Bragg and IGE cases

Many many legal happenings on virtual property and assets. First off, the judge in the Bragg v Linden case has dismissed Linden's Motion to Dismiss for Lack of Jurisdiction and Motion to Compel Arbitration. Lots to say about this Order, but I need some time to digest it. Also, a South Florida law firm has brought a consumer class action on behalf of US WoW subscribers against IGE for their gold farming activities. Much to be said here in a bit.

The highpoint of my brief reading to date is the opening paragraph of the Order in the Bragg case:

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.

Comments

[Kerri Knight]

1.

Your "a consumer class action on behalf of US WoW subscribers" link leads to the Bragg v. Linden Memorandum

feel free to delete this once corrected

[Elle Pollack]

2.

Insert obligitory "I'm not a lawyer" disclaimer here, but this might actualy have some impact. (Note that the events that led to Bragg being banned from SL and his (allegidly stolen) assets frozen are not at issue in the brief.

The first motion to dismiss is based on the claim that Bragg can't sue LL (registered in Delaware and HQed in California) on the grounds of a Pensylvania law (which is the basis for his case). Nothing very exciting: it was denied due to the fact that LL targets users in all parts of the country with their advertising.

The second part hits a lot closer to home and boils down to "Are the Second Life TOS (in particuarl the "you agree to settle disputes in aribration instead of in court" legaly enforceable. The motion to require arbitration was struck down on the basis of the TOS being "Procedurealy unconscionable" (a contract presented in "take it or leave it" terms with no reasonable alternitive option) and "substantialy unconsiosable" (the contract is one-sided and offers limited bargining power to the person it's being enforced on).

I think these are the really relivant passages and the impact might not be limited to LL, but to a *lot* of online services and even software with similar EULA/TOS if this spreads.

"A contract or clause is procedurally unconscionable if it is a contract of adhesion. A contract of adhesion (...) is a “standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”

[...]

The TOS are a contract of adhesion. Linden presents the TOS on a take-it-or-leave-it basis. A potential participant can either click “assent” to the TOS, and then gain entrance to Second Life’s virtual world, or refuse assent and be denied access. Linden also clearly has superior bargaining strength over Bragg. Although Bragg is an experienced attorney, who believes he is expert enough to comment on numerous industry standards and the “rights” or participants in virtual worlds, see Pl.’s Resp., Ex. A ¶¶ 59-64, he was never presented with an opportunity to use his experience and lawyering skills to negotiate terms different from the TOS that Linden offered.

In Comb (vs. Paypal), for example, the court found a lack of mutuality where the user agreement allowed PayPal “at its sole discretion” to restrict accounts, withhold funds, undertake its own investigation of a customer’s financial records, close accounts, and procure ownership of all funds in dispute unless and until the customer is “later determined to be entitled to the funds in dispute.” 218 F. Supp. 2d at 1173-74. Also significant
was the fact that the user agreement was “subject to change by PayPal without prior notice (unless prior notice is required by law), by posting of the revised Agreement on the PayPal website."

Here, the TOS contain many of the same elements that made the PayPal user agreement substantively unconscionable for lack of mutuality. The TOS proclaim that “Linden has the right at any time for any reason or no reason to suspend or terminate your Account, terminate this Agreement, and/or refuse any and all current or future use of the Service without notice or liability to you.” TOS ¶ 7.1. Whether or not a customer has breached the
Agreement is “determined in Linden’s sole discretion.” Id. Linden also reserves the right to return no money at all based on mere “suspicions of fraud” or other violations of law. Id.
Finally, the TOS state that “Linden may amend this Agreement . . . at any time in its sole discretion by posting the amended Agreement [on its website].” TOS ¶ 1.2.

In effect, the TOS provide Linden with a variety of one-sided remedies to resolve disputes, while forcing its customers to arbitrate any disputes with Linden. This is precisely what occurred here. When a dispute arose, Linden exercised its option to use self-help by freezing Bragg’s account, retaining funds that Linden alone determined were subject to dispute, and then telling Bragg that he could resolve the dispute by initiating a costly arbitration process. The TOS expressly authorized Linden to engage in such unilateral conduct.

As in Comb, “[f]or all practical purposes, a customer may resolve disputes only after [Linden] has had control of the disputed funds for an indefinite period of time,” and may only resolve those disputes by initiating arbitration. 218 F. Supp. 2d at 1175.

Linden’s right to modify the arbitration clause is also significant. “The effect of Linden’s] unilateral right to modify the arbitration clause is that it could . . . craft
precisely the sort of asymmetrical arbitration agreement that is prohibited under California law as unconscionable. Net Global Mktg., 2007 U.S. App. LEXIS 674, at *9. This lack of utuality supports a finding of substantive unconscionability."

[Amarilla]

3.

I guess i'll move to the USA and sue Jan Timkran MindArk Entopia.

[Edward Castronova]

4.

Watching these cases and the investigations by the FBI and German police into SL, I feel like the hobbits watching Saruman's armies marching away from Isengard. "The war is starting" is what they say, I think.

Things we have discussed and predicted on these pages since our founding in 2003 are now coming to pass. Decisions taken in the near future will determine the course this technology takes for generations.

Which reminds me: the need for sound public policy advice is growing more acute every day. If you haven't registered for Ludium II, please do so.

[thoreau]

5.

Amarillo said, "I guess i'll move to the USA and sue Jan Timkran MindArk Entopia."

Why?

In SL players create new items from 'thin air.' They seem to have a good argument for ownership.

In EU, players use items created by Mindark. In the MA model, items are basically rented by the user and a fee paid to the company (decay.)

I'm not sure where the ownership issue is in EU.

[Amarilla]

6.

I've said " and "; first, i'll move to the USA for a better personal life :P. Now, assumming i'm already there , i'll sue MindArk . Why what ?! Oh, because i could , because the USA Judges semmes to have a lot more guts and common sense than the European ones , and because MindArk's EULA/TOS and practices are breaking several European, USA and International Laws and practices. And also i'd love to move to the USA for the very nice views . McDonalds , California , Vegas, Al Capone , ice cream , SL ,Navajo natives , you know, a lot of interesting and nice things happening all the times there. Not to mention Chuck Norris and the NASA .

If you feel the urge to make free advertising on TN , follow the links posted by Dan then ask your local/personal lawyer about what preciselly is illegal in MindArk's EULA/TOS .

[Jeff Cole]

7.

RE: Bragg:
Regardless of one's opinion about Bragg, this case is a loser for Linden. If you build a world and tell your customers they own what they acquire, you shouldn't be surprised when your customers subsequently assert ownership rights. It's a pretty simple (and correct!) result.

VW-wise, I tink the most interesting thing about the memorandum is that the judge uses the phrase "virtual property" without pause (indeed, in each of the first three sentences!). This concept is not so esoteric as some commentators in this space argue. I mean, c'mon, if the law was long ago willing to define "possession" for ownership purposes as having "wounded, circumvented or ensnared [an] animal, so as to deprive [it] of [its] natural liberty, and subject [it] to the control of their pursuer," then can we really expect a court to pause, let alone to choke, on the concept of "virtual" property?

Ted: I am not sure why you should be so doom and gloom. Bragg (and to a lesser extent, Hernandez, which in a just world is dismissed under 12(b)(6)) seems to me to further the policy of respecting the magic circle.

Verily,
Jeff Cole

[csven]

8.

"Regardless of one's opinion about Bragg, this case is a loser for Linden."

Agreed. And it could have been so easily avoided too.

[Prokofy Neva]

9.

Elle, I thought from reading all the voluminous amounts of stuff out there on this case that in fact the issue of whether LL must return to Bragg his non-stolen property is still at issue in the case, and part of what will constitute a recognition of virtual property rights, should the case succeed.

[Tim]

10.

Re: Virtual Property

In a sense all property is virtual, because the ownership rights are constructed through legal regimes.

Naturally, a desk in real life has tangible characteristics that a desk in SL lacks. Namely, the desk in RL isn't dependent on a server staying on.

However from a legal perspective, if we can create ownership rights in things like the right to purchase a car at a later date (an option) then why not a right to exclude/alienate a space within an online world?

There are some issues with this however. If there is a court recognized property right in online chattel, then you have the issue of what happens when the MMORPG operator exposes an exploit that causes damage to a person's property, i.e. a file is corrupted and now the property no longer exists on the server? Would the operator then be liable for negligence?

[Jeff Cole]

11.

Tim,

Your question assumes that a player owns ab initio what she finds in an MMORPG. I've argued here and elsewhere that, without some affirmative action by the developer transferring onwership (as opposed to mere possession), such property is legally the subject of a bailment or a license.

"Some affirmative action" includes, as in this case, a developer's positive statements that player's do indeed own what they acquire. Another example is the ability to import/export items between games owned by separate developers.

If the property is the subject of a bailment or license, then a player would have no cause of action as against a developer (true owner).

Jeff

[Tim]

12.

Jeff,
Sure. I was talking about a situation where either a) the game company explicitly transfers the right of ownership (not a license), or b) the court recognizes an ownership interest.

In the recent Bragg ruling, it seems to me that the issue was about personal jurisdiction and the enforceability of the TOS, not the property rights.

However

"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 judge also notes that

"Rosedale even created his own avatar and held virtual town hall meetings on Second Life where he made representations about the purchase of virtual land. Bragg Decl. ¶ 68. Bragg “attended” such meetings and relied on the representations that Rosedale made therein. Id. "

What jumped out at me was the use of "relied on the representations that Rosedale made therein." The language of "reliance on representations" is in fact language that you would see used in a contracts dispute (detrimental reliance/estoppel), or in a fraud claim. It seems to me that the judge is taking seriously Bragg's claim that he was making an investment in a vehicle which he thought could yield value.

Of course it all depends on how the judge rules when the actual issue of what rights and obligations arise out of the developer/player transactions. Since the court has already used the reliance language, it seems possible that the court will entertain some kind of estoppel claim. This seems especially likely in light of the fact that the court characterized Rosedale as a "hawker standing outside the circus tent."

I understand that some gamers are upset that the "magic circle" is going to be broken. However, in the instant case, Linden and Rosedale brought this situation on themselves. Really, it's a startling display of naivete by Linden. Once a company hypes something as a moneymaking opportunity, they are inevitably going to draw legal scrutiny. The more money at stake, the more people expect to have available the typical remedies and dispute resolution that they would have in any other business transaction.

[Tim]

13.

*Of course it all depends on how the judge rules on the actual issue of what rights and obligations arise out of the developer/player transactions.

[Amarilla]

14.

I remember when we were kids we used to play a " cops vs robbers " type game ...each group has a leader ofcourse and one of them started to claim :
" this big laser gun cost $1 " ; ofcourse it was just a piece of wood , but you know how immersive a game can be to a kid ....at an end, each group's leader made himself a nice fat wallet ; then our moms ruined our fun : obliged the leader's moms to
" reinburse " the money . The moms said : " considering leader's real purposes and the effects of their acts , introducing the real cash into the game is actually a scam ; if they were to ask $ 10 to each kid in order to give access to the game , that would be no problem , even if my own kid were to steal the $10 from my wallet ;i'll punish my kid for its act , but i cannot go to the grocery and sell back the pizza only because i dont like cheese-pizza or because i consider it overpriced; but when the grocery's owner gather 20 kids around ,telling them that that pizza is a spacecraft and the fuel cost $ 50 ...that's a scam , even if our kids had fun ".
Many years later, i've been thinking : afterall, we had the first virtual economy involving real cash.

[Amarilla]

15.

A funny story : a guy goes to a theatre in France and during the play an actor ( same time the theatre's owner ) comes to the stage and yells : " we cannot save Desdemona , we need weapons, we need to pay the Gladiators , the Emperor have its needs as well ! And Desdemona herself needs a new dress ! And shoes ! " . Many started to laugh and to throw money to the stage ; after the show ends , our guy said : " ok, now i wanna see Desdemona , is she saved yet? "
" Yes she is " was the answer.
"- Bring her on stage and let her dance 3 hours for me "
"-But sir, we cannot do this , Desdemona is a role while the actress is hired for only 1 hour "
"-I dont give a f*** your actress , i've paid for Desdemona and i want her NOW ; dress yourself into one and dance for me , or gimme my money back".
The dude was Rosedale afaik.

[Jeff Cole]

16.

Tim,

Of course, that was for what defendants moved: personal jurisdiction and the enforceability of the arbitration clause.

It seems to me that the judge recognized ownership at least three times in the first paragraph.

Jeff

[Tim]

17.

Jeff,

That jumped out at me too. However, to me that looks like dicta. This is because the brief was only deciding the procedural issues. I would agree though, that the judge is leaning towards recognizing Bragg's asserted ownership rights.

I don't think Linden's current business organization can support ownership of something other than the intellectual property in an avatar design/house design etc.

[Amarilla]

18.

Nobody forced LL to try to scam ppls using false advertising.

[Bryan Camp]

19.

Hi all,

Well, I've finally read this opinion. IMHO it's pretty weak. It deals with two issues: (1) the court's personal jurisdiction over Phillip Rosedate, and (2) the validity of the madatory arbitration clause in the TOS.

As to (1) the court givea a reasonable minimum contacts analysis.

As to (2) the court's analysis hinges on it finding the TOS a contract of adhesion. That, in turn, hinges on whether Bragg had "reasonably available market alternatives." Here, the court really reaches for the result. It holds that Bragg had no reasonable alternatives because "SL was the first and only virtual world to grant its participants property rights in virtual land." Well, doesn't THAT just beg the question!

@ Tim: no, it's not dicta. In order to find the TOS to be a contract of adhesion it was necessary for the court to define the relevant market to apply the "reasonable alternative markets" test. It did so by holding, in essenece, that LL did grant residents "property rights" in virtual land, as a matter of law (because the court made no factual findings outside of what was in LL's TOS and publicity materials). I assume the decision on the merits will be to apply basic property law doctrine on sale of realty at auction to the events.

Worse, the adhesion analysis proves too much. If true, that is like saying that Hertz's form rental contract fails the "reasonable alternative market" test because Hertz is the only rental car agency that offers Toyotas. Under this analysis, EVERY EULA and TOS fails the reasonable alternative market test because every game world offers *something* unique. In other words the court is here narrowing the scope of the "relevant" market to a set of one. Big eye roll here.

Linden may have been better off in state court...

Cheers, -bryan