May 4th, 2007 by Benjamin Duranske
The dirtiest little legal secret in Second Life isn’t virtual escorts, illegal gambling, ponzi schemes, or even money laundering — the secret is this: misappropriation of major corporations’ trademarks in Second Life is so ubiquitous, so safe, and so immensely profitable, that it has become a wholly transparent part of Second Life’s bustling commercial landscape.
Here are a handful of numbers gathered May 4, 2007, that begin to illuminate the scope of the problem:
- There are at least 16 shops in Second Life advertising “Ferrari” cars. One model sells for L$1995 (approximately US $7.75). Ferrari does not have an official presence in Second Life.
- At least 40 stores in Second Life advertise virtual “Rolex” and “Chanel” watches, averaging around L$350 (US $1.61). Neither Rolex nor Chanel runs any of these stores.
- There are more than 50 stores in Second Life carrying virtual sunglasses branded “Gucci,” “Prada,” “Rayban,” and “Oakley.” Each pair is priced around L$125 (US $0.75). None of these stores appears to be owned, sponsored, endorsed, or licensed by any of these companies.
- The term “Gucci” alone generates 106 hits in Second Life classifieds, referring shoppers to stores selling virtual versions of nearly every hot product the company makes, including shoes, handbags, and clothing. “Vuitton” generates 39 hits. “Abercrombie” gets 30. “Timberland” gets 26. None of these stores appear to be affiliated with the company behind the name.
- “Nike” holds the record, generating 186 hits, many of which link to stores where shoppers can find avatar shoes bearing the company’s distinctive swoosh. Nike itself does not sell any of these shoes.
- Even geek-darling Apple isn’t immune. A half-dozen stores in Second Life sell virtual “iPods” for avatars. Some add copyright infringement, preloading the unlicensed “iPods” with songs from artists ranging from Michael Jackson to Gwen Stefani. Apple is not behind these stores.
- Of ten randomly selected “shopping malls” found in Second Life’s classifieds, seven had stores selling goods that exhibited obvious trademark infringement. Several stores VB visited for this piece appeared to sell nothing but unlicensed brand-name goods.
This past March, about 11,500,000 transactions took place within Second Life. There’s no way to know exactly how many involved knock-off goods, but a quick overview of in-world shopping areas reveals that well over 1% (probably closer to 3-5%) of the goods for sale in-world carry unlicensed trademarks. For the sake of argument, let’s be conservative and say that about 1% of the transactions in-world involve unlicensed trademarks. That’s about 115,000 instances of profitable, in-world trademark infringement in March, 2007, alone. Projected out, around 1.4 million transactions a year.
Using an average transaction value of $1.50 (less than the current, saturated-market price of a knock-off Rolex) we’re in the range of US $2m in transactions involving counterfeit goods in Second Life every year. That’s quite a bit of money, but it isn’t that much that any individual business is leaving on the table. At least not yet. So why should a company care, right now?
Two reasons — one is legal, and the other is practical.
The first is a legal concern: trademark law requires that companies holding trademarks actively enforce those trademarks in the event of infringement; failure to do so can ultimately result in loss of registration for the marks. Moreover, the more trademark dilution is tolerated by a company, the harder it is to later argue that any particular infringer should be enjoined.
Trademark attorney Gregory Guillot explains: “When marks are appropriated unlawfully by unlicensed third parties, consumers are likely to become confused regarding the source or origin of goods or services. Trademark owners should take steps to discover, and prosecute, adverse users. A trademark owner’s failure to prosecute known infringers of a mark, may result in a finding of abandonment of trademark rights.”
The second concern is more practical. Even though a company may not want to enter a virtual world right now, it is only prudent to protect the option.
Some people (including this author) believe that having a virtual world presence will soon be as normal as having a web address. That opinion is no longer just out on the fringes, either. This week’s biggest virtual world news story was Gartner’s prediction that 80% of internet users will have some sort of virtual world presence by the year 2011.
Sure, even if the metaverse evangelists are right, that doesn’t mean a company has to move into this space today. On the other hand, smart companies will at least pay attention to what’s going on here, and should move to keep others out of their future virtual space. It will be much harder for a business to distinguish itself when it does decide to move into a virtual world if it is competing against hundreds of established knock-off vendors.
Second Life designer Linden Lab’s official policy (registration required) on trademark infringement addresses this question as follows:
Linden staff generally removes content that uses trademarks without apparent authorization, with or without giving notice to the object owner. This generally includes all RL corporate logos and brand names.
It is often difficult to tell what may or may not be trademarked. However, use of designer logos and brand names without permission, such as Gucci, Nike, Louis Vuiton, etc., are usually not acceptable.
Linden Lab has a well-deserved reputation for respecting intellectual property. Obviously, it doesn’t support trademark infringement. But it is equally as obvious that the explosive growth of Second Life has overwhelmed Linden Lab’s ability to devote sufficient resources — likely any resources — to this issue. Consider that the list of examples of marks that are “usually not acceptable” matches the biggest subjects of infringement almost perfectly. This isn’t really a criticism of Linden Lab; in the real world, the government doesn’t police trademark usage on companies’ behalf either.
As in the case of real world trademark infringement, it is up to the officers of concerned companies themselves to take steps to protect their companies’ intellectual property in virtual worlds. And it is this author’s opinion that businesses will need to begin paying close attention to the problem of trademark infringement in virtual spaces much sooner than they think, if they wish to avoid legal and practical difficulties later.
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