Santa Clara University

Are there laws beyond this life?

Santa Clara Law professors explore the legal issues in virtual worlds.

BY SUSAN VOGEL ARTWORK BY MICHAEL BALLEN

A client comes to you for advice. She has acquired a large tract of land and would like to create a subdivision. Can she restrict residents’ style of dwelling? Can she prohibit loud activities at night? What about how they plant their lawns?

Your first question might be. “Exactly where is this land? Santa Clara County? Out of state? Mexico?”

Well, no, she answers. Actually it’s in another world.

Today, as many as 30 million people worldwide participate in virtual worlds, online three-dimensional universes in which they create characters called avatars, sending them out to slay dragons, buy and sell real estate, or simply lie on the beach drinking mai tais.

The dragon slayers inhabit games like World of Warcraft, which usually involve fantasy and have specific goals such as accumulating points and advancing to higher skill levels. The real estate seekers and beach loungers inhabit non-game virtual worlds.  An example is Second Life, in which 99 percent of the content is user-created.

All computer games involve contracts, copyright, and licensing, but virtual worlds are raising some legal issues that can make your head spin, including questions on the very nature of property and whether one can acquire property rights through expectation and emotional attachment.

Santa Clara Law students will be ahead of the game when they step into a world in which knowing the laws of just this world is not enough. Professors from Santa Clara Law’s High Tech Law Institute are among the top scholars in the country examining the legal ramifications of virtual worlds. In February, Santa Clara Law faculty Eric Goldman (academic director of the High Tech Law Institute), David Friedman, Tyler Ochoa, and Dorothy Glancy participated in the annual symposium of the law school’s Computer & High Technology Law Journal, which gathered leading cyber lawyers and law professors from around the country to discuss the legal implications of virtual worlds and innovations in the World Wide Web (referred to as “Web 2.0”).  Even by Silicon Valley standards, the group was illustrious: in addition to law professors from SCU and other law schools, panelists and speakers included legal counsel from YouTube, Second Life, Facebook, and Sun Microsystems; Adit Khorana of Wilson Sonsini Goodrich & Rosati; and Chief Judge Alex Kozinski of the U.S. Court of Appeals for the Ninth Circuit.

The issues discussed, and those currently being examined by Santa Clara Law cyber lawyers, have implications that reach far beyond virtual worlds.

Living in a Material (Virtual) World

Professor Tyler Ochoa speaks during a panel presentation at the conference Internet Collaboration: Charting the Waters of Virtual Worlds, Web 2.0, and the GPL, which was held by the law school on February 1. Photo by Charles Barry

Success in virtual worlds—advancing to higher levels, accumulating assets or establishing lucrative businesses—can require avatars to toil many hours at menial tasks (such as fishing) for virtual minimum wages. With their income, they purchase objects from virtual stores to enhance their appearance or desirability, increase their powers, or improve their real property.

Users can circumvent this hard work by using real world money to purchase virtual world currency. Some virtual worlds such as Second Life explicitly allow this and even have official exchange rates. Others, such as World of Warcraft, discourage it. According to a symposium panelist, a Korean website estimates that $1 billion U.S. is spent each year on virtual world property.

With users spending substantial time and money dolling up their avatars and building virtual condos, they are becoming increasingly attached to their “possessions” in a way that they aren’t in other property acquisition games such as Monopoly. Some are even suing to establish ownership rights.

To game providers, the ownership of assets in virtual worlds is governed by the end user license agreement that users are required to scroll through before hitting “I accept” when creating a new account. Like a San Francisco residential lease, it’s a long, small-print, take-it-or-leave-it document. It gives the game provider the right to cancel any account, eliminating the user’s avatar and property, for any or no reason.

It is a document Professor David Friedman swears by. “The rights of the inhabitants of virtual worlds to virtual property, whether land or magic swords, are controlled by contract with the proprietor, and do not usually provide for secure ownership. If a computer crash eliminates your virtual possessions, you have no legal right to compensation.”

Nevertheless, says Professor Tyler Ochoa, who teaches IP, copyright and trademark law, “whether the game manufacturers like it or not, people are treating these things as property.” For example, virtual property has already been distributed in divorces, according to Ochoa.

“We are starting to see collaboration in the creation of virtual worlds where the user has a lot to do with how the game looks,” says Santa Clara Law Professor Tyler Ochoa. "Increasingly, the computer code is becoming merely a tool that is used by the player to record original expression, making the avatar a copyrightable work owned by the player, rather than the game provider.”

The case that has game providers nervous is Bragg v. Linden Research. In that case, a Second Life user acquired a large amount of virtual property, some legitimately and some allegedly through a software hack. Linden closed off access to his account, or, in his view, seized his property. The case was settled but not before the court issued an opinion saying that Linden’s CEO was subject to personal jurisdiction in Pennsylvania and that the arbitration clause in the end-user license agreement was one-sided and unconscionable. Some read this as suggesting that the plaintiff had a real interest in his virtual property.

If a license is invalid, exactly what rights do users have to their virtual property? To their customized avatars? Ochoa says many users feel they have an ownership interest in what they create in virtual worlds, including the look of their avatars. These users see their creations as their own expression or property and view the game provider as simply the entity who gave them the tools to create.

Ochoa asks, “If I create a company logo with Adobe Illustrator, does Adobe own the copyright to it? If I draw a picture with a box of Crayola crayons, does Crayola hold the copyright to my picture?”

Ochoa acknowledges that user agreements are on the side of the game provider, giving them the power to eliminate avatars and their property at any time. This might have been appropriate in the times of early video games, he says, when the game was structured by the computer code and players couldn’t change much, but now “we are starting to see collaboration in the creation of virtual worlds where the user has a lot to do with how the game looks.” Increasingly, “the computer code is becoming merely a tool that is used by the player to record original expression, making the avatar a copyrightable work owned by the player, rather than the game provider.”

Ochoa believes that absent an enforceable license agreement, “avatars should be characterized as contributions to a collective work, such as the individual articles that make up a periodical or encyclopedia, rather than some other form of ownership.” He also thinks the current user agreements “may be problematic unless they start aligning themselves more with user expectations.”

But there are important speech considerations pointing in the other direction. Eric Goldman, who teaches IP and cyberspace law, says that virtual world operators are content publishers just like newspaper or magazine publishers. “Courts can’t force a newspaper to carry content they don’t want to carry. Restricting publisher discretion is impermissible in the offline world, and that could apply equally to the online world.”

Virtual world providers, like guests on Comedy Central, are finding they may get more mileage out of laughing at themselves than attempting to control all uses of their copyrights and trademarks. For example, instead of trying to quash the parody www.getafirstlife.com with a cease-and-desist letter, Second Life joined in the fun, says Ochoa, allowing the website to use a modification of the Second Life logo.

Consumer Protection

Young, often underage, future Bob Dylans sign away their rights to their first performance videos when they upload them on YouTube. And virtual world residents invest real world money in virtual property that, pursuant to user licenses, can be confiscated at any time. Real world residential renters are protected from onerous rental agreements; shouldn’t there be consumer protection laws to protect people from these potentially one-sided contracts and speculative investments?

Friedman’s response is caveat emptor. “Virtual worlds, like hotels and restaurants, are controlled by the proprietor, not by democratic vote of the inhabitants,” he says. If people don’t like the user agreements and “want to play in a world that is democratic, then someone should create one.” Friedman believes that the market, not laws, should determine the kind of virtual worlds in which people play.

Goldman finds this approach “personally compelling” but also raises the issue of whether this huge economy should be left unregulated. “People investing in virtual assets make their investment decisions on a very shaky investment foundation because the provider can eliminate these investments at any time. It’s like investing in a start-up business in Iraq or in risky stocks.”

Investors in the stock market are protected by securities laws—shouldn’t investors in virtual world property be protected in a similar way? “If someone wants to sell securities on the open market, they have to make adequate disclosures,” says Goldman. “In virtual worlds, the same rationale could apply.

If we regulate them to control the investment, we might get more market stability. It might help the market flourish.” Goldman believes, however, that the investment activity in

virtual worlds has been healthy without regulatory intervention, so there may not be any market failure requiring new

virtual world-specific investment laws. “Investors can factor the risks into their investment decision. It’s up to virtual world operators to provide enough comfort to investors to stimulate an optimal level of investing activity within their world.”

Santa Clara Law Professor David Friedman believes there is a reasonable argument for the claim that taxation of virtual income is as justified as taxation of real world income. “People can spend a considerable amount of time in these games producing noticeable amounts of assets and creating a sizable amount of income,” he says.

Gold Farming

Robert is a 9-year-old with a love for Runescape. He plays about two hours a day, after homework. He recently suggested to his parents that he use his Christmas and birthday money, $40 total, to buy another player’s Runescape account, which will let him take over the avatar, a character on a higher level than Robert’s own avatar. The new avatar has more power and can use arrows. (Otherwise his avatar would have to work for about two months to get to that level.)

This second grader’s purchase will send ripples throughout the world. He will likely be purchasing hours of game play by a young Chinese man in his teens or twenties who works and lives on a “gold farm.”

According to Ochoa, “Workers in low-wage countries are paid to play the game continuously and to engage in actions that earn them virtual money within the game. That virtual money is then sold in an online transaction to a player who desires to spend virtual money in the game without having to take the time needed to earn such virtual money. These real-money transactions create a de facto ‘exchange rate’ between virtual currency and real-world currency.  The exchange rate is such that employers in low-wage countries can profit by exploiting the differential between the wages they pay their workers and the real-world currency they earn by selling virtual money to other players.”

Most game providers, says Ochoa, discourage or forbid real-money transactions.  “In one case, a game provider has sued the provider of software that allows automated gold farming.  In another case, some players of World of Warcraft have sued other players who allegedly ruin the experience of playing the game by engaging in gold farming.”

Human rights lawyers are left scratching their heads as to what parallels might be drawn between these young men (who tell interviewers they love playing games all day) and sweatshop workers.

Teleport Me to Boston Harbor

Several jurisdictions, including South Korea and the EU, have begun taxing virtual assets, according to Ochoa.

Friedman, a self-described “extreme libertarian,” doesn’t actually believe there is an adequate justification for taxation in the real world, but believes there is a reasonable argument for the claim that taxation of virtual income is as justified as taxation of real world income. “People can spend a considerable amount of time in these games producing noticeable amounts of assets and creating a sizable amount of income,” he says. He notes that a person can work at a real world job for a certain number of hours and earn $200 and use it to buy a cell phone. Or they can work on a virtual world game for a certain number of hours, earn 3,000 gold pieces and use it to buy something in a virtual world that has a $200 value in the real world. Why aren’t the gold pieces treated as income?

Goldman agrees. “If you invest in an asset in virtual life, it’s an alternative to investing in a real-world asset.”

Visualize Virtual "Whirled Peas"

Santa Clara Law Professor Eric Goldman, who also serves as academic director of the High Tech Law Institute, talks with Allison Hendrix, law student and editor in chief of the Santa Clara Computer and High Technology Law Journal, who helped organize the Virtual Worlds conference. Photo by Charles Barry

You would think that new worlds would be characterized by bumper sticker idealism: world peace, random acts of kindness (and maybe even the absence of strip malls and bad tattoos?). But they seem to mirror this world for good and for bad.

Santa Clara Law Professor Pratheepan “Deep” Gulasekaram is looking at virtual worlds for clues to human behavior in the real world. Gulasekaram studies and teaches immigration law, and uses Second Life to observe attitudes toward migration and citizenship.

Some of the most prevalent arguments against immigration in the real world are that immigration puts a financial drain on a country’s resources, that immigration waters down cultures, and that immigrants aren’t as loyal as citizens, says Gulasekaram.

Second Life, however, in the words of its creator’s general counsel, Marty Roberts, has “unlimited property, unlimited uploads, and unlimited avatars.” Gulasekaram likens it to “a country with lax immigration laws.”

“If you take away the issue of limited resources, such as emergency medical care, which is a serious part of the immigration debate, why is there still a drive to be wary of newcomers?” asks Gulasekaram. “Is it because players feel entitled to a certain culture in Second Life? Do newcomers destroy that culture?”

When Gulasekaram sees people in virtual worlds seeking to create exclusive clubs and excluding others, he asks, “Is there some aspect of human nature that will always exclude or that seeks to define itself through the definition of ‘the other’?” It’s too early to tell, he says, if the interaction in virtual worlds is different or worse than in real life.

Gulasekaram is also interested in how users set norms for behavior. Since Second Life doesn’t get too involved in setting

rules for day-to-day life, avatars have to establish them. Second Life resident Prana Jun, avatar of Prano Amjadi, director of public services for the Santa Clara Law library, worked as a greeter on a meditation island. There, she had to collaborate with other avatars to decide whether the beach should allow nudity and, if so, whether adult players using child avatars could be present.

Gulasekaram hopes that people’s virtual world involvement will help them become better citizens in the real world. “I bet there are a lot of people who don’t care about who wins the elections, but who care a lot about their swords in World of Warcraft. These online spaces are so rich and complicated that they allow people to access the same depth of emotion as in the real world. The best case is that the online worlds become the best civics classes you can possibly take. Once you have a strong feeling about property rights in a virtual world and have learned how disputes can be resolved, you can take it into the real world and be more involved. It would be a great reverse effect.”

Television 2.0

Friedman envisions that the 15-20 hours a week people currently spend in front of the television will be spent in virtual worlds, making them an extremely significant development. Goldman disagrees. He sees virtual worlds as “the latest in a series of tech innovations,” adding that “as a cyber lawyer we’ve seen those before.” Goldman believes that virtual worlds add “a rich graphical interface that will change the way we see things online, like hyperlinks did,” but that virtual worlds are really “another communication medium, and an incremental advancement over the existing ones.”

Legal scholars are unanimous in predicting that legal systems will find their way into these virtual worlds. Will real world depositions involving witnesses or parties in distant locations be taken in virtual offices? Will virtual and real world disputes be resolved in virtual courtrooms? Stay tuned. You might read on these pages that the alumni reunion for the class of ’95 will be held in Second Life.

SUSAN VOGEL is a frequent contributor to Santa Clara Law.

Click here for extensive information on the virtual worlds conference, including video of selected panels.

SCU’s Second Life

Last fall, Santa Clara University paid real U.S. dollars for an island in Second Life where it has built a virtual campus. In doing so, it joins 250 other universities with campuses in Second Life. While you can’t smell the roses, you can request information from librarians, attend lectures, watch movies, collaborate with other students in a group study area, and even enjoy a virtual latte.

The grand opening of Santa Clara Island was covered by a Second Life reporter and can be seen on YouTube (visit www.youtube.com and search on Santa Clara University Second Life).

Santa Clara Law is exploring ways to expand into Second Life as it continues to focus on educating lawyers to take lead roles in the technology industry, says Senior Assistant Dean Julia Yaffee. According to Dean Donald J. Polden, more than 1,500 students each year apply to Santa Clara Law because of its high tech program and 200 students are currently focusing on technology law. The law school has 10 full-time faculty members specializing in high tech and 24 of the best IP lawyers in Silicon Valley teaching as adjunct faculty.

Law students or professors who want to explore Second Life can visit Librarian Prano Amjadi. Amjadi’s avatar, Prana Jun, also a librarian, staffs a reference desk in one of hundreds of Second World libraries. Jun is also co-owner (along with avatars from Istanbul and Milan) of a very popular meditation island that offers visitors meditation, yoga, feng shui classes, and book discussions. Jun can be found on Wednesdays between 3–5 p.m. at Info International, the reference desk for the Second Life Library system.