Why Should Corporate Counsel Become Familiar With Virtual Environments? Aren't They Just Fun And Games?

"... based on my studies thus far, corporate counsel needs to learn about it too. ... Also, several real world attorneys have a presence in Second Life and have joined the Second Life Bar Association. Some have their own law firms and provide legal advice to other avatars. Since March 2006, Attorney Stevan Lieberman has been operating an office in Second Life that has the appearance of a wooden octagon floating 300 feet in the air.
Judge Posner of the Seventh Circuit Court of Appeals gave a presentation in December 2006 to promote his new book. This event took place entirely within Second Life and covered such topics as the copyright fair use doctrine. Reportedly, when Judge Posner's talk was interrupted by a 6-foot raccoon claiming to be an attorney from Washington, DC, he cleverly responded: "I like your tail." It is estimated that each day in excess of $1 million USD worth of transactions take place in Second Life. Therefore, it is no surprise that the virtual economy of Second Life has resulted in trademark and copyright infringement lawsuits being brought in U.S. courts. In a lawsuit filed on October 24, 2007 in the Eastern District of New York, a group of virtual merchants selling virtual products in Second Life sued Thomas Simon. The virtual merchant plaintiffs claimed that Simon willfully made unauthorized copies of their copyright and trademark protected products and Simon misrepresented that the products he sells are authentic ones. The plaintiffs sell adult-themed virtual items, including furniture, shoes, and skins to cover avatars. The complaint includes claims of unfair competition under Section 43(a) of the Lanham Act, copyright infringement under the U.S. Copyright Act, and counterfeiting of a registered trademark. This case settled in December 2007; however, wouldn't it be interesting if the parties to this case had agreed to resolve their dispute by participating in mediation or arbitration within Second Life? It certainly seems possible that dispute resolution in a metaverse could be successfully accomplished.... "Second Life provides that its players own the intellectual property rights to the things they create within the virtual world. According to the Terms of Service agreement, these rights are enforceable both within the game and offline, and apply to both non-profit and commercial ventures. In what is reportedly the first lawsuit filed against Second Life, Marc Bragg, a West Chester, Pennsylvania solo attorney sued Second Life in May 2006. Bragg is alleged to have discovered a loophole that allowed him to buy virtual land really cheap before other players had an opportunity to bid. Linden removed Bragg from Second Life per the terms of its agreement which provides that Linden reserves the right to shut down any user's account at any time. Bragg's attorney asserts this forfeiture penalty clause is unenforceable. Linden's attorney moved to compel arbitration before the International Chamber of Commerce arbitration in San Francisco, as specified by the Second Life Terms of Service agreement. The U.S. District Court for the Eastern District of Pennsylvania, in a 46-page opinion, denied this motion, and Second Life's motion to dismiss for lack of personal jurisdiction.

"Trademark and copyright violations and contract disputes are not the only legal concerns brought about by virtual worlds. Corporate and government counsel should also take notice of the possibility that virtual worlds could be used for money laundering, identity theft, and other fraud-related crimes. Britain's Fraud Advisory Panel, a watchdog created by the Institute of Chartered Accountants in England and Wales, recently published a report urging the government to apply real-world financial regulation to Second Life and other virtual environments. The report warned that players can move illicit funds across national borders without constraint and with little risk of detection. Some software firms are developing additional payment methods that can be used to purchase and sell virtual money. For example, the Swedish software company, MindArk, is developing ATM cards. These cards are essentially reloadable stored value cards that could be used to deposit and withdraw monies from virtual worlds. Consider that an individual can use false information to create one or more avatars and currently no customer identification or suspicious monitoring and reporting requirements have been imposed on virtual worlds as is required for certain financial institutions under the anti-money laundering provisions of the Bank Secrecy Act and USA Patriot Act. An avatar could fund a virtual account with proceeds of crime through virtual world ATMs or other payment methods, and have a co-conspirator on the other side of the world engage in a series of virtual world transactions which would convert those funds into various virtual world holdings (e.g., virtual real estate), only to be followed by an exchange of the virtual funds (i.e., laundering of these funds) back into real U.S. dollars. As it stands, it is unclear the extent of how much money laundering, if any, is occurring in these virtual worlds. However, one thing is clear - virtual worlds are a prime target for money laundering.

"In sum, exposure to or at least some basic knowledge of virtual environments is desirable for corporate counsel. It might not be long before your marketing department is requesting a review of advertising materials to be presented in Second Life, or a customer or employee is reporting an abuse of the company's trademark or other intellectual property rights in a virtual environment."