Lawsuit against Second Life brings real world problems

virtual world lawsuit Second LifeA group of gamers is looking for real money from the creator of the virtual world Second Life, charging fraud and false
advertising because of changes in how land is held in the game.

In Second Life -- and in online role playing games like World of Warcraft -- players create their own characters called avatars that they use to move about a virtual 3-D space. As Second Life avatars, residents -- as the players are called -- can do anything including run businesses, go to concerts, play sports, create or buy products, and talk and interact with others from around the globe. They can also buy land using Second Life currency bought with real money.

It's the issue of who is the ultimate property owner that's in dispute.
The lawsuit, which seeks class-action status, was filed last month in federal court in Pittsburgh and asks more than $5 million in damages from San Francisco's Linden Research Inc., also known as Linden Lab. The lawsuit says the company and its founder, Philip Rosedale, told players they would own virtual land and the content they created and then later changed the terms of the service agreement that they did not own the land.

"Ours is a case where our claims focus on consumer protection statutes," said attorney Robert A. Bracken, who told Consumer Ally that Linden Lab switched from saying, "you own this virtual property" to saying a resident owns a license to use the property. Players must have premium memberships to be able to buy land.

Four people are the main plaintiffs -- Carl Evans of Pennsylvania, Cindy Carter of Wisconsin and Donald and Valerie Spencer of Florida. Between 2006 and 2008, all of them bought land and other items in Second Life and each claims Linden Lab took the virtual land and items without compensation and then terminated their access. The lawsuit also says the company duped customers into spending more than $50 million and "likely more than $100 million" for virtual land as well as "significant monies" for virtual items "that they believe they own, but do not truly own."

Linden Lab's current terms of service, which became effective April 30, says that when residents acquire virtual land, they are getting a limited license to access the land features on the company's computer servers. It also states that if data is lost because of server problems, the company isn't liable for the lost content. Each player must agree to the terms of service before gaining access to Second Life.

Bracken says the case is awaiting a response from Linden Lab, although there is no time deadline for responding to the lawsuit. A decision hasn't been made yet on the class-action status.

A Linden Lab spokeswoman declined to comment to Consumer Ally on the lawsuit.

Virtual worlds are big business, with Linden Lab claiming in a statement in September that its residents have bought $1 billion in goods and services from other Second Life residents. Other virtual worlds, too, are blurring the line between reality and virtual space, including one that offers the potential of investment earnings paid out in real money.

Another virtual world company that is selling things to its users is Utherverse, which is allowing people to buy its currency as an investment. Utherverse, which isn't being sued and isn't part of the Linden Lab lawsuit, offers to pay interest -- as high as 8% -- and send a check you can cash for real dollars. Sounds tempting, doesn't it?

Here's how it works:
  • If you buy 1,000 rays (the Utherverse currency), provided you're a VIP member ($20 a month) or a Universal VIP member, you automatically start earning interest. To buy 1,000 rays will cost you about $75, as in 75 real dollars. That money then sits in an account and earns 6 to 6.5% interest.
  • If you buy 5,000 rays (for $375), you'll get 6.5 to 7% interest.
  • If you buy 10,000 rays (for $750), you'll receive 7 to 7.5% interest.
  • And if you're a really big spender and purchase 100,000 rays (for $7,500), you'll get 7.5 to 8% interest.
On that last point, if you really invested $7,500 as a Universal VIP member, getting that 8% interest would mean, according to Utherverse CEO Brian Shuster, you would earn $600 in a year.

Shuster says that he suspects in most cases, members are going to invest just enough to help pay for the membership fee at Utherverse, which is just fine with him. While theoretically one might be able to earn a lot of money through this, it's really an investment tool for someone who is really into the virtual world scene. He didn't design this for a serious investor.

That said, it is a risk to do any serious investing with Utherverse, if for no reason because the bank in the virtual world of Utherverse isn't FDIC-insured.

Shuster himself has previously gotten in trouble with the U.S. Federal Trade Commission. In 2000, the FTC had alleged that Xpics Publishing Inc. and its principals, Shuster and Mario G. Carmona, offered free viewing or trials to adult websites where consumers were required to provide credit card information to verify their ages. However the credit cards were billed soon after the consumers registered. The FTC required refunds be given to consumers whose credit cards were billed even though they canceled or in some cases never subscribed to a membership.

UPDATE (5/7): Utherverse CEO Brian Shuster contacted WalletPop to comment on both the article and his company's issues with the FTC.

"When the FTC came in, they had all of these allegations that they published. We had gone from a nobody to a company in 18 months that was doing $150 million a year, and their thought was that they have to be a fraud. But by the time the investigations were over, they were totally proponents of my company," Shuster said.

According to Shuster, while Xpics agreed to refund money to consumers who felt they were improperly billed, nobody ever claimed any refunds, and with numerous banner ads on various sites, letting customers know that they could get their money back, there was certainly an opportunity to learn about the settlement.

Shuster said he didn't think it was fair to be included in an article mostly about Second Life.

"I don't know if somebody has it out for us, but to create this guilt by association is really frustrating," said Shuster. "The implication is that we're doing something that is going to get us sued, or should get us sued, and that's totally inappropriate."

Writer Linda Doell has been an active Second Life resident since 2007 and does have land there (the land info lists her as the owner) for which she pays a monthly fee to Linden Lab.

Writer Geoff Williams contributed to this report.
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