Virtual property and contractual issues in the virtual world

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Dentons

[co-author: Ertuğrul Akıncı]

Today, we live in a world surrounded by virtual reality. Virtual reality is commonly used in advertising, video games, cinema, entertainment, education, training, simulations, architecture, engineering and the defense industry.

Applications of virtual reality in the entertainment industry can give rise to several legal questions that need to be addressed when determining the relationship between stakeholders, especially when the transaction volume in the virtual world and virtual market trades are considered. In this article, we address some of the questions that may become important in the virtual world.

Virtual property and ownership issues in a virtual world

The legal characteristic of virtual items are subject to debate under Turkish law. It is widely accepted that, as an intangible asset, virtual items do not qualify as a “property” under property law. On the other hand, virtual items can be protected under intellectual property law. For instance, the environment, story line, dialogues, maps and other items in the virtual reality created by an author can be protected under copyright law, provided they meet the originality requirement.

Who owns the characters created by users in the virtual world? In certain virtual reality environments, especially in online role-playing games, users are allowed to create characters, shape their abilities, direct their stories; and, the users experience the virtual environment through these characters. Do the rights connected with the characters and the items in these characters’ inventory belong to the creator and/or operator of the environment, or, do they belong to the users that created these characters? These questions become relevant especially where the users sell or otherwise dispose of the characters outside the control of the environment’s operator. These questions can be tackled from two opposite points of view:

  • The users can argue that they invest time and effort in the environment to create and find these virtual items and the characters; and, the characters, in some ways, reflect their choices and originality. Therefore, it can be claimed that the user-created characters are derivative items based upon an existing environment and the user that created the character holds the rights in such derivative items.
  • Conversely, the environment operators can argue that they created the environment that allowed the creation of the virtual items and characters by the users. The creators/operators of the environment have made possible all of the choices the users can make and the users can only make choices that were foreseen and defined in the environment. Hence, the characters created by the users do not qualify as derivative items, since the user’s area of independence in creating them is limited by the environment and they do not meet the originality requirement under Turkish law.

Contractual relationship between the stakeholders

Depending on the subject matter of the contract, contracts between stakeholders can qualify as a license agreement, production agreement, sales agreement etc. Below we have briefly analyzed certain types of contracts that are often concluded by the virtual environment stakeholders.

  • Contracts between third party providers and environment operators: The operators of the environment do not always produce each item in-house and they sometimes outsource certain aspects or functions to third party providers under a contract. In these contracts, it is essential to address the necessary economic rights to avoid future copyright claims by the third party providers, and to have adequate defense mechanisms (such as an obligation to cooperate in case of disputes or to provide necessary evidence to allow the operator to defend itself before courts, panels or tribunals) and indemnification schemes in case of third party copyright claims.
  • Contracts between the environment operators and users: The operators usually prepare an End-User License Agreement (EULA) and make users accept its terms and conditions before experiencing the environment. Under Turkish law, non-negotiable terms and conditions drafted unilaterally by one party may be deemed invalid where they have adverse effects on the counterparty against the principle of good faith. It is therefore important to consider that certain provisions in a EULA will not be binding on the users where they are against the principle of good faith and adversely affect the users.
  • Contracts between users: The users often make their characters or the items in their characters’ inventory subject to transactions inside or outside the virtual environment. The volume of these transactions has become an important part of the environment and economy of virtual games.The environment operators usually wish to prevent these user-to-user transactions taking place outside the environment. For this purpose, they add clauses in EULAs to prevent the sale of characters and items. The validity of these clauses can be debated, since they can adversely affect users and prevent them exercising their rights in their characters (if the approach granting the right ownership to users is taken).

Governing law and jurisdiction issues

In a digital world, digital contents can be illegally copied, communicated to the public or otherwise distributed with several clicks of a mouse within seconds from anywhere in the world. Fighting piracy and infringement of rights, including copyright, on the Internet becomes more and more important for right holders each day. Enforcement of rights on the internet, where huge amount of data are exchanged across the world every second, is another challenging subject. This is also the case for virtual environments.

Having created a virtual environment and making it accessible from multiple territories via the Internet increases the risk of right infringements. Environment operators should therefore include provisions in their EULAs to prevent their rights being infringed and the copyright material being unlawfully copied, distributed, modified, adapted, displayed, communicated to the public.

Jurisdiction and determination of competent authorities before which the dispute should be brought is another challenge that needs to be considered where multiple jurisdictions are involved. In case of a contractual relationship between the parties, they may have chosen the law governing their contract and the dispute resolution mechanism applicable to their disputes. In the absence of such a choice, international treaties and local rules for determining the law governing the relationship between the parties and competence of courts should be further evaluated.

Determination of the law governing the contracts taking place between the users is another challenge in the absence of an explicit choice by the parties. According to the rules of conflict of laws under Turkish law, the characteristic nature of the obligations of the parties in each specific agreement as well as the parties’ countries of residence will play a major role in determining the applicability of Turkish law in such agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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