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Where Real Money Meets Virtual Reality, The Jury Is Still Out

By Alan Sipress
Washington Post Staff Writer
Tuesday, December 26, 2006

Veronica Brown is a hot fashion designer, making a living off the virtual lingerie and formalwear she sells inside the online fantasy world Second Life. She expects to have earned about $60,000 this year from people who buy her digital garments to outfit their animated self-images in this fast-growing virtual community.

But Brown got an unnerving reminder last month of how tenuous her livelihood is when a rogue software program that copies animated objects appeared in Second Life. Scared that their handiwork could be cloned and sold by others, Brown and her fellow shopkeepers launched a general strike and briefly closed the electronic storefronts where they peddle digital furniture, automobiles, hairdos and other virtual wares.

"It was fear, fear of your effort being stolen,'' said Brown, 44, whose online alter ego, Simone Stern, trades under the name Simone! Design.

Brown has reopened her boutique but remains uncomfortably aware that the issue of whether she owns what she makes -- a fundamental right underpinning nearly all businesses -- is unresolved.

As virtual worlds proliferate across the Web, software designers and lawyers are straining to define property rights in this emerging digital realm. The debate over these rights extends far beyond the early computer games that pioneered virtual reality into the new frontiers of commerce.

"Courts are trying to figure out how to apply laws from real life, which we've grown accustomed to, to the new world," said Greg Lastowka, a professor at Rutgers School of Law at Camden in New Jersey. "The law is struggling to keep up."

U.S. courts have heard several cases involving virtual-world property rights but have yet to set a clear precedent clarifying whether people own the electronic goods they make, buy or accumulate in Second Life and other online landscapes. Also unclear is whether people have any claim when their real-life property is depicted online, for instance in Microsoft's new three-dimensional renderings of actual real estate.

The debate is assuming greater urgency as commerce gains pace in virtual reality. In Second Life, where nearly 2 million people have signed up to create their own characters and socialize with other digital beings, the virtual economy is booming, with total transactions in November reaching the equivalent of $20 million. Second Life's creator, Linden Lab, allows members to exchange the electronic currency they accumulate online with real U.S. dollars. Last month, people converted about $3 million at the Lindex currency market.

Second Life's economy has been surging since Linden Lab made the unusual decision three years ago to grant users intellectual property rights for what they create with the Web site's free software tools. Thousands of people have created homes and businesses on virtual land leased from the site and are peddling virtual items as varied as yachts and ice cream.

Congress has taken note and is completing a study of whether income in the virtual economy, such as from the sale of gowns that Brown makes, should be taxed by the Internal Revenue Service. The Joint Economic Committee of Congress is expected to issue its findings early next year.

"There seems to be a lack of ground rules in an area that would have explosive growth in the next decade or two," said Christopher Frenze, the committee's executive director.

Though she grew up watching her mother at the sewing machine, learning the craft with each loving stitch of the family's clothes, Brown never considered making it a career until two years ago, when she entered Second Life. Within days, she studied up on the basic software skills and began designing virtual women's apparel from her home in Indiana. "When I design," she said, "I think about how the cloth falls and the sheen silk has compared to satin." She said she now spends 70 hours a week on her trade. Starting with four original outfits, she now offers 1,200 designs and has also moved into men's fashion.

But the rogue program, called a copybot, that appeared last month in Second Life underscored the need to clarify her property rights. After the attack, Linden Lab announced efforts to ban the program and encouraged users to report abuses. Some users argued that even stronger property protections were needed.

"I'm feeling uncomfortable," Brown admitted. "I'm safe for now, but it's very tentative."

Linden Lab made cyber-history when it gave Second Life users the intellectual property rights to their creations -- similar to the copyright real-world authors have to their writings. By contrast, most Web sites offering virtual experiences have not accorded users any property rights, requiring them to accept a license agreement stating that all content belongs solely to the Web site owner.

Four years ago, several online gaming veterans tried to get around this agreement and make real money by selling game items from Dark Age of Camelot on eBay and at specialty online auctions. The items, which included weapons, armor and specialized characters, in some cases went for more than $300 each. The developers of the Camelot game blocked them. When the gaming veterans sued, claiming that they had rights to the items they acquired in the game, a federal court in California ruled against them on the grounds that the license agreement took precedence. Other recent U.S. court rulings in virtual disputes have come to similar conclusions.

But judges elsewhere have taken a different view. A Chinese player in the Korean-made online game Mir 3 claimed that his personal rights had been violated when the game's local Chinese operators deleted the magic sword he used to battle virtual villains. The operators claimed it had been illegally duplicated from an original. The player filed suit, contending that he had bought the magic sword in good faith and that it was worth about $120. A Chinese court in Xuhui district ruled against the game's operators, essentially finding that the player's property rights were paramount.

In Second Life, Linden Lab executives wanted to avoid this confusion, believing that users needed clear ownership for economic activity to thrive, recounted Cory Ondrejka, chief technical officer. Otherwise, users would have little incentive to invest.

But he stressed that this ownership did not extend to full property rights -- creators have intellectual property rights to the software patterns used in making virtual objects but no rights to the objects themselves. Under this formulation, Brown owns her designs but not the individual dresses and pieces of underwear. Nor do her customers "own" the apparel they purchase and hang in their virtual closets.

"Everything in the virtual world is intellectual property, as much as it looks like property or as much as property is a useful metaphor,'' Ondrejka said. "Copying it is not theft. It's infringement, but it's not theft.''

But Joshua Fairfield, a professor at Indiana University School of Law, said there's more to online rights than just intellectual property. He said there are legal reasons to believe that property rights to objects can exist in a virtual realm, but no U.S. court has affirmed the concept.

Earlier this month, U.S. Circuit Judge Richard A. Posner visited Second Life, appearing as a balding, bespectacled cartoon rendering of himself, and addressed a crowd of other animated characters on a range of legal issues, including property rights in virtual reality. Posner stressed that it was in Linden Lab's interest to ensure due process and other rights.

"They want people to invest in Second Life, and we know people won't invest if their rights are not reasonably secure," he told the audience, which included a giant chipmunk and several supermodels. He went on to predict the eventual emergence of an "international law of virtual worlds" similar to international maritime law.

Meanwhile, as mapping technologies rapidly improve, companies are increasingly able to transfer the real world to the online world. But are property rights any clearer in such a "real" virtual world?

Microsoft, for instance, launched an online service last month called Virtual Earth that features highly detailed three-dimensional photographic maps of American cities. Microsoft plans to make money by selling advertising billboards in this virtual depiction of urban America.

But the company's lawyers and advertising executives are still grappling with the question of whether those who own the property depicted in Microsoft's 3-D images have any control over how their depicted property is used online. For instance, does Federal Express have the right to object if an ad for its competitor DHL is posted in the parking lot at virtual FedEx Field?

"We haven't fully delineated all the guidelines for do's and don'ts,'' said Bobby Figueroa, a director of product management at Microsoft.

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