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In brief:

The main legal issues emerging in connection with marketing in virtual worlds fall into two main areas:

- the determination of ownership of intellectual property in virtual creations; and

- the relevance and application of real world legal systems covering everything from contract to criminal laws in the virtual world.

Virtual worlds present legal questions that are beginning to entertain theorists, governments and practitioners around the world. Even if the answer is “no change needed or wanted” – the analysis to get there will be undoubtedly enlightening and often uncertain. As the saying goes – we will continue to “watch this space”, and we suggest all businesses who consider entering these worlds do the same.

What is “Second Life”?

If you have not yet heard about the growth of virtual worlds like Second Life, curiously what you in your real life have been missing is the development and integration of virtual lives and markets into reality. Second Life is a virtual world, or game, where users enter and create “avatars” (ie characters) who interact in 3D environments as in an ordinarily “real world” life.

It differs from other predecessor virtual worlds in a number of respects, but most importantly:

• it attempts to grant rights of ownership of IP in virtual creations to users who “create” them;
• it is not a “game” as such (like many video games) but a space of game-play of real-world interactions; and
• generation of in-world wealth and value can be exchanged for real world wealth and value. In-world forms of real world businesses are being established within the virtual world of Second Life to provide in-world services, experiences and goods. In-world businesses however, also offer and market real world forms of their goods and services. In-world markets have spilled over into real world markets (and vice versa) by enabling currency exchange between real and virtual currency and the real world sale of in‑world creations. Academic institutions and businesses use the benefits of real time virtual collectivity and interaction as a forum for teaching and conferencing. Politicians and civil society organisations use it as a platform for advocacy.

It is still early days, and we must use caution to decipher the hype from genuine concerns and realistic anticipation, however what virtual worlds like Second Life are presenting is an opportunity for new 3D online spaces and mediums of globalised community and collaborative interaction, markets and marketing. As with the growth in blogging, video sharing and music sharing – virtual worlds represent a new cheap, quick and effective mode of sharing and of interaction – dependent for success on the user base and user uptake. As the populations of virtual worlds grow, there will be more extensive interaction and opportunities for business to capture the attention of those users and interactive desires – whether as a market or as a marketing opportunity.

It has been estimated that the real world value of virtual worlds in the West is now worth more than US$1b. It has also been reported that in some Asian countries, people play in “game” virtual worlds more than they watch television. In 2002 the projected US revenue from sales of virtual objects in real-world currency was approx $100m and over $1.5b worth of transactions occurs yearly through in-world trade and continues to increase dramatically.

In regard to infringement laws, for example, over 10,187 South Koreans have been arrested for theft of a wide range of virtual property in a year according to Hwa-Gyung Yoo, Ten Thousand Teenagers “Game Criminals” (South Korean Cultural Daily, 27 February 2004 at 10).

Legal considerations – many questions

Determining the legal characterisation of items, identities and even acts in virtual worlds is becoming important because of the rapid development and increasing use of virtual worlds, as well as the permeability between the real and virtual worlds.

Many questions are raised. Can and should real world regulations and legal concepts apply? Do they need to be modified or expanded so their application can be predicted? It is beyond the scope of this article to consider all the possible legal uncertainties, yet some readily identifiable ones can be noted. Many of these questions would be familiar to most lawyers: they are the same questions we have faced with the challenges of globalised interactions and new media over the Internet generally.

The issues, however, are challenged in new ways. How should contract law apply to dealings between avatars? How could real world consumer protection laws apply? How should real world crimes capture their in‑world analogies (eg property theft)? How should defamation law apply to reputations of in-world personalities? How do real world privacy laws apply? How should in-world profits be taxed? When would real world rights and freedoms apply? How do we determine which countries or state laws will regulate and capture an act done in-world?


IP issues

Most relevantly to readers of IP@BDW, there are some glaring issues involved in determining ownership of intellectual property in virtual creations. For example, what if I develop an in-world shop that sells in-world clocks which tick over in time with real world time – what are the rights that I have in this creation? Second Life would approach the IP associated with the creation of the “clock” as being owned by the user who created it.

Whilst others have argued that there should be other forms of property in the “clock” – these are much more controversial. Clause 3.2 of the End User License Agreement (EULA) for Second Life provides that users “retain” ownership of the intellectual property in the content they create, but that there are broad rights granted to Linden Labs (the Second Life owner) including, amongst other things:

• a royalty-free, worldwide, fully paid-up, perpetual, irrevocable, non-exclusive right and licence to distribute it throughout the game and make it available to other users; and
• a perpetual and irrevocable right to delete any or all of your content from Linden Lab’s servers and from the service, whether intentionally or unintentionally, and for any reason or no reason.

The assertions contained in the EULA rest on a number of questionable legal assumptions. They assume that:

• relevant IP subsists in virtual items created by users, eg copyright in the clock. This is not as clear cut in all cases as many might presume.
• there are express or implied licences by users to use the content of other users under the EULA. Indeed, the EULA is only made between Linden Labs and each individual user, and it makes it clear that no licence of other users’ content is granted by mere use of the service and there is no express grant of any sub-licence to users of other users’ content. If the EULA does not grant licences to use the IP of other users, how do “avatars” agree to such licences?
• the terms and assumptions of EULA are legally enforceable. But can you really retain ownership of something which you only partly created? Can you give a licence to another to destroy it in its entirety?

Continuing the example of the clock, as a creation uploaded into Second Life, it is possible, but unlikely that:

• the software behind the “clock” would constitute a “computer program” created solely by the user, for the purposes of the Copyright Act 1968 (Cth) (see the decision in Telephonic Communicators International v Motor Solutions Australia [2004] FCA 942). Is it an isolated “set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”?
• the “clock” or the data in the clock is a database for the purposes of the Copyright Act (see the decision of the Federal Court in Telstra Corporation Ltd v Desktop Marketing Systems Pty Ltd [2001] FCA 612).
• the movement of the clock is a cinematographic film for the purposes of the Act as an “aggregate of visual images embodied in an article or thing so as to be capable by the use of that article or thing: of being shown as a moving picture; or of being embodied in another article or thing by the use of which it can be so shown; and includes the aggregate of the sounds embodied in a sound-track associated with such visual images” (section 10(1) of the Copyright Act ). Does it fall within the Federal Court’s “decision” that the computer-generated moving images in a computer game could be a cinematograph film? (see Galaxy Electronics Pty Ltd v Sega Enterprises Ltd & Anor (1997) AIPC 91-321).

We are left to consider (or to leave to the courts to consider) whether the clock might be some other newer form of work of artistic craftsmanship? (see section 10 of the Copyright Act).

Furthermore, even if a user is an “author” of the copyright in the virtual clock, is the user the sole creator if the user requires and embodies the software and content provided by other users or Linden Labs, ie is there joint ownership of the IP? Even if the user is the sole author of the copyright in the virtual clock, what acts by other users will infringe the copyright that is, whatever the copyright might be, being copied, communicated to the public etc?

It is difficult to predict clear cut answers. To some extent, these questions may be addressed by technology which inherently attributes “ownership” of virtual creations to their creators and/or which prevents copying of the technological basis and display of these creations. Yet these are difficult questions of IP and IP licensing, which are dependent on the technology and the malleability of legal constructs. They are unlikely to be as clear cut as generally presumed.

To view the official legal news update by Blake Dawson Waldron Lawyers, please click here.

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