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.

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