The Case for Virtual Property By Michaela MacDonald (Submitted in partial fulfilment of the requirements of the Degree of Doctor of Philosophy) The Case for Virtual Property 2 Declaration I accept that the College has the right to use plagiarism detection software to check the electronic version of the thesis. 21/02/2016 ____________________________________ The Case for Virtual Property 3 Abstract Virtual assets should be treated as a species of property. Users of virtual environments have legitimate expectations about acquiring legal interests in virtual assets as they would in their physical counterparts under similar circumstances. There are two sources of these expectations. Firstly, the architecture of virtual environments, the existence of virtual economies, and the property-like characteristics of virtual assets. Secondly, providers’ representations and conduct either explicitly authorise or tolerate virtual asset transactions. As a result, issues of title and ownership arise. The existing legal framework fails to deal properly with these issues. Currently applicable laws, such as contract, intellectual property or consumer protection law, do not recognise users’ expectations as legitimate. However, property law could provide the necessary answers by treating virtual assets as part of the law of property. The theoretical foundations of property law inform us about the origins, justifications and consequences of property rights, as well as their role in allocating valuable resources and resolving social conflict. The concept of virtual property entails property rights in virtual assets, which as durable, separable things of independent value. In consequence, a new category of virtual property would resolve the different and unjustified treatment of virtual assets. Virtual property recognizes and protects users’ legal interest in virtual assets, based on their legitimate expectations. The Case for Virtual Property 4 The Case for Virtual Property 5 Table of Contents The Case for Virtual Property 1 Declaration 2 Abstract 3 Table of Contents 5 Table of Legislation 8 Table of Cases 10 Acknowledgements 12 Chapter One: Introduction 13 1.1 The Subject of the Thesis 13 1.2 Main Concepts 22 1.3 Methodology, Scope and Limitations 29 1.4 Chapter Outline 30 Chapter Two: The Landscape of Virtual Environments 34 2.1 Introduction 34 2.2 The Beginnings 36 2.3 Descriptions, Definition, and Categorisation 38 2.4 Role of Technology 47 2.5 Architecture (How It Works) 51 2.5.1 World of Warcraft 52 2.5.2 Second Life 55 2.5.3 Facebook 57 2.6 Avatars and the Art of Socialising 60 2.7 Conclusion 63 Chapter Three: The Rise of Virtual Economy 66 3.1 Introduction 66 3.2 More Than Just a Game 69 3.3 Virtual Economy 76 3.3.1 World of Warcraft 78 The Case for Virtual Property 6 3.3.2 Second Life 80 3.3.3 EVE Online 82 3.4 Exploitation of Virtual Environments 83 3.4.1 User-generated content 84 3.4.2 Real-money trading (RMT) 87 3.4.3 E-sports 92 3.5 Virtual Assets 99 3.5.1 Avatars 102 3.5.2 Virtual Items 105 3.5.3 Virtual Land 107 3.5.4 Virtual Currency 109 3.6 Conclusion 112 Chapter Four: Social Conflict and Governance in Virtual Environments 115 4.1 Introduction 115 4.2 Governance in Cyberspace 118 4.3 Rules and (Un)Fair Play 121 4.4 Provider-User Disputes 127 4.5 User-User Disputes 131 4.6 Legitimate Expectations 138 4.7 Conclusion 143 Chapter Five: Different Means of Regulating Virtual Assets 146 5.1 Introduction 146 5.2 Intellectual Property Law 148 5.3 Licence Agreements 154 5.3.1 World of Warcraft 156 5.3.2 Second Life 158 5.3.3 Facebook 160 5.4 Limitations and Challenges 162 5.5 Virtual Assets as a Legal Category 168 5.6 Regulations Relating to Virtual Property 174 5.7 Conclusion 176 Chapter Six: Justifications of Virtual Property 180 The Case for Virtual Property 7 6.1 Introduction 180 6.2 Primer on Property Theories 182 6.2.1 How and Why Property Comes into Existence 184 6.2.2 Property as an Innate Concept 187 6.2.3 Property as a Social, Political, Economic or Legal Construct 194 6.3 The Nature of Property 202 6.4 The Foundations of Property 204 6.5 The Objects of Property 208 6.6 Conclusion 213 Chapter Seven: Conclusions 216 Bibliography 225 The Case for Virtual Property 8 Table of Legislation US Executive Summary Digital Millennium Copyright Act 2001, United States Copyright Office National Conference of Commissioners on Uniform State Laws, Revised Uniform Fiduciary Access to Digital Assets Act 2015 UK Copyright, Design, and Patents Act 1988 Theft Act 1968 Computer Misuse Act 1990 Charities Act 2006 E-Commerce Regulation 2002 Inheritance and Trustees’ Powers Act 2014, s.3 Privacy and Electronic Communications Regulations 2003 Data Protection Act 1998 Data Retention Regulations 2009 Consumer Protection Regulations 2000 Distance Selling Regulation 2005 Consumer Rights Act 2014 Defamation Act 1996 Disability Discrimination Act 1995 Protection from Harassment Act 1997 Malicious Communications Act 1988 Crime and Disorder Act 1998 International The Case for Virtual Property 9 Berne Convention, article 6bis Charter of Fundamental Rights and Freedoms of the Czech Republic The European Sports Charter Art. 2(1)(a), Council of Europe, No. R(92)13 rev Information Society Directive 2001/29/EC Software Directive 2001/29/EC Art 1(3) Database Directive 1996/9/EC Art 3(1) Council of Europe Convention on Cybercrime, Budapest, 23.XI.2001 Unfair Terms Directive 1993/13/EEC e-Commerce Directive 2000/31/EC German Telemedia Act Dutch Criminal Code The Case for Virtual Property 10 Table of Cases US BlackSnow Interactive v Mythic Entertainment, Inc. (U.S. Dist. C.D. Cal.) Bragg v Linden Lab, Pa. Magis. Dist. Ct., Chester Cty., No. CV-7606, complaint filed 5/2/06 Feist Publ'ns, Inc. v. Rural Tel. Servo Co., 499 U.S. Hernandez v Internet Gaming Entertainment, U.S. Dist. Ct. Southern District of Florida, Case No:07-CIV-21403-COHN/SELTZER [2007] Marvel Enterprises, Inc. and Marvel Characters, Inc. v NCSoft Corporation, NCInteractive, Inc. and Cryptic Studios, Inc., Case No. CV 04-9253-RGK in US District Court for the Central District of California MDY Indus., LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir. 2010) UK Ladbroke (Football) Ltd v William Hill (Football) Ltd (H.L.(E.)) [1964] 1 W.L.R 273, 1 All ER 465) R v Mitchell (unreported), February 2011, Herald Express R v Liam Stacey, Swansea Crown Court (30 March 2012) Nova Games Ltd. v Mazooma Productions Ltd., [2007] RPC 589 para 16 University of London Press Ltd. v University Tutorial Ltd. [1916] 2 Ch. 601 Street v Mountford [1985] AC 809 The United Policyholders Group and others v The Attorney General of Trinidad and Tobago [2016] UKPC 17 (28 June 2016) Walter v Lane [1900] A.C., 539 International The Case for Virtual Property 11 Bezpecnostni softwarova asociace (BSA) v Ministerstvo kultury C-393/09 Chengwei case (unreported), Shanghai No 2 Intermediate People's Court (7 June 2005) Football Dataco Ltd and others v Stan James (Abingdon) Ltd ECJ C-604/10 Infopaq v Danske Dagblades Forening ECJ C-5/08 Li Hongchen v Beijing Arctic Ice Technology Development Co., Beijing Second Intermediate Court (2003) McCracken v Melbourne Storm Rugby League Football Club Limited (2007) NSWCA 353 Nintendo Co. Ltd v PC Box Srl Case C-355-12 RuneScape theft, Supreme Court of the Netherlands LJN: BQ9251, Hoge Raad, 10/00101 J SAS Institute v World Programming Ltd [2013] EWHC 69 (Ch) UsedSoft GmbH v Oracle International Corp (C-128/11) Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman (1995) C- 415/93 Walrave and Koch, Case 36/74 [1974] ECR 1405 The Case for Virtual Property 12 Acknowledgements First, I would like to thank to my supervisors, Professor Chris Reed and Professor Julia Hörnle, who patiently read my work, encouraged me to explore beyond the traditional understanding of the topic, and were an endless source of knowledge, spirit and support. I owe them my deepest gratitude for believing in me until the very end. The work would have never manifested itself, without the support and encouragement of my husband, Gary, who read my work, provided useful feedback and comments. When necessary, he put aside his own work and responsibilities in order to give me much needed space to think, concentrate and write. Our two children, Arthur and Robert, provided an endless inspiration and insight into the human nature, especially when it concerns the sense of ownership, entitlement and the consequences of frustrated expectations. I would also like to take the opportunity and express my gratitude to my loving parents, my family, and my friends for their encouragement, unfailing common sense and constant moral support, for their patience, and for listening to me talking about the hardships of writing a PhD, for many, many years. The work has benefitted from the assistance and advice of many persons, in particular Professor Kate Malleson, who listened to me patiently and supported me in my darkest hour. Over the years, there have been many colleagues with whom I have shared the journey and I would like to thank them all, for simply being there and perhaps, feeling equally lost and full of doubts, at times. I would also like to mention a special thanks to one of my colleagues, Mary Yarwood, who kindly helped me with formatting, and Clare Sandford, who did the proofreading. The Case for Virtual Property 13 Chapter One: Introduction “What is real? How do you define real? If you're talking about what you can hear, what you can smell, taste and feel, then real is simply electrical signals interpreted by your brain.” - Morpheus (The Matrix movie) 1.1 The Subject of the Thesis Virtual environments are not real in a sense that they do not exist in the physical world.