Mitchell on Law

In his real-world life, Marc Bragg is an attorney living in West Chester, Penn. But in his “in-world” life in the online game Second Life, Bragg was a land developer who went by the name “Marc Woebegone” and had amassed a substantial amount of virtual real estate. It was an enviable, albeit virtual, existence that Bragg enjoyed until last May when Linden Lab, the San Francisco game developer behind Second Life, evaporated his virtual assets (valued at $3,000) and shut down his game account following a questionable land deal. Bragg had picked up a large piece of real estate, normally priced at a minimum of $1,000, for $300 after, he admits, circumventing all competing bidders.

Bragg, who owns numerous businesses and nightclubs in Second Life, has filed a lawsuit (Bragg v. Linden Lab) against the company, claiming that its actions were unfair and that his assets were wrongly confiscated. In his suit, Bragg asserts that his purchase of virtual land at below-market rates through an online auction on the Second Life Web site was legitimate.

Bragg argues that it is Second Life’s problem if glitches in its online auction system allowed him to buy property he shouldn’t have. But that doesn’t seem to sit well with many of the people who post to Second Life-related blogs. His case, in which he seeks $8,000 in restitution, continues to wend its way through the real-world court system—a fact that has caught the attention of attorneys around the world, including William Mitchell College of Law Professor Christina L. Kunz.

Kunz, who teaches courses in contracts and uniform commercial code at the college, has been interested in the legal aspects of electronic commerce since 1991. As co-chair of the Subcommittee on Electronic Commerce for the American Bar Association Section of Business Law, Cyberspace Law Committee, she has done extensive research and speaking on electronic contracts and “click-through” agreements.

Legal issues abound for virtual gaming sites

It was the Bragg case that sparked her interest in the legal issues surrounding virtual worlds or MMORGs (Massive Multiplayer Online Role-Playing Games), such as Second Life, Everquest, and World of Warcraft. In October 2006, the ABA email group she belongs to heard about Bragg. Intrigued, they immediately started trading articles, clippings, blogs, and links about the case and the myriad other legal issues cropping up in the virtual gaming world.

Convinced that the topic warranted further study, Kunz had it added to the agenda of a January 2007 ABA working group meeting. “We held a brainstorming session, and the longer we met the bigger the group got,” Kunz says. “We ended up with a six-page, single-spaced list of legal issues that could potentially come out of these games.” Not surprisingly, Kunz is drawn to the contract issues, which are more complex because Linden Lab grants Second Life residents the intellectual property rights to any content they create, such as clothes, cars, and furniture. Creators can then sell the things they’ve made to avatar shoppers.

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“One of the questions our group found really interesting is how far the developer who runs the game can go to establish rules of in-world life,” says Kunz. “Is it within the power of the contract to set rules for trading value for in-world currency? And does Second Life really have the right to evaporate your currency rights (as they did with Bragg) if you violate the rules?”

“There are plenty of people out there who look at this and say, ‘Oh, this is not a topic. Get a first life,’” Kunz says. “But I believe there is much more going on here than people realize. There are some really interesting questions coming up about whether in-world conduct has real-world legal consequences and whether real-world events and legal rules can also reach in-world.”

A Second Life primer

Launched in 2003, Second Life is a three-dimensional world that has been built by the hundreds of thousands of Internet users who participate in the site. Second Life “residents,” as subscribers are called, can download the necessary software and enter the game for free. Paying an annual fee of $72 buys a host of upgrades. Once there, subscribers choose an online character, or avatar, to represent them in the virtual world. And while users are free to break from the conventions of real-world beauty and take any form they want, say, a can of soup or a cuttlefish, most of the men and women strolling around Second Life are the same sort of cookie-cutter-perfect people you see on prime-time TV.

While inhabiting these flawless forms, residents live out their in-world lives doing, well, a lot of the same things they do in real-world life: working to earn in-world currency (Linden dollars) to buy things like clothes, cars, and houses; going to virtual bars and restaurants; looking for love; having sex; and buying more stuff to keep up with the avatar Joneses. And this is where Second Life becomes radically different than other such games, says Kunz. Other than the competition born of vanity and greed, there is no real score-keeping here. There is also a conspicuous lack of monsters, dragons, and trolls along with the battles that generally accompany these nemeses. Because of this, most people seem to expect a certain amount of civility and fair play from this game.

With money comes legal trouble — even in a virtual world

But with money comes trouble, says Kunz. Unlike other games where a few dollars may be spent on a weapon or a magic spell here or there, many people have a fair amount of money invested in Second Life. Participants either work in-world jobs to earn the Linden dollars they spend, or they buy them through the Linden Lab currency exchange, which converts money at a floating rate, currently about 257 Linden dollars per U.S. dollar. It may sound like it would be tough to get in deep, but consider for a moment that islands in the game regularly go for more than $1,600, and some developers and landlords in the game own hundreds of properties.

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Since participants have so much at stake, Kunz and many other attorneys believe it’s really no surprise that there are legal troubles in paradise. “If someone comes along and rips your arms off in World of Warcraft you just regenerate,” Kunz says. “But if someone vandalizes the house you paid for in Second Life, people wonder whether there was supposed to be someone there protecting them, like the police force or the military. Right now, when you’re in Second Life you’re out there on the frontier defending yourself and your property.”

Government regulation comes to e-commerce?

Some real-world regulators have already made their presence felt in the game. In April, with cooperation from Linden Lab, the FBI — in avatar form — visited casinos in Second Life, in response to some reported scandals. By August, Linden Labs had banned all in-world gambling, and in-world casinos were closed. “It didn’t surprise me,” says Kunz. “The question was: What jurisdiction’s laws were those casinos governed by? Various states regulate gambling differently, and jurisdiction is always the $64,000 question in electronic commerce.”

But banning gambling created other problems in the Second Life world. Gambling was the most profitable business in Second Life, and the game’s virtual casinos were well stocked with virtual ATMs. Once the gambling ban was announced, Second Life residents withdrew their money so quickly that Second Life’s largest bank, Ginko Financial, experienced a “run on the bank” and had to declare insolvency, affecting holdings totaling 200 million Lindens ($750,000 U.S.) invested by Second Life residents. The bank, which formerly had been promising returns-on-investment over 40 percent, converted the account-holders’ funds into in-world bonds with a return of 3 percent and traded on an in-world stock exchange. Because in-world banks are not regulated, angry customers had no recourse.

“It’s interesting how people just assumed real-world rules would apply, but right now there’s no FDIC or SEC in Second Life,” says Kunz. “Linden Labs cautions its residents against reckless investments, but I also wonder why there isn’t regulation of in-world banks already, by either in-world or real-world regulators.”

With so many legal quandaries yet to explore in the virtual world, Kunz imagines it will be a long while before the issues the ABA Cyberspace Law Committee is studying start to gel into something people can use. Right now, she and her committee co-chair are just focusing on getting people thinking about the questions.

“I’m not quite sure where this is going,” Kunz admits. “But it feels to me like we’re into the next phase of something. A colleague of mine calls this ‘lawyering on the edge’ and it is.”

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