From foundations laid in the 1960s, through the birth of the Worldwide Web in the early ’90s, to the subsequent bursting of the dot-com bubble, and beyond, the Internet has taken on a life of its own. Today, with the recent rise and popularization of on-line social networking communities, from the MySpace™ hosting service to the hugely popular World of Warcraft® game, people on the Internet are now reaching out, connecting and meeting up with one another in virtual environments.

In these and other Internet communities, computer users interact with one another and gain reputations for their virtual identities. The effects are starting to be felt in the real world. Illustrative of this fact was the May 1, 2006 cover of Business Week, which featured a picture of Anshe Chung, the first virtual person to become a real millionaire. Chung, who is the virtual identity of a real-world person by the name of Ailin Graef, achieved a net worth in excess of US$1 million entirely through transactions involving virtual property in the Second Life® on-line world – a virtual space where “residents” can exchange the world’s virtual money (Linden™ dollars) for real-world U.S. currency.

The Second Life® on-line community is out-of-the-ordinary even when compared to other virtual worlds, since its users are afforded a measure of ownership over, and even encouraged to trade in, the intellectual property (“IP”) that they help to create on-line. On the other hand, most on-line game providers, for example, Blizzard Entertainment, Inc. (the company behind the World of Warcraft® game), have taken steps to restrict real-world sales of the virtual property that exists solely within such games (e.g., in-game currency and other virtual items). Perhaps as a result of such efforts, the eBay® listing policy now requires a seller to be the owner of the underlying IP in any virtual items, or to be authorized to distribute the virtual items by the IP owner. No longer confined to the pages of sci-fi novels, therefore, virtual property interests are ones that are starting to receive some serious attention. As might be expected, the emerging rules which govern IP trade on the virtual frontier are set by the service providers; that is, by the hosts of the virtual worlds. Users must indicate that they agree to the rules set by the host, that are usually proffered in the form of a click-through agreement in order to gain access to the virtual space.

The host of a virtual space will typically maintain server-side computing power, and their IP (whether protected by patents, trademarks, and/or copyright) may include software, as well as certain templates and other environmental content that underlies the virtual space. At the other end of the information superhighway, users frequently input and upload their own IP (including their previously copyrighted works, trademarks, etc.) into the virtual space, or they may create new and original works based on the host’s IP. In this way, the users and the host may together be coauthors of the newly created work. In fact, IP in virtual worlds can be co-authored by the host, by multiple users, and/or by outside content providers.

Virtual property can take any number of forms, including virtual characters (“avatars”), virtual objects (e.g., clothing, cars, buildings, trees) and virtual landscapes, among other things. Frequently, real-world programming scripts may underlie the virtual property. Other forms of virtual property may include performances taking place in the virtual space, such as dramatic, musical and spoken word (or type-written) performances, as well as the cinematographic rights associated with a user-recorded “walkthrough” of the virtual space.

In clicking through the terms of use, visitors traveling down the virtual rabbit hole to Wonderland will typically be asked to (1) grant the host a licence to use any uploaded IP, (2) represent they are authorized to upload the IP and provide the licence, and (3) undertake to indemnify and hold the host harmless against any claims of IP infringement. Visitors to the virtual space may, nonetheless, be exposed to liability for IP infringement as a result of purchasing or using virtual property which is provided by others. For this reason, it is important for service providers and for the users of virtual spaces to ensure that the terms of service and any associated IP licences provide adequate assurance and protection against claims for IP infringement, both from other users and from outside IP owners. Users of virtual spaces, in particular, should keep in mind that privity of contract may bar them from relying upon any obligations, representations, and/or licences that may have been ostensibly provided by other users under the terms of service.

For the present time, it would seem that many virtual worlds are enjoying a calm period of relatively lax IP enforcement. The trade in virtual property is bustling. Residents regularly contribute value to these virtual spaces by creating and/or uploading IP content. Unfortunately, these halcyon days may not last forever. While some real-world IP owners are still oblivious to potential infringement in virtual spaces, an increasing number of players with large IP portfolios are entering the fray. Virtual property owners and hosts may soon find an increased pressure to scrutinize and validate the underlying IP ownership in commercially traded virtual properties so as to better ensure against IP infringement. Users in violation of a host’s click-through IP policies and terms of service could find their virtual property interests seized or dissolved. Consider, for example, the ongoing case of Bragg v. Linden Research et al. That case arose after Linden Research (the host of the Second Life® on-line community) suspended Bragg’s account for violating their Terms of Use and liquidated virtual property for which Bragg claims to have paid about US$8,000 in real-world currency. Bragg, an attorney in the United States, sued for damages. That case, like much of the law on virtual property at the convergence of contract and IP, remains to be decided.