MindArk, the creators of Entropia Universe, recently announced that the Planet Calypso Crystal Palace virtual space station sold at auction for approximately $330,000. The winning bidder was a player who goes by the name Buzz Eric Lightyear. In the two week auction, Lightyear narrowly outbid other players willing to pay over $300,000 for the Crystal Palace. According to the World Records Academy, the Crystal Palace sale set a new record for the most expensive virtual item.

Since there is the ability for the real-world conversion of Entropia Universe currency into US dollars, Lightyear may likely use the virtual space station as a source of real income. As the space station’s owner, Lightyear will have the right to tax players who use the station. The virtual currency obtained from through taxing of other players can easily be converted into real world profits through Entropia Universe’s official bank.

On April 17, 2009 Taser International Inc. (“Taser”) filed a lawsuit against Linden Research Inc. and others containing various claims including trademark-infringement, trade dress infringement, trademark dilution, design patent infringement, unfair competition and RICO violations involving unauthorized sales of virtual versions of Taser’s electric stun guns in Second Life. The suit is entitled Taser International Inc. v. Linden Research Inc., 2:09-cv-00811, and is venued in the U.S. District Court, District of Arizona (Phoenix).

In the complaint, which is more than 100 pages including exhibits, Taser claims Linden Research Inc. and a host of individuals and entities related to Linden Lab including its founder and Chairman Philip Rosedale, as well as its CEO, Mark Kingdon, and CFO, John Zdanowski, are engaging in conduct which is damaging to Taser’s reputation and hurting its sales.

The complaint alleges that Linden and others such as Virtualtrade LLC, are “selling virtual weaponry in a fully fledged copy of plaintiff’s real ones for use in the Second Life computer simulation,”. Taser says the alleged infringement is especially harmful because the online stores selling the virtual versions also sell pornographic and drug related content.

This is an interesting suit since it is the first time a major company has sued Linden Lab for infringement which occurred in Second Life. I have been expecting a suit if this type to be filed for some time now so it will be worth watching. Moreover, because the claims raised by Taser are not based in copyright law, Linden Lab will most likely not be able to base its defense on compliance with the safe harbor provisions of the Digital Millennium Copyright Act.

Much has taken place in the nearly three months since Richard Minsky (SL avatar: ArtWorld Market) commenced a suit against Second Life creators Linden Research for the alleged purpose of protecting his rights in the “SLART” trademark (Registration No. 3,399,258). For those who may not have been following the cases at the heart of this dispute, what follows is a timeline of what has transpired.

• July, 29, 2008: Minsky, representing himself, files an initial complaint against Linden Research, its officers, and other Second Life users in the U.S. District Court for the Northern District of New York.
• August 14, 2008: Minsky files an amended complaint in the U.S. District Court which includes claims that:
  1. Linden has directly and contributorily infringed, as well as diluted, Minsky’s trademark in SLART by refusing to prevent other Second Life users from using the SLART mark;
  2. John Doe (SL user “Victor Vezina”) has directly infringed on Minsky’s SLART mark by using it within Second Life in connection with Vezina’s Second Life art gallery and artist group;
  3. Linden has tortiously interfered with Minsky’s development of SLART Enterprises and publishing of SLART magazine by refusing to acknowledge Minsky’s rights in “SLART,” refusing to remove uses of the SLART mark by other users, and generally trying to “coerce” Minsky into not protecting his rights in the SLART mark; and
  4. Phillip Rosedale, Chairman of Linden, Mitchell Kapor, Member of Linden’s Board of Directors, and Linden itself have engaged in fraud by representing in marketing materials and elsewhere that Second Life would protect users intellectual property rights while declining to do so in the case of Minsky’s SLART mark.
• August 21, 2008: Before responding directly to Minsky’s complaint, Linden files a petition with the Trademark Trial and Appeal Board (TTAB) of the Unites State Patent and Trademark Office (USPTO) requesting the cancellation of Minsky’s SLART registration for fraud, alleging that:
  1. Minsky’s SLART mark is a combination of “SL”, an abbreviation for Second Life used by Linden and other Second Life users, and “art,” a generic and descriptive term;
  2. Minsky misrepresented to the USPTO that SLART is a slang term that does not refer to art within Second Life and that he was unaware of any use of SLART to refer to Second Life art; and
  3. Minsky misrepresented in his application to the USPTO those services which he was using the SLART mark in connection with.
• September 4, 2008: The U.S. District Court awards Minsky a Temporary Restraining Order for ten days prohibiting Defendants Linden et al. from:
  1. making unauthorized use of the SLART mark or encouraging, enabling or condoning infringing use of the mark by others;
  2. hiding the identities of SL users who infringe on the SLART mark;
  3. “harassing” Minsky regarding his contacting of other users Minsky believes are infringing upon his SLART trademark registration; or
  4. claiming ownership, control, affiliation with, endorsement by or relationship to the SLART mark or SLART Enterprises.
• September 10, 2008: Minsky files an Answer to Linden’s petition to the Trademark Trial and Appeal Board which denies those claims alleged by Linden and proffers that the Minsky’s SLART trademark should not be cancelled on the grounds that:
  1. the “SL” mark has become generic and descriptive among the Second Life population;
  2. Linden had not claimed any right in the “SL” mark prior to Minsky’s application to the USPTO to register SLART;
  3. There were more members of the general public that would not have known art was bring created within the virtual world of Second Life then those who would, so the general public would not associate SLART with Second Life;
  4. Linden’s accusations that Minsky committed fraud in his application to register SLART are unfounded;
  5. Linden has and will not be damaged by registration of the SLART trademark; and
  6. Linden has failed to notify the TTAB of the ongoing proceeding in the U.S. District Court initiated by Minsky on July 29th;
• September 12, 2008: In the U.S. District Court case, the parties mutually consent to a more lenient order requiring only that when Minsky brings another user’s alleged infringement of the SLART mark to Linden’s attention, Linden must notify the user of the alleged infringement and direct them to remove it. If the user does not remove their use of SLART from Second Life within three days, Linden must then remove the use itself. In this order it is also important to note that Linden is only required to notify users and remove the user’s content where their use of SLART is in the form of “one word with all letters depicted in a uniform size, font and color.”
• September 19-October 6, 2008: Minsky sends a cease-and-desist letter to Linden to be forwarded to SL user “Tate Wannabe” over use of SLART in the “SLart Show Viewer” which Wannabe is selling. Linden declines to forward the letter or remove the content on the grounds that the object could no longer be found within Second Life and that the letters of SLART are not “in a uniform size” within “SLart Show Viewer,” the “SL” having been in upper-case and the “art” in lower-case.
• October 2, 2008: In response to a motion by Minsky the Trademark Trial and Appeal Board suspends the cancellation proceedings for the SLART trademark initiated by Linden on August 21st pending a final determination in the U.S. District Court case.
• October 10, 2008: Linden files its Answer to Minsky’s August 14th Complaint, denying those claims set forth by Minsky and making a number of counterclaims stemming from Minsky’s registration and use of the SLART mark. Linden’s Answer includes counterclaims against Minsky that:
  1. Minsky’s use of SLART infringes on Linden’s “SECOND LIFE” and “SL” trademark in marks;
  2. Minsky’s use of SLART dilutes the SECOND LIFE trademarks through blurring and tarnishment;
  3. Minsky’s unauthorized use of SLART in commerce constitutes unfair competition and false designation of origin under federal law;
  4. Minsky’s unauthorized use of SLART in commerce constitutes unfair competition and false designation of origin at common law;
  5. Minsky’s trademark registration for SLART was granted improperly and is subject to cancellation as the mark is but a combination of “SL” and “art” which is both generic and infringes on the SECOND LIFE trademark;
  6. Minsky’s SLART registration was granted improperly based on Minsky’s misrepresentations to the USPTO that SLART was a slang term and not in fact used to refer to art in Second Life;
  7. Minsky’s SLART registration was granted improperly and is subject to cancelation based on Minsky’s false statements of his use of SLART in connection with certain services in his trademark application;
  8. Minsky breached the Second Life Terms of Service provisions regarding use of “SL” and other Second Life marks entitling Linden to certain relief it requests; and
  9. As a result of Minsky’s breach of the Second Life Terms of Service Linden is entitled to terminate Minsky’s Second Life account and requests a declaratory judgment from the court that Linden may terminate Minsky’s account.

Looking at this dispute as a whole, what some are finding to be the most interesting part of this controversy is the last counterclaim made by Linden in its October 10th Answer to Minsky’s amended complaint. In its ninth counterclaim, Linden has essentially asked the court to declare that Linden may exercise a power already secured by Linden through its contract with Second Life users, “the right at any time for any reason or no reason to suspend or terminate [a user’s] Account” (Second Life Terms of Service section 2.6). While it would be improper to question Linden’s motives in requesting such an order from the court, it is difficult to see this move as anything other than a post-Bragg effort by Linden to avoid a possibly disastrous misstep. Had Linden wielded the terminating sword against Minsky without the court’s specific approval, the court could order that the user removal be undone. Such action by the court could set a dangerous precedent, one which would call into question the entire ability of publishers to summarily terminate users, an event which most publishers would very much like to avoid. While it is unclear what the future holds for this litigation it is important to keep in mind that conflicts between users and publishers of online games which find their way into the courts have the potential to set precedents which drastically change the fundamental relationship between the two groups for the entire industry.

The dockets and documents in Minsky v. Linden Research before the U.S. District Court for the Northern District of New York and Linden Research v. Minsky before the USPTO Trademark Trial and Appeal Board are available courtesy of Stephen Wu of 3D Internet Law.

With the release of the Spore Creature Creator this past June, gamers clamored to share videos of the monstrosities they could create using the tool, some vulgar, but most just plain funny. With the official release of Spore by Electronic Arts only a month ago, the game community was whipped into frenzy over an entirely different animal propagating itself on their computers. When users installed Spore on their computers, a second program called SecuROM, a Digital Rights Management (DRM) tool meant to prevent piracy, was automatically installed on the user’s computer which would require online authentication and limit the number of times a the game could be installed.

While gamers unhappy with SecuROM were initially limited to leaving 2,500+ less-than-stellar reviews for the game on Amazon.com, at least one user has seen fit to retain counsel and bring a class action against the game’s creator, Electronic Arts. The complaint in Melissa Thomas, an individual, on behalf of herself and all others similarly situated, v. Electronic Arts, Inc. and DOES 1-75 claims that EA misrepresented that the DRM included in Spore was comprised of only online authentication, and further, that users would not have purchased and installed the game had they known that doing so would result in SecuROM being irremovably installed on their machines.

Thomas has alleged that through unfair and misleading business practices in the advertising, marketing and sale of Spore, EA has violated the California Consumer Legal Remedies Act as well as certain provisions of California’s Business and Professions Code regarding Unfair Competition. It is further claimed that EA has trespassed as to the computers of users who have installed Spore by accessing user computers and providing for the installation of SecuROM without the user’s express consent, interfering with the user’s exclusive right to enjoyment of their computer, altering the function of said computer, compromising the computer’s security and forcing the user to expend time and money to remove SecuROM.

Read the Complaint filed September 22, 2008 in the United States District Court for the Northern District of California.

In what is being touted as a Virtual World first, IBM and Linden Lab announced today that a team of avatars comprising researchers from both companies successfully teleported from the Second Life Preview Grid into a virtual world running on an OpenSim server. This is an interesting first salvo toward the concept of Virtual World interoperability that IBM, Linden Labs, Cisco and others have been working toward since last year. According to the information released by Linden Lab, this

“marks the first time an avatar has moved from one virtual world to another, an event with implications for the entire virtual world industry.”

Linden Lab’s Open Grid Protocol, used in the project, is intended to set an open standard for interoperability allowing users to freely move from one Virtual World to another. Ultimately, the concept is to allow Avatars to move as freely between worlds as one may freely move between websites. In the current experiment only the avatar itself was subject to the transfer. The Avatar appeared in a default setting without any Second Life-specific clothing, features or virtual property. While IBM and Linden Lab have not announced any available technology allowing for virtual assets to be transported along with the avatar it is likely that this may be forthcoming. With this development heralds the potential of virtual property being copied from one world into another. Linden Labs seems aware of this eventuality and has stated that

“We want to stress that when it does become possible to move avatars between worlds, we will take the utmost care to protect the rights of Second Life property owners and creators. Linden Lab will not design a system that lets people openly violate the permissions of SL goods and take them to other worlds. We recognize that intellectual property is the engine that drives Second Life, and we are completely committed to preserving the qualities that make Second Life the unique, innovative and dynamic place that it is today.”

As of right now the above referenced technology is experimental and not being made available to all Second Life. While Linden Lab announced that IBM and it were working towards this goal, Linden Lab provided no potential roll-out date for this enhancement. Given the inventiveness of Second Life and other Virtual World residents regardless of Linden Lab’s commitment to protecting users Intellectual Property rights it is likely that violations will occur. It is currently quite difficult to attempt to stem the infringement of Intellectual Property rights in Second Life. While transporting of avatars and virtual assets is a necessary step to bringing Virtual Worlds to the mainstream consumer, it will make protecting the differing levels of Intellectual Property rights in the various worlds even more complex.

I would like to welcome you all to Virtual Judgment. The intent of this site is to discuss the legal and business issues that are quickly arising from the convergence of videogames, virtual worlds and the real world. The current market for the video game and virtual world interactive media industry is 8 billion dollars and is expected to grow to over 30 billion in the next few years. The largest one day opening in entertainment history was the sale of “Grant Theft Auto IV” ($310 million in its first day) and not any blockbuster movie release (Spiderman 2, made only $52 million its first day and $114 million its first weekend). The more this industry expands the more legal issues are being raised. The industry is advancing technology that is on the bleeding edge and the current legal system is poised to be left behind. At this point there is a dearth of legal voices dealing with video game and virtual world law, which is an area of law that it set to explode in the coming years.

The area of law dealing with video games has been referred to as part of entertainment, IP, technology or even interactive media. Regardless of what you refer to it as there are numerous challenges and a myriad of potential issues. From traditional IP and contract rights to character and music licensing this area deals with various areas of law. Moreover, video game issues are frequently in the news dealing with a panoply of issues. Various states have enacted legislation attempting to outlaw violence or obscenity in video games. Many of the various laws that have been passed have been overturned as unconstitutional, but the states keep attempting to pass different iterations. The storytelling elements of video games have led to its categorization as protected under the first amendment speech doctrine in the same manner as books and movies.

In addition to the market for console, P.C. based and online video games there is an expanding industry surrounding virtual worlds – sometimes also called digital or synthetic. Virtual worlds are online games that have evolved from text-based role playing games such as Dungeons and Dragons. The predecessors of the “Massively Multiplayer Online Role-playing Games” (”MMOs”) of today began for the most part in the late 70s and early 80s when various individuals first engaged in the role-playing game behavior online. In the 90s the current state of online MMOs began offering a real-time socially interactive (i.e. social networking) component which was not available on traditional offline console gamming. While the physical space and landscape is simulated in the virtual environment the social interactions are real since virtual characters or “Avatars” in the digital world are controlled and operated by a real person and not just by strict computer code. While these games were originally used mostly as an avenue for play and social interaction, many are starting to be more focused on commerce, research and work related activities. In the last few years MMOs have exploded in usership with some reports stating that 100 million people worldwide are logging on to play in one of the various digital worlds.

Many individuals do not play the game strictly for its virtual entertainment opportunities, but as a way to make money in the real world. Individuals and virtual businesspeople are able to convert their digital earning into real cash through by using existing virtual currency arbitrage trading, converting digital currency to United States cash at the prevailing rate in the same manner that an international currency exchange would. Multinational companies like IBM, Toyota, Starwood Hotels, Reuters, Viacom and others have created virtual world presences to conduct real world business and advertise virtual and real world products.

Every virtual game world comes with an End User License Agreement (”EULA”) which the players must agree to if they wish to play the game. By accepting the terms of the EULA players may waive significant individual rights. The EULA acts like a system of laws for the virtual world creating a “closed world”. This “closed world” is intended to differentiate the virtual world as a game not subject to the real world laws and other requirements. Under the general terms of these EULA there is no sense of private property since the virtual world is wholly owned by the designers and builders. Most EULAs insist that any intangible property or artifacts that exist in the game world are the property of the designers and not owned by the players. The players may accumulate them in the course of the game but merely use them by license of the game designer. Under this argument, if we cede legal control to virtual world property to the game designers and EULA we essentially negate the need to look to laws and governmental interference to protect players’ rights. The protections the EULA claim to grant to the game designers is currently under attack.

On the other hand “open worlds” like the game Second Life have been designed where the barrier between the real world and the virtual world is much more porous. The creation of these “open worlds” is making the questions of rights and obligations much more difficult to resolve in favor of EULA control. In the “open world” of Second Life individual players retain ownership of all the real world rights to their creations in the virtual world. They are considered the owners of all the IP involved and created by them and can do with it what they will, so to speak. If the “open world” trend continues and is adopted by more and more game designers then there will be a significant need to regulate and protect the IP ownership. Moreover, as stated major corporations like IBM, GM and others have created their own virtual world presence. They are using the virtual world as a place to advertise, market and sell their products, as well as, a meeting place for employees to perform real world work. As this trend continues the legal issues inherent therein will also need to be addressed.

Since intangible intellectual property of all kinds has real world value and can be relatively easily converted, the question arises as to what legal standard should be applied to the virtual world. The growing commercialization of the virtual world will inevitably subject it to real world laws and regulations as players seek protections for their valuable IP. If virtual world currency and goods being traded have a real world value won’t the courts and government eventually step in to protect, regulate and tax these digital assets? Congress is currently looking into the taxing question. The answer will potentially depend on whether a player is allowed ownership of an item they obtained or created in the virtual world. Likewise, if virtual property has real world value, could a game designer be held liable for destruction of property if they pulled the plug on a game due to business or monetary issues without proper compensation to the gamers? Additionally, how would the virtual economy suffer if virtual real estate or monetary assets were taxed by the city, state or federal government? For that matter which jurisdiction would have claim over the assets since they exist in the ether that is the digital world? The US has not dealt with this issue yet, but it has been decided in other countries which may shed light on what the US may find. Moreover, prior decisions (like the Supreme Courts Grokster opinion) and current Acts (like the Digital Millennium Copyright Act) may play a significant role in the outcome of these issues. All of these questions will eventually need to be determined as the virtual systems grow in size, number and membership.

In summary, given the expansive and interconnected nature of the industry Virtual Judgment will include discussions on various areas of law, including Intellectual property, interactive media, contract law, intangible property; communications, technology, licensing, obscenity, employment, defamation, piracy, constitutional rights, tort liability, and more. If there are specific topics that you would like to be addressed by this site please contact me to let me know. I envisioned this site as a useful tool for developers, businesspeople, lawyers, players or other enthusiasts. It can only become such a useful tool if the readers challenge me and let me know what is of interest and importance to them. Therefore, I look forward to our continuing virtual dialogue.

Sean F. Kane