31 May, 2007
Will this force Paddock to relocate?
Okay, so it isn’t an M59 event. But, it’s an issue that has been spreading around like wildfire. Long story short: a court has thrown out a provision in Second Life‘s (SL) TOS in regards to a lawsuit filed by a player. This is causing some raised eyebrows, to say the least.
You can read the court ruling (pdf) for more detailed information.
My IANAL commentary after the break.
Even though I’m not a lawyer, I do have some background in dealing with legal issues, particularly with the book I helped edit. In fact, there is a wonderful chapter by lawyer James Grimmelmann that deals with legal issues in online games, particularly with EULAs and TOSes.
Personally, after reviewing a bunch of comments from around the blogosphere, I’m not terribly worried about this ruling. The first issue is that this lawsuit deals with real money in the form of an investment. Part of SL’s advertising has been that you can make “real” money from the game. The person in question had bought land in SL as an investment. He just happened to find and exploit a flaw in the system which allowed him to buy land at a much cheaper rate. Since Second Life grants property rights to users, the rules are slightly different according to the courts.
The ruling also states that SL’s TOS is unfair to people who pour money in as an investment because it leaves little recourse. Specifically, the arbitration clause is unfair because it creates a cost for the investor that is greater than the cost of bringing suit, according to the courts, and it does not apply equally to both the operators of SL and the users. Most of the court ruling focuses on the fact that the arbitration clause is “unconscionable” given the different factors relating to California and federal law.
So, there are two lessons here:
Investment opportunities makes things different. The fact that SL states that you can make a return on investment makes this quite a bit different. There are a lot of laws in effect to protect people from getting roped into poor investments. One of the biggest stumbling blocks we had for finding investment into Near Death Studios to purchase Meridian 59 was a concept called an “accredited investor”. In short, only the really rich could invest in us, otherwise we had to undergo a very expensive audit so that less savvy investors knew exactly what they were buying into. So, this is expected that the court would rule in this way.
You can’t have a sloppy TOS. The arbitration clause was thrown out because it failed on multiple levels. One of the failures, in fact, was that SL didn’t label the clause as such and “hid” it in a section of the TOS with a generic label. They also tried to use the clause for their own advantage when dealing with users, meaning it is one-sided. So, if you want to include something such as an arbitration clause, you have to make sure it follows the law.
Okay, now that my blathering is done, let me quote James Grimmelmann’s more informed opinion from an email via a mailing list:
I don’ think there’s any serious question VW terms of service are contracts of adhesion. That just means that there’s no opportunity for players to negotiate their own terms. It’s take-it-or-leave-it. But being a contract of adhesion is only half of the matter. The other half is whether the terms in question are substantively unfair. And the only term whose unfairness was in question today was the arbitration provision. There, the court had a lot of precedent to draw upon in holding that certain kinds of arbitration provisions are unconscionable. The case could have gone the other way, but that it went this way on the arbitration question is well within what other courts have been willing to do in allowing themselves to hear a case rather than sending it off to arbitration. Linden was probably in trouble here just because they’re in California, which has fairly consumer-friendly contract law.
The real question is what other terms of a ToS would be considered as unconscionable. That’s a high burden, and Linden hasn’t wheeled out its big guns (esp. preventing exploits) to defend the terms that Bragg would need to knock out to win anything at trial. Now, I think Second Life may be a terrible test case for the industry, precisely because Second Life is so aggressive in its PR and its “our players own everything” rhetoric. That creates some “bad facts” for them to have to explain away. My point is just that it doesn’t necessarily follow that anything substantive in a ToS is in serious danger yet.
(See more of Grimmelmann’s commentary, especially his note that the other virtual world arbitration issue, Blacksnow v. Mythic, upheld the arbitration clause.)
So, in the end, it just means we have to treat TOSes more like the legal documents they are instead of a document we can throw around to do whatever we want. And, it also means that you should avoid encouraging people to play your game as a form of “investment” unless you are prepared for it, since this significantly changes the rules.