332 Int. J. Web Based Communities, Vol. 3, No.

3, 2007

Legal and policy issues of virtual property

Nikolaos Volanis
Interdisciplinary Centre for Law and ICT
Katholieke Universiteit Leuven
Sint-Michielsstraat 6
B-3000 Leuven, Belgium
Fax: +32 16 32 54 38
E-mail: nick.volanis@law.kuleuven.be nikos.volanis@gmail.com

Abstract: This article aims to underline the importance of End User Licence
Agreements (EULAs) in the context of virtual worlds known as Massive
Multiplayer Online Role-Playing Games (MMORPGs). By examining the issue
of virtual property in several virtual worlds, the article ascertains the failure
of some EULAs to acknowledge and respect the importance of players’
contribution to the perpetual development of the virtual environment; a failure
which, in turn, undermines the players’ drive for creativity and collaboration.
However, assigning virtual property rights to the players should not be
considered as a mandatory legal obligation but rather as a policy decision.
Within this context, the EULA acts as a sort of virtual ‘social contract’, which
sets the degree of permeability between the real and the virtual.

Keywords: virtual worlds; End User License Agreements; EULAs; intellectual

property; virtual property.

Reference to this paper should be made as follows: Volanis, N. (2007) ‘Legal

and policy issues of virtual property’, Int. J. Web Based Communities, Vol. 3,
No. 3, pp.332–344.

Biographical notes: Nikolaos Volanis, LLM, is a Lawyer and Legal

Researcher at the Interdisciplinary Centre for Law and ICT
(http://www.law.kuleuven.ac.be/icri/index.php), at the Faculty of Law of the
Katholieke Universiteit Leuven, Belgium. He has actively contributed to
several European and Belgian research projects focusing on the impact of the
internet and new communication platforms in data protection and intellectual
property laws, particularly within the context of online communities, virtual
organisations and grid computing business models.

1 Introduction

Virtual worlds are more commonly known as Massive Multiplayer Online Role-Playing
Games (MMORPGs). While the first ‘Multi-User Dungeon’ (MUD), written in 1979,
featured a text-only interface, the rapid development of computing power has led to
modern popular MMORPGs. Now, the player is immersed in a rich, three-dimensional
virtual reality image as if seen from the ‘avatar’s’ perspective (the latter being the virtual
projection of the player within the game). While most of the original virtual worlds
such as Ultima Online and Everquest depict imaginary worlds populated by mythical

Copyright © 2007 Inderscience Enterprises Ltd.

 Legal and policy issues of virtual property 333

creatures, not all of them rely on a fantasy setting; The Sims Online, for example
(an outgrowth of the popular stand-alone game), invites people to replicate features of
real life: “Build a home and a livelihood. Build your dream home […] or the hottest
neighbourhood hangout around. […] Develop a network of friends” (Electronic Arts,
2003). These types of games offered new ways of online interaction, and people
gradually responded.
Today, virtual worlds have evolved beyond any expectation into major hubs of
entertainment: some of them are the ‘virtual homes’ of hundreds of thousands or even
millions of subscribers, with the most famous World of Warcraft reaching 7,5 million
(Blizzard Entertainment, 2006). The magnitude of the numbers has transformed them
from originally simple-minded combat-oriented games into full-fledged virtual
environments in which the players engage in various social activities. As it was expected,
the attention was drawn to the future potential of these virtual environments, raising the
question on how to legally treat virtual worlds, which have transformed from a mere
game into a virtual place where people work or create culture, and thus have legitimate
expectations regarding the virtual products of their labour.
In the attempt to further investigate this problem, we should first distinguish between
what should constitute a legal evaluation of a virtual world and what should be
considered as a policy decision, left for the virtual world’s developers to consider. It is
our opinion that the seminal link between these two separate matters is the virtual world’s
End User Licence Agreement (EULA), which may be perceived as a virtual social
contract regulating the rights and obligations of the players and the developers. For this
purpose, the article is divided into two parts. The first part argues that the EULA should
be considered as the key factor in order to determine whether real laws should intervene
to regulate virtual environments. In order to prove our point, we will examine the legal
implications of virtual property as they are experienced in the commodification of virtual
assets. The second part considers the EULA as a tool for community development. By
acknowledging the contribution of the players to the perpetual growth of the online
community, an EULA may act as a solid foundation of community building, promoting a
sense of commitment among the members of the virtual world. Again, the problematic of
virtual property is taken as an example, aiming to illustrate that the granting of virtual
property rights to the players can be seen as an incentive for boosting player commitment
in the ongoing development of the virtual world.

2 EULA and virtual property, from a legal perspective

2.1 A growing market of 1s and 0s
When the economist Edward Castronova (2001) wrote about the economies of online
games, he was one of the first to understand that virtual economies were created, which
were as good as real to millions of participants. Buying and selling of virtual
commodities began at first within the boundaries of the virtual world but gradually
expanded outside its limits: among others, avatars, castles, magic wands and potions have
changed hands on eBay and other auction sites, which function as bazaars drawn from a
fairytale. However, the most peculiar characteristic of all is the fact that the trade of such
items is made with real currency (so-called ‘Real Money Trade’, or ‘RTM’). The figures
334 N. Volanis

speak for themselves: in 2004, the projected US revenue on sales from Real Money Trade
exceeded $100 million (the secondary market for virtual items exceeded $880 million),
while over $1,5 billion worth of transactions occurred through in-world trades (Biever,
2004). Norrath, the virtual kingdom of Everquest, had, as of 2002, a greater net worth
than Bulgaria and a higher GNP per capita than India or China (Lichtarowicz, 2002). In
Second Life, nearly $5 million was exchanged between players in January 2006 alone
(Craig, 2006), and at the end of the same year, nearly $700.000 were spent every day.
Similarly, the individual and aggregate values of virtual ‘real’ estate within virtual worlds
are rising to unprecedented heights. In Project Entropia – renamed Entropia Universe in
2006, for example – a virtual island was bought for $26.500 (Lettice, 2004), and a space
station for $100.000 (BBC News, 2005).
The indicated permeability between real and virtual currency has given rise to
questions as to whether the law should intervene and regulate these types of transactions,
which ultimately led to the examination of a preliminary issue, regarding the legal nature
of these virtual environments: Who owns the virtual products of these virtual economies
– the companies that create the games or the players who ‘produce’ the economies? It is
our opinion that an en masse legal evaluation of virtual worlds should be avoided. On the
contrary, attention should be focused on how the EULA sets down the rules that define
the permeability between the real and the virtual.

2.2 The function of EULAs in virtual worlds

An EULA (sometimes also called ‘Terms of Service’ Agreement or ‘ToS’) is an
agreement between the developer and the buyer of computer software that specifies the
parameters according to which the software should be used. Given the particular nature of
virtual worlds, a typical EULA would include more than just the ‘rules of the game’,
which regulate the behaviour of the players within the virtual environment. Instead,
because of the possibility of interrelation between the virtual and the real world, the
EULA will also attempt to regulate the behaviour of the player outside the virtual
environment. Usually, the EULA would grant the developers a right to exclude, which
can be exercised to eliminate emergent virtual property rights. For example, the EULA of
the most popular MMORPG today (World of Warcraft) clearly disclaims any property
interest in everything the user builds or creates:
Note that Blizzard Entertainment either owns, or has exclusively licensed all of
the content which appears in World of Warcraft. Therefore, no one has the right
to ‘sell’ Blizzard Entertainment’s content, except Blizzard Entertainment! So,
Blizzard Entertainment does not recognize any property claims outside of
World of Warcraft or the purported sale, gift or trade in the ‘real world’ of
anything related to World of Warcraft. Accordingly, you may not sell items
for ‘real’ money or exchange items outside of World of Warcraft. (Blizzard
Entertainment, 2005)
In addition:
All titles, ownership rights and intellectual property rights in and to
World of Warcraft (including without limitation any user accounts, titles,
computer code, themes, objects, characters, character names, stories, dialogue,
catch phrases, locations, concepts, artwork, animations, sounds, musical
compositions, audio-visual effects, methods of operation, moral rights, any
related documentation, ‘applets’ incorporated into World of Warcraft,
 Legal and policy issues of virtual property 335

transcripts of the chat rooms, character profile information, recordings of

games played on World of Warcraft, and the World of Warcraft client and
server software) are owned by Blizzard Entertainment or its licensors. […]. All
rights are reserved. (Blizzard Entertainment, 2005)
The above abstracts could indeed be found in the vast majority of the EULAs
that accompany current virtual environments. The developers consider the virtual
environment as an offspring of their imagination and productivity, so they protest in the
eventuality of virtual rights being acknowledged in favour of the players. This view
seems to be supported by the current legal framework regarding intellectual property,
which relies in a somehow linear model of production, where an intellectual work is
authored, finished, published, distributed, and finally, ‘consumed’ (Humphreys, 2004).
However, as it shall be argued infra, the production process in the context of virtual
worlds is not linear, but recursive: the players themselves play a significant role in the
development of the virtual environment, after its launch to the public.
As indicated, one of the purposes of the EULAs of virtual environments is to regulate
the permeability between the real and the virtual. Allowing Real Money Trade, the
transferring of player accounts or the granting of any intellectual property right to the
players, all these determine the extent of rights that are granted to the players regarding
their virtual assets. Although some authors (Lastowka and Hunter, 2004; Fairfield, 2005)
have advocated towards a general legal recognition of player virtual property rights that
should be applicable by default to any virtual world, this paper argues that the answer to
the question of player virtual rights lies within the EULA of each particular virtual
environment, and more specifically, in the expressed will of the developers to maintain
the gaming character of the virtual world, or to allow the commodification of virtual
assets through Real Money Trade. In the latter case, the virtual environment acts as an
e-commerce platform and therefore real laws should extend to it as well, safeguarding the
legitimate rights (and virtual property rights) of the parties.
Deliberately choosing to ‘isolate’ the virtual world from integrating with the real
world can be justified under several arguments: By immunising their product against
outside interferences, the developers emphasise on the fantasy and gaming aspects of the
virtual environment. Abiding by a single set of rules – that is, the EULA – which limits
the behaviour of the players (by stipulating for example that their avatars should be the
atmosphere of the particular fantasy setting or by prohibiting the selling of player
accounts) reinforces the boundaries that separate the game world from the non-game
world. These boundaries have been identified by Huizinga (1949) as the magic circle that
distinguishes game from reality. In that perspective, virtual worlds are treated as games,
and as such, they use game conceit – that some freedoms must be willingly given up by
all participants so that new freedoms could be experienced during game time. It usually
occurs that the creators of such virtual environments are more actively engaged in the
development of the virtual world, constantly offering the players new content and
adventure stories, which give these environments a more narrative perspective. It follows
that any external interference by the law jeopardises the developers’ incentive to design.
In the same context, a widespread buying and selling of game accounts and equipment
outside the boundaries of the virtual world seriously undermines the game’s fairness; as
in every type of game, real money should not ‘buy’ the way to the top of the virtual
world’s community. In that way, the intervention of the developers to exclude a player,
336 N. Volanis

who, because of his online or offline behaviour, jeopardises the game conceit, can be
simultaneously justified from the perspective of other gamers, who are complying with
the rules of the game.
A typical example of a virtual world that is largely based on the creative input of the
developers is World of Warcraft, which makes it, in terms of structure, not very different
from older games. The development of the world and the maintenance of its fantasy
atmosphere depend largely on the developers, who add new content on a regular basis,
thus ensuring that there will always be new adventures, new locations, new creatures and
new items to discover. In turn, the developers ask the players for a monthly fee which is
used to cover the costs associated with the level of service, support and ongoing content
creation. This fee (and perhaps the initial cost of acquiring the client software) are (or
should be) the only occurrences where real money is spent for the purpose of
participating in the virtual world.
More specifically, the impact of Real Money Trade on virtual worlds is illustrated by
the way it breaches game conceit, since it introduces reality into ‘virtuality’. The fact that
a player can bypass the game’s rules by using real money to achieve in-game goals
fundamentally disrupts the magic circle, and hinders the developers’ efforts to further
expand the world according to their creative and artistic preferences. For this reason,
it is argued that, for the specific genre of virtual worlds, where the will of the developers
is to isolate the virtual environment from external interferences, the developers should
be allowed to erase player accounts that have been the object of a transaction in
real currency.
Such a position, however, raises fierce objections from the advocates of virtual rights:
a player who has just paid $800 for a powerful avatar would object to the eventuality of
his account being erased, solely based on the developers’ demand to respect the rules of
the game. From his point of view, the developers have just ‘erased’ $800. However,
instead of allowing an a priori regulatory intervention to acknowledge virtual property
rights, this article argues that the law should not intervene as long as the developers have
explicitly forbidden any commodification of virtual assets in the EULA and as long as
they respect this prohibition as well. In such cases of ‘isolated’ virtual worlds, the law
should not intervene with the interna corporis of the game; it can only ascertain that the
EULA’s provisions are respected by both parties and that they serve the intention of the
developers to safeguard game deceit, enhance player immersion and immunise the virtual
world against external interferences. Applying this principle to the aforementioned
EULA of World of Warcraft, which grants the developers complete ownership of the
virtual world’s assets (characters, items, designs, etc.), we can argue that the EULA is
legitimate as long as the developers themselves are not engaged in activities that would
jeopardise the game deceit (such as the selling of characters or items). To the extent that
the actions of the developers are legitimised by the virtual ‘social contract’, the players
should respect them.
Indeed, the cause of the dispute between the developers and the users seems to begin
from a failure to respect the sovereignty of the virtual ‘social contract’. This is a failure
that concerns not only the players (who, despite the explicit provisions in the EULAs,
engage in Real Money Trade on eBay or other similar sites), but also the developers,
whose behaviour is sometimes inconsistent with their declared intentions: To support our
argument, we have chosen to examine the EULA of another virtual world, Entropia
 Legal and policy issues of virtual property 337

Universe, a virtual environment which, according to its creators (MindArk, 2006b) “[…]
is more than a game. The Entropia Universe is for real. Real people, real activities and a
Real Cash Economy in a massive online universe”. The specific virtual world claims its
uniqueness on the fact that it provides an official channel – that is, the developers’
website – through which the players can transfer real currency into virtual currency, and
vice versa.
Although the intention of the developers not to treat this virtual environment as a
game is clearly stated, the EULA seems to be contradictory, especially in relation to the
issue of virtual property. In Article 7 of the EULA, titled ‘Ownership’ we read:
[…] Despite the similar names, all virtual items are part of the System and
MindArk retains all rights, title and interest in all parts including, but not
limited to Avatars and Virtual Items; these retained rights include without
limitation, patent, copyright, trademark, trade secret and other proprietary
rights throughout the world.
As part of your interactions with the System, you may acquire, create,
design, or modify Virtual Items, but you agree that you will not gain any
ownership interest whatsoever in any Virtual item, and you hereby assign to
MindArk all of your rights, title and interest in any such Virtual item.
(MindArk, 2006a)
In addition, the totalitarian control that the developers want to assert over their universe is
seen in the following articles:
6. Account Inactivity and Account Termination. MindArk may terminate this
Agreement upon notice to Participant. Such termination may be made without
reason, and may be for one of more participants. […] In the event that your
account is locked or terminated, no refund will be granted.
[…]
12. MindArk’s Limitation of Responsibility. […]MindArk reserves the right to
interrupt the Entropia Universe with or without prior notice for any reason or
no reason. You agree that MindArk will not be liable for any interruption of the
Entropia Universe, delay or failure to perform.
[…]
15. Changes to the System. MindArk may, at any time, update, revise or
change the internal data and balancing of the System, without any notice
or responsibility for compensation due to loss or gain of value due to
these changes.
[…]
17. Breach of the Agreement. If you violate any part of this Agreement or the
documents it incorporates by reference, your Account may be terminated,
locked, or warned in the form of a temporary lockdown. Any action taken
against your Account due to a violation is the decision of MindArk and is final.
Any claims, Virtual Items, funds, etc, located on a locked avatar Account will
be forfeited and any fund transactions pending will be revoked.
In the specific case, the developers themselves build an official bridge between the real
and virtual, by allowing real-to-virtual and virtual-to-real transactions. However, they
simultaneously wish to retain total control and ownership over every aspect and item of
the virtual universe, which raises considerable questions regarding the value and the
transfer of virtual items. What does the player actually buy when he transfers real
338 N. Volanis

currency into virtual currency? Should he not be considered the owner of the virtual
currency? If yes, then why not should he be considered the owner of the virtual items he
purchases as well. Moreover, the overall nature of the quoted set of articles – limitation
of liability, account termination, etc. – seems not to comply with what is expected from a
‘real cash’ economy.
It must be emphasised that the application of law will depend on the motives of the
developers not to create a game but a place, which is closely related to the real world. In
such cases, the virtual world can be regarded as a very ‘real’ opportunity for profitable
investments (Barboza, 2005). In Second Life for example, many participants rely on their
in-game activities as their primary source of income (Craig, 2006). For Castronova
(2003), these virtual environments should be considered as mundane ‘extensions of the
earth’, and therefore, their participants should be treated by the law the same way as in
the real world. Legal research has already indicated the need to protect the virtual
property of the participants by arguing that virtual objects are indistinguishable from
real-world property interests. Furthermore, the same normative justifications of property
interests in the real world apply – sometimes more strongly – to the virtual worlds as
well: the utilitarian theory of Bentham, the labour theory of Locke, and the Hegelian
theories adjoining property to personality, all seem to advocate towards a general virtual
property right of the participants in the virtual world (Lastowka and Hunter, 2004).
It is our opinion that the aforementioned inconsistency in the developers’ intentions
would probably lead the courts in partially annulling the specific terms of such EULAs.
However, this will be done not because such EULAs are a priori overly restrictive, but
because the intentions of the developers are contradictory. In other words, game
developers cannot have it both ways. They cannot simultaneously countenance the
purchase and sale of virtual items and then dictate in their EULA that all virtual items
remain the property of the game developer. In fact, one might even imagine a scenario in
which a game goes bankrupt and the players petition the bankruptcy court to keep the
game running, restructure the business, and/or sell it to another party so that the players’
virtual property interests are not destroyed (Balkin, 2004a). It is the responsibility of the
court to decide in concreto whether the degree of interconnection between the real and
the virtual world is such, so as to allow for specific virtual rights – or even other types of
rights (Zarsky, 2004) – to be granted to the participants.
By emphasising the importance of the EULA as the regulator of virtual property
rights, the developers are left with two options: either to offer their virtual world as a
game, a ‘walled garden’, where the law of the real world will not intervene (thereby
leaving the EULA as the only regulatory instrument), or to offer a virtual world as a place
(e.g., functioning as a currency exchange and an e-commerce platform), in which the
connections between the real and the virtual would demand a regulatory intervention
(e.g., an unregulated virtual marketplace may end up functioning as a tax haven or
money-laundering facility). In the latter case, the importance of the EULA is not
diminished, since the participant would still have to comply with the Terms of Service.
However, the law would have to intervene in cases where the EULA is imposing undue
and excessive limitations to players’ rights. That would be the case, for example, where
the developers approve Real Money Trade, but simultaneously retain all property rights
in the virtual world.
 Legal and policy issues of virtual property 339

3 EULA and virtual property from a policy perspective

3.1 Acknowledging player contribution in the virtual world
As the extract of the EULA of Entropia Universe indicates, developers’ restrictions
regarding virtual property rights continue to stir resentment. The vast majority of the
EULAs of virtual worlds today include similar clauses that force the users to disclaim any
right of ownership over anything they say, do or create within the virtual world. This
practice is implicitly supported by the current legal framework for the protection of
intellectual property rights, which adopts a linear approach towards the creation of an
intellectual work. For this reason, it fails to recognise that the process of creating a virtual
world (as an intellectual work) has a distinctive demarcation point: Until the world is
released to the public, it remains solely the intellectual creation of the developers. After
that point, however, the virtual world progresses and evolves through collaborative work.
Developers and players are both involved in the bettering of the virtual environment, thus
creating a recursive production cycle that distinguishes it from conventional publishing
media. In that way, the development of the world is perpetual. This is an inherent
characteristic of the specific genre of virtual environments, regardless of the intentions of
the developers to treat the virtual world as a game or a business opportunity.
Player activity is productive in a number of ways. To begin with, the very nature of
a virtual world as an online persistent environment requires player input. In addition,
outside the world’s context, the players are a source of feedback and suggestions, they act
as quasi bug-testers, they interact with the developers through various bulletin boards or
even create websites dedicated to the specific virtual environment. More importantly,
they constitute the social and community fabric within the virtual world, create in-world
guilds, make friendships and team-like relationships that vest the virtual world with
an ‘added-value’. Unlike simpler computer games, there is no predetermined storyline.
On the contrary, virtual worlds have histories. They allow not only the developers, but
also the participants to organise new adventures and to express themselves in various
novel ways, by assuming new social roles and participating in ‘narratives’ whose endings
are contingent and unpredictable. This stands true even in cases where the creators retain
the prerogative of creating new content – e.g., new virtual territories to explore, new
quests to follow, new species to interact with (as it is the case with World of Warcraft).
The success of this perpetual ‘updating’ of the virtual environment always depends on
whether the player community will endorse the changes by interacting with the newly
created material.
It follows that the most important distinctive feature of a virtual world, the
complexity of social interactions among its members, is a feature not offered by the
developers. It relies solely on the players, whose social and emotional input fuels
the persistence and expansion of the virtual community. We might as well perceive a
virtual world as an ‘online improvisational theatre’: Just like improvisational theatre, a
virtual world is a combination of freedom and constraint that enlists the participation and
the creativity of the actors-players to produce new works that none of the participants (or
the director-developers) could have created on their own (Balkin, 2004b).
For these reasons, we need to acknowledge the players’ contribution to the recursive
evolution of the virtual world. Otherwise, we are facing a paradox where an EULA
assigning all rights to the developers of the virtual environment is deemed to be
legitimate, thereby granting to the developers ownership of something that they were not
340 N. Volanis

in a position to own in the first place: the ownership of the community established by the
players. This outcome derives from the fact that, in legal terms, the virtual world and its
contents are seen as products or assets. The law focuses heavily on ‘tangible’ objects and
dismisses the ‘intangible’ socially produced networks despite their obvious productive
and economic characteristics (Humphreys, 2004).
Still, it is not the purpose of this article to push the interpretation of the intellectual
property legal framework beyond its limits, so as to encompass within its scope of
protection this social and ‘immaterial’ contribution of the players. It suggests that the
law and jurisprudence must reflect on this contribution when evaluating the legality
of a given EULA. Considering the aforementioned dichotomy of virtual worlds in
those connected and those isolated from reality, the acknowledgement of the players’
contribution would be of significant importance for the second type of virtual
environments, where the developers’ freedom to design is limited only by the EULA
(for the first set of virtual worlds, player contribution to the game is already
acknowledged by granting virtual property rights, as a result of the interconnection
between the real and the virtual). Within the context of the ‘sealed’ virtual worlds, an
interpretation of the EULA that would consider the collective contribution of the players
would lead us to the adoption of a more sympathetic approach towards the individual
player. Instead of having unfettered power, the developers must base their decisions on
the intention to safeguard the ‘magic circle’ of the game.
However, this approach cannot lead to the granting of specific rights in favour
of the users, since this is not the developers’ intention. But it would help us envision
the virtual ‘social contract’ as a notion closer to the social contract envisioned by
Rousseau, than by Hobbes. Closer to the notion of a pactum unionis than of a pactum
subjectionis. While, in both cases, no virtual rights would be granted to the ‘denizens’ of
the virtual world, still, the monarch (the developers) would have to honour the virtual
‘social contract’. Failure to do so would result in accountability. By acknowledging
the players’ contribution to the production cycle, the developers would now have to
provide solid justifications of their decision to cut off a player from the game (claiming,
for example, a violation of the in-game rules, or a violation of the ban on Real Money
Trade). Thus, the players’ ‘virtual’ presence in the game is guaranteed (and protected
by the courts), as long as they respect the EULA. This fundamental ‘right to play’ can
also be motivated from two articles of the Universal Declaration of Human Rights:
Article 27 reads, “Everyone has the right freely to participate in the cultural life of the
community, to enjoy the arts and to share in scientific advancement and its benefits”. In
addition, Article 24 asserts that “everyone has the right to rest and leisure”. Indeed,
participation in a virtual world represents not only a temporary exclusion from the real
world (which can be interpreted as a right to rest) but also an opportunity for cultural and
social expression.

3.2 Towards a policy for community welfare in virtual worlds

So far, we have attempted a dichotomy of virtual worlds, and we have proposed that
the EULA of the virtual world be set as the starting point for interpreting whether
virtual property rights should be assigned to the participants. However, the issue of
acknowledging virtual property rights to the participants of a virtual world should not be
addressed solely as a legal matter, but also as a question of policy. From this point of
 Legal and policy issues of virtual property 341

view, we argue that an EULA that grants players with some rights over the virtual fruits
of their labour can be seen as a tool that boosts player creativity and participation and
ultimately leads to the welfare of the virtual world.
At this point, a disambiguation must be attempted: recognition of virtual property
rights – either as the result of mandatory external intervention or as a policy decision
– does not necessarily contradict with the regime of intellectual property. A participant
who has bought a virtual mansion may be considered its owner, but this does not entail
that he owns the right to copy it, or exploit it outside the boundaries of the virtual world.
This is something familiar in the real world as well: For example, ownership of a DVD is
not ownership of the intellectual property of the film (he just owns the specific copy of
the film). In direct analogy to the virtual environment, ownership of virtual property does
not pose a threat to the intellectual property interests retained by the developers. The
EULAs of the vast majority of virtual worlds seem to acknowledge this fact.
However, in one particular case, acknowledging virtual property rights has led to a
change in the intellectual property regime as well: in November 2003, the company
owning the virtual world Second Life announced its revised property rules, whereby
subscribers would, from that point on, retain ownership over the digital material they
create – including characters, clothing, scripts, textures, object, designs, etc. – by using
the design tools that are integrated into the virtual world. For example, an Australian
programmer created a game within the virtual universe, which has risen to such levels of
popularity that he further licensed its real-world development rights to a software
company (Wallace, 2005). This change, while not necessary from a legal perspective,
was the result of a marketing decision, which acknowledged that, in a virtual persistent
and ever changing environment, user creativity is as important as the developers’ (as the
motto of Second Life indicates: ‘Your World. Your Imagination’). Owing to this change
in policy, the number of virtual ‘residents’ in Second Life has rocketed from 20.000 in
2005 (Hof, 2006) to more than 500.000 registered users in the middle of 2006 (Second
Life’s web portal, August 2006) and close to two million accounts in the end of the same
year (Second Life’s web portal, December 2006).
The successful experiment of Second Life underlines the importance of the users’
contribution to the virtual world. In such ‘open-open’ ended virtual universe, with no
underlying developer narratives, the complete freedom of users to create content that they
subsequently own and can liquidate its value is sparking economic development. The
reasoning behind this phenomenon lies in the basic assumption that if people are allowed
to capture the value of what they create, they are going to create a lot more. It is our
opinion that this boost in player creativity should be regarded as just a part of the overall
beneficial results of acknowledging virtual property rights to the players. By safeguarding
players’ virtual property rights, the developers foster player creativity; by boosting player
creativity, they enhance the financial and emotional bonds between the players and the
virtual environment (Jobring and Carlén, 2005); and by strengthening the bonds between
the players and the virtual world, the developers ensure the perpetual growth of the
virtual universe.
An example where the drive for economic benefit has boosted player creativity and
participation is that of Anshe Chung, a virtual resident of Second Life: in November 2006
she became the first ‘virtual millionaire’, that is, a person whose holdings in the virtual
world are legally convertible into US currency worth more than $1 million (Parloff,
2006). She has achieved her fortune by beginning with small-scale purchases of
virtual real estate (from the developers), which she then developed with landscaping and
342 N. Volanis

architecturally themed buildings for rental and resale (to other users). Over the period of
two-and-a-half years, her operations have grown to include the development and sale of
properties for real-world corporations and have led to a real-life ‘spin off’ company
called Anshe Chung Studios, which develops virtual environments for applications
ranging from education to business conferencing and product prototyping. The prospect
of financial gain has spurred Anshe Chung to become one of the most prolific
contributors to Second Life.
The Second Life experiment with assigning rights to the players-creators of virtual
content would have been even more successful without the ambiguity that characterises
the protection of virtual property against ‘virtual’ infringements: In November 2006, a
script named ‘Copybot’ was released, which enabled users to clone any item in the virtual
world (even those that are marked as ‘unique’), thus jeopardising not only the capitalist
model on which Second Life’s economy is based, but also the investments made by
users (in real money and time), based on legitimate expectations for profit. The incident
exposed a series of issues that call for immediate legislative intervention, not only in
favour of the participants (by guaranteeing their respective intellectual property rights),
but also with regard to the legal status of the developers (by evaluating whether they
should be held liable for infringements against intellectual property rights committed by
the participants in the virtual world).
In any case, virtual worlds may end up playing an even more sweeping role; provide a
new template of getting work done from training to collaboration, to product design and
marketing. In other words, the same technology and multilayer cooperation that has
fostered simple fantasy battles in the past could some day be applied to more practical
applications such as encouraging political participation or fostering a collaborative
environment for real-world decision making. Already, some players have used virtual
worlds as a virtual rostrum, voicing their opinion on various topics of every day life
– virtual or real – or even as an e-learning platform, choosing a specific virtual venue to
host a public lecture, or a public debate. What we are experiencing with virtual worlds
has significant similarities to the ‘adhocracy’ of many successful open source software
ventures: their members are characterised by an augmented sense that they constitute part
of a community that shares and fosters a distinguished set of principles, which gives the
community its own identity.

4 Conclusion

It seems that, with virtual worlds, society has begun an exploration of the dimension of
significance that may be attributed to virtual reality. In this article, we have attempted to
answer the question whether virtual worlds should be considered as ‘walled gardens’ of
cyberspace entertainment, or as virtual markets or workplaces. As some of these games
evolve into alternative places not only for leisure and entertainment but also for working,
then the law should step in to protect their inhabitants from arbitrary judgements of the
game developers. However, the decision of whether the virtual world should be treated as
a game or a place belongs to the creators of the virtual universe.
The article emphasises on the multilevel importance of EULAs within the context
of virtual worlds. Acting as a ‘virtual’ social contract among the developers and the
players, the EULA should be regarded as the regulatory cornerstone, which sets the
degree of permeability between the real and the virtual. However, in order for this social
 Legal and policy issues of virtual property 343

contract to be valid, it should be respected by both the developers and the participants.
This consistent behaviour combined with a legal acknowledgement of the players’
contribution to the perpetual development of the virtual world, would further upgrade the
importance of the EULA as a tool that helps to create and maintain a sense of trust and
commitment among the participants.

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