The court partially granted a motion for class certification
in this case about “property” in Second Life.
People buy and sell virtual items, including virtual land, in-game,
using money (lindens) that can be bought for and exchanged into dollars. Virtual land incurs monthly tier fees,
similar to property taxes, paying for maintenance of the servers. (Linden also takes a commission on
participants’ sales of virtual items in-game.)
Linden does not run out of virtual land; “once Linden sells land to a
participant, it continues to exist in Second Life and is not deleted or removed
from the game.” Plaintiffs were people
who’d participated in Second Life, bought virtual items/land, had their accounts
terminated or suspended by Linden, and weren’t compensated for the value of
what they had.
The question was what “ownership” meant. Plaintiffs argued that Linden and defendant
Rosedale (founder, former CEO, current board member) represented that Second
Life participants would have an actual ownership interest in virtual land and
other items. Defendants argued that they
meant that participants would have copyright in items they created. Plaintiffs alleged that, to attract
participants, Linden “made a calculated business decision to depart from the
industry standard of denying that participants had any rights to virtual items,
land and/or goods” and “globally represented to participants ... that their
ownership rights and intellectual property rights to the virtual items, land
and goods held in the participants' accounts would be preserved and
recognized.” Thus, for several years,
the following statement appeared prominently on the Second Life homepage:
“SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED, CREATED AND OWNED BY ITS
RESIDENTS.”
However, sometime after 2007, following a dispute with an
individual user regarding Linden's alleged confiscation of virtual property,
Linden changed that statement to “SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED
AND CREATED BY ITS RESIDENTS” and began to strip ownership rights from
users. In 2010, Linden modified its
terms of service, for the first time stating that “[v]irtual land is in-world
space that we license.” Participants
were not allowed to opt out of the new terms; if they didn’t accept, they
couldn’t access their virtual land or items.
The court contrasted “actual ownership rights” in “a piece
of the Second Life world” (what plaintiffs claimed to have) with “copyrights”
(what defendants said they had).
Plaintiffs didn’t claim to own the physical servers, but did claim to
own the “things” and “land” created by the code that ran on the servers, in the
same way that one can own a domain name.
Thus, beyond IP rights, users owned their accounts and could treat them
like property, including selling them and licensing them, whether in the game
or through independent third parties such as eBay. Defendants argued that the only real thing or
property capable of being owned was the copyright, and users had a license to
use Second Life computing resources. If
an account was closed, users still owned copyrights in whatever they created,
and that provided the value proposition distinguishing Second Life from other
games. However, the bits making up a
given copy on Linden’s servers were not themselves a user’s property.
Plaintiffs argued for certification of a main class of
purchasers and sellers of virtual land/items and a subclass of people whose
assets had been taken, frozen, or otherwise rendered unusable by Linden’s
affirmative action (not just by having to agree to the amended ToS). So the main class claims were predicated on
the idea that defendants lured people into participating in Second Life by
making ownership promises, and then later reneged, while the subclass claimed
that defendants unlawfully converted members’ valuable property by closing
their accounts without reimbursement.
For the main class, plaintiffs alleged violations of the CLRA, FAL, UCL,
and California Auction Law, along with fraud in the inducement. For the subclass, plaintiffs alleged
conversion, intentional interference with contract/prospective economic
advantage, and unjust enrichment.
Defendants argued that plaintiffs failed to show injury in
fact sufficient to create constitutional standing for the main class. For these claims, that meant they needed to
show lost money or property due to the alleged misrepresentations that
participants would own their virtual items/land. But they didn’t describe any economic harm
they suffered as the result of these misrepresentations. At the end, they argued that they wouldn’t
have bought the items at all or would have paid less for them if they’d known
the truth. Although the difference
between the price a consumer would have paid had she known the truth and the
price she actually did pay may constitute “injury in fact,” here plaintiffs
failed to offer “a shred of evidence” that this was true in their case. The only record testimony was from Donald
Spencer, who testified:
[W]hen I started the game
that—everything [Defendants] promoted was it was owned by the residents. If you
created it it was yours. You owned it. It wasn't there for [anybody] else to
take away from you ... [t]hat was one of the big draws for me and my friends to
go there ... we could go in there and create as a group, you know, or even
individually belonged to each one of us.
This wasn’t enough to show that he wouldn’t have bought or
spent as much money for virtual land/items but for the misrepresentation. Other possible evidence that plaintiffs
didn’t present might have been about Second Life’s market share relative to its
competitors before and after the “ownership” marketing campaign. In addition, plaintiffs’ “inability to
articulate a coherent remedial theory highlighted the absence of a concrete and
non-conjectural injury.” They asked for
return of the entire price paid for land and tier fees paid to Linden, along
with return of the transaction fees for item transfers. But that’s not the proper measure if the harm
was the extra price they paid because of the promise.
The court also found that plaintiffs failed to do more than
recite the elements of a violation of the California Auction Law, and they
didn’t show injury sufficient to confer standing under that law, which requires
auctioneers to maintain various safeguards.
The court additionally found the main class definition
overbroad and ascertainable—anyone who ever purchased or sold virtual
land/items in Second Life. Not everyone
might have been subject to and injured by the alleged ownership
misrepresentations.
The court then turned to the subclass, as to which
defendants didn’t challenge standing. On
numerosity, the court looked at a random sample of 500 terminated accounts, in
which 2 held virtual land at the time of termination (adding cases in which the
terminated accounts had virtual items, lindens, or dollars would presumably
increase the numbers). From this sample,
plaintiffs estimated that, of the 57,000 accounts Linden terminated, at least
228 held confiscated virtual land.
Defendants argued that plaintiffs only identified one person who bought
virtual land under the pre-March 2010 ToS and then had it “confiscated” after,
and that she was properly terminated for violating Second Life’s anti-fraud
provisions. But the problem wasn’t
mandatory acceptance of the ToS, but rather account closures or suspensions,
and the class could also include users whose items other than land (including
lindens and dollars) were taken without compensation. No matter what the reasons for termination
were, plaintiffs alleged, Linden wrongfully confiscated the land, items, and
currency in the accounts. The sampling
evidence therefore satisfied the numerosity requirement, “based on a common
sense extrapolation of the numbers and considering the geographical dispersion
of class members.”
As for commonality, the court identified several common
questions: (1) whether the new TOS was unconscionable or otherwise
unenforceable against Second Life users whose accounts Linden suspended or
terminated; (2) whether subclass members have an “ownership” right in virtual
land and virtual items; (3) and whether Linden has an obligation to reimburse them
for virtual land, virtual items, or currency (either lindens or dollars) in a
Linden-closed account. The court
rejected defendants’ alternate characterization that the primary issue was
whether Linden wrongfully terminated any individual account. The claims didn’t depend on whether an
account was terminated for good cause.
Defendants made the intriguing argument that §230 provided
them, essentially, a sword as well as a shield: that is, that if they
confiscated valuable items in a user’s account because they terminated that
user for violating Second Life conduct rules, then they were acting as an ISP
to filter offensive conduct and were absolutely immune to non-IP claims. Tentatively, I’d say that this doesn’t work,
since the grant of ownership (if that’s what it was, on which I express no
opinion) would operate as a separate source of rights—the claim isn’t based on
the account closure (for which defendants should be immune under §230 for
claims of consequential damages, harm to reputation, etc.) but rather on the
stuff left in the account that Linden should have “returned.” This seems to me not much different from an
ISP contract for $10/month payable as $120 at the beginning of the contract; if
the contract provides for early termination for bad behavior, but does not
provide that the ISP gets to keep the whole $120 in case of such early termination,
it doesn’t seem to me that §230 would bar a claim by the user to get the
balance of her payment back. It is the
background law and the parties’ agreement, not the termination, that provides
the basis of the claim/source of the wrong.
But perhaps Eric Goldman will disagree.
Anyway, the court didn’t get into the §230 weeds, but simply
rejected defendants’ argument that the subclass claims would inherently devolve
into individual adjudications. Whether §230 applied would itself likely present
common questions of law, and such determinations could be made as to categories
of reasons for account closure. Thus,
commonality was still present.
The putative class representatives who had their accounts
suspended with valuables still in them also could satisfy the typicality
requirement, though the putative class representatives who refused to log in
and accept the new ToS couldn’t do so; the latter hadn’t lost valuables through
Linden’s acts of account closure/termination/freezing. Relatedly, defendants argued that named
plaintiff Evans was inadequate as a representative because he had a
demonstrated history of “abusive and obscene communications with other Second
Life users and Linden personnel…. [H]is lewd, profane, violent, and threatening
language toward other users has drawn over 100 abuse reports.” Given this record of abusive and hostile
conduct toward potential class members, the court was persuaded that there was
a conflict of interest. However, the
adequacy of named plaintiff Hemingway was established, even though she loaned
her computer to a friend, who then committed credit card fraud on Second Life.
The court then turned to the remaining certification
requirements. The court declined to
allow certification under Rule 23(b)(1)(A) or (b)(2), despite plaintiffs’
claims for injunctive relief against enforcement of the ToS, since their
primary goal was damages. Nor was
certification appropriate under Rule 23(b)(1)(B), since adjudication of their
claims wouldn’t as a practical matter be dispositive of the interests of
nonmembers—victory wouldn’t exhaust Linden’s resources.
But Rule 23(b)(3) was satisfied. The court again rejected defendants’ claims
that individualized inquiries into the reasons for account closure would be
required. “[A] predominant legal and
factual inquiry is whether the TOS, which allows Linden to confiscate class
members' virtual land and property, is unconscionable or otherwise
unenforceable against Second Life users whose accounts Linden suspended or
terminated,” and this was subject to classwide proof. Also, classwide liability determinations
should be possible using the dollar value of lindens and dollars, along with
the price paid for virtual items and land; this would involve only ministerial
review of transaction records. The court
didn’t accept this damage calculation method as a final ruling; it retained the
possibility of modifying or decertifying the class as appropriate.
Defendants didn’t contest superiority, but they did contest
ascertainability. Given the clarification
of the definition of the subclass, it should be easily ascertainable using
Linden’s records. If plaintiffs are
correct that, even if subclass members’ accounts were validly terminated,
Linden still owed them the value therein, then it should be possible to
determine what was in those accounts.
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