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Virtual Worlds CLE Presentation
- 1. Introduction toVirtual Worlds Presented by the Minnesota CLE
- 2. Presenters: Justin Kwong (Moderator) Adjunct professor, William Mitchell College of Law Reference Attorney, ThomsonReuters Mike Fleming Senior Corporate Counsel, Cray Inc. Christina Kunz Professor of Law, William Mitchell College of Law
- 3. Video games have been around for more than 30 years, becoming increasingly sophisticated as technology advanced.
- 28. Major Issues: Contracts are primary means of virtual world regulation in U.S. Two forms: Provider/Player Unilateral Player/Player Bilateral Contracts& Agreements
- 29. Provider / Player Contracts: End-User License Agreements (EULA) Govern real-world issues Choice of law, Arbitration Access rights Payment terms Terms of Service / Terms of Use (TOS) Govern in-game behavior Limit offensive speech Improper conduct
- 30. Standard Form / Adhesion Contracts Take it or leave it Unconscionable provisions Binding arbitration Waiver of certain claims Change without notice Contracting with minors Age/Identity verification Privacy / COPPA Voidability ContractEnforceability Issues
- 31. Litigation Bragg v. Linden Labs (E.D. Pa. 2007) Player sued Second Life creators after they closed his account for violating the world’s terms of service Major Questions: Enforceability of Terms of Service Agreement Whether players had property interest in their virtual “real estate” and currency accounts
- 32. Bragg v. Linden Court’s Memorandum and Order found TOS arbitration clause unconscionable: Procedurally - buried clause in a subheading titled “General Provisions” Substantively - terms were “severely one-sided...” Mutuality - Linden had range of options, players could only bring disputes in arbitration (see Comb v. PayPal, 218 F.Supp.2d 1165, at 1173-74) Costs - Arbitration fee sharing was still more costly than bringing the same complaint in court (see Ting v. AT&T, 319 F.3d 1126, at 1151) Venue - location in San Francisco, CA unreasonable for Internet-based transactions involving small sums of money Confidentiality - prevented future plaintiffs from access to precedent, but would strengthen company’s future position
- 33. Lessons learned – Revised Second Life TOS provisions are more player-friendly Arbitration does not require physical appearance Judgment of arbitrator may be entered by a court to allow others to use precedent Currency in account already converted to US$ will be forwarded to player if account closed But no right to Linden$ not converted to US$
- 34. Party identity verification problems Anonymity facilitates fraud IP and other account information available upon subpoena Procedural Dilemmas Jurisdiction & Venue multiple parties in many locations make forum selection clauses important Service of Process 3rd Party Beneficiary Requiring enforcement of TOS or EULA between other players and game company Used against illegal currency traders Hernandez v. IGE class action Player-to-Player Agreements
- 35. Major Issues: Virtual Property Similar characteristics Governed by contract “Real Estate” Islands, buildings Operate similar to some forms of real property Fee simple subject to condition subsequent Subscription fee = tax? Property and Ownership
- 37. Virtual Items Digital representations of objects Can be won, made, traded, or purchased Some worlds allow players to sell items to other players Paid for with real money Represent major growth area online One study predicts 110% increase in sales over next three years (Viximo) Major drivers of virtual world commerce
- 38. Virtual Currency Many worlds feature an in-game currency Allows players to buy things from the game company or other players Usually earned by doing tasks Some sell currency for real money Real Money Trading (RMT) Some even let players cash it out for real money Second Life is a prominent example in US Farmville FarmCash online currency, Bought with real money or earned as promotion for buying real-world produce E.g. sack of potatoes at Super Target Many worlds in Korea permit RMT The Korean high court recently struck down criminal penalties for RMT, thus legalized But only if permitted by the game
- 39. Accounts / Avatars Avatar - Representation of players in-world Can be 3-D, 2-D (image or symbol) Range of customization options Collections of items, currency assets, land, or buildings Associated with a particular person Person can have multiple accounts Experience points, goodwill, history and associations/friendships
- 40. Class Action Lawsuit Evans, Spencer & Carter v. Linden Research Alleges Second Life: Knowingly offered to sell class members virtual land and the ability to acquire ownership rights in virtual property and then changed the terms, Took the plaintiffs' property when they were expelled and Didn’t honor the owners' rights in their property. Case Status Complaint filed, April 15, 2010 Response by Linden, July 8, 2010 Amended Complaint, August 2, 2010 Pretrial set for Sept. 9, 2010 Documents available at: VirtualLandDispute.com
- 41. Other ImportantIssues Intentional Torts Criminal Acts Intellectual Property Taxation
- 42. Intentional Torts Personal Tort Theories Intentional Infliction of Emotional Distress Unlikely to meet outrageousness requirement Depends on community norms Ability to log off Harassment/Stalking Offensive speech or behavior Defamation False and damaging statements portrayed as fact Libel or Slander? Conversion Stealing virtual items Depends on whether property right to account or other items exists Business Tort Theories Interference with business relationship
- 43. Criminal Acts Cyberbullying Many children and teens in VWs Covers a range of activities: Crude language to teasing Vague implications to threats of violence Being defined in state legislatures Awaiting court evaluation Not limited to virtual worlds… MySpace, Facebook, etc. http://www.stopcyberbullying.org/
- 44. Criminal Acts Money Laundering Using virtual currency transactions to hide illegal activity Many worlds with RMT have anti-money laundering software, Also watched closely by law enforcement
- 45. Criminal Acts
- 46. Criminal Acts Theft / Robbery Netherlands Court found youths guilty of robbery when they demanded account access upon threats of violence China Beijing Arctic Ice - account was stolen, value based on labor expended by player South Korea Items Minnesota Not a crime, yet… Report of stolen items to police not actionable according to Star Tribune story
- 47. Intellectual Property Copyright – Rights of creations in Second Life retained by creators, preserves right to sue others CDA & DMCA safe harbors Trademarks – Definition of commerce Infringement of branded goods Dilution theory
- 48. Taxation No tax in US for virtual world transactions, Even when withdrawing Second Life profits to PayPal account Could be used to evade taxes if paid Residents of UK are charged a VAT for certain transactions in Second Life House Joint Committee looked into possibility of taxing virtual worlds in 2006-2007 Press Release – should leave them alone for now
- 49. Questions? Stay up to date on what’s happening in virtual world law by visiting my blog: http://virtualnavigator.wordpress.com
Editor's Notes
- Games gradually became more sophisticated, incorporating features like 3-D graphics, but they were tied to consoles, unable to interact with other players beyond your den.
- In 1980, programs like MUD1 revolutionized gaming by allowing players to utilize a new technology called the ARPANET (the precursor to the Internet that allowed multiple simultaneous connections) to interact with other players across the country in real time. At first, the worlds were limited to textual descriptions of the environment because of the low bandwidth and computer processing power available. Many of these were derivatives of or expansions upon earlier text-based games like Zork.
- But they advanced quickly, first with ASCII text representations of two-dimensional space.
- Followed by later by a fully three-dimensional, interactive world, in the form of Ultima Online, released by Mythic Entertainment in 1997.
- Other worlds followed soon after, like the very popular EverQuest, released by Sony Online Entertainment in 1999 and The Sims Online, which came out in 2002.
- World of Warcraft debuted in late 2004, is now one of the most popular and well-known virtual worlds, with more than 11.5 million monthly subscriptions in December 2008
- Second Life by Linden Research in 2003
- CHANGE THIS IMAGE
- 75 million registered users, $60million in virtual goods transaction revenue
- CLK has thirty years of expertise in contract and commercial law. She literally wrote the book on “click-wrap” agreements and she started the virtual law seminar at William Mitchell that I teach now.MFF has years of private practice experience working with clients, drafting licensing agreements and other contracts
- Let’s start things out with the most common contracts encountered in virtual worlds: the ones to which everyone must agree, the EULA and TOS.Mike, start us out, you know a lot about these, what is the general difference between a EULA and a TOS? (I usually think the EULA is full of mostly procedural matters like jurisdiction and arbitration while TOS is more in-game issues,
- Ok, first thing, Chiris, I realized there’s a mistake on this slide. The EULAs and TOSs aren’t really unilateral contracts, but standard form contracts. Can you take a second and explain the difference?Also, since the SFCs are adhesion contracts, I’ll put this out there for either of you, what are factors that make an adhesive contract?
- For a while, Bragg was THE signature Virtual World case. Ruled on the enforceability of binding arbitration clause to SL TOS.Chris, when we started teaching the OGS, did you get a sense that there was more to it than this?
- Mike: Do some of these concepts come up when you’re putting together contracts? Is there a difference in arbitration clauses when parties actively negotiate their contracts?
- One thing about Bragg is that it was a diversity case tried in PA, applying CA law.Chris or Mike: Do either of you expect that we’ll see a lot of contracts selecting CA law? Do you think there are any competitor states for these sorts of agreements?
- Mike: you pointed out a question about whether contracts between two avatars would be considered valid. Can you talk about that more? Why wouldn’t they be valid?
- This was the thing that got most people really excited about VWs a few years back. Some thought we were looking at a new form of property, others weren’t so sure. Professor Mark Edwards, a property professor at WMCL, pointed out that the virtual land in SL acted an awful lot like a FSSCS….
- Here’s the fee schedule for SL properties. It looks an awful lot like a property tax schedule.We had numerous discussions during the seminar about what limits contracts can impose on property rights, if they can prevent property rights from forming in the first place. We sort of expected the issue to come before a court before now, but not yet.
- Chris: you’re the resident UCC expert, what do you think about where virtual goods fall in terms of their legal status? They don’t fit the typical definition of goods for Article 2…
- Some people thought that simply by having a world where people could buy and sell stuff for real money made everything more real. Linden allows players to buy and sell their currency, but they don’t let them keep it if they are ejected from the game for some violation.Mike: if people are willing to spend real money to access certain features of what others would consider a game, does that change its game-like nature?
- People often think of their accounts as their property, especially if they add value to it, which fits perfectly with the Lockean view of property. We’ve seen, however, that idealistic theories are no match for a good contract…
- Chris – thoughts on whether you think a contract allowed future modifications, and required consent to new terms before accessing world would sufficiently protect a game company’s interests?
- Mike – This is a perfect place to talk about the magic circle idea, also related to sports like boxing or footballChris – what remedies are there for interference with a contract?
- Two famous cases didn’t involve virtual worlds, Lori Drew used MySpace and the Phoebe Prince affair took place on Facebook, among other places
- Chris – You saw a lot of this sequence as it was happening, can you tell us more about what went on here?
- Other countries have taken a more pro-active stance on “virtual” crimes, especially when it comes to theft. The Dutch court ordered the robbers to repay the victim based on the current market value of the items in the victim’s account, even though the game didn’t technically permit their sale.In the US, however, there may be punishment for some cybercrimes, but without a property right, most police can’t get involved, even if they wanted to.
- Mike: this is more in your purview, and TM infringement was a major concern for a while, but how could it be infringement if the “product” bearing the mark isn’t really a product at all? If it’s used in a VW, is it still commerce that the Lanham Act can reach?
- We also expected to see more involvement by the IRS by now, but it seems as though the advisory panel’s advice to leave them alone for now has been the most energy congress wants to spend on this. A similar public policy has kept Congress from enacting a tax on Internet sales, it basically acts as a subsidy.
- Chris or Mike: any last thoughts?