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December 26, 2006

For Discussion: Property Rights in Virtual Markets

by Brad Warbiany

I’m no expert on this, so I’m offering it for your consumption. How do you define property rights for a virtual store, selling virtual wedding gowns, to virtual people, in exchange for virtual money?

Veronica Brown is a hot fashion designer, making a living off the virtual lingerie and formalwear she sells inside the online fantasy world Second Life. She expects to have earned about $60,000 this year from people who buy her digital garments to outfit their animated self-images in this fast-growing virtual community.

But Brown got an unnerving reminder last month of how tenuous her livelihood is when a rogue software program that copies animated objects appeared in Second Life. Scared that their handiwork could be cloned and sold by others, Brown and her fellow shopkeepers launched a general strike and briefly closed the electronic storefronts where they peddle digital furniture, automobiles, hairdos and other virtual wares.

“It was fear, fear of your effort being stolen,” said Brown, 44, whose online alter ego, Simone Stern, trades under the name Simone! Design.

Brown has reopened her boutique but remains uncomfortably aware that the issue of whether she owns what she makes — a fundamental right underpinning nearly all businesses — is unresolved.

My knee-jerk reaction would be that these virtual markets are the “property” of the software designers who create the software, and they can define their own property rights for their users based upon their license agreement. The cost of entry and exit from a virtual marketplace is a lot different than, say, a physical one, so the idea of competing governments and property rights structures seems to me to be ideal.

As a whole I don’t know that I support government getting involved in regulating virtual property rights. But given that I’m wholly unfamiliar with these sorts of games, never having played any of them, I’m not sure that I’m qualified to offer an opinion.

What are your thoughts?

(random snark below the fold)

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Congress has taken note and is completing a study of whether income in the virtual economy, such as from the sale of gowns that Brown makes, should be taxed by the Internal Revenue Service. The Joint Economic Committee of Congress is expected to issue its findings early next year.

Yep, the government will probably support property rights if it helps to build their income stream.

Earlier this month, U.S. Circuit Judge Richard A. Posner visited Second Life, appearing as a balding, bespectacled cartoon rendering of himself, and addressed a crowd of other animated characters on a range of legal issues, including property rights in virtual reality. Posner stressed that it was in Linden Lab’s interest to ensure due process and other rights.

“They want people to invest in Second Life, and we know people won’t invest if their rights are not reasonably secure,” he told the audience, which included a giant chipmunk and several supermodels. He went on to predict the eventual emergence of an “international law of virtual worlds” similar to international maritime law.

What he said is undoubtedly true. But can you imagine being a U.S. Circuit Court Judge, and creating a cartoon character of yourself, addressing a giant chipmunk and cartoon supermodels about virtual property rights? Oh, to be a virtual fly on the virtual wall in that virtual room!

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3 Comments

  1. Sounds like a pandora’s box to me, but with more and more going on, on the internet, I suppose it needs to be addressed.

    Comment by Lucy L. Stern — December 26, 2006 @ 11:09 am
  2. Shooting from the hip here, my guess is that as long as you don’t convert your virtual currency into actual real life dollars; the government cannot collect that money as taxes. As for intellectual property rights, the primary responsibility is with the software manufacturer to protect property rights. However, what recourse do software users have when property rights are not protected is the million dollar question.

    Comment by Kevin — December 26, 2006 @ 3:50 pm
  3. The Virtue of Economics in a Virtual World

    Trackback by A Second Hand Conjecture — December 27, 2006 @ 3:51 pm

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