Virtual worlds meet real life laws

Businesses setting up outposts in virtual worlds such as Second Life may find they still have plenty of real world legal minefields to navigate.

Second Life is the best known of a number of virtual worlds that are attracting a lot of interest from real world businesses. That's partly because commerce is one of the fundamental building blocks of Second Life.

Residents - as well as flying from place to place and fashioning outlandish avatars - can create, buy and sell goods. And the money they make from these businesses in Linden dollars, the currency of Second Life, can be turned into a quantity of real world cash - a sum that depends on the current exchange rate.

Second Life - the business evolution

Click on the links below to see pictures of some of the many real-world businesses that have set up outposts in Second Life.

Toyota
Nissan
Intel
Dell
Cisco
IBM
Circuit City
Sears
Wired
ABN Amro
Samsung
Field Fisher Waterhouse
AOL
Adidas
Nissan
Sun Microsystems
Reebok
Penguin
American Apparel
Reuters
CNET Networks
PA Consulting
Yankee Stadium

With the six million residents spending around £1.5m per day, it's not surprising big brands want to get a foothold in this booming economy, and access to its slightly outlandish consumers.

As such, companies including ABN Amro, IBM and Nissan have set up operations already (see this Second Life photo story for more businesses).

David Naylor, partner in law firm Field Fisher Waterhouse (FFW), explained: "The thing Second Life does that differentiates it from others is it allows residents to own the intellectual property in things that they create. As a result, it's an environment that a lot of businesses have become involved in."

But the legal issues it brings into play are about as varied as the avatars and buildings you come across as you traverse the virtual landscape.

Transactions such as buying, selling and even employing staff in a virtual world may all have real world legal implications. And other issues such as gambling in virtual casinos and offering financial services through virtual banks can raise even more regulatory issues. And, of course, whenever you have people - or avatars - making money, then you have the taxman interested too.

Throw in other issues - such as competition, intellectual property exploitation and infringement - and there's little wonder the lawyers are getting interested.

Speaking at a conference organised by FFW and E-Commerce Law & Policy, Naylor said: "It's going to get more popular and the legal rules are going to come to the fore as people want more certainty."

Taking just commerce as an example shows the potential complications - in Second Life business-to-business, business-to-consumer and consumer-to-consumer commerce are all possible.

And transactions can happen in-world, such as buying a building, or in the real world, such as selling Second Life assets on an auction site.

But what you might think of as a commodity - say a building - in Second Life, is likely to be seen in English law at least as a service. This matters because law tends to treat contracts for services differently to contracts for goods in terms of implied warranties.

And which - and whose - law is applicable is also open to debate. Naylor said, as a practical approach, European businesses should assume that unfair contract terms, consumer protection, ecommerce and distance selling obligations will apply to transactions in virtual worlds - unless European customers can be filtered out of the sales process.

Of course, complicating this further is the anonymity of the avatars - making it harder to find out who you should be taking legal action against, and the potential unwillingness of local courts to exercise extra-territorial jurisdiction.

Considering all this legal uncertainty it was only a matter of time before law firms themselves started moving into Second Life - FFW is building an office at the moment. Presumably it won't be too long before Second Life has virtual courts and prisons too.