This article is reprinted with permission from the Winter 2007 edition of Bright Ideas, the newsletter of the New York State Bar Association Intellectual Property Law Section.

Virtual worlds and the computer-simulated environments they contain are capturing the attention and imagination of increasing numbers of people, with some pundits suggesting that virtual environments are the future of the Internet, or a so-called "Web 3.0." Regardless of whether that prediction ultimately will prove to be true, there has been an undeniable upsurge in the extent of personal and corporate participation in virtual worlds. While virtual worlds are not all the same, they all have the potential to present interesting and in some senses, novel intellectual property issues. In this article, I will first describe virtual worlds in general and then focus on what I consider to be one of the more interesting virtual worlds, Second Life. I will explore the manner in which Second Life's owner has structured Second Life and discuss some of the intellectual property issues that flow from that structure. Finally, I will discuss a pending case pitting one Second Life user against another over claims of copyright infringement and false designation of origin under the Lanham Act arising from the defendant's activities within Second Life.

What Is a Virtual World?

As most commonly used, the term "virtual world" refers to an Internet-hosted computer simulation that allows users to experience, create, and interact with the content in the simulation. Typically, the content in the virtual world consists in large part of computer graphics rendered to give the objects in the simulation a three-dimensional or "virtual" appearance. Many virtual worlds allow users to experience sounds and, in some cases, simulated physical contact insofar as objects within the simulation are linked to real-world objects that can send impulses or sensations to users.

Many virtual worlds are designed as games or contests in which users compete. The purpose of such games may be to accumulate points, objects, or virtual treasure or to kill virtual monsters and villains within the virtual world. Some of these game-oriented virtual worlds have millions of users or players.

Commentators describe these games as massively multiplayer online role-playing games or "MMORPGs." Other virtual worlds are less game-oriented. These virtual worlds may contemplate that users engage in many kinds of role-playing not necessarily dictated by the intended themes or "rules" of the virtual world.

Virtual worlds also vary in the extent to which they allow users to create or contribute content or other creative works within or to the virtual worlds. Some virtual worlds do not allow users to alter or create content; others allow or even encourage such alteration or creation. Virtual worlds in the latter category may provide users with programming, scripting, or other design tools to enable them to create content for the virtual world.

The virtual world owners typically provide access to the content of virtual items for a fee on a subscription basis. The owners usually require users to agree to be bound by a set of contractual terms and conditions, often referred to as "terms of service," in order to have access to the virtual world. These terms of service usually contain a wide range of protective and exculpatory provisions benefiting the owner, including, for example, disclaimers of express and implied warranties, limitations on the recoverability of all manner of direct and indirect damages from the owner, and indemnification by the user of the owner with respect to claims arising from the user's participation in the virtual world. Traditionally, through their terms of service, platform owners have claimed ownership of the intellectual property rights inherent in all content that users place or create in the virtual world.

Second Life and the Second Life Terms of Service

Second Life is a virtual world owned and operated by San Francisco–based Linden Research, Inc. ("Linden"). Second Life is not a game-oriented virtual world as I have used the term above. Instead, Linden allows users to engage in all manner of activities within Second Life, subject to the overall limitations contained within the Second Life Terms of Service ("TOS") that the activities be, inter alia, legal, noninfringing, and nonabusive or harassing toward other users. In addition, as explained in more detail below, Linden (through the TOS) allows users to retain ownership of the intellectual property rights in content that they create or place within Second Life, including content created by use of a number of scripting and programming tools Linden makes available to users.

As a consequence of these features, Second Life users are currently engaged in a wide range of more or less "virtual" activities, including, but not limited to, religious worship; education and instruction; corporate training; sex; architectural and engineering design; socializing (in virtual nightclubs, virtual bars, or otherwise); advertising and marketing research; fashion content creation; combat; role-playing games; sports; and politics. Second Life Utilizes an in-world currency called the Linden, which usually trades in the range of 250 to 270 Lindens per U.S. dollar. Second Life users typically use Lindens to purchase virtual goods and services within Second Life.

According to Linden, Second Life users conduct transactions worth well over one million U.S. dollars within Second Life each day. This figure likely does not account for all of the commerce that occurs within Second Life, nor does it account for the real-world fees that content-creation companies derive from performing services within Second Life for real-world companies. Linden claims that there are almost 10,000,000 unique user accounts within Second Life.

Numerous merchants and content creators sell all manner of virtual objects within Second Life. These virtual objects include but certainly are not limited to virtual cars, home furnishings, shoes, clothes, and animals. The virtual objects consist of graphics that are visible to users and underlying code. Depending on the nature of the object, the object also may include animations and sounds. A growing number of these merchants and content creators derive most or all of their income from the sale of virtual objects. In addition, numerous companies create entire simulated islands or spaces for real-world companies to use as marketing channels for their products and services. These real-world companies, which include significant media properties such as NBC, the National Basketball Association, Showtime Networks, and many others, are placing and displaying their own content within Second Life as well.

The Second Life TOS contains a number of key provisions directed toward intellectual property rights and that necessarily shape the nature of the commerce occurring within Second Life. Section 1.3 requires users to acknowledge that by participating in Second Life, they will have access to "Content"¹ and that Linden and other providers of Content have rights in their respective Content under copyright and other applicable laws. Section 2.3 requires that users select an account name to identify themselves and that a user's chosen name not violate any trademark, copyright, or other proprietary right.

Section 3.2, which is rather unique among terms of service for virtual worlds, provides that "subject to the terms and conditions of [the TOS, the user] will retain any and all applicable copyright and other intellectual property rights with respect to any Content you create using [Second Life], to the extent you have such rights under applicable law." Linden has used this feature of its TOS as a key marketing tool in the promotion of Second Life, and, indeed, in my opinion, this feature is the catalyst for the substantial content creation and commerce that occurs within Second Life.

Within Section 3.2, Linden also requires users to grant Linden a royalty-free, worldwide, fully paid-up, perpetual, irrevocable, nonexclusive right and license to make certain uses of user Content, including, inter alia, using and analyzing Content for debugging, testing, and diagnostic purposes and displaying Content in promoting or advertising Second Life, as well as deleting Content from Second Life without compensation. In addition, Section 3.2 requires users to grant both Linden and all other Second Life users a royalty-free, worldwide, fully paid-up, perpetual, transferable, irrevocable, nonexclusive right and license under any and all patent rights that users have or may obtain with respect to Content to use Content for all purposes within Second Life. Linden has described this provision as an attempt to maintain "patent peace" within Second Life. Section 3.3 provides that notwithstanding the fact that users retain their intellectual property rights in their Content, users do not own their account and do not own any data Linden stores on its servers, including, but not limited to, data embodying or representing user Content.

Section 4.1 requires users to refrain from posting Content that infringes any third-party rights. Section 4.2 prohibits users from modifying, reverse engineering, or attempting to discover the source code for any Linden software. Section 4.3 alerts users that Linden follows the procedures of the Digital Millennium Copyright Act in addressing alleged instances of copyright infringement within Second Life and requires users to abide by those procedures as well. Section 4.4 prohibits users from making any use of Linden's trade and service marks not permitted by Linden's trademark usage guidelines. Section 5.6 requires users to indemnify and hold Linden harmless against any claims that user Content infringes the intellectual property rights of any person or entity.

Copyrights Within Second Life

Copyright extends to original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.² To qualify for copyright protection, a work must be the original work of an author, i.e., not copied from a preexisting work, and must exhibit a minimal amount of creativity.³ The creativity requirement is not very difficult to satisfy; even a slight amount of creativity will suffice.⁴

Many of the virtual items created and sold by the merchants and content creators within Second Life would seem to be potentially copyrightable. Courts have long recognized that the computer graphics associated with video games satisfy the fixation requirement of section 102 in that the graphics are embodied in the memory devices of computers, from which the graphics may be perceived with the aid of other components that interact with the memory devices.⁵ These graphics therefore are potentially copyrightable as visual or audiovisual works.

Courts also have long recognized that the object and source code underlying an item of software is copyrightable as a literary work.⁶ In appropriate cases, copyright protection may extend beyond the literal elements of a computer program to the nonliteral structures of the program.⁷ There appears to be no reason why the computer code and programs underlying virtual objects within Second Life should not receive similar treatment.

I represent a number of persons and entities active in creating and selling virtual items within Second Life who enable real-world companies to market their products and services within Second Life. Anecdotally, I understand that considerable unauthorized copying, creation of derivative works from, and display and distribution of virtual objects occur within Second Life on a daily basis.

In many cases, the monetary value of the unauthorized copies is small, and users resolve disputes by resort to the Digital Millennium Copyright Act "takedown" procedure administered by Linden. Second Life users have, however, expressed increasing frustration at Linden's perceived slowness of response or lack of response in addressing reports of copyright infringement within Second Life. We can expect that as the volume of commerce within Second Life grows, and as the platform attracts users intent on copying items on a larger and more systematic scale, merchants will find it more economical to resort to litigation to address copyright infringement occurring within Second Life. The lawsuit Eros v. Doe, in which I represent the plaintiff and which I discuss below, is the first such suit, but I expect that it will not be the last.

Trademarks Within Second Life

The Lanham Act defines a trademark as a word, name, symbol, device, or any combination thereof which is used to distinguish the goods of one person from goods manufactured or sold by others and to indicate the source of the goods.⁸ To qualify for trademark protection, a mark must be sufficiently distinctive to distinguish the mark holder's goods from those of others.⁹ The Lanham Act "federalizes" existing common-law protection of trademarks used in interstate commerce.¹⁰ "Used in commerce" for trademarks means a bona fide sale or transportation in commerce "which may lawfully be regulated by Congress."¹¹

As an initial matter, there would appear to be no reason why content creators and other merchants could not obtain trademark protection for marks that have become distinctive as applied to their virtual goods. These merchants are making bona fide sales to Second Life users throughout the United States and in numerous foreign countries using the Internet and so would seem to easily be able to satisfy the requirement of use of their marks within interstate commerce. Indeed, I am aware of a number of merchants who have obtained federal trademark registration for their marks, including one who has obtained trademark registration for her distinctive avatar. Many other designers and merchants have developed substantial followings for their products within Second Life and also are pursuing federal registrations.

Through my representation of Second Life merchants and content creators, I am aware that disputes have arisen among Second Life users with respect to alleged palming off occurring in connection with the sale of unauthorized copies of the virtual products of popular merchants. In other words, on occasion, users have made unauthorized copies or modified copies of virtual items and passed these copies off as the "genuine" products of the merchants, in the process creating actual customer confusion as to the source of the virtual goods and diverting sales of the genuine items from the merchants. Eros involves just such a situation.

Another source of disputes among Second Life users arises from false or misleading comparative advertising, also actionable under the Lanham Act. Disputes have arisen where users have described their virtual items as, inter alia, "just like," "the same as," or "containing the same animations as" other products, where this was not the case. As with claims for copyright infringement based on unauthorized copying, display, and distribution of virtual items, I expect that as the volume of commerce within Second Life grows, we will see more lawsuits between Second Life users arising from palming off, counterfeiting, and false advertising.

Patents Within Second Life

Second Life, like other virtual worlds, is an Internet-hosted simulation consisting mainly of software and other data residing on Linden's servers and installed on the computers of users. This limits the nature of the patentable inventions that users can create or deploy within Second Life.

Computer programs consist of algorithms. The Supreme Court has held that algorithms and other mathematical formulas are akin to laws of nature, natural phenomena, and abstract ideas, which are not patentable in and of themselves."¹² In Diamond v. Diehl,¹³ however, the Court held that where a process incorporated a computer program as one step in the process, the computer program may be patentable subject matter when used as part of the process. In State Street Bank & Trust Co. v. Signature Financial Group, Inc.,¹⁴ the Federal Circuit held that where the inventor is claiming protection in an application of an algorithm that produces a "useful, concrete and tangible result," as opposed to protection in the algorithm in the abstract, the invention is potentially patentable. In AT&T Corp. v. Excel Communications, Inc.,¹⁵ the Federal Circuit applied the State Street test to a business method incorporating an algorithm.

Given the patentability of software under these standards, it would be reasonable to expect that most if not all of the patentable subject matter that users will create or deploy within Second Life would be expressed as software as part of a business method or a physical apparatus that interacts with Second Life. Indeed, there are numerous existing patents involving software applications designed for applications within or involving virtual worlds.

Linden's requirement that users grant Linden and other users a license in all patent rights in user content is obviously likely to reduce the extent to which Second Life users will exploit patent rights in Content placed or created within Second Life, although users still would have copyright protection for the code inherent in the invention. By its terms, however, the license applies only to Content placed within Second Life and to use of the Content within Second Life. Arguably the license would not apply to aspects of a business method that incorporated code that is not placed within Second Life but is rather resident on a third-party server, for example. To date there has apparently been no patent litigation arising out of Second Life. In the future, however, there likely will be litigation between Second Life users over the scope and effect of the license when applied to a business-method patent for a method with both in-world and out-of-world aspects, assuming that Linden does not materially change the construction of the license.

Eros v. Doe

I am currently counsel for the plaintiff in a lawsuit captioned Eros LLC v. John Doe, pending in the United States District Court for the Middle District of Florida, Tampa Division, which implicates a number of the issues discussed above. Numerous commentators have described the case, which involves claims of copyright infringement and Lanham Act false designation of origin arising within Second Life, as one of first impression. I regard the case as involving straightforward application of intellectual property principles, albeit within the exotic context of a virtual world.

My client, plaintiff Eros LLC ("Eros"), is one of the most successful merchants within Second Life. Eros sells numerous items of virtual adult-themed merchandise within Second Life. One of Eros' most popular items is the "SexGen" bed, which is an item of virtual furniture that contains more than 150 adult-themed animations. Eros has sold thousands of copies of the SexGen bed to users within Second Life located throughout the United States and in foreign countries for the equivalent of approximately 45 U.S. dollars per copy. Eros sells the Sex-Gen beds on a "no-copy" basis, meaning that Eros does not permit purchasers to make copies of the beds.

Through Eros' promotion and advertising, the Sex-Gen mark has become distinctive as a means to identify Eros as the source of the virtual beds. Eros has filed an application for federal trademark registration with respect to the SexGen word mark.
Earlier this year, Eros discovered that a Second Life user with an avatar named Volkov Catteneo ("Catteneo") was making and selling multiple unauthorized copies of two versions of the SexGen bed, using the SexGen mark. Catteneo was selling the SexGen beds for approximately 12 U.S. dollars per copy and, in the process, taking sales away from Eros. From examination of one of the beds that Catteneo sold and Eros has obtained, it is apparent that Catteneo copied both the graphical images and textures that appear on a user's computer screen as well as the computer code that underlies the object and the animations.

On July 3, 2007, Eros filed a two-count complaint against Catteneo alleging copyright infringement and Lanham Act false designation of origin. Eros' theories of recovery, notwithstanding the "virtual" environment in which the offending conduct took place, are straightforward. By making copies of the SexGen beds and selling them to others, Catteneo had copied, displayed, and distributed Eros' works in violation of Eros' copyrights. Because Catteneo falsely claimed that the unauthorized copies of the SexGen beds were in fact copies made by Eros, and because the unauthorized copies bore the Sex-Gen mark, Catteneo had "palmed off" or falsely designated the origin of the SexGen bed copies he had made.

Because Eros was not certain of Catteneo's real-world identity at the time of the filing of the Complaint, and because Catteneo refused to disclose his or her real-life identity, Eros proceeded against a John Doe. This obviously complicated prosecution of the claims.

Simultaneously with the filing of the complaint, Eros filed an ex parte motion for leave to issue subpoenas directed toward Linden and PayPal, Inc. Eros sought to serve the subpoena on Linden to obtain whatever personally identifying information Catteneo had provided to obtain the account, Catteneo's transactional history, and "chat records" within Second Life, as well as transaction and the Internet protocol (IP) addresses associated with the occasions on which Catteneo logged on to Second Life. Eros served the subpoena on PayPal to obtain the personally identifying information provided with a PayPal account to which Catteneo had directed payment be made for one of the SexGen beds.

In support of the motion, Eros argued that while the First Amendment protects the right to speak anonymously on the Internet and elsewhere, this protection is not absolute, citing Sony Music Entertainment Inc. v. Does 1-40.¹⁶ Eros further argued that the First Amendment does not protect copyright infringement or other violations of intellectual property rights, citing, inter alia, Harper & Row Publishers, Inc. v. Nation Enters.¹⁷

Eros was unable to locate any controlling Eleventh Circuit precedent on the standards to be applied to attempts to discover the identity of an anonymous Internet user but suggested to the Court that the five-part test articulated in Sony was an appropriate guide for the Court in considering whether to authorize issuance of the subpoenas, in light of any First Amendment rights Catteneo might have to Internet anonymity. These factors were (1) whether the plaintiff had made a concrete showing of a prima facie claim of actionable harm; (2) the specificity of the discovery request; (3) the absence of alternative means to obtain the subpoenaed information; (4) a central need for the subpoenaed information to advance the claim; and (5) the defendant's expectation of privacy.

Eros argued that it satisfied the first element of the Sony test because the Complaint adequately alleged the requisite elements for violations of the Copyright and Lanham Acts. Eros argued that it satisfied the second factor by seeking limited sets of specific information that were reasonably calculated to lead to discovery of the information necessary to determine Catteneo's identity and address.

Eros argued that the third Sony factor favored Eros because Eros, after reasonable efforts, including making requests of the two entities of which Eros was aware that were likely to have accurate information relating to Catteneo and attempting to contact Catteneo directly online, was unable to determine Catteneo's true identity and address. Eros argued that it established the fourth factor, a central need for the information to advance Eros's claim, because absent the information, Eros would be unable to serve process. Finally, Eros argued that because both Linden and PayPal advise all users who supply information that they reserve the right to disclose the information in response to a valid subpoena, Catteneo had no legitimate expectation under the circumstances that Catteneo's information would be kept private and immune from discovery. The Court granted the motion.

Interestingly, while the motion was pending, Catteneo gave an in-world interview to a Reuters reporter in which he admitted selling fifty copies of the SexGen beds and claimed to have given the sale proceeds to an unidentified third party. Catteneo also claimed to have given false identifying information to Linden in connection with obtaining the Second Life account and expressed confidence that neither Linden nor PayPal would be able to provide information that would enable Eros to identify Catteneo. Catteneo has since given a number of interviews to Reuters in which he or she confidently predicts that Eros will not be able to identify or locate him or her.

After obtaining and analyzing information provided by Linden and PayPal in response to the subpoenas, including the Internet protocol addresses Catteneo used to access Second Life, Eros filed a second ex parte motion for leave to issue subpoenas to AT&T and Charter Communications, Inc., the two Internet service providers associated with the two accounts Catteneo used to log on to Second Life, seeking the personally identifying information associated with the accounts. The court granted this motion as well.

Neither AT&T nor Charter resisted production of the information but advised Eros that they would notify the account holders to allow the account holders an opportunity to object to the production of the information. Neither account holder objected, and in early October 2007 both AT&T and Charter produced the identifying information for the respective account holders. By following up on the identifying information, Eros was able to identify the account holder (a resident of Texas) and filed an amended complaint against him and a number of John Does. The account holder has admitted using and having had access to the Volkov Catteneo account but claims others did so as well and that he was not responsible for the copying.
Whatever the outcome of the case, I feel privileged to have the opportunity to contribute in a meaningful way to the development of the intellectual property law of virtual worlds.

1. The TOS, at section 1.3, defines "Content" as including "graphics, sound effects, music, video, audio, computer programs, animation, text, and other creative output."
2. 17 U.S.C. § 102.
3. Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340 (1991).
4. Id.
5. See, e.g., Williams Electronics, Inc. v. Artic Intern., Inc., 685 F.2d 870 (3d Cir. 1982).
6. Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983).
7. Computer Associates Intern., Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992).
8. 15 U.S.C. § 1127.
9. Star Industries, Inc. v. Bacardi & Co. Ltd., 412 F.3d 373 (2d Cir. 2005).
10. CAE, Inc. v. Clean Air Engineering, Inc., 267 F.3d 660 (7th Cir. 2001).
11. Avakoff v. Southern Pacific Co., 765 F.2d 1097 (Fed Cir. 1985).
12. Parker v. Flook, 437 U.S. 584 (1978).
13. 450 U.S. 175 (1981).
14. 149 F.3d 1368 (Fed Cir. 1998).
15. 172 F.3d 1352 (Fed. Cir. 1999).
16. 326 F. Supp. 2d 556 (S.D.N.Y. 2004).
17. 471 U.S. 539, 555-56, 569 (1985).