Virtual worlds, such as Second Life and There.com, allow users to operate online characters, commonly called “avatars,” who may shop for real goods and build, buy and sell virtual items and locations. (See, e.g., www.secondlife.com and www.there.com.)
The capability of computer users, who are often anonymous or pseudonymous, to create and sell virtual items has led to concerns regarding unauthorized use of trademarks, copyrighted material and unauthorized content. At the same time, there are a number of additional legal issues concerning the governance of these online communities, the extent of the service providers’ responsibilities, jurisdictional boundaries, and the applicability and enforceability of real-world laws within virtual worlds.
Companies should secure legal guidance as they consider whether and how to monitor and quickly respond to reported IP violations within virtual worlds, especially threats to trademarks, copyrights and other important IP rights. Also, companies approached with virtual-world advertising or merchandising opportunities should be mindful of the potential risks and benefits. For example, licensors of virtual products should consider taking steps to restrict the use of, and where appropriate, ensure obsolescence of, any “virtual property” bearing their marks.
Background and Illustrative Example
Computer users who frequent virtual worlds typically assume the identities of online avatars who engage in ordinary human activities such as shopping, chatting with other avatars, dating, entertaining themselves with concerts, lectures and movies, and even working in virtual professions. Certain professions, such as developing virtual real estate and customized “designer” items for avatars (such as fashion and accessories), can be surprisingly lucrative. Many online worlds are focused on “real world” simulations and business (e.g., Second Life and There.com), whereas others (e.g., Worlds of Warcraft) offer a more fantasy-oriented gaming experience.
Business-oriented virtual worlds, in particular, tend to exhibit a convergence of characteristics that can lead to serious IP enforcement challenges:
- Prevalence of user anonymity: Avatars typically mask their identities through assumed names, and this anonymity can create obstacles in identifying and punishing bad actors.
- Proliferation of user-generated content: Participants in virtual worlds can introduce new content, such as simulated stores, products and events, into the virtual worlds, for which virtual world site operators claim no liability. As in real-world activities, these virtual activities can give rise to a full range of potential IP violations and defenses, including First Amendment and fair use defenses.
- Real-world economic transactions: Virtual currencies often have real-world analogues and may even be exchangeable for U.S. currency. In addition, a number of companies use virtual worlds to advertise real-world goods and services and to present sponsored virtual events, such as concerts, conferences and training.
A case in point is Second Life, which was launched by Linden Research, Inc. (Linden) of San Francisco in June 2003 and now dominates the virtual-world market, accounting for millions of dollars in transactions per year and registering more than 15 million avatar “residents.” According to the owners of the Second Life site, an average of about 40,000 anonymous or pseudonymous avatars are logged in at any given time. Second Life’s economy is sustained by “Linden dollars,” which are convertible to U.S. currency through in-world “LindeX Exchanges.” Companies such as Dell, Circuit City and Sony-BMG have official presences within Second Life, as do the embassies of certain countries. In addition, scholars, celebrities and entertainers, such as the rock group Duran Duran, have used the Second Life platform to create content directed specifically to virtual-world participants.
Developing Virtual World IP Strategies
As avatars strive to design and sell popular items and locations within virtual worlds, the most frequent legal disputes have involved online infringement of copyrights and trademarks. (There have also been reports of burgeoning illicit virtual sex and gambling, avatar “infidelity” and even homicide, via unauthorized deletion of a user’s avatar, but those issues are beyond the scope of this alert.) IP offenses are noteworthy in that even companies that shun involvement with virtual economies have been forced into imaginary environments to defend real world interests.
A typical scenario occurs when an avatar creates designer goods or when a virtual store imitates trademarked products or real-life locations, potentially creating confusion as to the source of the merchandise or sponsorship of activities. Also, copyrighted material and/or unauthorized derivative works can be distributed or sold by avatars without the knowledge of the rights holders. Common challenges involve detecting and identifying bad actors, selecting methods of response and crafting a response that sets effective precedents for continued rights enforcement in the future.
Among the IP enforcement challenges in virtual worlds is determining the appropriate strategies and responsibilities for monitoring and responding to violations of IP rights. For example, the extent to which a site operator is protected from liability for site users’ activities or required to take remedial actions for infringements and other violations will be tested in a case-by-case basis and may lead to different approaches in different jurisdictions. Also, due to (at least initially) the anonymity of many virtual-world users, IP enforcement actions may require, if appropriate, pursuit of simultaneous claims against both the site operator and the owner of the infringing avatar or virtual business. The extent of the site operator’s participation in or encouragement of the infringing activity can also affect the determination of whether the site operator qualifies for immunity under the DMCA.
Unauthorized use of IP in virtual worlds is a growing problem. Since virtual-world economies are rapidly expanding, and the applicable law and available enforcement strategies can be complex, Drinker Biddle has offered its clients counseling in generating and enforcing IP rights in virtual contexts, as well as in determining how and under what terms to establish a presence in virtual worlds.
Entering Virtual Markets: Know the IP Risks and Potential Benefits
The establishment of a virtual business presence can reach important demographic sectors and also provide a sort of “techno-cache” that can appeal to certain consumers.
Overall, there are growing opportunities for advertising and sales within online virtual worlds, but these opportunities can give rise to complex and unanticipated risks to IP assets. Clients are advised to keep these issues in mind when offered contracts involving virtual worlds or considering how best to generate and protect IP in virtual contexts.