Second Life has introduced the Internet to a whole new virtual world for users to interact, trade and invent. But what does this mean for IP rights holders? Trademark lawyer Martin Schwimmer of Schwimmer Mitchell explains

Simulated environments such as the established Second Life (SL) platform have created new grey areas for brand owners. While some brands like Toyota and Reebok have opened their own virtual shops to sell products to avatars (as SL inhabitants are called), there is also a growing economy in which products are created and sold by the avatars to real-life buyers – with very little regard for whether the simulated products they create look very similar to an established brand.

For SL creator Linden Labs, the current policy is based on the principle of self-policing, as described in its Terms of Service Agreement. But as other providers of peer-to-peer services (such as eBay, which does actively police products for sale) come under attack for inadequate policing of IP abuse, it seems that a more formal and proactive policy may be required as the environment attracts more interest and more formal commerce from brand owners. However, until such a system comes into being, it’s important for IP Rights holders to understand the implications of the policy as it stands.

How important is SL?
When SL came into existence in 2002, few brand owners realised the implication of the virtual world it had created. But with 4.5 million users registered, as of 15 March 2007, few corporations can afford to ignore it’s potential effect on their marketplace. SL is not a game, in that there are no points, scores or winners. It is a social network, in that the point is for users, or residents as SL refers to them, to interact with each other.

While there are other popular virtual worlds, SL is currently a focus of attention because it allows users to retain ownership of the IP they create in the environment; and it allows economic transactions between users ‘in-world’ using a currency named the Linden, which can later be exchanged for ‘real world’ currency.

SL users have already created items of value in world, the most common so far appears to be business-savvy avatars. The website created its first millionaire in November 2006 when avatar Anshe Chung (Ailin Graef) cashed in her in-world land holdings for real-world currency.

Are virtual IP Rights valid?
In the SL arena, avatars retain full rights of the products and services they create. As such, the website functions as a virtual equivalent to real-life commerce. For example, advertising agencies and software developers are being paid to construct objects, such as retail establishments, on behalf of corporate residents. Linden reported that approximately 230,000 users participated in nine million transactions in February 2006. Using a positive cash balance as a yardstick, SL estimates that there are 25,000 ‘businesses’ in-world. Some of these businesses are real world corporations, such as Sony and IBM who are using SL as a test-bed for product promotion and conferencing. Questions therefore arise as to the protectability of IP Rights – both IP created by residents in-world and real world IP used in-world, such as trademarks.

Protecting your IP Rights on SL
For both real-life businesses and virtual IP holders, e-commerce on SL shares legal quandaries with other e-commerce on the web, namely, where does the transaction take place? Can a forum chosen by the plaintiff exercise jurisdiction over the defendant and over the dispute?

When confronted by these issues in the 1990s, courts muddled through and in the US at least, produced workable doctrines. As to jurisdiction over a website, for example, mere accessibility on the web would not be sufficient – the website operator would have to be deemed to be targeting the plaintiff’s forum, with some evidence of results of that targeting, such as sales into the forum.

This can be very effective in connection with the shipment of the sale of physical goods, ordered by credit cards that identify the country of the credit card holder. However, in a virtual world, the vendor has less control if the delivery of, say, an avatar, is immediate, and the purchaser’s real world location is not revealed when using a ‘global’ currency, such as the Linden.

In the SL arena, avatars retain full rights of the products and services thay create. As such, the website functions as a virtual equivalent to real life commerce.

But while SL may have downsides in policing commerce, it also may have advantages in comparison to the web. While the Internet as a whole has no single governing body, SL is a private space and has contractual and technical control over all residents. How it will exercise that control remains to be seen.

Controlling piracy
At the operations level, SL has complete control over the residents. It possesses a great deal of information on the location of residents and their comings and goings. It also has information relating to copyrightable objects, avatars and otherwise. In response to the CopyBot incident, SL discussed increasing the amount of ‘attribute’ information on all objects. It’s as if one enforcement agency could put radio frequency ID (RFID) tags on every item of commerce in the world. Additionally, all SL residents enter into Terms of Service Agreements. SL could therefore regulate commerce by imposing transparency and accountability requirements on merchants.

However, SL finds itself in a similar position to Google, eBay and the pre-ICANN era Network Solutions – it has the technical and contractual power to resolve a dispute, but is reluctant for liability and business reasons to ‘pull the plug’ on a customer, and has stated as such.

In contrast to Google and eBay, which created non-discretionary dispute resolution procedures, SL is tending more towards the choice made by the domain name industry in that it is advocating third-party mediation for disputes between residents and real-life business. While it will actively assist in real world proceedings, such as the US Digital Millennium Copyright Act procedure, it is encouraging the creation of dispute resolution bodies for residents by residents.

At first blush, it seems improbable that a sophisticated IP holder would ever waive its real world rights, they may come to view in world dispute resolution as they do the domain name UDRP: if it stops infringement before going to court, then it ‘works’.

In the meantime, IP owners are advised to maintain their normal IP protection routine, and have an employee or two join SL to keep an eye on it. They might even have fun.


THE COPYBOT INCIDENT:

The (perhaps) shaky underpinning of SL’s goal in becoming a trusted e-commerce marketplace was revealed by an incident in November 2006, when a software application named CopyBot was released into SL. Originally intended as a debugging and development tool, CopyBot could quickly duplicate the appearance of any avatar. Such functionality could render any market for building on SL impossible, as any object could be endlessly reproduced.

While it was unclear whether CopyBot was ever used for malicious purposes, SL decided that its use was a violation of its terms of Service Agreement. Usage disappeared and SL reported that there was no lasting effect on sales of objects in-world. However, as real world corporations pay large sums to software designers to create magnificent in-world SL structures, they face a problem not encountered by the owners of real-world structures – in the our world, the Taj Mahal cannot be immediately reproduced with the click of a button.


This article first appeared in IP Review, issue 18

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