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A virtual property precedent established

December 4th, 2007 (Visited 1932 times) Tags:

With the settlement of the ‘Rase Kenzo’ case in Second Life, we now have a precedent for calling virtual goods “merchandise.”

Although the claims largely centered on intellectual property, if the judge — the Honorable Sandra Townes, in the Eastern District of New York — enters the consent judgment as written, including its reference to copying of “merchandise,” the judgment will stand as the first formal, if tentative, recognition of virtual property by a U.S. court. Though the judgment will not have as significant a precedential value as a contested decision on the merits would have had, it will be cited for the foreseeable future.

The legal documents are quite short and very clear — the key bit is that throughout, the copied digital items are referred to as “merchandise.”

This is not the same case as the Eros case I referenced just a few days ago, but Eros is one of the plaintiffs. This case centered on copyright and trademark — Rase Kenzo was accused of infringing upon the creators’ rights by duplicating and selling copies of the items that they create and sell within SL.

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31 Responses to “A virtual property precedent established”

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Rampant Trademark Infringment in Second Life Costs Millions, Undermines Future Enforcement | Virtually Blind | Virtual Law wrote on December 4th, 2007 at 12:50 pm:

[...] Website: A virtual property precedent established: “the settlement of the ‘Rase Kenzo’ case in Second Life, we now have a precedent for [...]

Joystiq Podcast Roundtable - Blizzavision ... Actiblizzard wrote on December 5th, 2007 at 8:18 am:

[...] items you’re talking about are virtual? As Tateru herself noted, yes– virtual theft matters.And Raph Koster agrees. He points to the Rase Kenzo settlement as all the precendent any court would need to consider [...]

Second Thoughts wrote on January 14th, 2008 at 10:27 am:

and sensible lawyers explaining to him that a settlement — a judgement by consent — can in no way be construed as a *precedent* like a real judicial ruling on a case, Duranske wouldn’t let go. He painted himself into a corner in the comments andover on Raph Koster’s blog

Reader Comments

greglas said on December 4th, 2007 at 10:14 am:
First precedent? I don’t know if I’d go that far, with due respect to Ben’s opinion on this.

When pirated copies of works protected by IP (e.g. books and CDs) are described in litigation, they’re often described as merchandise. In this case we have digital works protected by IP that are being described as merchandise. So is this really a “virtual property” case? From a copyright and trademark perspective, you could make the argument that it’s not all that different from a case involving pirated mp3 files. I generally think of virtual property as involving technologically enabled systems of artificial scarcity that *aren’t* depended on underlying IP rights.
greglas said on December 4th, 2007 at 10:15 am:
*dependent*
Benjamin Duranske said on December 4th, 2007 at 12:55 pm:
Greg is right — it’s not a virtual property case. That is why the language (”merchandise”) in the consent judgment is so surprising.

Consider this — it would sound really odd to refer to copying a song from one MP3 player to another as stealing “merchandise,” or to erasing that song as “destroying” it. Those just aren’t words we use to describe IP infringement. So I feel like this opens the door to recognition of virtual property, at least a crack. It’s just a crack, granted, but it’s the first one, and I expect to see citations to this judgment on those grounds.
Kate said on December 4th, 2007 at 1:03 pm:
I’m not sure I would want to call it any kind of a precedent — if the judge accepts their judgment as written, does that constitute an endorsement of the parties’ characterization, or does it simply mean that Judge Townes is approving a settlement agreement? I don’t know how this particular settlement arrangement works.
Benjamin Duranske said on December 4th, 2007 at 1:09 pm:
What I have found is that if the rules allow it, people will cite to just about anything they can, when there’s nothing else out there. This won’t be published, and makes lousy precedent, but in the total absence of anything else, I’d cite to it, and drop a footnote explaining what it is and where it comes from.
Morgan Ramsay said on December 4th, 2007 at 3:13 pm:
Note that Raph said “we now have a precedent for calling virtual goods ‘merchandise.’” That’s not the same as saying we have precedent for some legal decision. Remember, Raph’s the guy writing about game grammar and stuff, so this post is more about the standardization of terminology than the case. At least, that’s what I understood from the language used.
me said on December 4th, 2007 at 9:54 pm:
What about land bots, in combination with big-money
players in sl, who buy up all mainlands, and squeeze
small profits, and make it hard on most others to make
a buck? There are alts with no one controlling them on
Linden owned lands? Are these alts connected to the land
bots, and this price fixing of sl lands?
With the recent problems in the sl economy, lands ought
to be cheap?
There is no transgression of any state laws in the copying of these
objects in sl, because there is a glitch in the sl program
that causes copying to occur sometimes. Persons recieveing copies
are guilty of nothing. even selling the copies is not unlawful.
I think that what these greedy programmers are so troubled with
is because they think that they worked for their programs,
and objects, and so, they don’t want to give monies to others?
There thinking may be that others ought to work for thier
moneis as they did themselves? But, I do not fully aggree.
The amount of workd that goes into a program may be paid for
after a period of time; after which time, any further sales,
then become unrighteous, in regards to ‘hey i worked for it,
so let others work too’. Overpayment starts to occur, i think.
After being overpaid, some people who were selling pornographic
sex beds then have the nerve to charge other people for ‘taking’
their objects and selling them?
Is there any laws against pornography?
But, it seeems that the persons selling the copied items erred by
having too many of the items for sale? Because it cannot be found
to be unlawful to simply have the copies, because the glithc makes copies
Prokofy Neva said on December 5th, 2007 at 1:00 am:
Well, I wouldn’t get too excited here.

What we have here in practical terms is a precedent for how virtual property that has value inworld, and even retains value when sold and the funds cashed out by an individual creator, but when subjected to judicial scrutiny and challenge by a litigator, it devalues.

Let’s just take 40 beds of Stroker’s for $40 US each — that’s US $1600 right there (I believe that figure was mentioned in the story).

As you can see from the numerous screenshots linked to my article breaking the story of this exploit, there were hundreds of copies made of all different kinds of inworld products in an unauthorized fashion, and then a further exploit evidently used to make them transferrable, although not set as such — so it’s hard to say how much the value is — in the thousands of US dollars, I guess.
http://secondthoughts.typepad.com/second_thoughts/2007/10/a-simple-exploi.html

Yet all of this translated to a mere US $525 in a settlement. You wonder why it wasn’t in small claims court.
Kerri Knight said on December 5th, 2007 at 2:43 am:
There is no transgression of any state laws in the copying of these objects in sl, because there is a glitch in the sl program that causes copying to occur sometimes.

Thats a lot like saying “its ok to steal cable from the cable company because they didn’t put a scrambler on all the lines in this neighborhood”. You know its wrong, I know its wrong, you can play the little ‘blame the victim for not protecting themselves against my unannounced ill-intentions’ game, its neither funny nor innovative (and getting way too common in America, not sure about elsewhere :9). Simply put, its a deceitful logical fallacy that ignores the personal responsibility of individuals in a cohesive society to respect others’ rights.

Persons recieveing copies are guilty of nothing.

It depends on whether they knew the ‘merchandise’ was legal or not. knowingly taking possession of stolen/counterfeit goods is illegal.

even selling the copies is not unlawful.

Selling or distributing ‘merchandise’ that is stolen/counterfeit or you have not been given the right to is illegal….which tends to make it unlawful.

I think that what these greedy programmers are so troubled with is because they think that they worked for their programs, and objects, and so, they don’t want to give monies to others?

They did do the work, and why are they supposed to just give money away?

Justifying all these actions as fair recompence against ‘greedy programmers’ is another over-(ab)used fallacy. If you believe they are over-charging, get your butt in gear making a competing product….then despair as the fruit of your efforts falls victim to the same illegal practices you’re defending.

Go to a digital art community like renderosity or runtimeDNA and tell me how well received your thoughts on proprietary rights are. These folks are fairly open-minded, too….you can purchase a model, use it in artwork, charge money for the art and not pay another cent to the model designer. But if you take their model and put it up for sale as a model, do you think the designer appreciates that you’re now making money off of their hours of painstaking clip-tweaking, reflection-map testing

…and lets not even start on textures.

You don’t have the right (however cleverly justified) to insert yourself into the revenue stream or bypass it, but they do (or should) have the right to take you to court for doing so.
Kerri Knight said on December 5th, 2007 at 3:07 am:
made two efforts, both eaten… *sigh*
guyal said on December 5th, 2007 at 6:33 am:
This boils down to Benjamin’s comment “…people will cite to just about anything they can, when there’s nothing else out there. This won’t be published, and makes lousy precedent, but in the total absence of anything else, I’d cite to it, and drop a footnote explaining what it is and where it comes from.”

There’s a body of law as well as a body of art regarding how precedents are followed, so there are lots of reasons why other courts don’t need to follow this precedent (it’s a different jurisdiction, it’s a lower court, it’s a consent judgement). Its a long way from the precedent value of, e.g., a US Supreme Court ruling.

Litigants with lots on the line will try to take clear Supreme Court language (when you can get it) in all sorts of novel directions, so the path forward for this little ruling will be far less predictable, in the absence of a body of precedent to craft legal arguments upon. That’s what makes it noteworthy and interesting, even though its not The New Rules Of The Road for anyone other than the 2 parties.

A significant portion of a lesser case’s precedental effect propagate’s thusly:

“Oh crap, there’s barely any case law on this, and what there is doesn’t support my client. Wait, here’s a favorable footnote on the subject from Northsouthwestern Sub-District of San Banana. Maybe this will help if I get creative enough.”
FlipperPA Peregrine said on December 5th, 2007 at 1:28 pm:
There’s a very simple reason this wasn’t in small claims court; copyright lawsuits are federal. Someone correct me if I am wrong, please.

Let’s also not forget that if this had gone to full trial, and the plaintiffs had won, a lot more money would have been at stake (attorneys fees, for starters). This was a way for some well established content creators to make a statement and take a stand, and I applaud them for doing so.

I’ve seen comparisons made to the RIAA suing, yet I don’t see it. The RIAA is the one suing grandmothers, not the individual artists. It isn’t even in the same ball park.
Benjamin Duranske said on December 5th, 2007 at 4:48 pm:
Flip is right. Section 1338 of Title 28 of the United States Code confers exclusive jurisdiction over claims of copyright infringement on the federal courts. These aren’t in “small claims court” because they’re federal claims, and there is no small claims court at the federal level.

Some people, including me, would like to see a faster, cheaper system for smaller copyright claims, but there isn’t one currently.
Prokofy Neva said on December 5th, 2007 at 9:08 pm:
I’m not at all persuaded this is really about copyright theft; it could be about merchandise theft. Stealing multiple copies of something isn’t the same as stealing *the copyright itself,” i.e. the ability to generate the script or texture. In fact, there isn’t any determination that intellectual property theft took place, because there isn’t a judge’s ruling, and it isn’t a precedent.

Where Benjamin Duranske is wrong here is in claiming that this is a “precedent”. It isn’t — it’s a *settlement*. Settlements can’t generate precedents.

I’ll see if I can find an experienced attorney to explain this persuasively : )
Prokofy Neva said on December 5th, 2007 at 9:11 pm:
That is: what happened in technical SL terms is that Rase used the exploit of the fact that the Lindens’ sims reproduce multiple copies when a certain configuration of restart is used — that’s not him making the copies, it’s the system making copies as an exploit, that he took advantage of and was able to further maneuver to make them transferable (I’m still wondering how *that* was accomplished, but I think it has to do with how permissions get messed up).
katykiwi moonflower said on December 5th, 2007 at 9:15 pm:
There is no significance to the use of the term merchandise in this matter. This is a consent decree, the judge makes no finding apart from the fact that the parties enter the agreement willingly. Just because the litigants decided to use the word merchandise means nothing. Any first year law student knows this and to mislead people into thinking there is legal weight carried to the use of any word in a consent decree is just plain incorrect. This is a small time case that settled for small time money to make it go away because it was not worth the cost to even think of defending.

I’ve spent many years as a litigator,have written many many consent decrees for settlement, and were anyone to assert that the choice of words used as carrying legal significance in any matter just demonstrates a complete misunderstanding of the law.
Benjamin Duranske said on December 6th, 2007 at 6:05 pm:
Katy is right that it’s not binding precedent, but that’s not the only kind of document that gets cited. I’ve written and read many briefs that cite law review articles, books, web sites, oddball filings like this, even dictionaries. At least for IP practice in most federal courts, I’ve found that the judges are fairly open to a wide range of citations, as long as you make it clear what you’re pointing to, particularly, as here, where there’s not much to go on.

As is traditional, Prokofy is misstating my position in order to attack it. What I said is it’ll be *cited,* not that it’s “precedent.” In fact, I said, “Though the judgment will not have as significant a precedential value as a contested decision on the merits would have had, it will be cited for the foreseeable future.” As people who follow blogs more closely related to Second Life know, Prokofy does that a lot. (See this, regarding Prokofy Neva.)

My guess is this will be written up in a law review, or a book (in fact I know it’s ending up in a text book, due for publication early April, 2008 — shameless plug) and it will probably get into briefs via citation to a secondary source. People may also point to it directly as well, simply since there’s so little out there on this.

As for the word, as Morgan pointed out way back in comment 6, I believe Raph meant “precedent” in its standard sense — not in the legal sense, here.
Raph said on December 6th, 2007 at 6:18 pm:

IANAL.
Morgan Ramsay said on December 7th, 2007 at 12:23 am:
and were anyone to assert that the choice of words used as carrying legal significance in any matter just demonstrates a complete misunderstanding of the law.

Although this post was not a post about legal issues, I’m pretty sure that word selection is legally significant in, say, constitutional law. That significance might be ambiguity and thus openness to judiciary interpretation, but the significance remains.
Morgan Ramsay said on December 7th, 2007 at 12:26 am:
I’m also definitely confident that word selection is legally significant to contract law; otherwise, corporate counsel wouldn’t quibble over word selection until contracts dry up and everyone else moves on, frustrated with the lawyers.
Prokofy Neva said on December 8th, 2007 at 10:35 pm:
In courts of law, the reason to *cite* a case would be to invoke the precedent; the primary association with this term commonly is with *case citation* — and not citation to some book you once read in high school called “Snow Crash” or some oddball poem you like or something.

Benjamin Duranske has painted himself into a corner here, as katykiwi Moonflower amply indicates. Indeed, the whole reason Raph ran a headline saying, “A Virtual Property Precedent Established” (incorrectly) is that he picked this up from the news, and some of this news, like Reuters, was using Benjamin Duranske as an “expert,” and he called it wrongly — it was no precedent, as you can’t make a precedent out of a *settlement*. After being challenged on this, he doubled back and began to talk nonsense about oddball things in briefs being “cited” but not really “cited cited”.

Duranske is not currently a practicting attorney (see info here in response to his link page on me).

Duranske is merely gaslighting by suddenly saying like the Red Queen that he means a word to mean something else when challenged.

Re: “My guess is this will be written up in a law review, or a book (in fact I know it’s ending up in a text book, due for publication early April, 2008 — shameless plug) and it will probably get into briefs via citation to a secondary source. People may also point to it directly as well, simply since there’s so little out there on this.”

My guess is that more experienced and sophisticated attorneys will not indulge in this kind of wacky stuff, and if this is showing up as a citation in a textbook, it will create a generation of idiots. Just because Web 2.0 and VW advocates want something to be true doesn’t mean it has been accepted as true. So far, unfortunately for us all who invest in SL, games and worlds are treated as code that is either proprietary code or open-source code or a mixture of both, but not “virtual property” — and the experiment of SL whereby users are granted permission to a certain extent to have their own intellectual property based on the platform is proving to be very difficult to protect and enforce. Taking this to a RL court didn’t reinforce it; if anything, the concept of “virtual property” was undermined by the case being settled out of court.
Prokofy Neva said on December 8th, 2007 at 10:39 pm:
And again, this statement is incorrect, even as a fall-back from the original incorrect statement: ““Though the judgment will not have as significant a precedential value as a contested decision on the merits would have had, it will be cited for the foreseeable future.”

It makes it seem as if there was a judgement — but there wasn’t, there was a *settlement*. Furthermore, it makes it seem as if there *is* some kind of precedent, although not significant. But there isn’t any precedent at all, as it is a *settlement*. On his own blog when challenged by several attorneys over this, Duranske began to mumble things like, “well don’t local courts sometimes have different rules about things you can cite, etc”. Again, you cannot pull a precedent — any kind, weak, strong, significant, less significant — out of an out-of-court settlement.
Prokofy Neva said on December 8th, 2007 at 10:42 pm:
Cross-posted from Benjamin Duranske’s blog here:

7 Julynn Lilliehook

This “consent judgment” has no precedential value. It is merely the memorializing of a settlement agreement so that if the defendant breaches the agreement, the lawsuit can be revived and contibue to trial.
katykiwi moonflower said on December 9th, 2007 at 11:41 am:
I cannot imagine the law school that would entertain the concept of citation of a consent agreement for precedent or even persuasive purposes. Because one bad lawyer mistakenly cites a consent agreement, which has the evidentiary weight of hearsay, does not give it any legitimacy whatsoever.

I was a judicial law clerk out of law school, and I know sure as hell how consent agreements work, how my judge would react to that citation, and the result of such a citation. It is a strong demonstration of incompetance and misunderstanding of the law to defend the legitimacy of citation of a consent agreement, whether it is the incompetance of the one citing, the judicial law clerk reviewing the filings, or the judge who would allow such an embarassing citation to stand.

Law students talk about academia and legal journal publications. Real lawyers stick to the proper way to advocate the case of their client. But, I am third circuit and am not the only one to raise eyebrows at the questionable practices and rulings of the ninth circuit and those appearing there.
Kerri Knight said on December 10th, 2007 at 10:37 am:
I really want to be flabbergasted at how many people are taking the position ‘its okay if I can get away with it’.

I mean some of these arguments are so thin I could debunk them with something as simple as:

I have a machine that makes cookies. Through clever manipulation of some controls and ingredients, I can get it to make counterfeit $100 bills. I’m not guilty, what are you crazy? The machine made the counterfeits, I’m not responsible!!!

hmm….after reading what I just wrote, I think those last 3 words there are the most telling.
Benjamin Duranske said on December 12th, 2007 at 5:34 pm:
Many of the somewhat non-standard citations (law review articles, textbooks, dictionaries, etc.) I’ve seen have been in relation to patent litigation, both in the various circuits (including the 3rd) and in appeals to the Federal circuit.

The reason is similar to this question — that is also an area of law where there’s regularly new twists and arguments arising due to changes in technology. So attorneys have to be a little creative.

My best guess? I see this showing up in a brief via a cite to an intermediate writeup in a textbook or a law review article.
Benjamin Duranske said on December 13th, 2007 at 8:02 am:
Kerri - you are absolutely right there. I can’t imagine a jury giving much credit to the argument that Kenzo was just standing there when the *software* made the copies. Juries are smarter than that. They had a ton of evidence, and a consent judgment is probably the right outcome here. It ends what was likely to be expensive litigation, the creators made their point, and the dollar figure, small as it was, reflects actual damages, assuming Simon/Kenzo’s paypal records show that.

To close out the question on precedent v. citation, the key is this: “precedent” in a legal sense is a very specific term that refers to decisions that bind courts to act the same way later. katykiwi is absolutely right that this is not “precedent” in that sense.

This is the kind of judgment that gets noted in a law review article or a treatise, and cited not as “precedent,” but rather for the proposition that some cases that reached the courts have ended in decisions for the plaintiff. I’d expect to see this in a “background” section in a brief, not a “law” section, perhaps to give a judge some comfort that he or she is not totally off his rocker making a more substantive decision along these lines. And notably, it is a judgment. Contrast with the Bragg case, where no judgment was entered at all. There, Bragg just filed a notice of dismissal of his claims and the court terminated the case.

Katykiwi has made some good points re: precedent. I think that issue here just comes down to how the term is used. In a strict legal sense, this is not binding precedent — it does not compel this court or any other to find the same way next time. But for better or worse, consent judgments are referred to as “precedent” with some regularity, both by the mainstream press and by attorneys. Consider this press release from Earthlink v. CyberPromotions and this New York Times writeup of the Bell Jar case, quoting Plaintiff’s and Defendant’s attorney disagreeing over exactly this question.
Kevin! said on December 18th, 2007 at 10:36 am:
This has absolutely no precedential or persuasive value, and it’s only being treated as such because a District Court was vaguely involved. As other commentators have noted, any lawyer who tried to cite to this in a separate case would be laughed at, if not actually disciplined for citing to a nonpublished, unciteable case.

As for persuasive value, so what? Two people entered into an agreement that presumes that Virtual Goods have value? That happens every day, on any number of websites, whenever someone becomes involved in the RMT market. The imprimateur of a judge on this one only impresses people who don’t understand the legal system.

In all, you could only cite this case for the proposition that people enter into agreements that presume the value of virtual goods. This is worthless; of course people do! Citing it for the proposition that the legal system “recognizes” virtual property rights is intellectually dishonest and completely inaccurate. So, yes, you could cite it in a brief. But the proposition you’d be citing it for would be a lie. And you might even face sanctions for it.
Benjamin Duranske said on December 20th, 2007 at 10:02 pm:
Actually, one could (and I’d be willing to bet someone will) cite it, or a treatise referencing it, for the simple proposition that a lawsuit over virtual goods resulted, for the first time, not in a default or a dismissal, but in a consent judgment for the plaintiff.