Wednesday, December 27, 2006 - The Progress & Freedom Foundation Blog

More on Virtual Reality & Property Rights

In a few of my previous essays, I've been wondering about the future of virtual reality worlds and specifically how property rights might get defined within those worlds. Alan Sipress of the Washington Post penned an excellent story yesterday on this subject which I thought I'd bring to your attention. In his lengthy front-page story, "Where Real Money Meets Virtual Reality, The Jury Is Still Out," Sipress notes that:

"As virtual worlds proliferate across the Web, software designers and lawyers are straining to define property rights in this emerging digital realm. The debate over these rights extends far beyond the early computer games that pioneered virtual reality into the new frontiers of commerce. ... U.S. courts have heard several cases involving virtual-world property rights but have yet to set a clear precedent clarifying whether people own the electronic goods they make, buy or accumulate in Second Life and other online landscapes. ...

The debate is assuming greater urgency as commerce gains pace in virtual reality. In Second Life, where nearly 2 million people have signed up to create their own characters and socialize with other digital beings, the virtual economy is booming, with total transactions in November reaching the equivalent of $20 million. Second Life's creator, Linden Lab, allows members to exchange the electronic currency they accumulate online with real U.S. dollars. Last month, people converted about $3 million at the Lindex currency market."

I think it's clear that as "virtual" commerce becomes a bigger business, two things are going to happen: (1) A lot of virtual worlders are going to start calling upon real world laws and property concepts (including intellectual property) to be extended to their virtual environments. (2) As they do so, governments will take advantage of these calls to also extend regulation and taxation to these worlds.

How should virtual worlders respond? One possibility might be something like the Internet Tax Freedom Act (ITFA) model. Over the past ten years this law has done a reasonable job of holding the line on new state and local taxes on Internet activities. So, perhaps a "Virtual Reality Tax (and Regulatory) Freedom Act" might be the answer here. But would policy makers be willing to endorse such a moratorium while also extending protection for property rights, contracts and copyright in those virtual worlds? That's the tricky question here.

posted by Adam Thierer @ 9:41 AM | E-commerce