Copyright infringement and the collapse of virtual economies

I just finished reading Play Money, Julian Dibbell’s book about his experiment in earning a living by selling virtual goods in Ultima Online. Not only does the book get into the details of the nature of the virtual economy, it is a fascinating read about the blurring of lines between play and work and the challenges of turning a hobby into a career. And while there are plenty of people who play MMORPGs simply as games, there are others whose online life is very serious. They watch the market indicators and exchange rates of the in-game economy with the same diligence as traders on Wall Street. Issues like bot farming are treated with the same seriousness that the WSJ covers corporate news. Gamers have spent time and/or money to acquire virtual assets which have value based on scarcity. Virtual Worlds demonstrate basic economic principle– on both the micro and macro levels. Players are concerned with not only the price of goods, but also issues of money supply and inflation.
Yet to some extent, all scarcity within virtual worlds is artificial. With digital goods, once an object is created, it can be cloned at little to no marginal cost. It’s the same reason why piracy of digital files is easier than of analog media. But, in order to make the game worth playing and keep the virtual economies from collapsing, the game universe needs to enforce the principles of scarcity.
Without some kind of regime to enforce the scarcity of intagible property, then intangible and intellectual property becomes essentially valueless to the creator. At least, that’s one of the ways to frame the justifications for intellectual property laws here in the “real world.” Copyrights and patents secure the economic interest in a work for authors/publishers and inventors. Because the law states that copyrights have value– and there is a significant public interest in recognizing that value– copyrights and patents are valuable intangible assets.
Virtual worlds are entirely based on intangible assets and are governed mainly by private contracts. The terms of use agreements of the services act as the constitutions of those virtual worlds.
In Second Life, Copybot– a recently developed software program– allows users of that program to clone any object. Creators of Second Life objects that are for sale object, because it ends the artificial scarcity that makes those objects valuable. You bought a virtual shirt from the virtual American Apparel store? Copybot could give you an entire wardrobe of counterfeit virtual shirts that are indistinguishable from the legitimate shirt.
While Second Life denizens could use US Copyright law to go after the infringing copies, that could be prohibitively expensive
Linden Labs intends to develop a way to identify assets and perhaps copy-protect them. But until that system is in place, Linden Labs will penalize infringers by exile: Use of CopyBot and Similar Tools a ToS Violation

Second Life needs features to provide more information about assets and the results of copying them. Unfortunately, these are not yet in place. Until they are, the use of CopyBot or any other external application to make unauthorized duplicates within Second Life will be treated as a violation of Section 4.2 of the Second Life Terms of Service and may result in your account(s) being banned from Second Life. If you feel that someone has used CopyBot to make an infringing copy of your content, please file an abuse report. Note that this is completely separate from any copyright infringement claim you may wish to pursue via the DMCA.

Daniel Terdiman, ‘Second Life’ faces threat to its virtual economy: “Second Life is an open-ended, 3D, digital virtual world in which members can create nearly anything they can imagine, and in which anyone owns the intellectual property rights to what they create. As a result, there are hundreds of businesses selling clothing, vehicles, furniture and the like, all for Linden dollars. A complex and stable economy has sprung up around such commerce.”
Wagner James Au, New World Notes: Copying a Controversy

The fallout, of course, continues. And in its way of being a parallel, alternate world history of the Internet, Second Life has finally reached a place that’s more or less on a par with the Net as it is now, where arguments over digital rights management and file trading still rage. On the larger Internet, those debates generally pit larger corporations against their consumers, the RIAA and the MPAA versus, well, everyone else. But in a world where everyone by definition can, with a few clicks, become a content-creating entrepreneur, the debate has become egalitarian, pitting creator against creator, each with their own personal view of what constitutes theft and fair use, and the degree of faith they place in having their IP rights kept sacrosanct in Second Life.

Cory Doctorow, BoingBoing: Second Life struggles with copying

As a practical matter, it’s just not feasible to control copying in an environment like Second Life, which means that SL entrepreneurs are going to need businesses that don’t collapse when copying takes place. But there are much gnarlier problems here — for example, in real life, questions of copyright infringement are adjudicated on the basis of law passed by elected lawmakers, while in Second Life, these questions are adjudicated by a company based on its non-negotiable terms of service. You can fire law-makers who make bad copyright, but you can’t fire companies that make bad terms of service. You can take your business elsewhere, but if all your “assets” live in a proprietary virtual world, you have to go away empty handed, without any of your “copyrighted works.”

Martin Schwimmer, The Trademark Blog: CopyBot Terrorizing Residents Of SecondLife, Caught On Video

However, to the extent that [Second Life] wishes to continue to be the host to an exchange, it will find that successful exchanges must offer security not only to buyers but to sellers. If copyrightable material is going to be bought and sold on Second Life, then I’m not sure that the real world copyright regime is fast enough to solve problems like CopyBot. I think that SecondLife is going to have to get into the copyright enforcement business.

Denise Howell, Lawgarithms: In Second Life, those on ‘Candid Copybot’ aren’t smiling

In the real world, economies thrive in part because copying technologies exist — in other words, because those technologies themselves are economic engines. Deciding that such technologies are bad per se and must be squelched or hobbled isn’t good policy in the real world, and I’m not sure why Second Life, which is in the enviable position of creating in-world copyright policies from scratch, should adopt a different approach.

Unlike some other MMORPGs that had cracked down on the sale of virtual goods for real money, Linden Labs encourages the market in virtual goods and currency exchange between its own Linden dollars and US dollars. So in terms of macroeconomic policy, allowing rampant copying of in-game items may be bad policy. Because in the game, the copyrighted works are not necessarily cultural and artistic items as protected by copyright in the real world, but instead are stand-ins for scarce physical goods. Second Life could be a veritable utopia, where goods spring forth without effort, but that would change the fundamental nature of the Linden economy and at the very least lead to rampant inflation, if not a complete devaluation of the Linden dollar. And it would prove disastrous to Second Life landowners and merchants who have invested time and money in the universe.