ANTI-SOCIAL CONTRACTS

Beyers Sellers: Well, welcome, everybody, to the third session of Metanomics. My name is

Robert Bloomfield, from Cornell University, but those of you seeing this in Second Life know

me as Beyers Sellers, and this is part of the Metanomics series run by metaversed.com--

that's metaversed with a d--run by Nick Wilson, 57 Miles in Second Life.

Metanomics is the economic study of the metaverse of virtual worlds and the whole group of

related technologies. Law is an essential part of economics, and in fact our speaker today,

Joshua Fairfield, from the Indiana University School of Law, currently visiting at Washington

and Lee School of Law, identifies himself as part of the law and economics movement in

legal studies. So it's a very natural fit for us to have him on.

Those of you who have seen prior shows know that I like to think of Metanomics as dividing

naturally into three sub-fields. Immersionists take the perspective of residence within virtual

worlds and think about legal issues that they confront in the economy that they see around

them. So we have a number of groups like Metaversed Republic and E-Justice, the Second

Life Exchange Commission, Second Life Business Bureau, that are residential groups with a

very strong legal focus, trying to understand business disputes.

Now, Josh has a very different perspective. He's a pretty strong augmentationist, which

means he looks at worlds from the outside, and he asks how do these fit into the real world?

And in this case that means applying real world law to virtual worlds, and in particular a

heavy focus on things like the terms of service.

As an aside, I'd say I'm interested in the immersionist perspective and the augmentationist

perspective. My long-term goal is actually to be an experimentalist, which means I want to

use virtual worlds as laboratories to learn more about economic and policy issues. That's a

topic for another day.

Before I introduce Josh and talk a little bit more about his topic, Anti-Social Contracts, what

I'd like to do is just give you a sense of what is coming up for Metanomics. First of all, next

week, Monday, October 1, we have Julian Dibbell, who is going to be speaking on our show.

He made a name for himself years ago with an article, "A Rape in Cyberspace." And now

his most recent book has come out in paperback, Play Money--actually, Play Money: Or,

How I Quit My Day Job and Made Millions Trading Virtual Loot. So we will be talking about

all aspects of in-world business including real money trade, and we'll be covering worlds, not

just Second Life, but we'll also be talking about worlds like World of Warcraft.

Okay. Well, let's see, that's Julian Dibbell. We also on the 15th we are hoping to have a

session on fashion and marketing, and we're still working on the speakers for that. But that

will be primarily a focus on in-world business in Second Life, particularly the fashion industry

and marketing and branding issues.

On the 22nd we have another law professor, Brian Kemp, who's going to talk to us about the

taxation of virtual world commerce. So those of you actually making money in Second Life

will definitely want to take a look at that.

Finally, I'm happy to announce that Gene Yoon, known also as Ginsu Linden, one of the top

executives of Linden Lab, will be joining us. We have a confirmation in principle that he's

going to join, and I believe it's going to be November 5, but we're still waiting for a

confirmation on that particular day.

Okay. If you want more information on all of these events and everything that's going on

with Metaversed and Metanomics, I encourage you to join the Metanomics group in Second

Life. You can do that by going to the search tool at the bottom of your screen, click “groups,”

search for “Metanomics,” or you can search for “Metaversed,” and simply join that group.

You can also look at our web sites, www.metanomics.net and metaversed.com. Both will get

you the information about this series.

Okay. Well, that's enough right now of my introductory announcements. Let me just talk for

a moment before I bring Josh up about the content of what he's going to be speaking on.

You know, one of the pleasures of running this series is that I get to talk with the speakers

beforehand. And I learned more law in two phone calls with Josh than I thought would be

possible. So it's really been a pleasure working with him.

Now, in a nutshell, Josh's argument is this: The terms of service that technology companies

make people sign are contracts. So when Linden makes us sign terms of service, that's a

contract that ends up effectively governing not only our interactions with Linden Lab, but

also our interactions with other residents. It's really a multilateral contract.

And Josh's big point here is that contract law taken alone simply isn't an efficient way to

arrange these multilateral relationships; you need the other pieces. You need property law,

you need tort law and then, finally, you need common law, which arises through precedent

and through judges who are dealing with new issues and using their judgment as they have

done for centuries.

So the way this is going to work--now I'm going to turn it over to Josh. Josh is going to talk

for about 25 minutes and make his case. And then we'll have Q&A. I can tell you I already

have a lot of questions for him, but other people--you know, we welcome your questions as

much as possible. So to ask a question all you need to do is IM me, right click on my avatar,

Beyers Sellers, and then just send me an IM, and I will moderate the questions for Professor

Fairfield.

The other thing that you can feel free to do is comment just through the chat mechanism. So

everyone will be able to see it. Hopefully, you'll stay on point. But it is nice also that the

speakers know you're out there, and it's nice for me to get a sense of what you guys are

thinking. So feel free to use those comments.

Last thing I'll mention--I see a comment--someone asking me right now will there be a

transcript of today's presentation? And the answer is, you bet. It's actually a video transcript.

This entire session is being televised, live broadcast by Second Life Cable News. So many

people are watching it live now on SLCN.TV, and you can see the archive there and on the

Metanomics and Metaversed web sites, as well.

Okay. Well, I've gone on farther than I intended so, without further ado, I'm going to vacate

the podium. And I can tell we have a very full sim here because I'm pretty lag making my

way over to my chair. And Josh, feel free to slowly make your way over to the podium so

that we can hear from you. So ladies and gentlemen--

JOSHUA FAIRFIELD: All right. Well, I've selected podium. We'll have to see if this actually

animates my avatar. Things are pretty laggy. I wish you could see the room from my

perspective. It's pretty amazing.

So I'm Josh Fairfield. I'm Associate Professor of Law at Indiana University, and visiting at

Washington and Lee. And what I'm going to talk about today--I don't know if we could bring

up the first slide, just the title slide. What I'm going to talk about today is contracts and

where they come from, what they've become, and what the next stage of contract law might

look like.

And I guess I want to just give you the payoff right now here at the beginning. Contracts

started, and have been for hundreds of years, a legal mechanism whereby one or two of us,

maybe three of us, can get together and dream up some private law for ourselves, rules that

don't bind other people, that just bind us. And because it's a very powerful ability, we had to

all kind of negotiate out those rules, and then we had to sign pieces of paper to prove that

we agreed.

Well, this idea of what contracts are has changed over the years, and contracts have

become now something almost completely different. They've become unmoored from their

beginnings and are now closer to statutes, rules that people claim will govern you purely by

your presence in a place or a space. Just by breathing, they think that you have agreed to a

contract.

All right. So let's go ahead and turn to the second slide. Contracts 101. What do contracts

do well? It's important for us to start with what contracts are for before we get into some of

the issues that I want to raise about how they're being used now.

Contracts are great for making us all richer. So what happens is if I want to trade with you--

say, for example, I want to give you money and you want to give me a pizza. Society is

willing to enforce that trade. It's willing to enforce that contract. Why? Well, because it

makes us both richer. This is the basic engine of social wealth. I want the pizza more than

you want the money. You want the money more than you want the pizza. And so we trade,

and that way both of us are richer, both of us are better off.

Now, there's an important point here. A court will never force that rule on anyone. It's a

background default rule. Why? Because the court doesn't really know how much a pizza is

worth to anyone. All it knows is whether you agreed, or not, to buy the pizza.

That's an important point because most of the laws that we rely on as a culture--say, the

rule that says we shouldn't hit each other, that's a tort rule. Or the rule that says we can't

walk on each other's land. That's a trespass rule of property. Those rules do not require

people to agree, and courts are, in fact, quite happy to say, “Hmm, those are background

default rules that exist whether or not people have specifically signed contracts saying that

they agree to those terms.”

So contracts--if we can go ahead and move to the next slide then. This is a bit of a joke

slide. This is the end user license agreement of World of Warcraft. And I've made a slight

snarky comment up at the top, “One contract to rule them all, and in the darkness bind

them.”

The problem is when contracts skip the tracks. Right? When contracts stop being about a

few people, making both parties more wealthy by trade, and start becoming more like

statutes, a law that binds everyone merely by their participation in a society.

Let's be clear. Contracts can't do that. I have this happen to me every day I log into World of

Warcraft. I have a level 60 seven--sorry now Night Elf--yes, laugh, go ahead, laugh--Rogue-

-laugh harder. And every time I log on, because I've outed myself as a lawyer, people ask

me, they say, "So and so harassed me. So and so grieved me. So and so did something

against the end-user license agreement to me. Didn't they sign a contract saying they

promised not to do that?” And my answer is, “Well, yes they did, but they didn't sign it with

you.” All right?

So let's go ahead and turn to the next slide and talk about the difference between private

law and public law. So public law is about how we govern our communities. And

communities need some background rules, some default rules, like private property. You

don't have to consent to my ownership of property. If you steal my property, that's a crime,

regardless of whether or not you've signed any piece of paper. If you strike me in the face,

we're either in a boxing match or, again, you've committed a tort without signing any pieces

of paper. And the difficulty is the contract simply cannot create these kinds of multilateral

default rights.

My solution, of course, is to turn to the same areas of law that we've used for hundreds of

years in order to supply some of the default rules, which we can then tweak. By the way, to

meet the necessities of the new Virtual Worlds we're going to have to tweak these rules. Of

course we are. But they provide us with a great baseline. We have communities. Let's use

the laws we've always used for communities.

Go ahead and go to the next slide here. So this next slide is my rejection from the

Tennessee Arts Academy. What you are about to see is an insult to the beautiful graphics I

see in all of your avatars. It is an insult to the artistic nature of Second Life. Art's great loss

was, however, law's enormous loss also, because I did not go to art school and went to law

school instead. So you're going to see my stick figures. Let's go ahead to the next slide here

where I have my stick figures.

By the way, I see a question about third-party beneficiaries. I'll reach that, but the answer is

no. They're not third-party beneficiaries unless you intend them to be, and no game

company will ever intend them to be. But we'll talk about that at length towards the end of

the program.

So here we go. These are my stick figures. This is what a community legal relationship

looks like. Each person is bound to each other person. For example, bound not to strike

anyone else in the room or bound not to take the property of anyone else in the room or

bound not to trespass on their property.

Let's go ahead to the next slide. This next slide has the same group of people, but instead of

[certain contracts?] here we have double thick lines showing the contract is, in fact, an

incredibly important and powerful way of creating law, but it doesn't do so by default

between all members of the community. All right? We just have a series of contracts, but it's

not like the force. Right? It doesn't bind the universe together in any useful way. It simply

binds people together.

So let's move to the next slide. So then what do we do about situations like every virtual

world, where there is a hub, there is a central community service provider and then

everyone has to sign an agreement with that hub? But notice that although there are lots of

lines going toward the center, towards the so-called server--yes, I see a great comment

there--there aren't lines going among each and every person in the room. This is the source

of the privity problem, the idea that people get harassed every day in World of Warcraft, and

they don't have recourse under the World of Warcraft end-user license agreement.

Okay. So let's take a look at the next slide. This is again a bit of a joke slide. So what I'm

saying here is that--by the way, these jokes, if you can see them, there are two book covers

from a community that rewrites romance novel covers. I know it will be hard to read Second

Life objects until they get a good resolution, so I'll read them for you. The one on my left

says--they've replaced the romance novel with some funny text. And on the left-hand side it

says, "For the love of Scotty McMullet--and then the subtest is, "Too bad Camaros hadn't

been invented yet." And on the right hand it says, "The legend of the totally lost Mountie."

And at the bottom it says, "How could he tell her that he had no friggin' clue where they

were?”

All right. So I'm using this for two purposes. One, I want to demonstrate that contracts are

good at one-to-one relationships. And obviously these indicate some one-to-one

relationships. But also I want to show you this is a product of a virtual world.

Normally, by the way, when I give this talk in a real world, I have to convince everyone that

virtual worlds generate enormous value. And I usually get a laugh out of the crowd showing

them these romance novels. And I say that value is social utility. We just heard a laugh in

the room. It made us all happier. That's what shows that virtual worlds have value. I don't

think I have to make that point very hard to the people in this room who've spent a lot of

time, creativity and money, creating things that are incredibly beautiful.

Okay, let's go ahead to the next slide. So contracts have trouble with one too many

relationships. Now, this is some of Nickie's(?) research, which he was kind enough to let me

use. This tracks a real-world social group and the connections of the people who even

happen to know each other within the group.

So you're looking at this and you're thinking, “Huh. There is a system of law that just has

legal rights where we see lines between the people that is just contract lines; is it going to

work?” And the answer is, “Well, probably not.”

Let's go to the next slide. All right. So there's one more. The stream of commerce, vertical

effects. Trying to recreate a system, for example, of property by contract really clogs what

we call the stream of commerce. Now here's a way you can think about it. When's the last

time you bought a used car? People buy and sell used cars all the time. It's pretty simple.

But people do not have a chance to buy and sell used software.

By the way, it looks like Rob may have crashed, so we may be falling behind on slides, and I

apologize for that.

So the idea here is that software can't be resold and resold and resold because under

current law it's deemed licensed. And so we're having a problem--whenever you wanted to

buy software from, say, your best friend, you would have to think, “Huh. What are the

contracts between him and the person he bought it from?” Then, “What's the contract

between the person he bought it from, and the next person? And the person he bought it

from and the person he bought it from and the next person and the next person and the next

person?” That is legal rights, the individual contracts that would be in the stream of

commerce begin to clog things up.

Think about it. Would you really ever buy a car if you had to worry about all the contracts

that every prior owner of the car had ever signed, agreeing, for example, to only drive it

under 50 miles an hour? And then the next guy might have agreed to always keep the car

painted green. And the next guy might have agreed to drive it on two wheels on the left-

hand side of the road. You don't know what they agreed. That kind of contract accumulation

really kills the stream of commerce.

So what are some implications for contract law? This is the next slide. Contracts are

fantastic for some things. But they can't do everything. And let's just do our three

experiments. And these are three things that I see end-user license agreements try to do

every day.

Contracts cannot bind the world if the world hasn't signed the contract. This is, for example,

the case--you and I cannot agree that no one in the world can own a watch. We can agree

that you may now own my watch, but we can't say that property interests in watches does

not exist. This is important because a lot of end-user license agreements say property

interests in virtual property do not exist. Well, I'm sorry, you can't do that by contract. It's just

not something that binds the world.

The second problem is serial negotiation. We went over that at great length. Contracts are

too expensive to negotiate with everyone. Let's try making a basic tort rule, the rule that we

can't hit each other in the face. But we'll only do it using contracts. So I'm going to have to

contract with the person in the first row--right, I see here--57 Miles in the first row. He has to

agree to not hit me. And then I have to go over to An Enigma(?), and she has to agree not

to hit me. And then I have to get an agreement from Temporal Mitra not to hit me. And I still

haven't agreed with the rest of you. Somebody out there is going to hold out and whack me

one. Right? You can't make the simple tort rule, “Please let's not hit each other,” out of

contracts.

So the third, then, is our problem with the stream of commerce that if we try to make a

property system out of contracts, we end up with a real problem.

By the way, let me tell you about the way property law worked 700 years ago. Seven

hundred years ago we were in Medieval England and the trick was that you couldn't ever

really buy land. The feudal lord could kind of license it to you. All right? But he never really

could sell it because the English aristocracy wanted to keep all of the heirable, the farmable

land, in their families, and they didn't want their silly sons running low on cash and selling off

the land. So they just simply made it so that the land was impossible to sell. You could

subinfeudate it--that is sublicense the land--but you could never really sell it.

Well, that we got rid of because we needed high-value users like merchants, for example, or

other people who had the money to buy the land who wanted to be private farmers. We

wanted them to be able to buy the land and invest on it perpetually. And so we, 700 years

ago, changed the law of property, and we said, "Look, here's a restriction on contract for

you. The one thing you can't do by contract is create an English dynasty where there's a

feudal lord who owns all the land and tries to rent it out and gets it back at the end of the

use period."

Now, you should be noticing something about even Second Life's use of land. Right? Even

in Second Life, we've rolled back the property clock 700 years and have adopted a perfect

analogy to a medieval land system. And I would think that the old [quia emptores?] law,

which says no, that's one thing you can't do by contract, would be a great analogy to the

kind of law I would really hope to see to encourage investment and ownership of land in

virtual worlds.

So next slide, if we're still having slides, because I can't really see at this point. What about

markets? So those of you who've kind of yawned your way through an economics class, of

course, immediately have this question. Hey, look, if people don't like the contracts that are

binding them, why don't they just go somewhere else? Why don't they go to a different--

57 MILES: Sorry to interrupt, Josh. Can you just--

JOSHUA FAIRIELD: Go ahead.

57 MILES: Can you just tell me what slide we should be on? I'm filling in for Beyers here.

JOSHUA FAIRIELD: Sure, the slide that we should be on is entitled--it's slide 13, and it

should be entitled "What About Markets?" at the top.

57 MILES: I'll find it. Thanks.

JOSHUA FAIRIELD: Okay. So there are two answers to that. That's a great question. If you

don't like the contracts, go ahead and leave. This is very much the same political argument,

"If you don't like America, leave." Right? Don't do things like agitate for change or give

speeches or vote; just leave.

So the first answer is networks and lock-in. Blizzard Entertainment has actually made

government filings--telling its investors, "Hey, invest with us because here's what's really

cool about our virtual world. Our customers can't ever leave because they're going to have

to burn all their property and leave all their friends in order to go."

I mean, imagine if you bought a house in a subdivision, but here was the trick: You couldn't

leave by selling the house; you had to just burn it down before you left. That's a serious

lock-in effect. And it would generate serious abuse by the local homeowner's association.

They could pass whatever laws they wanted, and you couldn't just leave because you can't

sell your property and get out.

All right. Let's try again. Adverse selection. So again, this is the question of, “Well, fine. If

really what customers want is a little bit of property ownership, so I can buy magic swords if

I want to.” Why don't more companies do like Station Exchange or Second Life and open up

some property ideas?

Well, the answer there is quite astounding. If you look--this was a problem, for example, with

felon housing in the past couple of decades. So communities were asking themselves,

“Look. We get extra federal money if we let felons, ex-criminals, live in our neighborhoods.”

Well, some communities might permit, might want a couple of felons to live in their

neighborhoods. That might be okay. But those communities that did permit just a few felons

to move in suddenly found that they were avalanched, that they had everyone moving to

their community. So that's the adverse selection problem that we noticed.

For example, love it or not, Second Life got in--you know, did make a big step by offering

some property rights, and immediately, of course, no good deed goes unpunished, and

began to be sued by it because they were the nail that stuck out, and the adverse selection

effect meant that a lot of people who are very interested in property immediately moved to

Second Life and began to build businesses there. So that's a be-careful-what-you-ask-for,

you-might-get-it problem.

So now, this is where I get into law. This is the next slide called "Symmetry and Reciprocity."

Remember my pizza example? Courts are very nervous about telling you exactly how much

you should be able to pay for a pizza. The court doesn't know if really the Supreme is worth

$19.99 or $14.99 or, you know, $25.00, if they include those jalapeno peppers and the

butter sauce. Right? The court doesn't know. So the court's not going to create that rule as a

background rule.

But for some kinds of relationships--let's try this trade, "I promise not to hit you. You promise

not to hit me." Well, that's a reciprocal trade. The court's not enormously worried about

forcing that trade as a background default rule.

Now, mind you, when I say forcing, we can change that by, say, going into a boxing ring.

Right? And consenting. We consent to all kinds of torts all the time. But as a background

default rule, the court's not worried about saying, “Let's all not hit each other,” the way court

would be very worried about saying, “Let's all buy pizza for precisely $12.99.”

And so what we see is that there's a real divide in law between the kinds of reciprocal

obligations, “Let's all not hit each other, let's all not destroy each other's property.” And then

asymmetric relationships, “I'll pay you $15.95 for a pizza” or, in legislation we say, “Huh.

We'll all vote together to pass a law, but there's going to be side deals involved.” And a

court's not going to really get involved in those backroom side deals in Congress because it

doesn't know how to undo the deal.

So that's one axis on which I want to build a model of law.

And then the second axis would be one of group size. Contracts, I know, can be used to

govern hundreds of thousands of people in the mass-market era. But contracts were born

and bred for two people. Two people, two parties signing the contracts.

In fact, even these end-user license agreements in virtual worlds we're talking about each

contract only binds two people. Right? In this room there are lots of people. They're all

bound by the Second Life ULA. But each ULA only binds two people, you and Linden.

Linden's bound over and over again.

So that's where contracts were born. But we see that multilateral kinds of law bind

everybody all at once. And I won't go into the hybrid example of nuisance, because we're

late on time.

So then we've got the next slide, which is entitled "Implications for the Common Law." This

is my model. I think we can just take group size and cross-hatch it with the kind of legal

obligation and get a good sense as to what kind of law does a good job at getting rights for

what kind of community.

And you can almost count up the people and then ask, “What kind of legal obligation is

involved?” And you're going to find the way to do it the cheapest.

Now, mind you, I didn't say contracts can't do this stuff. I know there are people here from a

number of democratic organizations who will say things like, "Well, yeah, you can do a

pretty good job of making systems like this out of contract." Yes, you can. But you can't do

as good a job as the basic area of law itself. For example, you can't do as cheap a job

creating tort rules by contract, because contracts are expensive to negotiate, and the tort

rule is just a background default rule that's automatically imposed. All right. So this is a

cheapness model. It's called “efficiency,” for those of us who are seriously egg-headed.

What I'm saying is that certain kinds of law get us certain kinds of legal rights cheaply.

Okay, we're nearly done. So this is the last slide: Takeaway points. Contracts can't create

community law. We know we've been trying to do it. I've been in all kinds of sims over the

past couple of weeks in which you get, you know, all kinds of laws handed to you when you

show up. But those are not contracts. Those are actually laws. It's a different animal.

They're more akin to legislation or property law or tort law than they are to actual common

law contract.

And the next thing I want to drive home is that the market can't necessarily fix this.

Communities don't flow out of contractural abuses. I mean, let's say that Linden amended its

terms of service tomorrow--and by the way, they can--to say something that was incredibly

abusive. Well, the population isn't going to up and leave. Right? They're locked in. They're

locked in by their investment in the world. They're locked in by their friends, by their

community. So it's not enough to just say, “If you don't like it, leave,” we're going to have to

agitate for change from within.

And then the last thing I want to say is that I know there's been this big debate about

whether or not the Internet should be free, free, free from any real world law. That's not what

I'm saying here. I'm saying that we ought to give--we give, for example, industry lobbying

groups, we give them the ability to self-regulate all the time. Right? Companies get the

ability to write their own law, their own bylaws. We have this big tradition of intermediate-

sized groups in our society kind of get semi-autonomous abilities of self-regulation.

So am I saying Second Life is a separate world and that the American government can't get

guns to servers to enforce Real World American law? Of course not. But I think the courts

can and will make space for the norms and laws generated by people in virtual worlds. And I

think that's the way it should be.

So with that, I will go ahead and take questions, and we'll take it from there.

57 MILES: Okay, thank you, Josh. We're just seeing if we can bring Robert back in to

speak.

JOSHUA FAIRFIELD: Okay. Well, until Robert's able to get back in, I'm going to take some

of the questions that I see written down here, if that's all right.

57 MILES: I have a couple for you here--right here.

JOSHUA FAIRFIELD: Go ahead.

57 MILES: Let me start. We have Aona Sodwind(?) saying that contracts are greatly but--

are legally signed agreements. Is that the same as--contracts are great, but a legally signed

agreement? Is that the same as a contract? I'm not sure I understand the question, actually.

JOSHUA FAIRFIELD: Yeah, I'm not sure I do either.

57 MILES: Let me ask--let me bring on Temporal Mitra because I know he's been asking.

Here's my question for Josh. Is Second Life TOS is still a Contract of Adhesion--

JOSHUA FAIRFIELD: Yes.

57 MILES: --in that the only authorized forums for arbitration are with organizations that are

substantially supported by the company, not the complainants, so the neutrality is at best

questionable. The substantive terms of the TOS continue to be a take-it-or-leave-it

proposition. And they are unreasonably biased towards Linden Labs. Do you foresee a point

where Linden Lab will ever create a truly fair Terms of Service? Will market pressures force

them to?

JOSHUA FAIRFIELD: That's a great question. Obviously, Judge Robreno, in his order in

the Bragg case, said no. He said that their arbitration provision was unconscionable, that it's

procedurally unconscionable.

I should explain unconscionability. That's the big word lawyers use when they mean, “The

contract isn't fair, and we ain't going to enforce it.” And there's two elements of that. You

have to have two parts of unfair. The first part of the unfair is that it has to be an unfair

bargaining process. And the second part is that it has to result in unfair terms. So you have

to have unfair process and unfair terms.

And Judge Robreno said in the Bragg order that the process of Contract of Adhesion was so

unfair as to open the door for the claim, that arbitration was also unconscionable. And he did

not order it to arbitration.

So I think that's a great point. And if I could just link it up to my thesis. You know, one

problem with these unconscionability decisions is the judge will say, "Okay, Linden, you

should have put this term in your contract." And Linden does. And the next day the contract

is different. And so there is never any--so only one consumer, only one citizen ever wins.

Right? The first one to sue only ever wins under unconscionability. So that's why I'm not an

enormous fan of unconscionability as a way of talking about what the problem is with these

contracts.

What the judges may well be saying, by the way, when they say a contract is

unconscionable, is they may be saying, “This is a Frankenstein monster. You are trying to

create a property system out of contracts, and contracts just can't do that.” That would be, to

me, a far more theoretically sound way of saying, systematically, we need to nudge Linden

towards a different agreement.

Now, obviously I'm not going to make any statements about whether or not Linden's terms

of service currently are fair or not; I'm just reporting on the case.

57 MILES: Temporal has a second question here, which I think relates. He says, “Second

question for Joshua is, ‘How do you create or enforce contractual arrangements between

residents for commerce, when ultimately each resident has the expectation of anonymity,

and so there can be no ultimate enforcement of the contract?’”

JOSHUA FAIRFIELD: I think anonymity is the first thing to follow when commerce shows

up. I presume there are those of you who remember the free net, right, of early '90s, when

anonymity actually was a characteristic of the net. Now it's not. You can and will be sued in

real-world courts. Your identity will be discovered, and you will be liable for real-world

damages. Anonymity simply does not functionally exist.

57 MILES: JenzZa Misfit says regarding the Linden Lab TOS--Terms of Service--“How is it

that they can change the terms of that without notice or consultation with the members and

command that the new terms be agreed to? In real life, wouldn't both parties have to agree

to the terms?”

JOSHUA FAIRFIELD: This is the problem, right, that they're treating--I don't want to say

they because I don't want to talk about Linden especially. I just want to talk about all of

these systems.

I mean, imagine if Congress did that? Right? You get no say, no vote. Suddenly, hey,

presto, the laws are different. And by the way, you have no input. We don't really stand for

that in real life, and I'm trying to figure out why a society so much more devoted to freedom,

such as virtual worlds, would put up with it.

Now, the legal reason why they can do it is because they say they can do it in the contract.

And if you agree up front that they can change the terms at any time, well, then they go to a

court and they say they can change it at any time. Practically speaking, by the way, if you do

do that, it will make courts quite nervous about enforcing the agreement.

57 MILES: Okay. And I think we've got Rob back now.

BEYERS SELLERS: Yeah. Can you hear me?

57 MILES: Yes, we can hear--

BEYERS SELLERS: Wonderful. I got booted out of Second Life. Not sure why. It must have

been something I said or thought or I might have violated the Terms of Service. Anyway, let

me--I'm glad I'm still on Skype.

You've done a really nice job of laying out some of the problems, Josh. And so I'm trying to

get a better sense of the solution. And as I understand your solution, it's to bring in these

other elements of law that we are so used to. And in particular you talk about--at the end of

your paper you talk about norms and common law. And so my question is--I guess is multi-

part. One is, how is it that Linden Labs--how do you determine what the norms are, is the

basic question? And it has two parts. One is, do we just go directly to the Terms of Service

or, you know, do we look at what Linden Lab says in their advertisements? You know, your

world, your imagination. We're selling real land, so you can get rich?

And then the second is what happens when there are different standards within a world like

Second Life? So for example, there are the immersionists who get offended when someone

does not role-play, and the augmentationists who don't see the point. And they might have

very different senses of what is going to constitute for them a tort.

JOSHUA FAIRFIELD: Right. Those are both fantastic questions. First of all, from--let's start

with the basic question, "How do we get norms? What norms do we enforce?" That's a hard

question but it's one that judges have been dealing with for a very long time. Let's take the

basic norm of you're not allowed to touch other people without their consent. I mean, man,

does that have every one of a billion different permutations.

I was talking to you earlier about cases in which people brought tort claims for somebody

who spit at somebody else's feet or struck their cane but didn't actually hit them or caused

them to flinch but didn't actually strike. Courts just use common sense, and they do a lot of

cases. It's actually kind of like an adaptive walk. They just do an incremental case-by-case,

common-sense, decision-making process.

As to where do you go to get the norms? Well, you could start with the Terms of Service

because sometimes the Terms of Service do encapsulate group norms. For example, it's

entirely plausible that some people do go to World of Warcraft because they don't want

people buying and selling objects for real money. I think that's a little crazy, but apparently

they think that buying a car for real money is fine, but buying a magic sword for reak money

isn't. I don't get it.

But it is plausible for them to say, "Hey, look. Well, that's my decision to make. I went to that

world because of that term." Well, so even though the term doesn't set the rules of the

game, it is an indication of the community's desire, the community's norm. That's fine. But

then sometimes we see that within even World of Warcraft again, we see that the Terms of

Service are directly against the community norms.

For example, it's in their Terms of Service that you can't use third-party software that

interacts with Blizzard's Executable. Well, that's ridiculous. That would target your operating

system. In fact, at the highest level you can't play Blizzard's game without third-party

software, and they use the third-party software market to improve their user interface. It's

nuts.

And so we again say, "Huh, there's a norm that is quite opposed to a Term of Service. Well,

where would you go for the norm?" And I think you need to go for the norm to the

community. I think it's very easy to say in that case you do what the community norm is and

not what the contract term is. So I'll sort of leave that there.

BEYERS SELLERS: Okay, great. So coming at the same issue, really, from another

direction--this comes from Cosimo Urbanowicz. The question is, "What do you think of the

Bill of Rights for residents of virtual worlds? And what would you like to see in it?"

And just so some people have context, at Indiana University just a couple months ago there

was a conference where people tried to draft an avatar's bill of rights, which I guess would

be more of a consumer protectionist perspective than coming from the future residents of

worlds, rather than a legal perspective that's placing some bounds on the terms of service

as Linden would write them.

JOSHUA FAIFIELD: Right. Well, you know, Thomas Malaby, who's sort of our commander

in chief for purposes of the bill of rights document, he's in charge of sort of talking about

that. But my name's on that document, too. And I got to say that I'm a little bit skeptical of it

doing much other than raising awareness of these problems.

Here's some issues with the Bill of Rights. First of all, we have rights. We do have them. We

just need to talk coherently about them. For example, my favorite one is free expression.

For some crazy reason what you can say in our constitutional system depends on the dirt

that you're standing on when you say it. So if I'm standing on your dirt, I can't say whatever I

want. But if I'm standing on public dirt, I can. That seems to me to be a bit of a nutty thing.

And since most legal scholars think that there's no dirt online, that there is no actual physical

space, much less public space, we've had this real problem with importing our constitutional

protections online.

I think we need to work on that. I think it's very silly to not think of, you know, conversations

like this is important for democracy. So we have a Bill of Rights. The first thing to say about

a Bill of Rights is we have rights. One thing to do is work with the rights we've got. The

second thing--

BEYERS SELLERS: And here you're saying the rights we're granted by the U.S.

Constitution for those--

JOSHUA FAIRFIELD: The U.S. Constitution or your native constitution for your native

country. I mean, there are greater protections, for example, for consumer information in

Europe. Europeans have a heavy advantage in these kinds of discussions. And also, I

mean, if you look at what happened to AOL's Terms of Service in France, they also have a

greater chance at challenging some of these concerns. So I don't mean to be U.S. acentric

by any stretch of the imagination. But the first step is, you know, you work with the rights

you have.

Now, the second thing is that the Bill of Rights is important to raise things that we need to

talk about to build a foundation for virtual worlds. But you should be aware that often when

we increase consumer protection, all that happens is the service provider just increases the

cost of the service.

So, for example, if we say you have to put extra guards on your chain saw, then mostly what

happens is the guards go on the chain saws and the price of the chain saws goes up. So

you don't actually change a whole lot in the economic equation unless you really did have a

problem getting together and getting guards put on chain saws, and everybody's willing to

pay for them. In which case, hey, consumer protection's a great way to go.

And finally, I do believe in the rights that we signed off on. I think they're incredibly

important, especially rights that lead to other rights, like private property ownership and

freedom of speech. I think those kinds of things are just absolutely key because they

generate more freedom just by their existence.

BEYERES SELLERS: Let me follow up with that, Josh. And this is--actually, a bunch of

people are asking questions related to this. Benjamin Durantske, in Second Life, Benjamin

Noble, asks it pretty cogently, which is, "How important is it for this analysis and these rights

that people don't have portability of their assets?"

You know, right now you can't leave Second Life with your dress or Mysti Tool or whatever it

is you like, and take it to another world?

And then other people are asking about open sourcing servers, which would be a natural

step towards portability of world assets.

JOSHUA FAIRFIELD: That's a fantastic question. And let me see if I can give a really

serious, serious answer without trying to boil it down at all. We have portability. It's called

dollar bills. What you do with assets that are locked in place is you sell them to other people

who want them when you need to go somewhere else. That's how we deal with houses.

Right? That's how we deal with land. It seems to me that the most important point in terms

of getting portability is getting the ability to buy and sell your property. Now, for Second Life,

you have some of that. Other virtual worlds don't.

You know, I'm reminded of certain religious groups in Europe who would get invited--one

group was invited by Catherine the Great to farm some of her heirable land. And they did

farm it. They drained the swamps. They got it to work, and it was great farmland. And once

it was great farmland, she said, "Well, we're going to increase persecution. It's time for you

to go. But here's the thing. As an immigration tax, as a tax for leaving, you're going to have

to give us all the land that you just developed."

That seems to me to be an exact parallel to the idea that Blizzard would say in filings, "Look,

people are stuck in our worlds because they can't take it with them when they go." And so I

agree that lock-in is an enormous problem. I think portability may come. I mean, we all hope

that virtual worlds will become Snow Crash. I think we all hope that this will become the

Internet in pictures, that we're going to have a full 3-D in Internet.

But until that time we're still bubbles rising through the primordial chaos. I think the best

portability we can begin to hope for is the same portability we have in real life. That is, the

ability to liquidate your assets and take the money with you when you go.

BEYERS SELLERS: Okay. Let's see. Oh, we've got a question here on the Metaversed

Republic and some of these other groups that are working in-world. Actually, it's a series of

questions, so let me just toss some of these out there.

One of them is, how can community members generate laws or something like them when

they really don't have the final say over the state of the world that they live in? You know,

they only have the in-world law and people can create alts--alternative avatars--that again

are very anonymous and difficult to deal with.

And then a second issue is what about things like bonding and escrow? You touched on this

a little bit before. But do you see those as effective ways of having a land area--land with

quotes around it, I guess--but, you know, having an area of land that has some sort of

governance, where you end up having your money taken away from you if you violate the

local law?

JOSHUA FAIRFIELD: Gotcha. Those are two really great questions. Let me start with the

self-help question first. Self-help in virtual worlds cuts two ways. On the one hand, we see

the community rules have a much bigger bite than they might otherwise have because you

can band people.

I mean, it should go without saying that in the real world almost all transgressions--legal

transgressions--do not end up in court. People don't use laws to actually do anything to

each other. They're just kind of there, and you bargain in the shadow of them. But very, very

rarely do people actually go to court.

I mean, I had a partner at Jones Day who, for the first time in seven years, said, “Wow,

we're actually within a week of going to trial,” and then the case settled. People just do not

litigate. They don't actually use the laws the way we use the ban every day. So self-help in

virtual worlds is a really big deal, and to some extent it provides a very active way of solving

some problems.

But then to go to the bonding issue, we say it can't do everything. We can't deter, for

example, hacking or, you know, or mental assault, emotional distress, really bad terrible

acts, in virtual worlds by a bonding or escrow system. The first problem is the bonding and

escrow system only works against people who've already bought into the system.

Remember, that's the flaw of contract, is that it only binds people who've signed the

contract. Of course the people you're worried about are the people who would never sign

such a thing in their lives. You have to have recourse against them.

And the second problem is that bonding just doesn't stop certain irrational bad acts. People

get mad. They get furious and they do self-destructive stuff, and they don't really care what

the consequences were. I mean otherwise, by the way, we could just penalize murder with a

fine, if fines would actually stop murder. It turns out it really doesn't. You got to have

different rules.

And so I think that both bonding and the ban or traditional self-help are fantastic, but they do

not replace the need for actual recourse in real world courts, if somebody does something

truly horrific.

BEYERS SELLERS: Okay. I have one last question, then I'll just ask you to make whatever

closing statement you'd like to, for lessons people should take away.

But my last question is you've been pretty critical of the court's rulings and reasoning on the

Bragg case, in which some people are suing Linden, saying that they bought land which

was unfairly taken from them. And you know, I don't want you necessarily to take one side

or the other. But you, in your anti-social contracts paper, which by the way, is on--a link to

that is on the Metanomic's web site.

In that paper you actually say that you think the court's reasoning--and I'm quoting you here-

-endangered a hallowed industry institution, standardized software contracts, even for cases

where no property question is present.

So can you just talk a little bit about your concerns on that decision?

JOSHUA FAIRFIELD: Yeah. And by the way, let me be clear about my take on the Bragg

case. I think the judge and both sides in that case are doing the best they can. It's like

they're having a duel to the death with Nerf swords. They're talking about property. The

judge is talking about property. Bragg is talking about property. Linden is talking about

property. But there's one rule. It's like charades. You can't say the word “property.”

Everyone has to talk only in the terms of contract law for the entire case.

I mean, it's really bizarre. And so they dance and dance and dance. And the Bragg case,

more than anything, is just evidence for the need of a simplification and advancement of the

rule of common law in virtual worlds. To say, yeah, of course, people have a private

property interest in the things that they create by their own creativity. That's not hard for us

to say in the real world. But somehow it's hard for us to say it online. And we get all tangled

up in it.

Now, what I meant when I said that the Court's decision endangered a hallowed industry

institution is that standardized contracts apply to you whenever you buy a jug of milk. Really,

is the solution to force you to read terms of service and specifically understand them and

negotiate with them every time you buy a jug of milk or a glass of coffee at a Starbuck's or

you go down the street and you rent a movie? All those are contracts. You're entering

contracts left and right. We're not going to--we would snow the world under in paper if we

made everybody negotiate out those provisions.

But the Court's reasoning in Bragg said, well, they should have put different words because

they really didn't negotiate this out. And Bragg, even though he's a lawyer, claims, you

know, “Oh, I didn't read it,” or “I didn't understand it.” I mean nobody's there making any kind

of serious sense. I think it would be much better if everyone were allowed to use the

vocabulary of the case. This is a property case. The question of the case is can Linden

seize someone's property and sell it without their permission?

BEYERS SELLERS: Okay. Let me then ask just a followup, and maybe this is a good wrap-

up for you, which is, what needs to happen in order for lawyers and judges to be able to use

the word property in a case like this?

JOSHUA FAIRFIELD: Well, I mean, you know, I wrote another article called "Virtual

Property." I set all that out in there. There are much better people who have written much

better stuff. This stuff has come--I mean, if you look at the case of Intel versus Hamidi, that

was a cyber trespass case. They used the law of property to talk about the act of using

someone else's computer to send emails.

So people are beginning to understand that these spaces are actually spaces. No, this is not

a communications medium like any other. What's different about the Internet is not that it's

instant. We had instant communication with telephones. The evolution of the Internet is that

we can actually create functional spaces, communities, large groups of people doing exactly

what we're doing now.

Now, I'm not saying that that also means that those groups of people get go off and make

their own, you know, United States of Second Life. That's not what I'm saying. I do think,

however, that the--remember, the law reasons by analogy. The closest analogy to the

property that I'm looking at--that is, the space, the room, the chairs, the people that I'm

looking at--is property law.

We should be free to use the closest analogy in law, rather than reaching and reaching and

having to write--rewrite--you know, tort law, we rewrite it as Terms of Service. Property law

we rewrite it as the Linden Lab's license. That rewriting process really takes a lot out of the

value of those rules.

BEYERS SELLERS: Okay, great. I guess we will leave it at that. We're pretty much at the

end of our time.

Professor Fairfield, thank you so much for taking the time to join us on Metanomics. I found

this fascinating, even though I got booted out of Second Life for some reason. And

fortunately, I'm on the Skype call, so I can listen to it all.

I hope that our live audience in Second Life found this interesting as well. And a hello to our

SLCN TV viewers, both live now and watching this later recorded, and hopefully pulled up

Blip TV, by the way, which has better quality than YouTube. I'm learning something new

every day.

So that'll be the end of the session. Let me again just thank everyone involved. So our

speaker, Joshua Fairfield, from Indiana University School of Law and Washington and Lee

School of Law--we had SLCN doing a lot of the technical side. Onder Skall handling the in-

world organization, and all pulled together by Nick Wilson of metaversed.com.

If you want more information, go to metanomics.net or metaversed.com for the web sites in-

world. Join the group Metanomics or Metaversed to be kept up to date.

Next week, Julian Dibbell. After that--actually, I forgot to mention early on, we have Dan

Miller. Dan Miller, who is a senior economist from the U.S. Congress. And maybe we'll find

out whether Congress has any intention of passing legislation that will change the legal

landscape in virtual worlds.

So thank you very much. And that's the end of another Metanomics session.

[END OF AUDIO] Document: cor2003 Transcribed by: http://www.hiredhand.com Second Life avatar: Transcriptionist Writer