Not really a bankruptcy issue, but I have been a bit taken with the idea of legal structures in virtual worlds, such as Second Life. They might seem like a lark, but virtual on-line worlds are starting to develop their own internal commercial structures. Where money is involved, lawsuits will soon follow.

With more than five million registered users, Second Life is a complete virtual world, complete with a monetary system. Users maintain an “avatar,” a three-dimensional cartoon representation of themselves. They can travel through the virtual world, ride in virtual cars, planes and other vehicles, shop in virtual stores, dance in virtual nightclubs, and carry on discussions with other members’ avatars. Trade is in “Linden Dollars,” which members can purchase or obtain through trade or by having their avatars perform work in the virtual world. Members can purchase real estate, build or buy houses and furniture, and create three dimensional objects that they can use, trade or sell. As of April 2007, the Second Life virtual world had a monetary supply of about two billion Linden Dollars, the equivalent of $7,500,000 US. Moreover, Linden dollars can be converted into real dollars, through an on-line currency exchange.

In Second Life, members can "own" real estate and other property. In some cases, property accumulated in Second Life represents a very significant investment in real world money. So, is this virtual property real property? In Kremen v. Cohen, 337 F.3d 2024 (9th Cir. 2003), a case dealing with domain names, the Court of Appeals for the Ninth Circuit articulated a three-part test for defining property. “[F]irst, there must be an interest capable of precise definition; second, it must be capable of exclusive possession or control; and third, the putative owner must have established a legitimate claim to exclusivity.” One commentator, Allen Chein, posits that these characteristics arguably may apply to many of the virtual objects and land in Second Life and other virtual worlds. See, Chein, A Practical Look at Virtual Property, 80 St. John's Law Review 1059 (Summer 2006).

A recent case, Bragg v. Linden Research, Inc., 2007 WL 1549013 (E.D. Pa. 2007), demonstrates how the virtual world economy will result in legal disputes. Linden Research, Inc., which runs Second Life, terminated the account of a customer, Marc Bragg. This resulted in Bragg's loss of his "virtual assets" within Second Life. So, he sued the company. While the decision itself dealt with jurisdictional issues and the enforceability of an arbitration agreement (the Court held it was not enforceable), the underlying dispute will likely address the key issue of Bragg's rights to the virtual property he had acquired. Can a Second Life customer acquire property rights in virtual goods? We will have to wait and see.

A few weeks ago I posted about the recent New York Court of Appeals decision in Thyroff v. Nationwide Mutual Insurance Co., 8 N.Y.3d 283, 2007 WL 844860 (N.Y. 2007), which held that a plaintiff could sue for conversion based on a defendant's refusal to allow access to electronic information.

I recently discovered a California decision along the same lines. In American Federation of State, County and Municipal Employees, Local 2620 v. United Professionals, 2006 WL 4088322 (Cal. Sup. 2006), former union officers took information from a union membership database. The California Superior Court judge noted that it was well established under California law that a claim of conversion could be brought whenever a physical medium containing electronic information is taken. The taking of the physical medium (like a computer or a computer disk) allowed for a claim of conversion. The measure of damages would not be limited, however, to the value of the medium. The plaintiff would also be entitled to damages based on the value of the data contained in the physical medium.

In the instant case, it was not clear how the former union officers took the data. However, the Court did state that "the intangible interests are reflected in something tangible that was physically taken." The physical item could be diminimus, such as a computer disk, without effecting the outcome. Thus, the Court held the plaintiff was likely to prevail on its claim for conversion.