understand the platform operator’s rights
• Ensure your brands and content are properly
protected
• Beware of having infringement built into your premises
• If selling goods / services in a virtual environment, make
sure you get the IP ownership / licensing right:
• Check you have the necessary rights
• Ensure your IP is protected
• Be careful about what you assign/license

88. Conclusions
• Highly dynamic area – constant technological and business
change
• The law doesn’t stop at the edges of the computer screen – it’s
capable of touching almost everything in virtual worlds, as in RL
• But, jurisdictional uncertainty, relative
anonymity, different rule-sets, and
the inability of law-makers and
regulators to perfectly anticipate
virtual world developments means
laws will not always apply
appropriately or as you’d expect
• And the law can never be totally
future-proof…

89. Robert Blamires
Digital Media Lawyer
Technology Law Group
Field Fisher Waterhouse
e: robert.blamires@ffw.com
Avatar: Declan Shelman