I’m just reading the latest in the Bragg vs. Linden case. I didn’t realize that Bragg was also including Philip Rosedale personally in the suit. Apparently Philip filed a motion to dismiss based on lack of jurisdiction, and Linden filed to compel arbitration but the judge has denied them both. This has incredible implications for the Terms of Service of virtual worlds, and I bet there is a lot of concern over at Linden right now.

Apparently, in order to have personal jurisdiction over Rosedale, the court needed proof that Rosedale interacted substantially with the forum that the court has jurisdiction over. In this case, that’s eastern Pennsylvania. Judge Robreno ruled that the fact that Rosedale had personally engaged in a national effort to induce people to buy property in Second Life and even made himself available for interaction via his avatar in SL (Bragg claims to have been at a “town meeting” style meeting in which Rosedale talked about buying land) together come together to create sufficient action within the forum/state such that the court can have personal jurisdiction over Rosedale.

I’ll admit that I don’t spend my days reading court cases for the most part so perhaps this isn’t odd but the way I read it, the judge sounds very hostile to Rosedale and Linden. He writes, of Rosedale,

“He was the hawker sitting outside the circus tent, singing the marvels of what was contained inside to entice customers to enter.” Ouch. Rings a bit true though.

The arbitration bit is also interesting. Agreeing to arbitration is part of the Terms of Service for using Second Life, and Bragg admits he clicked ‘accept’ on the ToS screen before accessing SL. The judge launches into an attack on multiple parts of Linden’s ToS, saying that they represent a contract of adhesion by virtue of the one-sidedness, the inability to negotiate an alternative with Linden Labs, and the fact that Linden’s ToS says arbitration only for the customer, but that Linden can ban people at any time, for any reason (that is effectively what virtually every ToS for every MMO says).

(At that point, I started getting a little scared as a virtual world operator but Judge Robreno does mention a couple times that Second Life is distinct from most other virtual worlds in that it explicitly tells people they can make money with the service and that they own the things in the service.)

His conclusion regarding the arbitration clause in the ToS reads:

“When a dispute arises in Second Life, Linden is not obligated to initiate arbitration. Rather, the TOS expressly allows Linden, at its “sole discretion” and based on mere “suspicion,” to unilaterally freeze a participant’s account, refuse access to the virtual and real currency contained within that account, and then confiscate the participant’s virtual property and real estate. A participant wishing to resolve any dispute, on the other hand, after having forfeited its interest in Second Life, must then initiate arbitration in Linden’s place of business. To initiate arbitration involves advancing fees to pay for no less than three arbitrators at a cost far greater than would be involved in litigating in the state or federal court system. Moreover, under these circumstances, the confidentiality of the proceedings helps ensure that arbitration itself is fought on an uneven field by ensuring that, through the accumulation of experience, Linden becomes an expert in litigating the terms of the TOS, while plaintiffs remain novices without the benefit of learning from past precedent.

Taken together, the lack of mutuality, the costs of arbitration, the forum selection clause, and the confidentiality provision that Linden unilaterally imposes through the TOS demonstrate that the arbitration clause is not designed to provide Second Life participants an effective means of resolving disputes with Linden. Rather, it is a one-sided means which tiles unfairly, in almost all situations, in Linden’s favor. As in Comb, through the use of an arbitration clause, Linden “appears to be attempting to insulate itself contractually from any meaningful challenge to its alleged practices.”

The Judge allows that the fact that Bragg is himself an experienced attorney mitigates the concerns with procedural unconscionability somewhat but writes that “because the unilateral modification clause renders the arbitration provision severely one-sided in the substantive dimension, even moderate procedural unconscionability renders the arbitration agreement unenforceable.”

So there we have it. The ToS is not a holy document in Second Life and it is hardly a stretch to say that much of the same logic can be applied to the ToS of many virtual worlds. I just hope that whoever hears the next case on a ToS is going to be willing to make a distinction between worlds offered for entertainment and worlds in which people can make investments into (which should and will be regulated). I can’t help but feel that this is an extremely important ruling for virtual worlds (for good or ill depending on your point of view, most likely), and the case hasn’t even really begun yet.

Edit: Raph has blogged about it too.