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Second Life: The Virtual Legal Frontier

We’ll get to Second Life in a minute. First, some background. You may not know what MMOG means, and that’s OK. But if you haven’t heard of Everquest or its heir World of Warcraft (WoW) then you’ve pretty much been living under a rock, hiding from popular culture. MMOG = Massively Multiplayer Online Game: thousands of people logged in to a virtual (on-line) world where they can all interact at once through their on-screen incarnations (avatars), and play the “game” — which has the characteristics of a fantasy novel (dragons, magic, swords, etc). I have never played a MMOG, but have quizzed people who do, watched some gameplay and read many articles. MMOGs are highly addictive by design, so I steer clear. My days of beating Super Mario 2 in one 24+ hour session are now shrouded in the mist of care-free youth.  You had to leave the stone-age Nintendo on while you slept, or else you’d lose all your progress – no “saving” your game (admit it: you tried and failed to beat Super Mario 2).

WoW has had about 9 million people subscribe at one time or another ($15 per month), and there are rumored to currently be 4-5 million paying subscribers (this is a rather huge revenue stream if you add it up). Of these, about 500,000 supposedly play at any given time, and each server “world” hosts about 1000-2000 people (scads of servers around the world host incarnations of the “world” that these subscribers inhabit). Commenter MarkBorton replies to this post (9 Million Subscribers = 90th Most Populated Country in the World), “Isn’t the population more like 500,000 Active players, 500,000 inactive accounts, and 8 million gold farmers?” What is a gold farmer!?

A gold farmer is someone who plays the game for the purpose of profiting in the “real world.” The general concept has been around since the first Everquest avatar was sold, and probably before: someone takes the time to create a powerful persona, decked out with powerful loot in one of these MMOG worlds, then puts the avatar up for sale on Ebay or otherwise. Someone pays real money to buy the username and password, and *presto* the buyer gets to play with a super-powered character without having to do the weeks and months of labor necessary to actually get that powerful in the game. Now, there are monetary currencies in the MMOG game worlds, “gold” in WoW, “Linden Dollars” in Second Life, and many many more in other MMOGs (there are lots). There are also websites where you can exchange real currency for game currency, and vice versa. There are monitored exchange rates, just like you’d see for foreign currency at a money changer’s booth in an airport.

“Gold farming” enterprises can be lucrative. Get a bunch of third world kids playing for your basic slave-labor third world rates (or as indentured servants, etc), and they can collect quite a lot of gold through basic in-game activities. This collected gold is then sold for real money by the ringleader at one of the exchange sites. Yes, this is really happening on an ongoing basis. When the virtual economy meets the “real” one, the IRS smells money. Taxation of income from the sale of virtual assets (and of the virtual assets themselves becomes a real legal issue, and in fact a congressional committee is looking at these very issues! Here is an excellent primer article on the subject.

Even more interesting is the issue of virtual real estate “ownership” – and now we have finally arrived at Second Life (SL). SL, we are told, by the maker Linden Labs (LL), is NOT a “game.” It’s a virtual world alright, and massively multiperson, but there is no game. LL auctions virtual land for real money. Large plots go for around $1000 each, and are often then sold out in smaller parcels by the original buyer. Major corporations, political campaigns, and lots of individuals trying to make a buck or just have fun own land and build stores, houses, clubs, etc, thereon. LL earns revenue from property taxes they levy on the land. LL’s ads talk about the purchaser “having title to” and “owning” the property. But their “clickwrap” Terms of Service (ToS) agreement (that you must click “Yes” to when creating a new account) says otherwise. They’re really only giving you a license.

A Federal Judge, however, just threw out part of LL’s ToS (the arbitration requirement) as being procedurally and substantively unconscionable. The case is Bragg v. Linden, et al, and you can read about it all over the internet. Bragg (an attorney) did something LL didn’t like: he bought land on the cheap before the auction actually started by discovering the URL where the auction was set up with no protections whatsoever and a working payment-and-transfer procedure. LL then banned Bragg and confiscated (by force, you could say) all of his Second Life property and accounts, amounting to about $8,000. Bragg sued, and LL countersued. I first read about the case in a very good blogpost, here, and posted an off-the-cuff legal musing via comment here. The comments are just as interesting as the article itself. Same can be said for LL’s official blog (self-interested to be sure) posting about the case. They caught so much flak from SL users in the comments, that SL apparently turned them off.

I’ll keep track of the case and post legal developments here.