GDC09: How to avoid new legal pitfalls in virtual world design and policy

At last week's Game Developers Conference 2009, we got the chance to sit in on Mark Methenitis' talk on How to avoid new legal pitfalls in virtual world design and policy. You may have noticed the sheer quantity of legal cases, rulings and issues surrounding virtual environments and MMOGs that have direct impacts on users and players lately.

We found the talk to be an engaging and interesting one, which certainly went a long way towards clarifying some of the past, present and future problems and we've got a tasty summary of the highlights for you.

Change in the legal landscape is constant.

Methenitis' initial advice is to plan based on the current legal landscape. That is, based on recent decisions and actions, and on reasonable expectations of future decisions, rulings and legislation. That might seem pretty obvious, but it surprising at times how many people do not. Rulings particularly can change the legal landscape quite suddenly, but are not necessarily all that unpredictable.

The recent Blizzard vs Glider case turned out to have some interesting consequences.

Glider was ruled to be encouraging users to violate the terms of use. That's a fairly strong precedent, holding you liable if you encourage or induce someone to violate their terms of use or terms of service (either way, a contractual agreement) with the service provider.

The second, and more recent part of the ruling basically determines that functionally end-user-license-agreement violations constitute copyright infringement. "Circumvention" under the DMCA.

Not that an operator is likely to try taking you to court for an impermissable avatar name, but the EULAs tend to be catch-all monstrosities, since they generally have to try to anticipate every possible category of wrongdoing. The EULA forms the operator's contractual agreement with you, and asserts their rights and obligations alongside your own (though it should be noted that the rights tend to be on the side of the operator and the obligations on the side of the user, in the main).

However it pans out, regardless of who is doing what that is causing the operator or the other users issues, it's that license agreement that has to cover the operator's ass if they feel they need to take any action.

Methenitis turned his attention next to the Hernandez vs IGE case, where World of Warcraft players initiated a class action against RMT firm IGE. Basically, the players asserted that the whole operating principle of IGE and their consequent business operations reduced the enjoyment that they were getting from the game, and heck, if you're paying for game for entertainment, and someone's acting in ways that reduce that entertainment, you may well rightly feel that you're not getting your full value-for-money.

IGE settled out-of-court and apparently agreed to stop trading in World of Warcraft assets for five years, but they're still selling WoW gold on their website, so we're not sure what's up with that. Nor is Methenitis.

This introduces a fascinating area of third-party liability. In the Hernandez case, some users sued some other users for violation of the terms of use -- though functionally, the core argument was the devaluation of their subscription (fun reduction). Could a user sue another user for a similar reduction in enjoyment that did not involve a violation of the EULA? Quite possibly, though it hasn't yet been done.

Methenitis then turns his attention to the worlds.com patent case, where, you may recall worlds.com is taking action (initially) against NCsoft for an algorithm that is relatively fundamental for modern MMOG and virtual environment software. Methenitis sees three possible outcomes from the case.

1. Worlds.com wins against NCsoft, and then basically hits everyone who's got a virtual environment or MMOG for licensing fees and possibly also damages.

2. The patent could be found to be valid, but narrower in scope such that NCsoft isn't infringing, in which case, Methenitis believes worlds.com will seek out a new target, whom is likely to be infringing based on the substance of the court ruling from the NCsoft case.

3. (And this is the option Methenitis believes is most likely) That the patent is ruled to be invalid. It doesn't quite end there, however, because the particular patent that is in the limelight right now is not the only one in worlds.com's warchest.

Methenitis then turns his attention to user-generated content and copyright issues. What happens when your users start to violate the copyrights of others using your service? That is, the MMOG or virtual environment that you as a developer or operator have administrative control and final say over, up to and including pulling the plug and switching off the lights. Such a case was Marvel vs NCsoft where users were creating near-identical and derivative characters within City of Heroes that were derived from Marvel copyrights.

Methenitis cautions against the wholesale and draconian removal of content on a copyright basis. There are, after all, fair-use exceptions in copyright law, including both personal use and nominative use (it would be hard to have a discussion about Satana's appearance without some sort of image, for example).

Methenitis suggests that softer mechanisms could be deployed, though in large-scale and populous environments with open content-publishing mechanics such as Second Life, softer enforcement options may be in the realms of wishful thinking, despite there having been a number of errors in wholesale removal in the past.

"The government's broke and they want your money"

One of the eternal binds of governmental operations is that everybody wants money spent on assorted services and programs. Health care, benefits, education, schools, police, defense, border controls, roads, the disabled, the homeless, banning video games, you name it. Then when tax time comes around to pay for it it all, we're all a bit astonished and offput by just how much of our own money the government seems to need to pay for all of it. We generally prefer lower taxes to higher ones, but we're not really willing to compromise much on services.

That leaves the government with regulations and enforcement to make up the shortfall. There are volumes of regulations in every industry, and fines for failure to comply. Certainly there will be more as time goes by. There always are.

Governments have increasingly turned their eyes to the commerce taking place via virtual worlds, indeed the IRS has reported to US congress that (as far as tax law is concerned) there's no essential difference between the purchase of a virtual shirt in Second Life and the purchase of a real shirt on eBay or at Wal-Mart. Well, except for the foreign-exchange nature of virtual environment currencies -- most users who are making money in virtual environments simply add that to their tax income reporting, and pay their taxes on the amounts.

Adding any additional transactional taxes would essentially constitute, as Methenitis puts it "a you're-selling-it-online-in-a-virtual-world-tax", and that's just double-taxing (though double-taxing itself is not unprecedented). The IRS, however, recommended in its report that congress not go ahead with wholesale tax enforcement on virtual environments and MMOGs and that exceptions should be drafted.

More likely various aspects of industry regulation and enforcement would be the real moneymakers here. Regulations on EULAs and terms-of-use, for example. That could become very tangled, but also very lucrative from an enforcement perspective.

Finally, we move on to the most complex issue: Gambling. While you may have heard that most forms of Internet gambling are unlawful under the Unlawful Internet Gambling Enforcement Act (which we lovingly refer to as the UIGEA), the fact is that the act hasn't even passed at this stage. Additionally the act itself is the target of a large number of reforms, amendments, riders, modifications and adjustments which seek to strengthen, weaken, expand, shrink or kill the UIGEA.

What's going to be lawful or unlawful with respect to Internet Gambling this time next year? Or the year after? Seriously, nobody knows. The whole UIGEA may simply be struck down, or it could be back with a vengeance out of left field.

Gambling with faux or unbacked currencies and tokens (virtual gold, rare drops, or whatever) might seem to be just fine, as the issuer and operator of the token infrastructure allows no trade of them for more regular currencies. That means they have no value. And the UIGEA doesn't (at present) cover valueless gambling.

But if someone third-party is trading and people are actually performing that trading, then those tokens do have value whether the operator wants them to or not. You can even point to that value by examining the prices on actual trades. It's not much different to placing value on company stocks and shares.

Nobody knows what happens then.

Second Life makers Linden Lab called in federal authorities on a number of occasions to give their opinion on whether various activities being conducted in-world (such as gambling with Linden Dollars) were unlawful. While the investigations did not show that the activities were unlawful, there was some doubt as to whether that would continue to be the case, and few people really want to be the first to test their ideas in court. Accordingly, the Lab banned the activity.

To be safe, you either need to not include gambling as an activity (do all those random loot drops constitute a game of skill or a game of chance?) or to divorce yourself (as an operator) as much as possible from any trade or exchange of internal tokens for external tokens, and stomp that out wherever you find it.

The legal landscape for games, MMOGs and virtual environments over the coming years appears to be strewn with potential pitfalls. Love it or loathe it, it's going to be quite a show.

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