Attorney and Second Life user Marc Bragg sued Linden Research, Inc., the company that runs Second Life, and Phillip Rosedale its CEO, for illegal taking of virtual property and exclusion from the virtual world. While the ultimate decision is still pending, the Pennsylvania court in the case has made preliminary rulings on personal jurisdiction and mandatory arbitration.

The personal jurisdiction question was raised in the context of the CEO being subject to jurisdiction in Pennsylvania. The CEO had a long history of participating in a national advertising campaign to induce customers to use (and pay for) the Second Life service. It was the CEO who personally made statements such as: "What you have in Second Life is real and it is yours. It doesn't below to us." The court sited a number of examples of press releases, interviews, newspaper articles, and even virtual web site presentations to Second Life members and participants. The court used these examples to hold that such a showing demonstrated adequate contacts and involvement in the specific subject matter of the law suit to subject the CEO to jurisdiction. Regarding the corporate shield doctrine, the court held that the CEO direct and personal actions in the situation prevented the CEO from successfully asserting that defense.

The mandatory arbitration issue was raised because it was a term of the Second Life terms of service (ToS). However, the court looked at the several one sided terms in the ToS and concluded that the ToS was procedurally and substantively unconscionable and refused to enforce the ToS. Amongst the one sided provisions was the arbitration clause itself, which was not necessary for Second Life-it could just confiscate property and deny service. The Second Life member would then be forced to arbitrate in San Francisco (the virtual world's real world location) using an expensive arbitration service.

Thus, the lesson from this ruling is that even the best agreement, if lacking balance and fundamental fairness, may not be sustained by courts. Businesses dealing with consumers or unequal parties should be careful in drafting shrink-wrap or click-wrap agreements to avoid situations like this where the court could not justify imposing the harsh terms of the ToS on the Second Life member. [Bragg v. Linden Research, Inc. and Philip Rosedale, 06-CV-04925-ER, E.D. Pennsylvania, Memorandum and Order of May 30, 2007]