[Dave Birch] A famous entrepreneur in Second Life, Anshe Chung, convinced YouTube to pull down an off-color video of her virtual self being harassed during an interview, an action that raised some interesting questions about the legal rights of the inhabitants of virtual worlds.  Anshe Chung Studios demanded that YouTube delete the recording, citing the Digital Millenium Copyright Act (DCMA), which generally requires Web sites to remove material that infringes on copyright laws.  The harassment took the form of animated penises attacking her avatar during an interview in front of dozens of audience members.  It looks as if real law and virtual worlds are going to be inseparable.

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Lawyers are so good at explaining this sort of thing.  Jason Schultz, an attorney with the Electronic Frontier Foundation, draws a straightforward (to me) comparison: “The analogy I would draw is if there was a car accident in downtown New York,” he said, “and the driver happened to be wearing an Armani suit, and there was a photographer who took photos and published them. That photographer couldn’t be sued by Armani. News is news. And fair use gives news reporters and others the right to report what they see and hear, even if it includes your copyrighted work.”.

Why does anyone care about this sort of thing?  Because with every passing week, more and more business is developing in virtual worlds and distinctions between real and virtual identities become more muddled.  It’s all based on property rights, of course, which is why the development of virtual property markets is so fundamental and now that one of America’s biggest estate agents has opened a virtual office to start selling virtual property I guess the idea of “real estate” is going to get as fuzzy as “real momey”.  Coldwell Banker (which employs over 120,000 real-world sales agents in the United States and operates in a total of 45 countries) has bought extensive tracts of property in Second Life.  It subdivided this digital land into 520 individual houses and living units, half of which it will sell and half it will rent.  Charlie Young, the company’s senior vice president for marketing says clearly, “In the end this is about buying and selling homes in the real world,” he says. “We’re trying to figure out how to reach what we call the ‘new consumer’.”  Quite, just as any other kind of company should be doing.  Virtual worlds are where the next generation of consumers are, but that also means that the concept of identity that companies will need to share with these new consumers is also rather new.

Where there’s property, there’s tax.  Well, sort of.  As this tax person puts it, most people’s intuition probably would be that accumulation of assets within a “game” should not be taxed even though the federal income tax applies even to non-cash accessions to wealth.  Apparently, federal income tax law and policy that magic swords should not be treated as taxable prizes and awards, but rather should be treated like other property that requires effort to obtain, such as fish pulled from the ocean, which is taxed only upon sale.  Moreover, in-game trades of virtual items should not be treated as taxable barter, as we have been discussing over on the Digital Money blog.  If courts uphold game agreements that purport to provide players with a mere license to use the game, in-game trades do not constitute realization events and thus are not taxable.  So there.

These opinions are my own (I think) and are presented solely in my capacity as an interested member of the general public [posted with ecto]

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