Real Jurisdiction in a Virtual World: Interconnecting Jurisdictional Doctrine with End User License Agreements
5/1/2008 Spring Meeting Speaker Papers - AIPLA CLE Publication
Virtual worlds are persistent three dimensional computer-based environments that allow users to interact through unique names and avatars that represent their personalities. One particular virtual world, Second Life, allows "residents" to interact, socialize, create and trade items, and complete business transactions with real currency. Although seemingly innocuous, some argue that the actions of the avatars may create actionable legal claims in the "real" world. These claims can range from contract claims to tort actions, can involve property creation and seizure , and can involve various intellectual property controversies. These claims can be brought against owners, creators, and administrators of the virtual worlds in addition to individual users within the worlds. In most cases, the primary hurdle for plaintiffs to overcome is finding a court that can exercise personal jurisdiction. As the Supreme Court recently observed, the internet is a "unique and wholly new medium of worldwide human communication" that may cause a paradigm shift in legal thinking and application of traditional doctrines of personal jurisdiction. This is especially true when litigating harms caused by virtual actions that arguably never "really" happened.
As is well known, there are two types of personal jurisdiction, general and specific. To exercise general jurisdiction over a defendant, a court does not have to find that any contact in a forum was specifically related to the cause of action. Instead, the contacts need only have been "continuous and systematic." The defendant typically has to have been sufficiently "present" and "doing business" within the forum for a court to exercise general jurisdiction. The exercise of general jurisdiction in virtual world cases can be particularly problematic. Usually, a defendant interacting in a virtual world is not doing business in a single state or having continuous and systematic contacts there, just as a person operating a website likely is not subject to general jurisdiction in a particular forum state. Virtual worlds are distributed entities with servers, operators, publishing companies, and players scattered across several jurisdictions. However, the defendant's actions in the virtual world may be only one factor for the court to consider in making jurisdictional decisions.
If general jurisdiction is not available to the plaintiff, as is likely the case with virtual world claims, the court may be able to exercise specific jurisdiction. To exercise specific jurisdiction, the court may rely on relevant state long-arm statutes if the basis of the claim is "related to" or "arises out of" contacts with the forum state. Typically, state long-arm statutes allow for specific jurisdiction to be exercised if a harm is committed within the forum state or causes injury in that state. If the actions of avatars cause harm in a particular state, then, in theory, specific jurisdiction could be exercised over the party controlling the avatar. Additionally, since the actions of the avatar were routed through a central server, the party controlling the server could also be subject to specific jurisdiction. Alternatively, a court may rely on Fed. R. Civ. Pro. 4(k)(2) to establish jurisdiction over foreign defendants based entirely on their virtual world contacts. The court could rely on this rule if the foreign party is not subject to the general jurisdiction of any state.
In any case, before exercising specific jurisdiction, the court must determine whether such jurisdiction would offend the Due Process rights of the defendant. This analysis can be simplified in a three-part test that analyzes whether (1) the plaintiff's cause of action arises out of or results from the defendant's virtual contacts or actions; (2) the defendant purposely directed its virtual activities toward the forum state or purposely availed itself of the privilege of conducting virtual activities or virtual business within that state; and (3) the exercise of personal jurisdiction would be reasonable and fair. If the defendant's virtual world activities can satisfy each prong of this test, the exercise of specific jurisdiction by a court generally will be upheld.
The first prong of this test is dependent on the minimum (perhaps "virtual") contacts of the defendant in the forum state. To satisfy the first prong, the plaintiff must show that the cause of action arose out of, or resulted from, the virtual activities of the defendant within the forum state. Of course, the defendant need not have been physically present within the state to establish these types of minimum "virtual" contacts. That is, the virtual activities need only have given rise to, or were sufficiently related to, the cause of action. This can be especially difficult to prove because of the typically tenuous link between virtual activities and specific and actual harm occurring within a particular forum. Additionally, it is arguable, depending on what is alleged, whether virtual activities or actions ever "really" happened.
The plaintiff must also demonstrate that the defendant purposely targeted its virtual activities towards the forum state or knowingly conducted virtual or real "business" with residents of the forum state. In other words, the defendant must have "purposely availed" itself of the privileges of doing business in a particular state. Virtual activities are unique in this sense. Sending emails, or possibly even instant messages, likely will not rise to the level of purposeful availment. Similarly, interactions between avatars in a virtual space likely will not rise to the requisite level. Further, simply maintaining a bazaar, booth, island, or web-site in a virtual world will likely cause the avatar to come into contact with other "residents" from many other states and countries. However, this will still likely not rise to the level of purposeful availment. In fact, some courts have explicitly stated that personal jurisdiction cannot be exercised simply because a party created a website. Presumably, this would apply in virtual worlds as well.
To aid in the jurisdictional analysis, the courts may apply the "Zippo" sliding scale to the virtual world activities to determine whether the virtual actions were active, passive, or interactive. More specifically, the Zippo scale can be used to determine the "likelihood that personal jurisdiction can be constitutionally exercised" over the owners, creators, administrators and/or users of the virtual worlds. Passive virtual actions that simply convey information or advertise will not subject a party to the exercise of personal jurisdiction. Interactive virtual actions that are based on exchange of information between avatars or between avatars and a host computer may allow for the exercise of personal jurisdiction. Active virtual interactions that allow avatars to do business, enter into contracts, or knowingly and repeatedly transmit computer files or information to one another will strongly support an exercise of proper personal jurisdiction. However, this approach is not dispositive and only establishes a likelihood that personal jurisdiction can be properly exercised.
The court may also analyze (1) income generated through virtual contacts with a forum state; (2) knowledge that the virtual activity will do substantial damage in a forum state; (3) a high level of virtual actions by residents of a forum state; (4) indiscriminate responses by the defendant to every virtual interaction within the virtual world; (5) presence of content indicating that the virtual actions are targeted at an audience in a forum state; and (6) servers or internet service providers located in a forum state.
Alternatively, the court may review steps that a defendant took to limit their exposure to suit or, more specifically, to gain "minimum assurances" as to where their virtual activities would expose them to lawsuits. These factors may include (1) the use of disclaimers stating, for example, that the virtual world is targeted at a limited audience; (2) posted statements within the virtual world that are directed only at residents of a limited "real world" geographic area; (3) designing the virtual world so that it will not allow interactions between users of different forum states; (4) a notice within the virtual world that it only exists to be "informational"; (5) lack of use of the virtual world by residents of different forum states; and (6) use of forum-selection or choice-of-law agreements accepted by users upon registration or sign-up to the virtual world.
Referring back to the third prong of the test, the plaintiff typically also has to satisfy the court that haling the defendant into a particular forum would be "reasonable and fair." Said differently, the exercise of jurisdiction must not offend the notions of fair play and substantial justice. The defendant may argue specific factors articulated by the Supreme Court in Burger King Corporation v. Rudzewicz and interpreted by the Ninth Circuit as related to jurisdiction. Additionally, the court may use the "effects test" to determine the propriety of exercising personal jurisdiction. This test is based on whether there are (1) intentional (virtual) actions (2) expressly aimed at the forum state (3) causing harm that is mostly suffered in the forum state and which the defendant knows will be suffered in that state. As applied to virtual worlds, the Ninth Circuit has opined that more than merely foreseeable effects must be proven. The defendant must have individually targeted a known forum resident. If there is no individual targeting, then this test likely will not support an exercise of personal jurisdiction. In terms of virtual actions, it is likely quite difficult to prove that one avatar targeted another avatar knowing that the other avatar was controlled by someone in another state.
Thus, it is clear that the traditional doctrines of personal jurisdiction do not predictably control virtual world interactions and litigation. Although the traditional tests for both general and specific jurisdiction apply relative to virtual worlds, the outcomes of those tests are hard to predict. Each district and/or each circuit could interpret minimum contacts and Due Process fairness quite differently. However, through careful analysis and dissection of the aforementioned tests, both plaintiffs and defendants may be able to better predict where and when personal jurisdiction can be exercised. In a particularly relevant case, Marc Bragg v. Linden Research, Inc. et al, the court analyzed some of these factors in deciding to exercise jurisdiction not over Linden Lab, but over its CEO, Philip Rosedale. The first question that the Bragg court addressed was the establishment of minimum contacts. In this case, the court held that Rosedale's representations, made as part of a national campaign to induced persons to visit Second Life and purchase virtual property, constitute sufficient contacts to exercise specific personal jurisdiction. Next, the court reviewed whether an exercise of jurisdiction would violate the notions of fair play and substantial justice. In short, the court held that there was no undue burden on Rosedale, that Pennsylvania has a substantial interest in protecting its residents from misleading representations that induce them to purchase virtual property, and that Bragg may obtain convenient and effective relief in Pennsylvania. Thus, the exercise of jurisdiction did not violate the notions of fair play and substantial justice.
Notwithstanding any potentially complex and unpredictable analysis based on traditional notions of personal jurisdiction, users of virtual worlds also have to contend with End User License Agreements (EULAs) that can potentially limit or specifically designate forums and state laws that may deny users any chance of obtaining "convenient and effective relief." In fact, EULAs may not simply define jurisdiction but usually also severely limit or totally void any claims that may be asserted in addition to defining the type of process that may be followed, such as mediation, arbitration, or traditional litigation.
Said differently, when joining a virtual world, users are subject to private systems of laws that tend to differ from the laws of the outside world. These private laws are typically dictated to the users through the EULA and Terms of Service. Typically, EULAs use choice of law, jurisdiction, and venue clauses that are designed to create private convenient rules (for the game owners) in the absence of effective jurisdiction. These rules are usually presented to the user in a "click-wrap" format that is similar to shrink wrap agreements. As is widely known, these types of agreements are often not reviewed in detail by the users. Additionally, even if they were reviewed, the legal jargon presented may be unintelligible, at least in part, to the average user who is not familiar with concepts of indemnification, intellectual property rights, and forum selection/choice of law clauses. Thus, these types of agreements have some potential to be misused and may put certain unsuspecting users at a disadvantage. Still, the use of these types of agreements are the industry standard throughout the Internet and software industries. Of all of the potentially confusing clauses in these types of agreements, the forum selection/choice of law clauses may greatly affect the users in scenarios that involve disputes.
As set forth above, there are a myriad of issues surrounding jurisdiction and forum selection in litigation. Thus, many creators and operators of virtual worlds attempt to clarify what jurisdiction will apply and what state, national, or international law will govern any litigation. In fact, one study states that approximately 87.5 percent of virtual worlds, both US and internationally based, include forum selection and choice of law clauses in their EULAs. Of these EULAs, approximately 37.5 percent selected California as the forum and California law as the choice of law. Just considering US based virtual worlds, this percentage is about 54.6 percent. Additionally, approximately 18.8 percent of the EULAs include forum selection clauses including jurisdiction outside of the United States.
At first glance, these types of jurisdictional provisions, especially those selecting forums outside of the United States, may seem to violate the notions of fair play and substantial justice that were analyzed by the Bragg court and are considered traditional factors to consider when exercising jurisdiction. However, through the use of the click-wrap agreements, these abdications of rights by the users may be upheld because the users are expected to read and understand the language of the agreements, as people are expected to do for other types of agreements such as apartment lease agreements or credit card agreements. The Second Life EULA specifically states, at times in all-caps, that the user is responsible for understanding the language to which they are agreeing. Thus, courts tend to uphold these types of jurisdiction and choice of law clauses, even if it might be found burdensome to the average plaintiff. On the other hand, as with Bragg, courts may determine that some of these types of agreements are unconscionable.
Traditionally, courts invalidate contracts as either procedurally or substantively unconscionable. Contracts that are judged procedurally unconscionable are usually those that are contracts of adhesion, i.e., when the bargaining power of one party is clearly superior to the power of the other party. In other words, the less powerful party can either accept the terms of a contract or reject those terms with no option in between. The Bragg court, perhaps incorrectly, analyzed this issue and found that the EULA/terms of service offered by Second Life resembled adhesion contracts. The court came to this conclusion in spite of Bragg's legal training and experience as a practicing attorney because he was not allowed to exercise his bargaining skills with this particular agreement. Further, the court determined that no reasonable alternatives existed for Bragg because no other virtual worlds granted property rights to users, essentially "punishing" Linden Lab for being a pioneering virtual world that grants certain property rights to its users.
Bragg can be distinguished from a similar case, Davidson & Assoc., Inc. v. Internet Gateway, Inc., wherein the court found that a software agreement was not unconscionable for some of the same reasons as presented above. Specifically, the plaintiffs, who were computer programmers, were familiar with the requirements of the EULA, could choose another video game, could agree to the terms and use the video game, or could reject the terms, return the software, and get a full refund of their money. Thus, this scenario differed from Bragg in at least two ways. In Davidson, the plaintiffs were computer programmers who were well aware of the language of the EULA. Bragg may not have been well aware of the language of the EULA even though he was a practicing attorney. Additionally, other options were available to the plaintiffs in Davidson and were not available to Bragg because of Second Life's pioneering status with granting certain property rights.
In addition to a procedural unconscionability analysis, the court may also review whether the EULA is substantively unconscionable, i.e., whether the contract is one-sided based on the rights and duties presented therein. The Bragg court engaged in this analysis and focused on certain rights granted to Linden Lab. These factors include: (1) the right to terminate accounts at any time and for any reason; (2) the right to determine, in its sole discretion, whether a breach of the EULA has occurred; (3) the right to withhold currency based on a suspicion of unlawful activity; and (4) the right to amend the EULA at any time. Additionally, the court focused on other provisions in the EULA and determined that these provisions unfairly benefited Linden Lab. These provisions include the arbitration provision, the fee-sharing provision, the venue clause provision, and the confidentiality provision.
In view of the Bragg decision, Linden Lab rewrote the Dispute Resolution section of its EULA. The EULA now states, in no uncertain terms, that California law controls without any regard to the principles of the United Nations Convention on the International Sale of Goods (CISG). The EULA also states that the user agrees to the exclusive jurisdiction and venue of the courts of the city and county of San Francisco except in the case of optional arbitration. Additionally, Linden Lab is still allowed to apply for injunctive or other relief in any court of competent jurisdiction. As set forth above, these types of clauses and choice of law/forum provisions may still be troublesome for certain users, but were a step in the right direction. In Linden Lab's EULA, as it currently reads, for any dispute involving less than $10,000, the party requesting relief may elect to use arbitration without any need for personal appearance by either party. Additionally, the judgment rendered by the arbitrator may be entered in any court of competent jurisdiction. However, this type of arbitration will not require the personal appearance by either party unless mutually agreed upon. In fact, Linden Lab has even suggested that the arbitration itself may occur within Second Life. Said differently, the arbitration would be with real life arbitrators controlling virtual avatars. This may also be troublesome for users depending on the type of arbitration. Many users may not trust or feel comfortable engaging in arbitration with Linden Lab using their landscape or virtual world as a host site. However, Linden Lab did not similarly modify their EULA relative to intellectual property rights. Thus, their EULA may still be judged both procedurally and substantively unconscionable unless and until other virtual worlds grant similar rights. Their EULA includes a clause explicitly stating that the user retains copyright and all other intellectual property rights with respect to content to the extent that the user has such rights under "applicable" law. However, these rights do not extend to the source code itself. That remains the property of Linden Lab.
A closer reading of the EULA shows that it is not entirely "friendly" to a user's intellectual property rights. The EULA includes a clause requiring that the user expressly grant to Linden Lab and all other users a non-exclusive, worldwide, transferable, irrevocable, royalty- free and perpetual license under any and all patent rights that the user may have or obtain relative to their created content. This clause also requires the user to agree to waive any rights to assert patent infringement against Linden Lab and any users. Still further, this EULA states that the user agrees to comply with the processes of the Digital Millennium Copyright Act regarding copyright infringement.
These provisions are interesting from a patent perspective and may seem to run contrary to basic assumptions about patent protection. If any Second Life user can automatically gain a transferable, irrevocable, royalty-free and perpetual license, then the entire concept of patent protection loses much of its meaning. Additionally, if this were not enough, the user waives rights to assert any claim for patent infringement. Linden Lab maintains that this is done to prevent patent litigation arising out of content created in its world.
Further, Linden Lab's EULA includes a waiver of rights to control what either Linden Lab or third parties do with the intellectual property in the online context. More specifically, the user can provide Linden Lab with written notice that he desires that the distribution of certain intellectual property stop but Linden Lab, "in its sole discretion", identifies the relevant content and materials. This further strips the user of any meaningful intellectual property rights retained because the user waives all mechanisms of enforcement. In essence, many intellectual property rights are waived through this agreement.
This type of language and waiver/license of intellectual property rights in a virtual context could create similar problems for Linden Lab as existed in the Bragg case. In Bragg, virtual "real property" rights were taken away by Linden Lab. Those rights were clearly linked to actual dollars paid for certain virtual property. Similar complaints may be filed if Linden Lab takes away virtual intellectual property rights or the property itself, such as a copyrighted song or image, a trademark, and/or an article protected by utility and/or design patents. This is especially relevant in Second Life. In Second Life, the user pays to participate with the knowledge that real money is in play. Therefore, the whole notion of intellectual property rights, their license, and/or their income generation potential is more than mere conjecture. It is a reality. This reality may prompt future litigation if these income generation devices are taken away by Linden Lab. As set forth above, Linden Lab can, in its own discretion, delete content and decide who can or cannot use content.
The growing development and use of virtual worlds is leading to the generation of new jurisdictional and practical questions to address in the context of both assertion of rights and in the offer and acceptance of End User License Agreements. In Second Life, Linden Lab's EULA was previously judged to be both procedurally and substantively unconscionable in its one-sided approach to the definition of rights and remedies granted to the users. This, however, may change in the future due to increased awareness and familiarity the public has with these types of agreements, the evolving changes made to these types of agreements, and the different types of settlement options available to the public, such as the use of the virtual world itself to conduct arbitration. Although EULAs attempt to define legal rights, remedies, choice of law, and jurisdiction, there remain a myriad of questions that surround exercising personal jurisdiction and Due Process considerations related to hailing defendants into court.