What laws govern a virtual world? What is the role of the Terms of Services Agreement? Do avatars have rights? How are brands protecting themselves from copyright and trademark infringement? How can content creators enjoy the same protections? James Gatto, head of the Intellectual Property Group at Pillsbury, a leading law firm, joined Robert Bloomfield for a discussion of how national and international laws intersect with issues specific to virtual worlds.

1. METANOMICS - INTERSECTING INTERESTS:
VIRTUAL WORLDS AND THE LAW - MAY 20, 2009
Metanomics is a weekly broadcast on the serious uses of virtual worlds. Visit http://metanomics.net.
Metanomics is owned and operated by Remedy Communications.
ROBERT BLOOMFIELD: Hi. I’m Robert Bloomfield, professor at Cornell University’s Johnson
Graduate School of management. Each week I have the honor of hosting a discussion with the
most insightful and the most influential people who are taking Virtual Worlds seriously. We talk with
the developers who are creating these fascinating new platforms, the executives, entrepreneurs,
educators, artists, government officials who are putting these platforms to use. We talk with the
researchers who are watching the whole process unfold. And we talk with the government officials
and policymakers who are taking a very close look on how what happens in the Virtual World can
affect our Real World society.
Now naturally, we hold our discussions about Virtual Worlds in Virtual Worlds. How else could we
find a very real place where our global community can convene, collaborate and connect with one
another. So our discussion is about to start. You can join us in any of our live Virtual World studio
audiences. You can join us live on the web. Welcome, because this is Metanomics.
ANNOUNCER: Metanomics is filmed today in front of a live audience at our studios in Second Life.
ROBERT BLOOMFIELD: Hi, and welcome again to Metanomics. Today we focus on the legal side
of Virtual Worlds, and we couldn’t have a better person to represent the topic. James Gatto, who
heads the only Virtual Worlds and video games group in a major law firm, Pillsbury Winthrop Shaw
Pittman LLP, commonly known simply as Pillsbury. We’ll be talking about patent law, intellectual
property, terms of service, and a topic of particular interest to me: the legal environment that faces
businesses that operate within Virtual Worlds, like Second Life, and are subject to their terms of
service.
Thanks to all of you who are attending Metanomics today, including those who are viewing live on
the web. Please join in with you comments and your questions.

2. ANNOUNCER: We are pleased to broadcast weekly to our event partners and to welcome
discussion. We use ChatBridge technology to allow viewers to comment during the show.
Metanomics is sponsored by the Johnson Graduate School of Management at Cornell University
and Immersive Workspaces. Welcome. This is Metanomics.
ROBERT BLOOMFIELD: Before we get to our main guest, we are going to take a few minutes to
look at an issue a little broader than law: human rights. Courtesy of the Virtual Policy Network, a
think tank promoting policy discourse about Virtual Worlds and social media, I learned that the
Council of Europe released two documents laying out guidelines for protecting human rights on the
internet. One document describes guidelines for online games providers, the other for internet
service providers. So to help us understand these documents and put them in context, I welcome
back our policy correspondent, Sterling Wright, who will help us put human rights in the spotlight.
Sterling, welcome back to Metanomics.
STERLING WRIGHT: Hello, Robert. Thank you. It’s a pleasure to be here again.
ROBERT BLOOMFIELD: So let’s start with some background. What exactly are the key humans
rights the European Union is trying to protect for internet users?
STERLING WRIGHT: The European Union is extending its concern for the state of human rights
and privacies related internationally to the realm of the internet. The Europeans have long argued
that human rights and privacy standards are currently being restricted and are under some of the
strongest pressure since their adoption, largely due to the international political climate. The
European Council has put together these guidelines, to extend human rights considerations to the
web. The guidelines argue that online games and internet service providers are making available
products that can promote the exercise and enjoyment of human rights and fundamental freedoms.
They are paying a particular amount of attention to children and the impact of the internet on
children regarding gratuitous violent behavior; cruel sexist, inhumane content; as well as illegal
content, aggressive nationalism, racism and xenophobia. They’re also concerned about our rights
to freedom of expression and information on the web, as well as the right to privacy of self and
communications. Currently there is no international legal framework to protect online privacy.
ROBERT BLOOMFIELD: Okay. So there are these two documents from the Council of Europe.
One of them focuses on online games, and the other focuses on internet service providers, ISPs.
So where do Virtual Worlds, like Second Life or MetaPlace, fit in?

3. STERLING WRIGHT: Well, they don’t, actually. The guidelines that govern game providers have
explicitly ruled out Virtual Worlds as games. They argue that these universes do not constitute a
programmed experience under the control of a game publisher, the way a game would, and that
they also lack a specific gaming scenario and a set of goals for the gamer to achieve.
In the ISP guidelines, they do not mention Virtual Worlds at all so the gaming guidelines ruled them
out. The ISP guidelines don’t mention them. In other words, Virtual Worlds are still in limbo, in terms
of classification.
ROBERT BLOOMFIELD: So presumably, if they break into the mainstream, which I think a lot of
Metanomics viewers feel is pretty likely, they’re not going to remain in limbo forever. Now I know
Linden Lab states explicitly in its terms of service that it isn’t an ISP.
STERLING WRIGHT: That’s right.
ROBERT BLOOMFIELD: But, by providing a platform where users are creating and sharing
content, you know, you can certainly see the analogy. So if we assume that guidelines governing
user-created Worlds are similar to those for internet service providers, how far is Second Life from
providing the types of human rights protections that the Council of Europe would be looking for?
STERLING WRIGHT: Well, when Linden Lab first conceived Second Life, it did so as a game, and
only relatively recently has it begun to think of the platform as something more. So there is not a lot,
at the moment, in its terms of service that would parallel the EOC [sic] guidelines. Linden Lab
clearly addresses the protection of children and other groups from derogatory or harmful language
and actions, but it does so in its community standards, not in its Terms of Service. On other issues,
Linden Lab’s Terms of Service deviates considerably from the COE guidelines.
ROBERT BLOOMFIELD: Some examples?
STERLING WRIGHT: Well, before I give an example, let me back up for just a second and say
quickly the assumptions that are behind these guidelines because I think it’s important to place this
in a context. The underlying tenet of the guidelines is that the ability to access internet services is
increasingly a prerequisite for a comprehensive, participatory democracy. And the assumption

4. behind the guidelines is that internet service providers, since they are providing this basic
infrastructure that allows users to access the internet, that they have a significant public service
value that they’re offering to society. Therefore, the guidelines argue the ISP providers are in a
unique position and have the possibility of promoting human rights and fundamental freedoms and
even that they have the responsibility to do so.
Now, as you’ve said, Linden Lab has explicitly stated it does not consider itself an ISP provider.
Where I think the Council of Europe might have some issues with the existing Terms of Service for
Second Life is on issues of privacy. For example, the guidelines state that ISPs should not actively
monitor the content of communications on their networks, unless they’re requested to by legal
authority. Linden Lab, on the other hand, states in its TOS that it maintains the right to observe and
record your interactions in the service. The guidelines also state that ISPs should not reveal the
identity of users, their traffic data or the content of data accessed by them to a third party, unless
they’re under legal duty. And that personal data should not be used for a company’s own
promotional or marketing purposes.
On these points, the Linden TOS is a little bit squishy. The personal information you provide to
them, when you register, can be used for the Lab’s internal purposes. And the TOS states that
information collected is only used to learn what you like and to improve service. I’m personally not
exactly sure what that means or how those uses actually manifest. In addition to this, Linden Lab
can also provide information, although not information that identifies you personally, but it can
provide information to third parties for the purpose of improving or protecting the service.
ROBERT BLOOMFIELD: One of the things that I worry about is removal of content, that you don’t
actually own the content.
STERLING WRIGHT: Yes. The guidelines caution against removing content, as doing so can
impact on rights and freedoms. The service providers, however, are put in a very bad position with
this one. They are rightfully concerned about being held legally liable for certain types of content,
but, at the same time, removing content too hastily could impact on rights and freedoms. The
guidelines suggest that the courts are best suited to determine whether content constitutes illegal
material and should be removed.
Linden Lab, however, has stated in all their letters and it’s Terms of Service that flowed from the
TOS, Linden Labs has the right, but not the obligation, to remove any content, including your

5. content, in whole or in part, at any time for any reason or no reason, with or without notice, and with
no liability of any kind. So this would definitely be in direct confrontation with those guidelines,
should they be applied here.
ROBERT BLOOMFIELD: Okay. What about MetaPlace? I know Raph Koster has written quite a bit
about avatar rights. Are they doing a better job on human rights?
STERLING WRIGHT: Well, for those of you who don’t know, Koster argued in his Avatar Bill of
Rights that the aim of virtual communities to serve the common good of its citizenry, and it’s from
that common good that the rights of avatars arise. The debate, of course, is whether or not games,
Virtual Worlds, do, in fact, have an obligation to serve the common good of the citizenry.
Koster extends to Virtual Worlds the same sensibility as the European guidelines. As far as
MetaPlace is concerned, their Terms of Service certainly mirror these European Council sentiments
much more closely. Their Terms of Service recognize, for example, the rights of privacy to
communication, that avatars should be considered innocent until proven guilty of a wrongdoing and
that, and I’ll quote, “... to be secure in their created world to the communications, private spaces
and effects of users are protected against unreasonable snooping, eavesdropping, searching and
seizures.” So again, there is some deviation between the two.
ROBERT BLOOMFIELD: Okay. Now we hardly have any time left, but I did want to ask this last
question, which is, we’ve been talking about two U.S.-based companies in light of European
policies. Do you think we can expect similar guidelines coming out of U.S.?
STERLING WRIGHT: This a great and interesting question. Currently the U.S. has no official
analogous dialogue that I have been able to find, at least there is none publicly. The U.S., we have
to understand, is at a slightly different stage in the development of its broadband capacity. Of the
top ten nations in penetration, seven are northern European. Korea is the world’s top adopter of
broadband, while the U.S. is only fifteenth. So we’re at a very different stage. Whereas, Europe has
already decided that the internet is a fundamental component of a modern democracy, the U.S., as
a whole, has not come to this decision yet.
I’ll say quickly the Bush Administration, during its time, considered broadband access a luxury so
little attention was paid to its adoption, much less in developing any kinds of guidelines that should
govern ISPs. This, however, is being critically re-examined by the Obama Administration. The

6. Obama Administration has made broadband access a priority, and it has introduced a $7.2 billion
stimulus package to that end. But the debates in the U.S. still revolve around issues of net neutrality
and competitiveness. There has yet to be any serious and official foray into issues such as human
rights. In this, Europe is well ahead of the U.S.
ROBERT BLOOMFIELD: Okay. Thanks so much for giving us the context and background on
human rights in Virtual Worlds, at least the European perspective.
STERLING WRIGHT: You are most welcome.
ROBERT BLOOMFIELD: So thanks for joining us on Metanomics, and I look forward to seeing you
again sometime soon.
STERLING WRIGHT: Likewise, Robert. Thank you so much. Bye bye.
ROBERT BLOOMFIELD: Our main guest today is James Gatto. Mr. Gatto serves as leader for
Pillsbury’s intellectual property group and is co-leader of the firm’s Open Source team and of the
Virtual Worlds and video games team. As I mentioned at the top of the hour, as far as I know, the
only group of its kind. So he has had areas of technical focus, including computer software, video
games, Virtual Worlds, social networks, user-generated content, business methods, internet-related
and e-commerce technology, things like that. So I am sure that our discussion will take us outside
the narrow confines of specific Virtual Worlds. Jim, welcome to Metanomics.
JAMES GATTO: Thank you. It’s a pleasure to be here.
ROBERT BLOOMFIELD: Before we get started, I’m guessing you want to make a disclaimer that
nothing you say here should be taken as legal advice and that you’re representing only your own
opinion, not an official position of Pillsbury. Did I leave anything out?
JAMES GATTO: Very well said.
ROBERT BLOOMFIELD: Okay. Great. I’d like to start by asking you really just some questions
about the practice itself and your role in it. So your background is primarily intellectual property and
patent law, and so I’m wondering is this jump to games and Virtual Worlds a big one for you?

7. JAMES GATTO: Not really. I have been doing intellectual property work for software and internet
companies for a long time. These are in areas--the video games and Virtual Worlds are just one
example or one aspect of work within the software and internet space.
ROBERT BLOOMFIELD: Am I right that you have the only Virtual Worlds and online games
practice in a major law firm?
JAMES GATTO: We’re the only one that we’re aware of that has any real depth in this space.
There are some individual lawyers who do work in some of these spaces, but as far as a team that
really covers the gamut of legal disciplines that are relevant to this area in a major law firm, we
believe we’re the only one.
ROBERT BLOOMFIELD: When you talk about individual lawyers, I know a lot of Metanomics
viewers know Ben Duranske, who has actually guest-hosted Metanomics before and is now one of
your colleagues. So congratulations on picking him up.
JAMES GATTO: Yes. Thank you very much. Yeah, I think it’s been--
ROBERT BLOOMFIELD: Go ahead.
JAMES GATTO: We’re really delighted to have Ben join us, and I think it’s really been mutually
beneficial. I think, in part, Ben joined because we had the team. He certainly has provided
additional depth to the team as well. As you know, and maybe some of the listeners know, that Ben
actually authored the book published by the American Bar Association, entitled Virtual Law.
ROBERT BLOOMFIELD: Yeah. I have read it more than once and definitely recommend it to our
viewers. On your website, you’ve got this long list of the comprehensive services that you offer. Just
for our viewers, let me run through some of these quickly: intellectual property, patents, copyrights,
Open Source, agreements and licensing, corporate advice, privacy and data protection, property
rights, litigation and dispute resolution, financial services including virtual currency, tax issues,
regulatory issues. And then you also have a list of clients, and I guess I’d just like to mention a
couple. We’ve already mentioned MetaPlace, and I know that’s one of your clients. RocketOn I’m
going to talk about a little at the end of the show, another of your clients. So congratulations on
building up a pretty good portfolio. Let me just ask before we get into the substance: How is
business? I know the legal profession has really been suffering over the last year or so. So how is it
in the Virtual Worlds and games area?

8. JAMES GATTO: It’s keeping us very busy. It’s one of the areas that has remained busy and has
actually grown. So the people on the team are staying incredibly busy right now.
ROBERT BLOOMFIELD: Great! Well, good sign for the industry. I’d like to start by talking a little bit
about Terms of Service, and, as we mentioned in the segment with Sterling Wright, Raph Koster
has been quite vocal on the importance of Terms of Service and takes pride in what they’ve put
together for MetaPlace. I know that you can’t comment much on specifics of clients, but what do
you see as being the most important issues regarding Terms of Service, and are there any
MetaPlace terms that you see as particularly notable?
JAMES GATTO: I think when it comes to Terms of Service, the biggest mistake that we see people
make is that they try to copy someone else’s Terms of Service, thinking that if an industry leader,
for example, has a set of Terms of Service that it should be usable by anybody. The reason that
that does not work, well, there’s many, but one of the main reasons is that different Virtual Worlds
have different business models and different legal issues. If you have a virtual currency versus if
you don’t, then different terms need to be included or not included. And, even for the sites that do
have virtual currencies, there’s different models. Some don’t really have a cash-out. Some you can
only use in-world. That’s just one example. But there’s a whole host of issues that need to be
addressed in a Terms of Service, and they each need to be thought through carefully, in light of the
business model of the particular Virtual World and the nature of the activities that will occur in that
World.
ROBERT BLOOMFIELD: Dusan Writer has a question, which I think fits well in a discussion of
Terms of Service, “What do platform owners fear the most when it comes to their legal obligations
and relationships with platform users?”
JAMES GATTO: I think there’s a number of different things that they fear. One is that, if they need
to enforce their Terms of Service to protect their legitimate business interest or to protect their users
from other users, one fear is that, if the agreement is not properly written, that some or all of the
terms may not be enforceable. One example of that, as you may be aware, when Second Life--they
had a lawsuit in one of their provisions. This wasn’t one of the most substantive provisions, but they
had an arbitration provision in their Terms of Service, and it was struck down as unenforceable.
That’s just one example. That was a big one.

9. ROBERT BLOOMFIELD: That was the Bragg case, I believe.
JAMES GATTO: The Mark Bragg case, yes. So one of the things you want to make sure is that it’s
fine to write Terms of Service, and you can put anything you want in the Terms of Service. If it’s not
going to be enforceable, you have a false sense of security. There is a recent case--I think it was
not a Virtual World, but it was analogous in that there was a Terms of Service that enabled the
service provider to change the terms at any time, without even giving notice to the end users, and
the court struck that down as being improper.
So one of the key things that needs to be taken into account with Terms of Service is, you need to
balance kind of what you can do with what you should do and what’s legally permissible and then
making sure you implement it in a proper way.
ROBERT BLOOMFIELD: In our segment on human rights, we talked about some of the powers
that Linden Lab reserves for itself, their right to basically shut down your account and take all of
your in-world assets for any reason or no reason. So is that one that you think would have difficulty
standing up in court?
JAMES GATTO: I think that’s one that’s interesting. And, again, you mentioned the Mark Bragg
case, and, to a large extent, that was a big issue in that case. Of course, that case was settled, and
so there was no judicial resolution on that issue. But Mr. Bragg, one of his arguments was that,
“Hey, I have a property interest here in my virtual currency and assets that I’ve created, and you
just shut down my account and denied me any further access to it, and I couldn’t even get out the
value I previously created.” Whether or not the courts will enforce a provision like that remains to be
seen.
ROBERT BLOOMFIELD: There was a case involving Blizzard, makers of World of Warcraft, and a
company I believe it’s called MDY, that basically made a bot, an artificial intelligence agent that
would grind away at the game and help you level up and get lots of good stuff. And that actually
was resolved in favor of Blizzard. What precedents do you think that creates, and what are the
implications for the games and Virtual Worlds’ world?
JAMES GATTO: That’s a good example of a case where I believe the Terms of Service were fairly
well written. They were clear. They were fair. It was explicit in the Terms of Service that you could
not use bots or other programs, and, in part, the reason that Blizzard had that provision was that

10. there’s many people who play the game for real and play fairly, and they put in the time and effort
that’s required, and that’s part of the challenge of the game. If people don’t want to play against
computer-controlled avatars and they feel like they’re being cheated, Blizzard believes that they
were injured by that because it turned some people off. And the courts found that that was a
legitimate interest that Blizzard had to protect. They weren’t overreaching. They were protecting the
methodology of the game, the fairness and integrity of the game. It was explicit in the Terms of
Service, and MDY violated that, and they were held accountable.
ROBERT BLOOMFIELD: We have a lot of viewers, especially our live viewers, who are actually
running businesses, for many of them full time, and it’s a major part of their income running
businesses in Second Life. I’m wondering what sort of advice do you have for these people who are
relying for their livelihood on a platform with Terms of Service that naturally lean heavily in favor of
the platform developer?
JAMES GATTO: I think it begins with understanding the Terms of Service. I think that many people
never even read the Terms of Service, and I think, if you read it and understand it, you at least
understand what the potential risks are, and you can then make, like any other business decision,
you can make an informed business decision, doing a risk-reward analysis and understand what
the potential ramifications are.
ROBERT BLOOMFIELD: And how about looking at user-to-user transactions, I know that a lot of
the Second Life legal community has been involved in trying to understand the advice that they can
give their in-world clients, in dispute resolutions with other residents, when it might be possible or
appropriate to bring in Linden Lab or whichever World it is, the developer. Is there truly novel law to
be made here and different advice you would give to someone who’s doing business in a Virtual
World when they’re dealing with counterparties?
JAMES GATTO: To some extent yes and to some extent no. I mean many of the traditional legal
principles that apply to any other web-based site will also apply to a Virtual World. There are a
number of areas where, because of the nature of the interaction in Virtual Worlds, there’s ways in
which users can interact, but you can’t interact through just the text-based website, for example.
There can be scenarios where it’s different, but many of the common principles apply. And when
you’re dealing with whether it’s eBay where you have consumer-to-consumer transactions or
consumer-to-business transactions, I think integrity and doing the right thing really is a big part of it.
And when people are cheated or if there’s a legal issue, one of the challenges that have existed so

11. far in Virtual Worlds is that, despite the fact that many people are devoting a lot of time and
resources and generating a fair amount of revenue from these activities in Virtual Worlds, in many
cases, there’s really not enough money at stake to even file a lawsuit. It just is cost prohibitive. So
many of the situations--we get calls from clients all the time, or potential clients, with issues and
problems they’ve had either with selling virtual goods or buying virtual goods or people copying
their wares. And there’s certain things that you can do to help position yourself.
To protect yourself, for example, on the copyright side, if someone is copying your goods and trying
to sell them or selling them or even just distributing for free and destroying your market, one of the
things that we see, unfortunately, is that many times people do not file copyright registrations to
protect their work. In some cases, it’s hard to file copyrights on everything you do. But one of the
big advantages of having a copyright registration filed before there’s infringement is that you can
get what’s called statutory damages, which means you don’t have to prove what your actual
damages are, you can get, by statute, certain minimum damages. And for clients that have
copyright registrations, they’re in a much better position to enforce their rights if people are stealing
their goods or otherwise distributing them without authorization. That’s one example of where
people--and it’s relatively cheap. It’s $45 to file a copyright registration, and, in those cases, once
we’ve helped the client do one or two, they can do most of the rest of them themselves. That’s an
area where you can really help protect yourself by taking steps for prevention that really provide a
lot of available remedy on the back end.
ROBERT BLOOMFIELD: We have a comment from one of our viewers, Gentle Heron saying, “It’s
hard to know what’s copyrightable in this environment.” If I create a building, is that something I can
copyright? If I make virtual clothing in Second Life, is that copyrightable?
JAMES GATTO: Generally any original work of authorship is copyrightable. So if you’re creating
original content, then it generally is going to be at least something you want to consider for
copyright protection. And, if you’re not clear whether it’s protectable or not, that’s a good reason to
call an attorney who specializes in this area. Where you clearly can’t protect things, you can’t
protect kind of functional aspects through copyright. Copyright protects just the creative side. But, to
the extent that you have created something that performs some function, that type of thing is better
protected by patent.
It’s a very good question, and many people kind of don’t really understand where the lines are
drawn between the different forms of intellectual property, whether it’s copyright, trademarks,

12. patents, and they’re not necessarily mutually exclusive. Many times when we work with clients to
put together intellectual property strategy, you’re going to use elements of each to protect different
parts of the Virtual World. And design patents are also relevant as well. Design patents are like
copyrights, but, again, they’re different than utility patents which cover the functionality of what your
site is doing. The design patent covers kind of more the ornamental aspects of screen displays and
things like that.
ROBERT BLOOMFIELD: We have a couple questions here now on patents: Can you patent an
island design? Can you identify what would be patentable within Virtual Worlds? Could you just
elaborate on that a little bit?
JAMES GATTO: Sure. Again, patents protect really more the functionality. You can protect
methodology, functionality, kind of user interaction features. Despite some of the recent cases,
there’s still aspects of patent protection available for novel business methods that are implemented
through Virtual Worlds. There’s various different levels of abstraction, at which you want to look at
your Virtual World and assess where there’s patent protection available. The most valuable
protection is going to be at the highest level, right, the business method and/or the kind of what’s
the overall functionality.
To the extent that you’ve developed tools or written scripts or code that enable you to do things that
maybe are known already, but you’re doing it in a way that’s cheaper or better or faster, you can
also protect things at that lower level. However, those patents are generally less valuable in that
people can write the code a different way and then those patents wouldn’t be infringed. But, if
people replicate functionality and you have kind of functional features of a Virtual World protected,
regardless of how it’s coded, even if people use independent coding, then patents at that level
would be infringed and having those patents can be very valuable.
ROBERT BLOOMFIELD: Just if I could clarify one thing. Are you saying that, if I’m a Second Life
resident and I create an object that maybe has some scripting in it--I’m using the Linden-provided
languages for scripting--I could actually have a patent for that.
JAMES GATTO: Yes.
ROBERT BLOOMFIELD: Okay. Cool. And I’m sorry--
JAMES GATTO: There’s really two questions you need to address with respect to patentability.

13. The first is, is it a type of thing that can be patented, and the answer I previously gave was giving
you examples of kind of the categories of things that can be patented. The second question, of
course, is that even if it’s something that’s eligible for patent protection, is it different enough so that
it would actually be entitled to a patent. So there, if you create something that’s kind of a scripted
object, you have to then look at how similar is it to other objects. And that’s where really the
experience of a patent attorney comes in, to be able to understand is it likely that a patent examiner
will grant the patent for this or will he say the differences aren’t sufficient enough to merit patent
protection.
I was a patent examiner for several years, and many of the folks on my team were patent
examiners, and we’ve a pretty good insight as to what will fly and what won’t fly, depending on the
level of differences and how significant those differences are.
ROBERT BLOOMFIELD: At the platform level, there’s been a very interesting case coming up.
Worlds.com has made some fairly sweeping claims against NCsoft. Pillsbury, your group, wrote a
white paper on that, where in the headline you refer to this case as saber rattling. Can you give us a
little background on what it is that Worlds.com is claiming and what merits you see in the case?
JAMES GATTO: Sure. Just to clarify. So we actually wrote two advisories on this. The first one
was in response to a press release that was put out on behalf of Worlds.com, in which they talked
about the fact that they had hired a law firm, and they were going to go out and enforce this patent,
and that was prior to them filing a lawsuit. And so the saber rattling we were referring to was that
activity. On Christmas Eve of last year, Worlds.com filed a lawsuit against NCsoft, which is a
distributing company many of you may know. And that case was filed originally in Texas. It was
recently moved to California. Worlds.com has a couple of patents, but they’ve only, to my
knowledge, asserted one in that case so far. And, in that case, the patent at issue had a high level
related to limiting the amount of data that has to be sent to any one user relating to avatars within
their vicinity. That’s a very gross over-generalization of the patent, but that’s generally what it
relates to.
One of the issues that will be very significant in this case is, notwithstanding the fact that that patent
was filed a number of years ago, there is a significant amount of prior art that precedes that patent.
And one question will be whether or not that patent was validly granted. [AUDIO GLITCH] we’ve
seen so far, I will just say, without rendering a legal opinion, there is very significant prior art, and
there’s very significant facts that Worlds.com is going to have to deal with.

14. ROBERT BLOOMFIELD: I understand that there’s also a particular issue here peculiar to Virtual
Worlds, which is the problem of split infringement or joint infringement. Can you explain what that is
and why it arises in Virtual World patent disputes?
JAMES GATTO: Yes. This is a very subtle issue within the patent law, but a very important one for
Virtual Worlds, and we’ve seen many patent attorneys who really aren’t focused on this because
we’ve seen many patent issues that have this problem. What the split infringement or joint
infringement issue is, is the following: Typically, to be liable for infringing a patent, somebody has to
perform all of what we cite within what’s called the claim. The claim is what’s at the end of the
patent, what’s defined the legal scope of protection. And it can be in the form of a method, which
would be a series of steps, or it could be, for example, in the form a system, and it could write,
recite the various components that need to be satisfied in order for someone to infringe the claim.
So let’s talk about a [method?] claim, for example. If you recite within the same claim certain steps
that are performed on the server side and certain steps that are being performed on the client side,
there is really no one entity that’s performing all of those steps. And, if that is the case, then there is
no one who’s directly liable for infringing the patent. And a number of people look at this and say,
“Well, that seems kind of like splitting fine hairs.” This is not a new doctrine, but there’s a number of
recent cases that have affirmed this argument, and there’s cases where companies that were sued
for infringement were found not liable by federal district courts under this theory.
One of the arguments the patent owner will invariably raise is, “Well, this is kind of a hair-splitting
argument. Our client really had some innovative technology, and they shouldn’t be punished
because of the way the patent attorney mistakenly drafted the claims not focusing on this issue.”
And the courts have had no sympathy to that argument, basically saying that it’s up to the client and
their attorney to draft the claims properly, and, if they do so, then they’re entitled to pursue
infringement. And, if they don’t, then the courts are not going to essentially rewrite the claims or
ignore the way the claims are written. They’re going to strictly interpret the claims, and either there’s
infringement or there’s not.
So one of the things we’ve done with a number of companies in this space is, they’ve worked with
other attorneys, but they’ve asked us to take a look at--once they find out there’s people who focus
in this space, they have to take a look at their patent portfolio, and we’ve seen this as a pretty
common problem in a number of cases. There’s ways to draft the claims that avoid this issue, if you
know how to do it, and that’s one of the things we do to help clients is make sure we get their

15. portfolio fixed up, if it’s needed.
ROBERT BLOOMFIELD: I read your advisory to Virtual World developers on patent issues. One of
the points that you made you emphasized the benefit of filing defensive patents. Can you walk me
through what those benefits are?
JAMES GATTO: Sure. Let me maybe rephrase the question slightly because the way we normally
get the question asked is, people believe patents can be expensive. They’re not interested in going
out and suing other people so why should they bother filing for patents in the first place. And, as
part of that, there’s a number of reasons that companies would want to file patents, particularly
startup. Sure if you have a patent and someone infringes it, you can sue them. You can also, if you
want, you can license if you have technology and there’s people who want to use that technology,
either in noncompetitive use or other ways, you can license it. And those are the two main things
that people think about with respect to why patents are valuable and important. And those are, in
many cases, very significant ways in which you can use patents.
What a lot of people don’t really focus on is the defensive side of patents, which gets to your
question. The defensive side of patents is, there’s a couple of components to that. The first is, due
to the way the patent laws are written, there is an encouragement for people to file patents, to
disclose their ideas, and to do so promptly. What can happen is, if you have a potentially patentable
idea and you don’t file a patent and someone else does, then there’s a couple of things that can
flow from that. One is, if you ultimately file a patent, you may be prevented from getting that patent
because someone else acted first.
By filing a patent, you essentially cut off others from trying to patent things that you’re working on.
And I’m talking here about things where there’s independent development, not someone copying
you ideas. If someone copies your ideas and files a patent, that’s improper, and it wouldn’t be a
valid patent. I’m talking about like we see happening, you know, there’s many people trying to solve
similar problems, and they’re doing it independently. One defensive benefit is, you prevent others
from getting patents that would prevent you from getting your patent.
The second defensive component to patents is that, if you choose not to file a patent, that’s fine.
You don’t need a patent to go out and sell something. What a patent does, it gives you a right to
exclude others from using what’s covered by your patent. That can work against you. If you don’t
file a patent and someone else does for whatever it is you’re doing and they get a patent, then,

16. once the patent issues, they can actually stop you from doing what you’re doing, within the scope of
their patent. In that situation, you’re not just losing your right to file a patent, you may actually have
a lawsuit filed against you, and that’s a situation you really want to avoid.
One of the things that we see all the time, and this is not just in this space, but this is just in
connection with the patent litigation we do, one of the things that any confident patent law firm will
do: if a client asks you to sue somebody or to look into suing a competitor, of course, you’ll analyze
whether there really is infringement and whether the patent covers what the competitor is doing. But
a second thing that you will do if you feel like there’s a claim, one of things you always want to do is
look at what are the potential counterclaims. And so one of the things we will do is look at what the
competitor’s patents are, to see if they have any patents they could use to countersue our client.
I can tell you from firsthand experience that there are many situations where companies probably
would have gotten sued but they didn’t because they had a patent portfolio they could have used
against the company that was going to sue them. In many cases, the company never even know
they were about to get sued. But having that patent portfolio prevented them from being sued.
Those are some of the ways that--
ROBERT BLOOMFIELD: Basically mutually [assured?] destruction.
JAMES GATTO: Exactly. And, of course, of you do get sued--one last thought I want to say about
it. So if you do get sued and you have a patent portfolio, you have options that don’t exist if you
don’t have the patent. But one of them, of course, is the countersuit, which is the thing that can
create leverage in many cases, to get an early and prompt settlement of the lawsuit and at least
give you some negotiating power. If you’re sued for patent infringement and you have no patent, it’s
like being in a war with no weapons. You really don’t have much to be able to do to create leverage,
to try to make that lawsuit go away.
ROBERT BLOOMFIELD: Okay. We don’t have a whole lot of time left, and I’d like to move on to
some other issues so I apologize. I see there are some great questions about patents, in the
audience, but I do want to make sure that we can talk a little bit about taxation and little bit about
currency. Before we get to those: employer liability. Now employees of big corporations are out in
Virtual Worlds, using it as part of their job, representing their companies. What do you see as the
exposure for employer liability for employee behavior, and what advice would you have for
businesses that are putting their employees into environments like Second Life?

17. JAMES GATTO: There’s a number of very interesting issues here, and most of these have not
been addressed in court yet, so it would be interesting to see how they’d play out. But one issue is,
and this is, in some respects, similar to other traditional areas where an employee is acting on
behalf of an employer or there’s a question of whether they are. To the extent that an employee is
using a Virtual World, depending on what they say, what they do and other facts, it can be such
under the law that they could be deemed to be representing the company in that capacity,
depending on what occurs, if there’s any liability issues that arise, that may flow back to the
employer.
One of the things that many employers are doing now is creating employee usage policies for
Virtual Worlds. Many companies have policies regarding email and blogs and other social
networking devices. This is just an extension of that, and it includes many similar issues, but there’s
also some issues that can be different as well.
So one simple one, to give an example, if your avatar has a shirt that has the company logo on it,
right, is that a portrayal that you’re representing the company as you’re doing this? These are kind
of fact questions that, if there is a lawsuit, will be [relevant?]. If you’re not actually participating in
the Virtual World on behalf of the company, they may preclude you from doing things like that.
That’s just one example.
ROBERT BLOOMFIELD: Okay. We have time for one more question before our closing segment,
and the question I’d like to ask is: We’re not really going to have a chance to talk much about the
tax exposure of Virtual World companies or how Virtual World currency will be viewed by
regulators. My question is a more general one. These are regulatory issues of the United States,
through various federal bodies, including Congress and legislation, is going to have to make some
decisions eventually. How soon do you think we can expect to see Washington taking Virtual
Worlds seriously and stepping up to clarify currency issues and tax issues? And, as a law firm, are
you involved in conversations with the policymakers, trying to shape the future of a Virtual World
policy?
JAMES GATTO: Yeah. So as far as the taking it seriously and focusing on it, I mean that’s
happening now. Congress says there’s been analysis done with respect to tax, for example, and
there’s recommendations that have been made. When Congress may actually implement any
legislation, that’s always anyone’s guess. But it’s an ongoing process; it is being addressed now.
There are also significant investigations going on with respect to you have potential

18. money-laundering issues and things like that. So they are issues that are being addressed right
now, in that the initial investigations and analyses are being done.
As far as our involvement, we’ve had some, I’d say, limited involvement kind of more behind the
scenes. One of the challenges for us in this area is, we have need to be careful that we advocate a
policy, it may help some clients and hurt others. So it’s an issue that any law firm has to deal with,
with respect to policy issues, and we’re very mindful of that. So there’s certain issues that are clear
and are good for all Virtual Worlds, and we try to help out where we can in that regard.
ROBERT BLOOMFIELD: Okay. Well, thanks a lot for answering those questions. I would like to
just point out--I’m looking at the chat, and first I’d like to note that Georgianna Blackburn, who
represents a large corporation in Second Life, she notes, “Legal issues could be a weeklong
seminar, I bet.” I bet that’s true, and I would encourage viewers to go to our website,
metanomics.net, and you’ll see we have a lot of related readings, many of them that are from
Pillsbury Virtual Worlds and online games group website. So that will give you some resources.
And, of course, if you want real legal advice, you have to pay for it. So please don’t take what
people say on Metanomics as legal advice.
We also have someone who is asking a question of whether there are text archives for past
Metanomics shows. Indeed there are. We are in the middle of changing our website, but I believe
many of those, all of them, will be back online very soon. You can email me or contact me,
Beyers Sellers, in Second Life, or just get me at rjb9@cornell.edu, and I can send you a copy.
We’ve actually had a number of shows on legal issues so, if you’re interested, we’ll make sure that
you can get that information.
So, Jim Gatto of Pillsbury law firm, thanks so much for joining us.
JAMES GATTO: It’s been my pleasure.
ROBERT BLOOMFIELD: Okay. It is now time for my regular closing comment, Connecting The
Dots. So to close today’s show on law and Virtual Worlds, I want to talk about a new service that
raises some fascinating new legal questions and, I also believe, may dramatically change our
understanding of both Virtual Worlds and the worldwide web more generally. Last week the
company RocketOn announced its alpha launch of their new service Blerp. Wagner James Au,
writing in GigaOM, refers to Blerp as a social network that looks like it swallowed the entire web.

19. And, as far as I can tell, that’s how Blerp’s developers think of it as well. Well, art critics disagree all
the time, not just with one another, but also with the artists themselves on how to interpret their own
work. And so I’m going to do the same here. With all due respect, I think Mr. Au and RocketOn itself
for failing to appreciate exactly what Blerp may represent.
The key execs of RocketOn, Steve Hoffman and Eric Hayashi, were on Metanomics back in July, to
talk about their original service called RocketOn, which places a transparent layer over any website.
And, as you can see in our video archive of that show, the layer is filled with avatars and interactive
toys and tools. For example, we went to cocacola.com and saw a RocketOn vending machine
dispense soda in cans that looked tantalizingly familiar, but were not, in fact, Coca Cola-branded
cans.
Now rumor has it that RocketOn is having some membership problems, and I wouldn’t be surprised
because I don’t know how much avatars and casual games add in terms of value to web browsing.
But with Blerp, I think the makers of RocketOn are onto something. Blerp isn’t a social network that
swallowed the web. Rather, it’s a Virtual World based on user-generated content layered over the
web. This is a big idea, bigger than Steve and Eric seem to think. And, to make my point, let’s
imagine that we’re creating a Blerp layer for the Metanomics community. It might work like this:
Anyone who joined our Metanomics group in Blerp would be able to go to any page on the web and
see commentary from any other members on any website, with videos, links to related stories,
voting tools. How about the technology section of the New York Times. Click on a link and see a
window for comments from the Metanomics community. See the related videos. That sounds pretty
much like a social network.
But let’s take it a step further. Now let’s go out and hire experts to provide content: journalists,
venture capitalists, insiders. We pay them not just to write commentary, but also to construct guided
tours of websites so someone who’s interested in Virtual Worlds or some related topic can be led
by the hand, by an expert, through content that already exists on the web. Well, once we talk about
hiring experts, we’d better have a revenue source, and, fortunately, Blerp provides us with a very
handy tool. We create new widgets that will cover up the ads in the sponsored links that are on the
websites we direct our members to, and we also direct them to revenue-generating content of our
own. So Blerp now isn’t sounding a whole lot like a social network to me now. No, it sounds to me
more like a customizable web experience that is controlled not by the people who created the
websites, but by someone who’s intercepting all of that content and imposing their own vision on it,
and their own ads.

20. Now Metanomics is a small community, but we can think bigger. What if every large politically
oriented group creates a Blerp layer with content on news and opinion pages written by your friends
and their foes? Arm your community with talking points by allowing them to go to a candidate’s
website and see point-by-point responses to everything on it. Oh, and, of course, plaster your
opponent’s site with ads for your own cause, with pay-per-click links lining your own pockets, not
theirs.
So with good content written by people with some star power, it’s not hard for me to see people
preferring a Blerped web experience to an un-Blerped one. So this leaves me with a few questions.
First, can Blerp execute their software well enough to be a mainstream success? If you take a look
at the comments on articles written about Blerp on TechCrunch and GigaOM, you see that the
dustbins of venture capitalists’ offices are filled with services that promised something similar to
Blerp. One commenter, Wayne Yeager, says, “This is one of those good, obvious ideas that has
thwarted everyone who’s tried it.” So this is clearly all easier said than done. It will be interesting to
see if Blerp can pull it off.
My second question is: What legal challenges are we going to see? My understanding is that
Blerp’s developers and users are well within their legal rights to follow the business strategy I’m
proposing, even though it has basically the effect of pirating content and modifying it with no
permission from the creators. But it’s legal because the user has explicitly opted in to see this
customized experience. If Blerp takes off, I don’t imagine websites that are aggressively targeted by
business or political competitors are going to sit on their hands. I’d asked today’s guest, Jim Gatto,
about the legal challenges we’re likely to see, but, as he represents Blerp, he isn’t in a position to
address these questions publicly.
My final question: Are internet users prepared to hand tremendous power and personal information
over to yet another service? Viewing the web through a Blerp layer means sharing your entire travel
history with Blerp’s makers and quite likely sharing it with the unknown users who created that layer
as well. How ready are users to take this possible risk to privacy and security? Well, if you watched
last week’s show about the widespread ignorance of cybersecurity issues, you’ll probably agree
with me that most people won’t think about it twice or even once.
So, wait, I do have one more question: Blerp, you had to call it Blerp? If this service does get
traction, I look forward to hearing stories from all of you Metanomics viewers about how you

21. explained to your CFO that she should spend money to create a team of Blerpers or explain to your
campaign managers that it’s either Blerp or be Blerped. I understand Linden Lab’s founders were
advised not to use the name Second Life because it just begged people to say Second Life is for
people with no first life. I think the name actually has been a hindrance, for both consumer and
enterprise adoptions. Blerp has real potential for serious business applications. Perhaps they’ll
have a chance to re-brand themselves before it’s too late.
Okay, that’s all we have for this week. Join us next week for a conversation with Mitzi Montoya,
assistant dean at North Carolina State University’s Business School, and an expert in virtual teams
and how businesses are using Virtual Worlds to help virtual teams operate. We’ll kick off with some
insights from Enterprise Learning correspondent, Tony O’Driscoll. The following week, June 3rd,
we’ll have anthropologist Thomas Malaby on, to talk about his new book Making Virtual Worlds:
Linden Lab and Second Life.
This is Robert Bloomfield signing off. Take care. And I’ll see you next Wednesday.
Document: cor1059.doc
Transcribed by: http://www.hiredhand.com
Second Life Avatar: Transcriptionist Writer