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Dave Wieneke is a former technology journalist, who is Interactive Marketing Manager for Thomson CompuMark. He recently attended the Virtual Law Conference as a writer for his blog, Useful Arts.us.

Until recently, virtual law was a narrow interest shared by handfuls of academics, gamers and technology enthusiasts. But over the last few years, virtual worlds have worked their way up the issue hype cycle to

the front page of law journals from Canada to California. Are these virtual worlds just the latest in a series of bright shiny online toys, or are there deeper issues that are making this an important area for IP law professionals to be actively engaged with?

Why advertise on a medium when your brand can become the medium?Today brand managers are deciding whether they want to create immersive virtual worlds providing brand experience in an environment they create, or to sit this medium out and allow their competitors to experiment first. Legal practitioners who have considered the vexing legal issues of the new space, will be better equipped to help their clients make sound decisions which advance their business goals.

Paramount, Mattel, Career Builder, IBM , France Telecom, MTV, the NBA, Coke, BBC, McKinsey & Company and Reuters are all operating in virtual worlds. Mattel recently announced that its virtual world, BarbieGirls.com™, had exceeded 11 million registered users. Imagine the media buy that would have been needed to engage 11 million girls for the amount of time they spent configuring their Barbie avitars, decking out their virtual homes, and interacting with online friends on BarbieGirls.com.

Besides being venues for brand engagement, virtual worlds hold commerce and licensing opportunties for rights holders. The virtual world, Second Life, reports daily transactions of nearly one million dollars per day between their members. Further as the lines between interactive gaming, social networking and virtual worlds continue to blur, what we refer to today as virtual worlds will be incorporated into publishing, educational and entertainment products.

Virtual Worlds DescribedVirtual Worlds are multi-user online environments where participants interact through the actions of avatars. Some of these take the form of games, such as America’s Army® and MTV’s Neopets®. Others are environments where participants gather, and socialize, conduct business, or create elaborate simulations: IBM currently uses virtual worlds to connect remote work groups and build community. Services are starting-up to provide virtual meeting spaces which require little time or expense to ramp-up.

The days of clunky unprofessional graphics are largely a thing of the past in virtual worlds. Objects represented in virtual worlds can be imbued with subtlety and beauty that rivals their physical attributes. Some of the same modeling software used to design luxury goods,

The State of Business and Law in Virtual Worlds

automobiles, even furniture and architecture, can create files to be loaded into virtual worlds and rendered as exquisitely detailed virtual goods available for purchase.

Living in a Brand New World“People like virtual worlds because they bring together the immediacy of Skype, the community of social media, and the rich branding of websites in immersive experiences,” said Amy Pritchard, CEO of Metaverse Mod Squad.

I contend that the closer organizations are to media convergence, the more likely they are to seek to extend their brand experience into virtual worlds. Marketers like these new worlds because they offer opportunities for large-scale personalized brand engagement, in what for them is already a disrupted media landscape.Such worlds are not only the purview of big brands. Famous jurists, congressional hearings, even protests and demonstrations exist in these spaces. Earlier this month, Congress held hearings to better understand virtual worlds. This kind of mainstream attention means it’s time to consider a thoughtful strategy for proactively counseling clients on in-world participation.

Virtual Words Have Uncharted Legal ShoalsSean Kane of Drakeford & Kane describes the broad themes of intellectual property enforcement in virtual worlds like this: “The legal terms of virtual worlds are framed by End User License Agreements (EULA) or terms of service which define user rights and obligations. If you will, these define the rules of the game to which parties consent.”Kane suggests that this is similar to the “magic circle” concept in sport, where athletes consent to waive some rights and engage each other within the rules of sport, rather than law.

As long as these are “closed worlds”, terms of use can manage the assignment and disposition of points, scoring, victory, even censure. Users have experiences, but derive no new assets for their activities. It’s like going the beach and building a sandcastle; it’s yours for the day, but once you leave the beach, you leave the sand behind.

However, when the goods and services of virtual worlds are converted to real-world currency, a far wider range of laws comes into play. A sandcastle’s builder might claim his creation to be sculpture, and therefore subject to copyright. Any number of designs or expressions that might otherwise not be eligible for protection as real-world items may be subject to protection in the form of running computer programs.

Are IP Rights Enforceable in Virtual Worlds?Rights holders should make strategic decisions in advance whether their enforcement objective is to litigate to stop misuse, to educate to prevent misuse, or to promote the brand through active use. Stephen A. Mortinger, VP, Associate General Counsel, IBM, says counsel needs to work with clients to determine their virtual-world goals and legal-action objectives. See an example of IBM’s use of virtual worlds.

Virtual handbags, aren’t handbags, but they can infringe their design. There are a handful of cases, such as Eros v. Leatherwood et al, which demonstrate that copyright can be enforced. Most virtual worlds that operate in the USA operate as Internet Service Providers for purposes of DMCA safe harbor, so they are responsive to takedown notices. But, since safe harbor is specific to the US, and as virtual worlds are global platforms, all the uncertainties of Internet jurisdiction are in play.

Yet Evan Gourvitz, of Fross Zelnick Lehrman & Zissu, PC, notes that virtual worlds have responded to takedown notices he has authored, just as Internet Service Providers would under the Digital Millennium Copyright Act. This responsiveness is one factor that has helped limit the number of case rulings involving virtual worlds.

Taxation and BankingIf a virtual world allows for currency to be converted into points, and for points to be converted back into real-world currency, a range of financial laws may come into play. Certainly when participants realize income beyond the expenses of participating in a virtual world, this becomes a source of declarable income.

Jurisdictions around the world are only just starting to consider whether such systems should be subject to banking and money-transfer regulation. Sweden’s tax agency considers some business transactions involving in-world points to be subject to sales tax, even if the exchange is not in real currency.

Some jurisdictions have considered if funds converted to virtual world currency should be subject to banking law. Regulators in Australia have officially declined to regulate games as banks; however, in Brazil regulators have ruled against in-world banks. Further, some online activities could be construed to be gambling, or forms of illegal lotteries. While the details of specific circumstances will frame these cases, there is potential for courts to initially approach such cases with a wide variety perspectives creates legal uncertainty.

Plenty of Unanswered Legal Questions RemainThough IP rights are enforceable, plenty of questions are still being considered. Yes, it appears one may register a trademark for virtual use only. But does use in a virtual-world business constitute use in commerce? Can you use a trademark in an avatar’s name? Must companies who use their branding on virtual sites now register their marks in the countries where the branding will be seen or used in order to be able to protect such rights? Are they giving up such rights if they do not?

If I render an image of a product, right down to its logo, and use it for non-commercial enjoyment or as part of a portfolio, is that infringement or art? And to what extent will parody be protected? Can I create an interactive parody version of a famous person? What about the dissatisfied customer who makes something that looks like a mascot of a brand with the intent to ridicule it? We should expect examples of these situations to arise, but it’s currently unclear whether the courts will view such behavior as part of a game, a public display, or use in commerce. As cases arise and progress, blogs such as Virtually Blind, the Reuters Second Life News Center, and UsefulArts are places where such news will be noted and discussed.

Touring the WorldSecond Life is the most popular of dozens of virtual worlds. According to its operator, Linden Lab, on a monthly basis they have just over one half million active users. In Second Life participants log over 29 million hours of use monthly, and conduct just under one million dollars in-world commerce using a currency called Lindens.

If you have clients in media, entertainment, publishing, technology, or another sector influenced by electronic convergence, it makes sense to be aware of how similar firms are using virtual worlds, and to stay abreast of cases as they emerge. There’s no substitute for first-hand exposure to a new medium, so you might want to try creating a character, called an avatar, and explore some of these virtual spaces.

According to John Lester, Director of Second Life’s Boston operations, people need three things before trying out Second Life: motivation, time, and confidence. Signing up is free, but if you’re making a first visit to a virtual world, having some extra help in the

form of a guidebook may be a comfort. Lester recommends the latest edition of the Second Life Official Guide. He says that, like a film, Second Life is an immersive experience, so it’s good to try it out when you have a block of time to yourself.

So, are there substantative business and legal issues in virtual worlds. There certainly are for rights holders of all stripes, who are interested in protecting their brands. And, there are an even broader set of issues which face brands seeking new opportunties for brand engagement, commerce, or licensing. The professional associations have rapidly gathered thought leaders to help apply existing laws and guide policy.

Law Association’s for Further Learning• The Special Committee of Gaming and Virtual Worlds, part of

the ABA’s IP Law Section• The Committe on Virtual Worlds & Multi-user Online Games part

of the ABA Science & Tech. Law Section• The Second Life Bar Association.