While global economies have endured a torrid time of late, business is booming in the virtual economies of Second Life, Facebook and Everquest. As the economic boundaries between virtual and real worlds blur, the supposedly liberated virtual worlds are now running up against real-world legal problems.
Financial analyst Piper Jaffray estimates that US citizens will spend $621 million in 2009 in virtual worlds; estimates of the Asian market are even larger. Research firm Plus Eight Star puts spending at $5 billion in the last year.
Over in Second Life, trade remains robust. The value of transactions between residents in the second quarter of this year was $144 million, a year-on-year increase of 94 per cent. With its users swapping virtual goods and services worth around $600 million per year, Second Life has the largest economy of any virtual world - which exceeds the GDP of 19 countries, including Samoa.
Thousands of users make money selling virtual goods from clothing and furniture to art and gazebos, as well as services such as virtual wedding planning, translation or architecture. Several hundred make thousands of dollars from the trade; the most successful have become millionaires.
Yet all is not rosy in the virtual Garden of Eden. Just as the digital revolution has facilitated piracy and copyright theft in other spheres, those who make a living running businesses in Second Life have seen their profits eroded by users who have found ways to copy their intellectual property (IP).
The Second Life case is believed to be the first time residents of a large virtual world have sued its owner for alleged IP rights violations by other users. But as the dollar value of virtual economies climb, it seems likely others will head to real-world courts to settle disputes, says James Grimmelmann, associate professor at the New York Law School. "As virtual worlds are becoming more and more important, and sites and games become more immersive, these kinds of cases are going to matter more," he says.
As virtual worlds become more important and more immersive these cases are going to matter more
The case will also test the US Digital Millennium Copyright Act (DMCA) which grants the providers of online services with some degree of immunity to prosecution for copyright infringements perpetrated by their users. Similar exemptions are provided in Europe under the Electronic Commerce directive.
"The law in this area is pretty good and should be protecting people who've got [intellectual property] or who are writing unique code, but the problem is policing it," says Mark Stephens, a partner at London-based law firm Finers Stephens Innocent. "So increasingly people are trying to pin liability on the gatekeepers."
The lawsuit forms part of a group of related cases in which those who host online content are being targeted for the misdemeanours of their users. Last month a US federal district court dismissed a complaint filed by record company giant Universal Music Group, ruling that the DMCA did provide video site Veoh with immunity from liability for copyright violations committed by its users.
Online service providers such as Second Life's parent company Linden Lab, are likely to argue they have little control over or knowledge about users' activities, says Grimmelmann. "My general expectation is that they probably do have immunity under the act."
Linden Lab has already taken some steps towards protecting the IP of its users. In August it issued a "content management roadmap", including plans for improvements to the Second Life IP complaints process, new licensing tools, industry-standard tools for copying content to prevent IP infringement, a trusted seller scheme and more IP outreach work.
Speaking in a panel discussion at last week's Virtual Goods conference in San Jose, California, Tom Hale, chief product officer at Linden Lab, said: "Rest assured we feel very strongly about the rights of our IP creators and holders and want to protect them as much as we can in the virtual world. We have a challenge between our desire to have an open environment and open platform, and also our obligation to our residents, whether they be merchants or consumers, or creating for their own interest."
Only time will tell whether Linden will implement enough changes to placate its critics or whether the issue will be settled in court.
What is clear is that with so much money at stake, the case will be watched very carefully by a great many people.
Case study: Trouble breaks out in paradise
Shannon Grei - or Munchflower Zaius as she's known to her customers - runs a gothic clothing boutique with a difference: its clientele inhabit the virtual world of Second Life.
Grie is suing the virtual world's parent company Linden Lab with another Second Life retailer, Kevin Alderman, aka Stroker Serpentine - who claims to have made more than $1 million selling sex-themed products, such as beds and rugs with built-in animations that allow users to engage in virtual sex.
The pair allege Linden Lab allows other Second Lifers to infringe their copyright and trademarks. Their complaint, filed in the US District Court, Northern District of California, on 15 September, claims the company "has the technical means to simply and easily halt the alleged conduct ".
Alderman sued a number of Second Life residents in 2007 for copyright infringement, and argues Linden Lab has failed to take decisive action despite being repeatedly warned that pirates were using tools such as CopyBot and BuilderBot - which enable users to export objects as files - to infringe his rights.
Michael Aschenbrener, the attorney representing the two litigants, argues Linden could take further steps to protect intellectual property rights. "Our understanding is it is technologically possible to police this, when residents within Second Life provide the correct information."
There are tools that allow web hosts to prevent the uploading of video and audio content that it has taken down because of infringements. However, Linden will likely claim with some justification that things are not so simple when it comes to 3D digital goods. Linden refused to be drawn on the specifics of the case, but said: "Our existing practices around intellectual property go above and beyond legal requirements."