“Second Life” Challenges the Boundaries of Law in Cyberspace

I.  Introduction
Virtual reality is fast becoming a mainstay in today’s modern culture of computer savvy citizens all over the world.  [1]  It is a concept of real time and space existing within a construct comprised entirely of a dynamic, streaming assembly of 1’s and 0’s of binary programming language, translated into an individual’s online world.  As the complexity and realism of these interactive virtual playgrounds increase, users have adapted a plethora of entrepreneurial opportunities that test the legal boundaries of laws throughout the world, including those of the United States.  [2]   

As esoteric as the concept of a body of law existing in a domain lacking a tangible, physical existence may seem, society is now witnessing the birth of an age where laws do exist in virtual worlds.  These laws are continually evolving and adapting to the breakneck speed at which technology pushes the envelope forward.  [3]  But where do we draw the legal line in respect to a person’s virtual bundle of sticks?  Enter the world known as Second Life.  [4] 
II.  A Brief History of Time [5]:  The Emergence of Second Life
Second life is a virtual 3-D world designed much like a sand box.  It is a world that is created entirely by its residents and continually evolves as more people “inhabit” and contribute to their virtual community.  [6]  Opened to the public in 2003, it boasts more than 10 million residents since its creation and more than a million active users.  [7]  Linden Labs (“Linden”), the creators of Second Life, describe it as a “vast digital continent, teeming with people, entertainment, experiences, and opportunity” where residents can buy virtual parcels of land to build their homes or businesses.  [8]   

Due to the incredibly wide open nature of the environment, enterprising entrepreneurs soon recognized the enormous potential of this virtually untapped and seemingly unlimited resource.  [9]  Indeed, over $6 million has changed hands in user-user transactions in the form of virtual land, merchandise, and services in the first two quarters of 2007 alone.  [10]

III.  A Brave New World [11]:  An Entrepreneur’s Dream
When Linden opened the digital doors in 2003, they promised the Second Life participants that they could “buy, own, and sell virtual goods…[including] virtual land,” through transactions of in-game currency known as Linden dollars.  [12]  As a result, the Second Life economy has flourished ever since its inception with over 300 thousand users spending money in-game and at least 138 users earning over 5,000 Linden dollars (265 Linden / $1 US) of positive income as of September 2007.  [13]   

     A.  Tech Savvy Users Develop Profitable Niche Markets
For example, a German woman announced in December 2006 that she had earned over $1 million from Second Life real estate investments built from her initial investment of $9.95 in 2004.  [14]  She now has 20 employees in China and Germany designing and developing real estate, as well as a popular line of fashion ware for the avatars, or alter egos, that inhabit the virtual world.  [15]  Some of the top virtual fashion designers claim to make upwards of $75,000 per year in an industry that requires no material, thread, or sweat shops.  [16]   

     B.  Corporate America Takes Notice
Corporate America has also recognized the commercial potential in Second Life.  [17]  For instance, MTV Networks Company has opened a club in the virtual world, American Apparel opened a T-Shirt store for avatar apparel, Toyota has begun selling digital vehicles, and IBM purchased a dozen virtual islands to conduct private business for their employees.  [18]   

The possibilities are seemingly endless, with users teaching virtual classes, opening virtual restaurants, role-playing, pursuing relationships (including intimacy and marriage), promoting politics, making music, and traversing the virtual cities that can potentially be as vast as the Second Life community wills it to be.  [19]  Linden Labs claims to support the user’s right “to retain full intellectual property protection for the digital content they create in Second Life” and states that if “[y]ou create it, you own it – and it's yours to do with as you please.”  [20]  However, as with many things in life, sometimes things are too good to be true.

IV.  Paradise Lost [21]:  Here Come the Lawyers
As these massively multiplayer on-line role playing games (MMORPGs) continue to progress and parallel reality, real world issues and the law are quickly becoming relevant in these virtual environments.  [22]  Linden Labs established legal protections by requiring users to comply with the processes of the Digital Millennium Copyright Act regarding copyright infringement claims.  [23]  Indeed, with virtual property and merchandise changing hands at high volume every day, legal disputes are a virtual certainty.  [24]

Law offices and IP boutiques have opened virtual offices within Second Life [25] with work consisting of standard business contracts between in-game avatars and other seemingly standard transactions; however, new problems are cropping up that will certainly require new precedent in the virtual economy.  The following examples exemplify some contemporary issues:

     A.  Land
In April 2006, one user, Marc Bragg, purchased a very large tract of virtual property called “Taessot” by exploiting a loop hole in the standard purchasing procedures.  [26]  Linden contacted Bragg and claimed that the property was improperly purchased as an “exploit” and subsequently confiscated the territory.  [27]  Bragg took his case to court and though there is still pending litigation, the judge described the taking as “effectively confiscating all of the virtual property and currency” since Bragg no longer had control of his assets.  [28]  This raises the question of whether the “you create it, you own it” policy really exists when the owner has free will to enforce a virtual regulatory taking.

Other countries have begun to recognize virtual property rights and have taken steps to enforce those rights.  In December 2006, for example, a Beijing court ordered restitution of one user’s stolen virtual weapons cache.  [29]  Given that the United States has a stronger position on the concept of property rights, it seems likely that similar cases will develop here.  [30]   

     B.  Taxes
As millionaires become commonplace in virtual worlds, it would be expected that the IRS would have a keen interest in taking Uncle Sam’s cut.  [31]  It is generally understood that if you “cash out” and sell virtual merchandise in the real world, the profits are taxable.  [32]  Where the difficulties lie are in-game transactions and bank accounts where virtual money never leaves the digital realm; yet profits accumulate to unprecedented levels.  [33]   

The IRS has proceeded with caution, worried that applying taxes in the digital domain could have a seriously detrimental and devolving effect on virtual economies in the United States.  [34]  Users would simply turn to similar venues hosted in counties like China or Korea, where the IRS would have no jurisdiction.  [35]

     C.  Torts
While concepts like property and merchandise intuitively apply to applications like Second Life, what about the law of torts?  Brent Britton, a partner at a Tampa law firm, believes that while there is some press about unsavory issues like virtual rape, prostitution, and battery, the likelihood of a successful conviction is unlikely due to the necessity of a physical body.  [36]   

Though there has not been any pending court litigation on these matters, Britton does anticipate charges like intentional infliction of emotional distress, libel, and slander which may be perpetrated through a variety of media – real world or not.  [37]

V.  Conclusion
As the virtual economy begins to mature in today’s society, we face unprecedented legal issues that are sure to define the limitations of this virtually untapped, constantly evolving, and vibrant new frontier.  While MMORPG intellectual property rights in merchandise and land are gaining traction and establishing a foothold in the virtual universe (though not without some difficulty), we still see some contention with taxation and tort law.  Most of these issues have not been seriously considered by legislation or the judiciary, and legal guidance is sorely needed. 

As the complexity and realism of virtual worlds continually blur the line between fantasy and reality, the legal issues we face as a society in the digital universe will likely follow suit.


[1]  See generally Clay Shirky, Linden’s Second Life Numbers and the Press’s Desire to Believe, Dec. 26, 2006,http://many.corante.com/archives/2006/12/26/lindens_second_life_numbers_and_the_presss_desire_to_believe.php(last visited Oct. 20, 2007) (for background information about virtual on-line worlds).

[2]  See generally James Harkin, Get a (Second) Life, Nov. 17, 2006,http://www.ft.com/cms/s/0/cf9b81c2-753a-11db-aea1-0000779e2340.html?nclick_check=1 (last visited Oct. 23, 2007) (for background information about various online entrepreneurial endeavors).

[3]  Id.

[4]  See generally Secondlife.com, Main Page, http://secondlife.com/ (last visited Oct. 23, 2007) (for a complete and up-to-date resource regarding the history and developments within the Second Life virtual universe).

[5]  STEPHEN HAWKING, A BRIEF HISTORY OF TIME (Bantam Books 1998) (1988).

[6]  Secondlife.com, What is Second Life?, http://secondlife.com/whatis/ (last visited Oct. 23, 2007).

[7]  Secondlife.com, Economic Statistics, http://secondlife.com/whatis/economy_stats.php (last visited Oct. 23, 2007).

[8]  See What is Second Life?, supra note 6.

[9]  See generally Secondlife.com, http://secondlife.com (last visited October 23, 2007) (for links to resources regarding in-game buying, selling, and business opportunities, etc.).

[10]  Secondlife.com, Economic Statistics:  Graphs, http://secondlife.com/whatis/economy-graphs.php (last visited Oct. 23, 2007).

[11]  ALDOUS HUXLEY, BRAVE NEW WORLD (First Perennial Classics ed., HarperCollins Publishers 2000) (1932).

[12]  John Bringardner, Brave New World:  In the Online Game Second Life, Users Can Shop, Meet Friends, Have Sex, Make Money, And Get Into IP Disputes.  Just Like Real Life., Feb., 2007,http://iplawandbusiness.law.com/display.php/file=/texts/0207/secondlife (last visited Oct. 20, 2007).

[13]  Secondlife.com, Economic Statistics, http://secondlife.com/whatis/economy-market.php (last visited on Oct. 20, 2007).

[14]  See Bringardner, supra note 12.

[15]  Id.

[16]  Irene Sege, Leading a Double Life:  In a User-Created Universe, Alter Egos Bridge the Gap Between Fantasy and Reality., Oct. 25, 2006,http://www.boston.com/news/globe/living/articles/2006/10/25/leading_a_double_life (last visited Oct. 20, 2007). 

[17]  See Bringardner, supra note 12.

[18]  Id.

[19]  See Sege, supra note 17.

[20]  Secondlife.com, Intellectual Property Rights, http://secondlife.com/whatis/ip_rights.php (last visited on Oct. 20, 2007).

[21]  JOHN MILTON, PARADISE LOST (Penguin Classics 2005) (1667).

[22]  See Bringardner, supra note 12.

[23]  Secondlife.com, Terms of Service, http://Secondlife.com/corporate/tos.php (last visited on Oct. 10, 2007).

[24]  See Sege, supra note 16.

[25]  See Bringardner, supra note 12.

[26]  Judge Denies Dismissal Of Virtual World Property Complaint, [2007] 9-4 Mealey's Litig. Rep. Cyber Tech & E-Com. No. 11 (June 2007).

[27]  Id.

[28]  Id.

[29]  Amy Kolz, Virtual IP Rights Rock Online Gaming World, Dec. 6, 2004, http://www.law.com/jsp/article.jsp?id=1101738506769 (last visited Oct. 23, 2007).

[30]  Id.

[31]  Clive Thompson, The Virtual Taxman Cometh, Dec. 18, 2006,http://www.wired.com/gaming/gamingreviews/commentary/games/2006/12/72317 (last visited Oct. 23, 2007).

[32]  Id.

[33]  Id.

[34]  Id.

[35]  Id.

[36]  Thomas Claburn, Second Life Gambling Ban Get Mixed Reaction:  Some Residents Feel Cheated By Rules That Ban Wagering On Games of Chance or Real-Life Organized Sporting Events if They Provide a Payout In Linden Dollars, July 26, 2007,http://www.informationweek.com/news/showArticle.jhtml?articleID=201201441 (last visited on Oct. 20, 2007).

[37]  Id.