Law, contracts, and dispute resolution

Continuing from /invalid_link.html


This is bound to be a controversial topic to discuss, but I think it's important to do so, especially since it's being actively worked on by LL and it is relevant to many users of SL.

Commerce, including every-day sales, is governed in most U.S. states by the Uniform Commercial Code (UCC). Section 2 of the UCC (http://www.law.cornell.edu/ucc/2/overview.html) deals with sales, which are something that already go on in SL. I'm interested in how the UCC applies to, or will apply to, transactions in SL (or elsewhere online).

In practice, it is hard to bring the traditional legal system into play with these transactions, due to the relatively low values usually involved, due to the difficulty of (and privacy issues relating to) finding out the RL identity of those one deals with, and due to the fact that the parties to a transaction are rarely in the same legal jurisdiction (and may even be in different countries).

Still, that doesn't make it impossible, and I'm also wondering how whatever dispute resolution system SL institutes will relate to traditional legal systems. Will users be required to agree to use the LL-based resolution system rather than escalating to the courts, or evading dispute resolution completely?

This lead me to the question: With online transactions generally (including outside of SL) will traditional courts eventually have a presence in the online world? Could there eventually be, for example, a sort of small-claims court that has jurisdiction over online transactions through many different countries? (This would be a strange mix of traditionally very local legal processes and "interational law," as such a system would require some level of participation from the legal systems of multiple locales.) The result would could well be an online "international small claims" court system. Such a system could really only operate with participants coming together online -- perhaps even in something like SL.

Of course, it would be nice if disputes could be resolved without resorting to traditional legal processes. And hopefully that will work in many cases. But when it doesn't, and LL doesn't want to be considered a party to the dispute, where can it go but to a government-backed court?

What do others think of all this? Keep in mind, I'm just brainstorming ideas and questions here.

And while I'm on the subject... I'm curious as to whether there are any SL users who are lawyers, law students, or otherwise interested in related areas who would like to delve into these questions. I've put on a few informal discussion events about legal simulation and dramatic works in SL, but I'm also interested in looking at "real" cases as well as potential legal mechanisms and the whole question of what is "just a game" vs. what are "real" legally-binding transactions.

A couple of thoughts...

U.S. laws only apply if you live in the U.S. And in the U.S. sales tax laws vary so much from state to state, country, city, etc. that taxing internet sales within the United States has been ruled by U.S. courts to put an undue burdan on the seller to determine ... although that won't last. That cow is too rich to not get milked eventually.

I live in a country that doesn't have sales tax btw.

There don't need to be special courts. Legal cases involving virtual property have already taken place. I've read about cases in the U.S. and in Korea. I'm sure there are others. Determining jurisdiction is usually the issue.

Sooner or later, the Linden's are going to get notice from a divorce court informing them that spouse A gets ownership of account, avatar, $L, and virtual real estate.

I think that the Lindens will find that they have to be involved at some level in any contract process or arbitration system because of Avatar identity issue. If you are unable to determine the legal identity of an individual, how can you possibly have an enforceable contract with them. The Lindens are the State in SL.

Right, there don't _need_ to be special courts... but as it is, I suspect it would be too expensive and complex to successfully file a lawsuit over an SL transaction to be worth it. As far as I know, a proper legal action currently requires people (or their representatives) to show up in the same physical courtroom. That would be a bit much for a $5 or probably even a $500 case.

A big question that will surely pop up is whether and in what circumstances LL will hand over identity information for another SL user to someone seeking to sue them. Potentially, the would-be plaintiff could subpeona that information (although I'm not very clear on the circumstances in which this can be done or what it requires). I know that this was an issue with the RIAA lawsuits against mp3 swappers, but that was specifically under the DMCA (Digital Millenium Copyright Act), and as http://yro.slashdot.org/article.pl?sid=05/01/04/2350245&from=rss demonstrates, that didn't get too far in at least some cases.

I believe that if a plaintiff made a proper case in front of a judge, they might be able to get a subpeona. But for interstate commerce, I think that might require going to the federal courts (in the U.S., anyway) which probably wouldn't consider a $50 SL land deal worth their time. That's why I suggested some kind of "small claims" mechanism that was purely online and didn't require plane trips to resolve.

Have you seen any international cases, where one person sued someone in another country over a virtual property transaction? I know almost nothing about what that would involve, although I'd like to learn about it.

Definitely, divorce cases like you mentioned will come along eventually. And similarly, eventually a business on SL will probably go bankrupt, or an individual with a lot of SL assets will, and the bankruptcy courts will want to liquidate those assets. This would especially be relevant to owners of island sims or other such large holdings.

Sales tax, or any tax for that matter, is a whole other area... with even more complex jurisdictional issues. Related to that is the whole issue of casino gambling, since when U.S. states allow gambling, they tend to want to tax and regulate it heavily. For now, that is all pretty unresolved legal territory, as I understand it.

You'd need to factor in extradicting people - although I doubt this is covered by any extradition treaty

Going right down the line, since you quoted my old question:

The way I've read it phrased, it seems to be a mediation system as opposed to blunt-sided litigation. My guess is contracts will be binding only so far as LL can empower without becoming directly involved with (most) disputes.


No doubt this would be a first for MMOs in general, as it's interesting how exercised control over "monopoly money" can very easily have a real world impact. Traditional courts will have presents in the online world only so far as Rich ***holes wish to drag out the system, and again, any form of "compensation" would need to be in the scope of a generally hands-off approach by LL, as I see it.


It can go to government court at any time, barring agreements and the amount someone wishes to waste.


In general, the population of SL-at-large likes to avoid these questions, as much of the content is rife with IP infringement. This is in and of itself a part of the problem, but not one I could propose a feasible fix for.


My guess would be only in the case of real-life fraud or similar cases, such as stolen paypal accounts tied to a resident's name and information.


The KaZaA case is a good example (virtual IP). I forget how that went down.


God help us. Do we REALLY have to make virtual reality, reality?

Hmm, this brings up the question, when their mediation system doesn't result in full cooperation, whether LL would either 1) do things like refunding a customer's money (possibly out of the merchant's L$ or by charging their CC(!)) or 2) provide the relevant contact information for RL legal contact if one of the parties requests it.

One option would be for LL to implement, or (more likely) enable third parties to implement, is buyer/seller fraud insurance that would fund cases where there was clearly no meeting of the minds in a transaction and one party refuses to work with the other to resolve the problem. This relates to many questions about the nature of "sales contracts" in SL, and questions about merchant's return/refund policies, etc.


My basic sense is that traditional courts in the online world have the potential to help out more than just the rich and/or people who are out to abuse the system.

It's a complex question: What exactly does it mean for LL to be hands-off? It's understandable if they are just developing software, providing hosting services, and doing tech support - but they are also administering SL in a wider sense, so their hands are already on, in a certain sense.


That sort of case sounds like the police investigating a crime - and they probably would have an easier time getting information than someone wanting to file a civil lawsuit. But it's also the case that many causes for legal action are potentially both crimes and torts, such as with fraud or copyright infringement. They wouldn't necessarily get investigated as crimes, though...


There was the issue of their users being sued, and also I recall their headquarters were raided by authorities of some sort...

I think this will depend on the online environment. If everyone participating in a given system agrees that something is "just a game", they may be successful in getting legal precedents that support that idea and isolate their actions from any (or most) legal scrutiny. However, in other systems, especially where there is active exchange to traditional currencies and/or users _want_ things going on there to be treated as "real", then, they get legally closer to "reality". I imagine a lot of complex questions being hashed out in the courts over this sort of thing.

I've noticed that too... hopefully I won't end up getting sued for causing emotional distress, as a result of my bringing them up...

LOL, extradition is reserved for serious criminal cases... and my whole point is a system that doesn't require anyone to step out of their house (although if someone was cited for contempt, they'd have to be picked up, wouldn't they?)

But yeah, some kind of treaty would have to be brought into play for this to work. And I imagine most countries would prefer not to let other countries' legal systems near their citizens. Hmm...

Look at SquareTrade as a model.

http://www.squaretrade.com/cnt/jsp/index.jsp

Membership is optional, and members can advertise that they are members. Members agree as a condition of membership that arbitration results are binding. Nonmembers can seek mediation for transactions with members.

Yeah, this looks good.

There's a complex line between what can be mediated, what can't, and what amounts to fraud where the seller (or buyer) has no intention of coming to a fair agreement.

It's interesting that SquareTrade requires the email address of the person you want to file for mediation with. This presently wouldn't work too well for SL, unless sellers make their email address available. I wonder whether how LL's dispute resolution system might integrate with, or be seperate from, systems like SquareTrade.

One thing that will really be needed is some sort of terms of sale, equivalent to the UCC I linked to in my original post. For example, what kind of warranties are provided with objects or services? And, what kind of refund, exchange, or support services are provided with a purchase? In most typical transactions, this is based (in the U.S. at least) on the UCC along with terms the seller makes clear during the sale. I assume that most countries have some kind of equivalent law governing sales and contracts, or that there will be momentum toward such standardization as there is more and more international trade.

http://en.wikipedia.org/wiki/Uniform_Commercial_Code does a good job of explaining the purposes of the UCC, which in general amount to reducing the need for complex legal arrangements to be made specifically. (Looking at that page, I see there has been an attempt to develop an equivalent for online transactions, the Uniform Computer Information Transactions Act. The Wikipedia article makes it sound very controversial, though, as I'm sure it would be. Some kind of standards are something to aim for, though, or it becomes very confusing what is acceptable and what isn't.)

One of the most helpful things LL can do with all this is to implement improved tools for sales, support, and accounting on SL, or at least implement API-level functions that allow others to do so.

If people don't have the facts straight, it can be a lot more complex to mediate a problem. This gives rise to the need for LL or a third party to maintain some kind of validated record for transactions, or at least a way for people to easily elect for that to be the case during transactions.

Alexis:

I'm glad you brought this topic up. I've read through most of the posts so I won't rehash what we all know already. A couple comments though.

LL wants nothing more than to distance themselves from any issue regarding contract arbitration. I don't blame them. Given the nature of the service and their role in providing the service it would not be difficult for anyone seeking to litigate to drag them in kicking and screaming. This would cost them too much money, I feel, and should be avoided.

However, we want retribution when someone wrongs us. I don't care if my L$2000 lemon-car is only US$8.00, I want blood. So, the focus should be on how do we get blood and how does LL buy-into a community led approach to resolution.

TOS is supposed to be a catch-all document controlling our behavior. If I push someone off my land, LL can point to the TOS to give me a warning, suspension, or ban. The same should hold true for contractual issues however it cannot be just my word against yours.

Why couldn't we have a justice sim with a grand jury function, a tribunal function and the ability to refer guilty verdicts to LL to let them deal with them as they see fit? People will always have the option for rl due process but will not use it 99 out of 100 times because it isn't cost effective. However, procedures could be established to allow for serving people, getting them in front of the grand jury, hearing both sides of a matter, and referring those found guilty to LL. Then LL can take assume their role in handing out justice.

Obviously it would involve a lot of logistical issues however I think this approach would satisfy most. The grand jury and tribunal should be paid for their time to keep them interested.

However, we want retribution when someone wrongs us. I don't care if my L$2000 lemon-car is only US$8.00, I want blood. So, the focus should be on how do we get blood and how does LL buy-into a community led approach to resolution.

TOS is supposed to be a catch-all document controlling our behavior. If I push someone off my land, LL can point to the TOS to give me a warning, suspension, or ban. The same should hold true for contractual issues however it cannot be just my word against yours.


Something along those lines could add positively to the the player experience and provide a bit of a forum for educating people about what is considered appropriate behavior and even sorting out standards of what is or should be appropriate.

I can see some people wanting to use such a system for appealing a Linden Lab suspension. I can imagine that some number of people who get disciplined by LL disagree with their punishment or even about the fact that they've done anything wrong. Others would probably want to see more stringent warnings or consequences for some types of behavior. A justice sim could allow more transparency in these processes, allow for the development of some "case law" that residents could refer to when unsure about the SL legal status of a given action, and offload some of LL's involvement to the community.

(Of course, conflicts of interest and the potential for corruption generally would have to be taken into account. This is one area where substantial record-keeping could be helpful, but then that pulls in privacy issues.)

BTW, is it really against TOS to push someone off your land? (People are allowed to block anyone from enterying their property...) At a minimum, that gives rise to the question of what "owning" land in SL really means. What are the rights or expectations of landholders, vs. visitors?

Looking further into the future, there is the question of how law will work in the Metaverse, where there are many, potentially highly integrated online communities with a number of companies and numerous individuals involved.

One thing to keep in mind is that the UCC only applies to the sale of goods. Service contracts (like the TOS) are governed by the common law, best expressed in the Restatement of Contracts 2nd Ed. Additionally, it would seem reasonable to say that any contract you enter into within SL is binding in RL. Just because you are using an avatar to represent yourself, it doesn't mean that it's not YOU typing. These contracts are arguably written, which is only important from a Statute of Frauds standpoint. To get even nuttier, are you really buying a GOOD or a SERVICE? For instance, you may think that the user-made item you're buying is a good because it's tangible. However, it could also be described as a service, because that tangibility is entirely virtual.

Suffice it to say, I am an attorney who is working on his LL.M. (master of laws) degree in IT & Privacy Law. I'm actually working on a thesis/article right now for one of my courses that discusses the law of virtual worlds, or lack thereof, and looks at SL in particular. Once I get the sucker written, I'll post it to my personal website and toss a link into this thread if anyone is interested.

I'm actually in class right now, but I'll do a more detailed read of this thread when we get our mid-class break and try to come up with some more on-topic stuff that pertains to the thread so far.

EDIT

"A big question that will surely pop up is whether and in what circumstances LL will hand over identity information for another SL user to someone seeking to sue them. Potentially, the would-be plaintiff could subpeona that information (although I'm not very clear on the circumstances in which this can be done or what it requires). "

It really depends on how LL would be described...if they're treated as an ISP, then it may be harder to force them to give up user information. Quite honestly, if you are engaged in a transaction with someone from SL, you should be sure to get RL info from them to help build trust. As others have indicated, the cost of suing someone over a deal in SL would be highly prohibitive. You just wouldn't see the necessary cash return for the cash spent. Sure you could have a judge or jury tell you you're right, but it's gonna cost much more than what you were out.

Certainly, what Linden Lab provides is a service. But, when one buys an object in the Second Life world, wouldn't it fall under the same category as other forms of intellectual property, like software or images? (As it happens, I've yet to see a license agreement or so much as a return policy on an item I've purchased in SL.) I would argue that short of something really being marketed/sold as a "service", it's a good (of some sort...).

It gets even more complex when merchants in SL see their goods in different ways than a typical manufacturer would: for example, see the discussion in the thread on Second Hand shops in SL (/120/f8/36966/1.html).

While on the subject of UCC, I see that it has provisions for banking and securities. Limited banking activities have already come to SL, and they seem to have this strange status of being half-way between "just a game" and a real bank. I wonder, what is the legal status of those banks and their transactions? Perhaps it has yet to be established. Both the small quantities of money usually involved and the game-like aspect make it easy to consider these projects distinct from "real" banking. But, where does one draw the line?

As for whether LL is an ISP, or what... that's a tricky question. Certainly, part of their operations is that of an ISP. But, somehow they are involved in more than that. The L$ economy is one part of it, including the virtual property (land and objects) that make it up. This is something that could form a much larger discussion. To some extent, LL can disclaim away their responsibility for being anything other than a service provider who isn't at all responsible for the content or activities of users. But it also plays some role in them that is greater than what a typical ISP would do.


I'd be very interested in seeing your article when it's done.

"New" areas of law fascinate me -- possibly enough to entice me into law school (if I can ever manage to finish an undergraduate degree). Due to ADD, attentional problems with reading huge amounts of text, and neuro-motivational problems generally, I've had a hard time with school and I imagine law school would be even more difficult. But I'm extremely motivated when my interest is piqued, so I'm trying to sort out how to apply that trait to a learning and career path. One of the key things I intend to do in SL is develop more effective and motivating teaching and learning scenarios.

Speaking of that, I wonder how soon law classes could come to SL...

Certainly, the creators of objects consider them goods. Intellectual property (copyright, trademark) really isn't governed by the UCC, but by the Federal copyright and trademark laws. I highly doubt you'll see much action over that stuff though, because I don't think there's a person with enough real cash invested/gained from SL to bother with it. Well, except Kermit.



Yeah, I have only really dealt with the UCC Article 2 provisions the most. I also have studied the stuff on secured transactions and payment systems, but not really the banking and securities stuff. Quite honestly all of this is a rather grey area of the law. Odds are that the "brick and mortar" or RL rules for that kind of stuff wouldn't translate well to SL. Maybe they would.



Yeah, I doubt they're an ISP, especially if you assume the TOS would hold up under a contract analysis. What is interesting is whether the part of the TOS that says your stuff has no cash value would hold up given that it seems largely accepted that the stuff does have cash value.

But that's fodder for what I'm working on.

I have spent the last 15 years in the courtroom, covering the gamut from Judicial law clerk... Prosecutor...to private practice. Any thought that an average transaction within SL is litigation worthy is absurd. Perhaps prospective plaintiffs want blood over an 8 dollar issue, but the legal system has more important concerns.

The only way transactional enforcement can exist within SL is with Linden involvement. One useful and perhaps necessary area of Linden involvement would be the appeal of Linden discipline actions.

Members of the Bar in many states contribute to funds that provide financial assistance to citizens of the state who have been defrauded by a lawyer licensed in that State. I am a member of the bar in 4 states, and the fund contributions can be steep. Contribution is mandatory for active members.

Why not a similar type arrangement in SL. All those who engage in commerce would contribute some portion of their sales, or a weekly minimum amount, to a fund that would exist to reimburse those who are ripped off or defrauded by other members. Liability and the facts could be determined through hearings conducted by member panels, with rotating panels of jurors. A virtual small claims system where members would have the opportunity to express their grievances and seek redress. No participation? Then no protection for sellers or buyers. Caveat Emptor. Recovery of damages would come from the fund.

Along with the police blotter, logs of the hearings could be posted on the web site.

There is an important and effective court already existing in SL and that is the court of public opinion. Often members post problems in the forums not merely to get attention or for drama, but they are asking the community to assist in the resolution of the problem. Applying peer pressure to a wrongdoer, or boycotting a vendor who rips off a member, can be very effective. But the forums cannot be used effectivly as long as there is censorship and rules against naming names.

We have to be realistic about the enforcement of any system of oversight. SL is not a legal government entity capable of prosecuting criminal fraud and for the most part the problems that arise in SL do not rise to the level of civil ligitgation. LL cannot be the arbiter of every dispute that arises in SL, but it is possible that the community of members can participate in a system that addresses wrongdoing.

It would be possible to set up a system similar to what I summarized, and it would not be difficult to do. It would require structure, and it does require some Linden involvement. I have actually given the matter thought in the past and would be interested in working with the development and operation of a quasi judicial system within SL.

i'm right now officially starting the SL black market in anticipation of this possibly happening.

OMG, Zuzi, three words just came into my mind:

IMITATION PIXELDOLLS WEAR

Yeah.
Contributions to a fund sound a bit like insurance. That would be one way to set up a voluntary system, but if someone is actually "convicted" of fraud, why shouldn't they personally reimburse the defrauded person?
It'd be interesting to see what both the accuser and accused have to say for themselves.
A feedback system like the one used on ebay would be a good start: especially something that would allow people to respond to feedback and sort out the problem without requiring a full-fledged "legal" process.
A community-based system would be quite a change from the current policy of people having little real recourse short of the Linden discipline system (which I don't think is very applicable to transactions). Any such system will require buy-in from the community, and since there are a lot of ways it could be implemented, it will likely require substantial discussion before people come to any kind of agreement.

katykiwi has a good point....and it's something I tend to forget in theory land.

Maybe I didn't previously say it, but yeah, the exchange of $L to USD makes most transactions pointless to litigate.

It's still fun from a theory perspective tho.

Victim compensation programs exist in many forms. Ideally the one causing the harm should make the victim whole, but in cases where that is not possible, for whatever reason, then society fills in the indemnification gap.

Even a criminal conviction does not compensate the victim. It is up to the civil arena to address damages. Again, remember we are not dealing with the traditional world in SL and the largest problem faced is enforcement.

i was discussing something along similar lines in another thread when it occured to me, that i was off topic. so, if i may add my 0.02L$. please excuse me, if everything has already been said here or somewhere else. i searched the forums but i am not sure i got everthing. that said

i have to aggree with bruno (buckenburger), that the lindens probably won't be interested in any elaborate or complex system governing business in SL. they don't have the ressources. ... and don't have the inclination. any complex system would be contrary to the spirit of SL too - which is more or less anarchic, LOL. and i fear, much of what has been discussed here would be very complex to implement in SL - privacy concerns not even taken into account. and privacy concerns and the technological feasibility of really hiding my identity (even LL has nothing more than SOMEONES credit card info for me ...) makes RL jurisdiction for SL affairs an impossibility - IMHO.

it would still be nice to promote good business practices though and at least dampen the effects of fraud and dishonesty. a first step in that direction might be a system, which at least makes contracts between residents more 'binding' - even if there is no way to enforce them or even get retribution, if someone breaks a contract.

it is hard just now "working out a contract" with someone in SL. how? a lot of people i might probably do business with would prefer to hide their RL identity. a lot of them would be based in the US. i am based in europe. clearing out a contract dispute between partners on different continents is ... no fun at all, i tell ya. did it twice.

i was thinking about something much more simple for SL. no juristiction, LOL. some way to have an aggreement on file in a way that no one can tamper with it and it is documented, that the two parties really aggreed on it (like the proposal system). then if it comes to a dispute - which happens - at least in some cases (its not always that easy) i could prove that a contract has been breached. still no way to enforce it. but maybe useful information for others doing business in SL... nothing more.

yes, this cold become part of an eBay like rating system. which in itself maybe would not be a bad idea to implement, me thinks. but a rating system alone without some way to document contracts (its not as easy here like in eBay) might not be a great help.

Actually, according to US Federal Law, there is no sales tax whatsoever for inter-state commerce. If you live in the state of Virginia and order something from the State of California, no sales tax. Anyone charging you a sales tax for interstate commerce is in violate of US Federal Law.

It's the same sort of thing if you don't live in Europe and you order something from Europe and get charged the VAT... it's complete BS if they even try... anyway, just wanted to make it clear about interstate tax laws in the US

Technically, this is only true if you are buying from a seller that does not have an office or store in your state. If the seller has a business establishment in your state, then they must collect sales tax even though you order from a branch in another state. In effect, if the seller has a business establishment in your state then it is deemed not to be an inter-state transaction regardless of where the order is taken or merchandise shipped from.

Also, for some items such as cars and boats, states have a "use tax" that you must pay in leu of sales tax. For example, if you live in Pensylvania and buy a car from a local dealer in Delaware, you do not have to pay Delaware sales tax (not only because it is an inter-state transaction, but because Delaware has no state sales tax). However in order to register the car in Pennsylvania, they require that you either show proof of having paid sales tax in another state, or pay the Pennsylvania use tax at 6% (which is the same rate as the sales tax). I know this is true in Pennsylvania, and I think it applies in many other states as well.

Buster

For in-world transactions, it would be viable to have a voluntary association of sellers that pay a fee to belong and agree to binding arbitration (mediation) in case of disputes. Sellers could advertise their membership, and buyers could be more confident buying from members. Sellers who fail to comply with rules or awards would be expelled, and the victim paid out of group funds (i.e., from membership fees). (Subject to fully disclosed limitations, of course.)

This kind of thing could easily be done without Linden involvement by using a Group. Buyers can check whether somebody is in the group or not.

Of course, there can still be fraud, such as non-members claiming to be members, and sellers rapidly running up a large number of fraudulent transactions -- but I think even these can be addressed without Linden invovement.

I don't think it is necessary to have an official Linden Commerce Department that tries to enforce "contract law" in a broad way.

Buster

I hope the Lindens will consider adding a "commercial disputes" forum where people can name names. SL is a libertarian place. It seems incongruous that people aren't allowed to speak about those who cheat them. Flame wars, trolls, and asshats are inevitable, but that's the price for free speech.

Someone cheated me out of RL$ 100 in a land deal. May I post forum comments about it? May I setup a sign or notecard giver on my property? The TOS aren't clear on this.

I'd be interested in helping this happen.