Wednesday, March 19, 2008
I think not. I was happy to get a comment on my last post, and the commenter suggested that the category "intangible" will disappear with respect to "virtual" money. I had two thoughts when I read the comment: first, "hmm, isn't all money virtual?" and second, "oh gosh, I need to write another post!"
The question I posed in that last post was "what can virtual property do for property?" and I hope to suggest some answers to that question in this and future posts. One thing that virtual property might do for property is to lure people away from thinking of "intangibles" as a property category. There are many different types of intangible assets, and lumping them together into a single category can impede the development of the law. I explain this point in more detail in my article, "False Categories in Commercial Law: The (Ir)Relevance of (In)Tangibility." Joshua Fairfield took a big step in the right direction when he defined "virtual property" as an asset class in his article, "Virtual Property." In that article, he describes "virtual property" as property that is "persistent, rivalrous and interconnected."
A well-known conversion decision illustrates the problem of viewing tangibility as the defining characteristic of an asset. That decision is the Ninth Circuit's decision in Kremen v. Cohen, 337 F.3d 1024 (2003), the "sex.com case." In that case, the domain name registrar, Network Solutions, had followed bogus instructions to transfer sex.com (then the most valuable name on the Internet) from its original registrant, Kremen, to Cohen, who had no rights in the name. Under the applicable California law, an intangible asset can only be converted if it is merged in a document. Therefore, a share of stock evidenced by a paper certificate can be converted, as can a negotiable instrument such as a promissory note.
Network Solutions had behaved outrageously, and the Ninth Circuit did the right thing in saying that it had converted the domain name. The process by which Judge Kozinski reached that conclusion, however, doesn't do much for the development of property law. To find Network Solutions liable, the court had to find that the name WAS merged in a document. The problem with that approach is that there's no tangible document involved in domain name registration. Registration is completely electronic, and once the name is registered, it goes into the Domain Name System, which is also not only completely electronic, but is also distributed among a number of places. Nevertheless, the court found that sex.com was merged in a document, the domain name system!
Why is the decision in Kremen a problem? Because it focuses on the wrong characteristic of a domain name, its intangibility. By doing so, the court engaged in strange mental gymnastics to find that an electronic, distributed system is a "document" for the purpose of a conversion action. But why is a document so important to conversion anyway? Take a promissory note as an example. A promissory note is a reified right to payment, and that right is commonly transferred by negotiation, which involves physical delivery. If a person takes a note from its rightful owner, that person can exercise control over the payment right, to the exclusion of the rightful owner. In other words, a promissory note is rivalrous.
Likewise, a domain name is rivalrous. When Network Solutions tranferred sex.com to Steven Cohen, Gary Kremen, the rightful owner, could not use it. There can only be one sex.com domain name. The court in Kremen v. Cohen declined to extend the tort of conversion to all intangible assets, which was the right conclusion. But extending it to domain names only because they are "merged in a document" is also wrong. By focusing on intangibility rather then on rivalrousness, the Ninth Circuit missed a great chance to modernize the law to account for emerging electronic rights.
But what do virtual worlds have to do with this? Everything in a virtual world is intangible, but the rights embodied in these intangible assets are as different as the rights embodied in assets in the real, or tangible, world. The two disputes I discussed in my initial post, Bragg and Eros, illustrate this point in a way that a domain name dispute cannot. Bragg, a dispute involving intangible assets, is a conversion case. Linden interfered with Marc Bragg's use and enjoyment of his virtual world assets in the same way that a bicycle thief might interfere with my use and enjoyment of my bicycle. Eros, another dispute involving intangible assets, is an intellectual property case. In that case, Thomas Simon didn't interfere with anyone's use of a sex bed (and no, I will not post about how a sex bed works. Google it); he instead interfered with the right of Eros to make copies of and distribute the sex bed. So virtual worlds, by giving us the opportunity to resolve myraid property disputes, ALL of which involve intangible assets, might help us to clarify our thinking about intangible assets.
[Comments are held for approval, so there will be some delay in posting]