Following on from my post about MDY v Blizzard, Bragg v Linden is another of the tough questions that will frame my thesis.

Second Life is a three-dimensional free-form virtual world constructed primarily by its participants. Unlike some other virtual worlds, Second Life is not a 'game' – it has no central narrative or defined goals. Participants have the relative freedom to own land, customise their avatars' appearance, build objects and create clothing, socialise and express themselves as they wish (within limits). Importantly, Second Life is backed by a fully integrated economy – participants can trade goods and services between themselves for virtual currency, and that virtual currency can be easily bought and sold for US dollars. Second Life is free to join, but extracts monthly subscription fees from participants who wish to own their own virtual land.

Because of the way that Second Life is structured, land is highly desirable to participants. Owning land allows participants a place of their own to build objects or buildings and design as they wish. Land also grows in importance as one's participation in Second Life increases, as the total number of objects that a participant can build is limited by the amount of land that she owns. So whilst ownership of land is not necessary to participate in Second Life, in a very real way, land ownership is closely linked to the economy, and land sales and taxes are the predominant income streams for Linden Lab.

The importance of land in Second Life has resulted in a substantial secondary market for land. Some real estate speculators purchase land at low values with the hope of selling it for a profit in the future. Others buy large blocks of land directly from Linden Lab and subdivide them, leasing them to participants who do not own their own land. Still more act as property developers, creating housing or commercial estates that they are able to sell or rent to others. A number of participants have received considerable success buying, selling, and renting virtual land in Second Life – including some self-proclaimed Second Life millionaires.

This convergence between real and virtual economies contributes significantly to Second Life's appeal. But it is also the cause of substantial tension within the community. The 'virtual' economy in Second Life is fluidly convertible to 'real' currencies, like the US dollar, and participants clearly feel a sense of entitlement to their virtual property and currency. Linden Lab clearly encourage this behaviour – their slogan is “Your world. Your imagination.”; their promotional material refers to the possibilities of 'owning' virtual land and generally stresses the fluidity of the market. The Terms of Service for Second Life, however, explicitly deny that participants have any right over the in-world currency and that it is in fact a currency at all. Instead, Linden Dollars are purported to be a 'limited licence right' granted by Linden Lab – and revocable at any time. Similarly, Linden Lab asserts that participants never 'own' 'land' – rather, they merely lease the right to use certain computing resources that generate the virtual environment. This contradiction between the internal norms of Second Life and the literal interpretation of the contract results in significant uncertainty and tension in the community.

The best example of this tension is the case of Bragg v Linden Lab. Marc Bragg was a US attorney who invested in Second Life, purchasing land for resale. Bragg discovered a loophole in Linden Lab's official land auction system that enabled him to purchase land that was not advertised for sale at significantly under market prices. When Linden Lab discovered this, they immediately suspended Bragg's account, preventing him from accessing Second Life and effectively confiscating what he claimed amounted to approximately USD$5000 of his in-world virtual property – not only the land at the centre of the dispute, but also the land that he had previously bought and any objects in his possession. Bragg complained, alleging that he had been wrongfully disconnected and that Linden had unlawfully confiscated his virtual property. Linden responded that it was acting within its power to enforce its rules – having caught Bragg cheating, they suspended his account and terminated his right to access and hold their property.

Bragg filed suit against Linden Lab, alleging that Linden had unlawfully confiscated his property and denied him access to Second Life. Linden responded with a motion to compel arbitration, as per their dispute resolution policies in the Second Life Terms of Service. The US District Court for the Eastern District of Pennsylvania held that the dispute resolution policies were procedurally and substantively unconscionable, and refused to grant the motion to compel arbitration. At this point, Linden Lab settled with Bragg on undisclosed terms. Bragg has now had his Second Life account restored and his virtual property returned.

This case, for the relatively short period in which it was active, generated significant interest both within Second Life and from external commentators. It promised to deliver a judicial opinion on whether participants in Second Life were entitled to own virtual property. As Robreno J held in dismissing Linden's application to compel arbitration,

This case is about virtual property maintained on a virtual world on the Internet. Plaintiff, March Bragg, Esq., claims an ownership interest in such virtual property. Bragg contends that Defendants, the operators of the virtual world, unlawfully confiscated his virtual property and denied him access to their virtual world. Ultimately at issue in this case are the novel questions of what rights and obligations grow out of the relationship between the owner and creator of a virtual world and its resident-customers. While the property and the world where it is found are “virtual,” the dispute is real.

The dismissal of the motion to compel arbitration signaled that the US District Court was prepared to examine the terms of the Second Life terms of service and to rule on the complicated issue of property rights within the virtual world. There was palpable disappointment from commentators when the case settled before such a precedent could be handed down.

Despite the case settling, it still provides a very interesting factual scenario through which we can evaluate potential regulatory regimes. It poses an interesting question, and represents a legitimately hard case: if Linden was right, and Bragg cheated by exploiting a bug in the auction code, are there limits to how Linden can enforce the rules and impose sanctions on Bragg? On the other hand, if Bragg is to be believed and he did not break any rules, are Linden Lab obliged to maintain his access to Second Life and his interests in what he asserts is his property?

You can find the paper at SSRN: Real Money Trading in MMORPG items from a Legal and Policy Perspective.

I really enjoyed this paper, and recommend that you take a look if you’re interested in the topic. The analogy to goodwill is really interesting, and there are some great critical insights about the choices that game developers make, which inevitably encourage RMT, and the benefits they receive from RMT. These recognitions set the stage for an interesting debate about the extent to which developers and publishers can then purport to rely on contractual terms which prohibit RMT.

In this article, Judge Ung-gi Yoon considers the legal status of Real Money Trading (RMT) in Massively Multiplayer Online Role-Playing Games (MMORPGs). Judge Yoon notes that in-game items are virtually treated as personal property, but are only legally recognised as information goods. The right of ownership of these goods belongs to the developers, and players have a right to use, as conferred by the terms of service. In contrast, players own the rights in content they create themselves within the game. Transfers of in-game items, as a manifestation of real human will, can accordingly be seen to be transfers intended to have real legal effect in the form of a transfer of a portion of the right to use over the game service held by a user in the real world.

Judge Yoon argues that declarations of intent by players within a game environment cannot be unilaterally ignored by the legal system, and must instead be individually judged to determine whether they were intended to be legally binding. In this conception, internal rules which are consistent with game play should be given precedence over external real-world rules. However, real-world rules should be applied in cases where the intent is unrelated to the game’s proper context, for example in cases of in-game defamation.

Through this framework, Judge Yoon considers RMT, noting that most discussions of RMT in South Korea and elsewhere characterise the objects of real-world transactions as the in-game items. This characterisation, however, is flawed because in-game items are not capable of being treated as personal property. An alternate suggestion is that the transaction is characterised as a sale of a right to use, but this characterisation fails to adequately explain the disparity in values of right to use versus the fees charged by the MMORPG operators, and presents a large liability problem for the operators with regards to the valuable rights to use of their users.

Judge Yoon argues that neither of these models are satisfactory – the object of RMT is neither the item itself nor the right to use the item, but rather something entirely distinct. Instead, the objects of RMT are better recognised as ‘play values’, and the monetary compensation is a ‘gwonri-geum’ (lease goodwill) payment. This analysis makes an analogy between the transfer of goodwill and RMT, where the transfer is not a purchase of an item or the right to use, but rather a payment for the effort the other party has invested in obtaining the item. On this analysis, RMT does not concern the operator any more than sales of goodwill concern the lessor of a business property.

It follows that if RMT is not the transfer of an item or the right to use an item, but rather a transfer of goodwill, then it must fall within the domain of private autonomy of players, and developers and publishers have no legal standing to interfere with the transfer. However, because the value in RMT transactions is the goodwill associated with the item and not the item itself, RMT does not impose liability on the publishers for protection of the items. A publisher’s liability will be limited to the original value of the item (related to the subscription fee), and not for the amounts in which associated goodwill is traded.

Judge Yoon argues that developers and publishers need to face the reality that market pressures have transformed play into real economic activity, a transformation which resulted from the game design choices made by the developers.

The fact that goodwill transfers are outside the scope of regulation by the publisher does not mean that the publisher has no right to regulate related activities. For example, prohibiting in-game advertising of RMT may be prohibited because it interferes with gameplay. Judge Yoon suggests that publishers ought to disclaim any involvement and liability with regard to monetary transactions between players, but reserve the right to regulate the in-game behaviour of players. Judge Yoon argues further that there is no real legal basis for justifying the imposition of restrictions on RMT transactions, and such bans are unfair insofar as they heavily infringe upon players’ rights to the intangible value they have created.

Judge Yoon points out that many publishers and operators do not care to correct structural issues in their games which lead to RMT, as RMT indirectly increases their revenue. However, by including an unenforceable ban on RMT in their terms of service which is of questionable validity, publishers are hypocritically covering themselves in cases where the negative social effects of RMT, particularly on the welfare of youth, are brought into question. Judge Yoon concludes that doing away with bans on RMT can alleviate some of the problems which have been recognised in South Korea, by respecting the personal autonomy of players, allowing trade to occur in a more stable environment and making it easier to deal with fraudulent traders.