Choose one virtual world, other than Second Life, as the focus of your study.
Provide a brief overview of the nature and function of that world, how you join what its key objectives and functions are. Analyse the terms of service (or end user licence agreement) that applies to that world and identify and discuss key legal issues that may arise from the application and interpretation of those terms of service. Identify any other forms or rules and/or governance that operate within the world and analyse the relevant legal issues arising from such rules or governance. Are there any other legal issues that you can foresee with respect to the participation in or continuation of this environment?
The focus of my essay is Facebook as it is the social networking site that I use on a daily basis and have in depth practical experience using it. There are a number of issues that arise from the terms of service (which includes rules governing user conduct), including whether the terms as a whole are a contract of adhesion, whether certain clauses such as liability and arbitration are enforceable (or not on the grounds of unconscionability), ownership of intellectual property and in particular copyright, and finally, jurisdiction. As Facebook is a U.S. based website and most of its users are based in the U.S. and also because most of the jurisprudence to date on Facebook has arisen in the U.S., the legal focus will be on the law in the U.S.
1. In the “About Facebook” section on its website, Facebook describes itself as a social utility that connects people with friends and others who work, study and live around them. It states that people use Facebook to keep up with friends, upload an unlimited number of photos, share links and videos, and learn more about the people they meet. Facebook is also made up of Networks based on geographic region or based on universities. Users can alter their privacy settings, add third party applications which range from Vampires, Super poke, dating, star signs, and many more, and users can join all kinds of groups ranging from “World Friends”, “Add me as a Facebook friend”, “Melbourne is better than Sydney”, to a group about AFL football or cats.
2. In my experience, I have found that Facebook enables you to reconnect with old friends that you have lost touch with or to maintain a connection to friends that you may have worked with or had some association with previously but are not in regular contact with, in addition to making new “world friends”.
6. For example, in DeJohn v The TV Corporation International 245 F. Supp. 2d 913, it was held that the plaintiff entered into a binding online click-wrap agreement by clicking an ‘I agree’ icon which indicated he had read and understood and agreed to the terms of the parties’ contract which were available for review online by clicking on a link which appeared on the website just above the ‘I Agree’ icon. By contrast in Specht v Netscape Communications Corp 306 F. 3d 17 users consented to the license terms by clicking an ‘I Agree’ icon, however, the only reference to the license agreement appeared in the text of a link well below the software download symbol for the download of SmartDownload. The Court of Appeals held that there must be “reasonably conspicuous notice” and “unambiguous manifestation of assent”. Also the words “please review and agree to the terms” was couched in a mild request more in the form of an invitation.
8. The above cases have followed on from the decision of ProCD, Inc. v. Zeidenberg 86 F.3d 1447, which is the leading case in the U.S. on enforceability of software licence contracts of adhesion. In that case, it was held that shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable). Furthermore, the court noted that the software user had no choice but to accept, “because the software splashed the license on the screen and would not let him proceed without indicating acceptance” and thus the conduct of continued use manifested the user’s acceptance.
10. In “Enforcement of Contractual Terms in Clickwrap Agreements”, the author discusses the principle of law that “A lack of competition with no negotiation possibilities in a typical contract of adhesion, such as a clickwrap, will meet the criteria for procedural unconscionability. However, even if an agreement is procedurally unconscionable, it may nonetheless be enforceable if the substantive terms are reasonable.” Based on case law, substantive unconscionability requires proof of overly harsh or one-side terms that “shock the conscience”. Therefore invalidating clickwrap (or similar agreements) on the basis of unconscionability requires evidence than an unfair use of superior bargaining power resulted in contractual conditions so exceedingly calloused as to be unreasonably burdensome to the agreeing party.
11. The author of “On Virtual Worlds: Copyright and Contract Law at the Dawn of the Virtual Age”, discusses unconscionability as follows:
Procedural unconscionability generally concerns the absence of meaningful choice or bargaining power on the part of one party, while substantive unconscionability concerns the existence of contract terms which unreasonably favour one party.
Courts often state that a substantively unconscionable term is one that is “overly harsh” or “one-sided”, is “so one-sided as to be oppressive” is “unreasonably favourable to the drafter” or “shocks the conscience”
14. The only basis to hold that a contract has not been formed therefore is if the ground of unconsionability is made out. Procedural unconscionability is not too difficult to make out – “the absence of meaningful choice or bargaining power on the part of one party” – although arguably as there is sufficient competition with Facebook from other social networks like MySpace, Facebook could argue that there is “meaningful choice”. In any case, a contract is still enforceable if it is not substantially unconscionable.
b. That in no case will Facebook’s liability exceed $1000 and relief is limited to injunctive relief, unless otherwise permitted by law;
c. Facebook can terminate a membership, delete a user’s profile and any content or information posted on the Site for any reason, or no reason, at any time in its sole discretion, with or without notice;
d. The user agrees to final and binding arbitration conducted by the American Arbitration Association under its Commercial Arbitration Rules.
19. With regard to Facebook being able to terminate membership or delete a user’s profile or content or information posted on the site for any reason, appears on its face, to be substantively unconscionable. However, the rule of contract interpretation is that a contract must be read as a whole and a clause should not be read in isolation. Arguably, this term is qualified by the clause on “User Conduct” and other clauses such as “User Content Posted on the Site” and if Facebook terminated a membership or deleted user content with no cause whatsoever, the user would have a right to arbitration and an arbitrator could award damages or specific performance to reinstate the user’s account.
20. Finally, in terms of the arbitration clause, in determining whether it is substantively unconscionable, it is relevant to consider it comparatively with other arbitration clauses that have been struck down. For example, in Brower v Gateway 2000, Inc 1998. 246 A.D.2d 246, 676 N.Y.S.2d 569, the Supreme Court of New York held the arbitration clause to be unconscionable on the basis of an unreasonable cost to the plaintiff as it required all disputes relating to the agreement to be settled by arbitration by the International Chamber of Commerce, whose head quarters are in France, conducted in Chicago by an official arbitrator and an advance fee of $4000 (more than the product in question) was payable, of which $2000 was non-refundable. Furthermore PayPal’s customers were only allowed to resolve disputes after PayPal had control over their disputed funds for an indefinite period. In Bragg v. Linden Research, Inc. Linden Research required users to arbitrate in San Francisco, where their corporate headquarters was located and the court held that the arbitration clause requiring arbitration to take place in San Francisco was substantively unconscionable because under Californian law dictates that it is not “reasonable for individual consumers from throughout the country to travel to one locale to arbitrate claims involving such minimal sums.” It was further held that the unconscionability could not be cured through severance or restriction and it must void the entire agreement.
21. A partner in the law firm Paul, Hastings, Janofsky & Walker, David M. Klein, suggests that for arbitration clauses to be enforceable the following should apply:
a. Arbitration clauses should be a separate clause in the contract so as to be sufficiently drawn to the user’s attention.
b. The cost and applicable rules of the arbitration should be clearly indicated in the contract.
c. Should the terms of service change, users should be given prior notice of the change.
d. Where legitimate business realities exist, such as avoiding the burden of litigating claims across the country or avoiding the negative publicity that may result from lawsuits in the absence of a confidentiality clause, then such business realities should preferably be clearly explained in the contract.
23. There are a number of other issues arising from a user’s use of Facebook. There is not space in this essay to discuss every issue, but I will address a few key legal issues below.
25. In my view, the position for the user of Facebook is not ideal, however an unrestricted licence to use the user’s intellectual property for free (in the context of the user being provided with a free service) is not patently unfair as would for example an automatic assignment to Facebook of all the user’s intellectual property.
27. In the Australian context, in Dow Jones & Company Inc v Gutnick  HCA 56, the matter involved material downloaded in Victoria from a web site in the USA. The High Court allowed the defamation case brought against the American publisher to proceed in a Victorian court on the basis that in the case of the Internet, published material was not available in comprehensible form until downloaded on to the computer of a person who had used a web browser to pull the material from the web server and that it was where that person downloaded the material that the damage to reputation might have been done.
28. Therefore, with this in mind it would be interesting to see whether an Australian court would accept jurisdiction for example if an Australian resident sought to bring proceedings against Facebook and the extent to which an Australian court would exclude the operation of the arbitration clause to allow a court to exercise its jurisdiction (e.g. breach of copyright licence by Facebook of the user’s copyright).
1. Binder v Aetna Life Ins. Co. 75 Cal. App. 4th 832
2. Erez Reuveni, “On Virtual Worlds: Copyright and Contract Law at the Dawn of the Virtual Age”, 82 Indiana Law Journal 261 at 387
3. “How to Avoid a Bad TOS for Virtual Worlds” http://www.virtualworldsnews.com/2007/10/how-to-avoid-a-.html (accessed 25/8/08)
4. Daniel C Miller, “Determining Ownership in Virtual Worlds: Copyright and License Agreements” 22 Rev. Litig. 436 (2003)
5. DeJohn v The TV Corporation International 245 F. Supp. 2d 913
6. Specht v Netscape Communications Corp 306 F. 3d 17
7. Register.com v Verio Inc 126 F. Supp. 2d 238
8. ProCD, Inc. v. Zeidenberg 86 F.3d 1447
9. Brower v Gateway 2000, Inc 1998. 246 A.D.2d 246, 676 N.Y.S.2d 569
10. Bragg v. Linden Research, Inc. No. CIV-A-06-4925 2007 WL 1549013 (E.D. Pa. May 30, 2007)