Virtual World Litigation Arrives In The Real World<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:of... ?>

By Eric Sinrod,

More and more people are participating in virtual worlds on the Internet, and where people go, litigation follows. A recent case, Bragg v. Linden Research, raises a number of real world legal issues that are now cropping up in virtual worlds.

The case centers on virtual property maintained on a virtual world on the Internet. The plaintiff claimed an ownership interest in this virtual property. He also asserted that the defendants, the operators of this virtual world, unlawfully confiscated his virtual property and denied him access to their virtual world.

The case raises new questions about rights and obligations that emanate out of the relationship between the owner and creator of a virtual world and its resident-customers, as noted by the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:sm... ?>Pennsylvania federal trial judge. And as the judge correctly pointed out, while the property and the world where the property are found are virtual, the dispute is quite real.

Are you following along so far? Perhaps not, if you have not delved into a virtual world yet. Thus, some background relating to virtual worlds, the defendants and the plaintiff is beneficial here.

The defendants, Linden Research and its CEO, operate a multiplayer role-playing game set in the virtual world called Second Life. Participants create avatars to virtually represent themselves. Second Life is populated by hundreds of thousands of avatars that interact with each other in myriad ways.

The plaintiff stated in his lawsuit that many people currently are living large portions of their lives forming friendships, acquiring property, entering into contracts, establishing business relationships and setting up social organizations in virtual worlds such as Second Life.

Setting itself apart from other creators and operators of virtual worlds, Linden announced in late 2003 that it would recognize full intellectual property protection for the digital content created and owned by participants in Second Life. Consequently, Second Life avatars may buy, own, and sell virtual goods of all types. Of significance to this particular case, avatars may purchase virtual land, make improvements to that land, and rent and sell land to other avatars for profit.

Virtual property is purchased using the virtual currency of lindens. Lindens are purchased using real US dollars. Indeed, Linden maintains a currency exchange that sets an exchange rate between lindens and US dollars.

The Linden CEO engaged in efforts to publicize nationally Linden's recognition of rights to virtual property. He even created his own avatar and held virtual town hall meetings in Second Life where he discussed the purchase of virtual land.

The plaintiff signed up and paid to participate in Second Life in 2005. He claimed that he was induced into investing in virtual land by the press announcements of Linden and its CEO, and he asserted that he paid real money to Linden as tax on his virtual land. By mid 2006, the plaintiff had purchased numerous parcels of land as well as other virtual items.

A dispute occurred when the plaintiff then acquired a parcel of virtual land called Taessot for $300. He claimed that Linden sent him an email advising him that Taessot had been purchased improperly as a result of an exploit and that as a result Linden took Taessot from him. The plaintiff also claimed that Linden then froze his account and effectively confiscated all of the virtual property and currency that he had maintained in his account with Second Life.

Because of this, the plaintiff sued Linden and its CEO in federal court in Pennsylvania, asserting various causes of action, including unfair trade practices, conversion, interference with contractual relations and breach of contract. The defendants responded with procedural arguments, seeking to dismiss the case for lack of personal jurisdiction, and attempting to compel arbitration of the dispute.

The Linden CEO argued that the federal court in Pennsylvania did not have personal jurisdiction over him. The court disagreed, finding that the CEO participated in a national campaign to induce persons, including the plaintiff, to visit Second Life and purchase virtual property. This campaign created sufficient contacts between the CEO and Pennsylvania for the court to exercise personal jurisdiction, according to the judge.

Linden and its CEO also argued that the plaintiff was required to arbitrate his dispute pursuant to the plain wording of the Second Life terms of service. Indeed, the plaintiff conceded that he clicked on an accept button referencing the mandatory arbitration language. Still, the judge concluded that the arbitration provision was not enforceable.

The judge came to this conclusion because the arbitration clause is a contract of adhesion, meaning that it is presented on a take-it or leave-it basis. To gain access to Second Life, a participant has no choice but to accept the arbitration language. And while it is true that Second Life is not the only virtual world on the Internet, and that the plaintiff could have chosen to go elsewhere, the judge found it significant that Second Life is the only virtual world to grant property rights in virtual land to its participants. The judge also deemed important the fact that the mandatory arbitration language is not mutual; while participants are required to arbitrate their grievances, Linden provides other remedies for itself with respect to its concerns about participants.

As we can see, real disputes can occur when it comes to virtual worlds, and those disputes are leading to litigation in real courts. Perhaps at some point a virtual judiciary will be set up in a virtual world so that disputes can be decided by judge and jury avatars. Who knows, we could be heading in that direction at some point. Of course, whether real disputes emanating from virtual worlds could be effectively and conclusively resolved in a virtual courthouse remains to be seen.

Eric Sinrod is a partner in the San Francisco office of Duane Morris LLP