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?

Where the proprietor of a virtual community generally fails to enforce the rules, could it be estopped from doing so in any particular instance?

Despite a clear contractual right to terminate, a provider may be estopped from terminating in circumstances where it would be unconscionable to do so.¹⁾ In order to prevent the provider from terminating, a participant would have to show that the provider had represented that it would not terminate, that the participant relied on that representation to his or her detriment, and that it would be unjust or inequitable for the provider to terminate in those circumstances.

The representation that the provider would not rely on the right to terminate does not need to be explicit, but it must be unequivocal.²⁾ The representation does not need to be made to a particular person, but can be made to a class of people.³⁾ Where breaches of a particular rule are widespread, a long-standing failure to enforce the rule could conceivably be construed as a representation that the provider will not enforce the rule in future. However, such non-enforcement could also be construed as not making any representation as to the future.⁴⁾ The requirement that the representation be unambiguous does not mean that “it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed.”⁵⁾ Whether a representation has been made is a question of fact, and its existence “must be decided on ordinary common law principles of construction and of what is reasonable, without fine distinctions or technicalities.”⁶⁾ In practice, while possible, it may be quite difficult for a participant to establish that the provider represented that it would not enforce a rule in future or against any particular person.

If a representation can be shown, the participant must also be able to show that he or she reasonably relied on that representation. While showing reliance may be straightforward – in that the participant would not have engaged in conduct that technically broke the rules if he or she did not believe that the rule would not be enforced – showing that the reliance was reasonable may be more difficult. In Galaxidis v Galaxidis, Tobias JA (with whom the other members of the NSW Court of Appeal agreed) held that

the representation is sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted the representation in a particular way being a meaning which it is clearly capable of bearing and upon which it is reasonable for the representee to rely.⁷⁾

Brennan J, in Walton Stores v Maher, held that it was “essential to the existence of an equity created by estoppel that the party who induces the adoption of the assumption or expectation knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation”.⁸⁾ Again, whether it is reasonable for a participant to rely on a representation that the provider will not enforce a strict contractual right will depend on the circumstances.

It may be difficult to establish in many cases, but it would certainly be open for a judge to find that a platform owner is estopped from terminating a particular participant's access to the virtual community where it takes no action against others who have habitually broken the same rule. If an estoppel can be established, it is important to consider that estoppel does require that that the representation or promise be fulfilled, but instead only provides a remedy for the detriment suffered as a result of reliance upon the representation.⁹⁾ For this reason, an estoppel, unlike an election, is not permanent – if the detriment to the relying party can be cured, the provider will once again be entitled to exercise its rights. For practical purposes, this means that given sufficient warning, a provider may be able to begin to enforce rules which it had largely ignored in the past.

There is a lot of flexibility in the doctrine of estoppel, and a significant normative question arises as to whether it ought to apply in any given case.¹⁰⁾ In the most extreme cases, it will almost certainly be effective as a brake on the ability of platform owners to rely on strict contractual rights which it has encouraged participants to believe would not be enforced. Its application in other circumstances, however, will depend in a large part on the discretion of the court as to how the alleged representation is interpreted and how reasonable the court believes the reliance on that representation to be. Like the other ways in which strict contractual rights can be read down, I believe that these considerations will depend particularly on the importance which the court attaches to the interests of the participant at issue.