Virtual worlds are starting to generate big business, but does this represent an opportunity for law firms, asks Rupert White?

This is how most articles on Second Life start: some kind of estimate of the enormous amount of money changing hands daily, more numbers on how many more members join each month, and an assertion that this indicates that Second Life, and by extension all virtual worlds, now means business, both literally and figuratively. This feature will not start like that.

Second Life is what is known as a virtual world – a delimited graphically represented 3D environment in which Internet users, represented by their ‘avatars’ (digital version of themselves), can move around and communicate with each other, and create and consume items and services from one another, such as audio-visual media and digital artefacts.

Second Life is not the only virtual online world. It is simply the one that has, so far, won the marketing war for press coverage. Some say that getting itself into Business Week last year was the tipping point, others argue that its unique selling points of user-controlled and created intellectual property (IP) and high-quality environments have let it rise to the top of the media melting pot. It is unlikely either could be proved true, in the same way that proving real, hard user numbers for virtual worlds such as Second Life is a slippery business.

The statistics that magazines and newspapers quote are issued by Linden Labs, the company behind Second Life. These figures would be impressive in any business endeavour: $9 million transacted ‘in-world’ in October 2006, for example. And where there is business, there must surely be litigation.

At the end of last month, City-based Field Fisher Waterhouse (FFW) became the first UK law firm to open a virtual office in Second Life. It is a simple affair which, according to those who design in-world spaces, is a good thing in terms of stability of user experience. But as a toe in the water for UK law firms, it represents a test of mettle: is a firm prepared to put up with the potential opprobrium that might come from one’s peers from embarking on such a venture? Might it not end up looking like someone’s dad at the school disco?

Some think so. Nearly Legal, a blog written by an anonymous trainee, called the move ‘just wrong in so many ways’. Nick Holmes of Infolaw agreed with this on his Binary Law blog. ‘A number of big corporates have come a cropper by jumping on the blogging bandwagon, misunderstanding it and misusing it,’ he wrote. ‘By all means experiment on Second Life, but getting it wrong is a distinct risk, and there are other ways to show potential clients you know their business.’

But it is this need for experimentation, to work out what might be in it for law firms, that is a primary reason to do it, says David Naylor, a partner at FFW.

‘We’re in it as much to learn and understand the environment as anything else,’ he says. ‘I don’t think there’s any prospect at all of us being able to advise clients of what the issues are if we don’t understand how the system works, what the nature of the assets is, the trade that’s taking place, where there might be IP infringement, what Linden Labs’ terms are, or how the community behaves. You have to understand all of this before you can credibly say to clients that you can advise them on these things.’

Being first into the virtual realm is also, Mr Naylor admits, a good marketing deal. It has certainly generated column inches, but that could always lead to the type of negative coverage Mr Holmes alluded to.

Virtual worlds may represent a future of the web that we cannot yet see. Before email, it was very hard to imagine how much it would transform business. Now law firms cannot function without it. The web is really a subset of the Internet, but advertising on it last year outstripped advertising in print in the UK. Ten years ago the idea that online could even make money seemed far-fetched.

Richard Edwards, an analyst at research firm Butler Group, says virtual worlds, in one form or another, will be similarly surprising. ‘I wouldn’t be surprised in the future if virtual worlds are as big a shake-up as the web was,’ he says. Every five years there has been some kind of step change in the way we use computers, he adds – email, the web and now virtual worlds. ‘By the end of the decade the web will seem quite passé,’ he says. ‘Just as people built home pages for Web 1.0, we’ll perhaps see people building their own pads in Second Life.’

Richard Kemp, a long-time technology and law expert, and a commercial partner at City firm Kemp Little, agrees that virtual worlds do draw some picture of the future.

‘Second Life is a great illustration of the way gaming and avatars are becoming a integral part of Web 2.0,’ he says, ‘It’s likely to be successful and grow substantially, plus it’s fun if that’s where you want to be.’ But, he adds, it is not yet attracting the kind of corporate possibilities that would make Kemp Little build an office there, though the firm is considering other ways it can learn what it could gain from being in-world.

But this potentially explosive growth brings with it potentially explosive problems. As people started to use the Internet, says Mr Edwards, there was a whole new opportunity for them to copy and steal digital work. ‘Second Life is exactly the same,’ he says. ‘In some ways it’s an Internet application, just different to the web. We have to see it as that. If we look at the Internet, email is an Internet application and there are issues with that. The web has issues. Second Life is just another application that sits on the Internet.’

Those issues might be the vast and seemingly unstoppable quantity of spam in people’s inboxes, or the increasing amount of online fraud and theft. Recently, there was uproar in Second Life when hackers released code that allowed users to copy ‘protected’ digital products created by members. That protection was a core attraction of Second Life.

For a law firm, of course, this could be good for business. And it is not as if FFW is the first law firm in-world – there appear to be at least nine real-world firms in Second Life, mostly from the US. New York Law School also has a sizeable presence. Mr Naylor says there are potential sources of work in Second Life that pertain particularly to their environment, which would apply to any other virtual world.

‘Are there sufficient IP and trade mark infringement issues in-world for that to be something for law firms’ clients to be concerned by, and therefore for them to need law firms help? The short answer is yes,’ says Mr Naylor. ‘The environment is rife with IP infringement &150; that’s another reason why I think we need to be there, because we have some major clients who are likely to want to get to grips with that.’ This is despite Linden Labs’ best efforts to police Second Life and stamp out abuse. It says IP rights are enforceable both within the game and out in the real world.

As more people journey to virtual worlds, they will encounter the same problems any community suffers, but with the added immediacy and interconnectedness of the web. There are implications for privacy and data protection, says Mr Naylor, and they take forms that we have not seen before.

‘There are people bringing out technology that allows you to fit pictures to your avatar. I think the idea is that you’ll fit your own picture to it, but there’ll be an awful lot of Cindy Crawfords and Tom Cruises walking around,’ he says. ‘This either invokes rights of privacy or rights of publicity. If I’m Scarlett Johanssen, it doesn’t mean I’m going to be happy for two million people in Second Life to be using proprietary images of me.’

The IP and trade mark infringement, in-world libel and business-brand impact issues exist in virtual worlds such as Second Life, and they are not going away. To prove it, this article will end with some statistics, because it is where they belong.

Linden Labs claims there are now more than six million ‘residents’ in Second Life, though most reports say that fewer than tens of thousands are ever online simultaneously. Even Linden’s statistics say that, in the past month, just over a million members logged on, which may represent a truer number of ‘real’ individual residents. This is still a lot of users. Second Life’s population grew by about 30% a month in 2006. Its economy grew by 12% a month and has grown by 287% a year. Competitors such as Active Worlds and There are also growing fast.

This may not mean there is a huge profit margin waiting for law firms in-world right now. But the potential, and potential impact, of these virtual worlds are now unavoidable.