It is a town whose citizens strive to build impressive homes in high-end neighborhoods. It is a tropical island where friends gather for drinks in the glow of a tropical sunset. It is an out-of-the-way, but dangerous nation, where a man must work long and hard to afford the weapons that will protect him against evil.


The town is Blazing Falls. The tropical gateway is There. The dangerous country is Norrath. None of them are real. They, and more than a dozen others, exist only online. They have been created by corporations like Sony as well as by adventurous programmers for the millions of people interested in playing competitive and social games on the Internet.


But even though these virtual worlds are nothing more than software coding residing in banks of computers, what goes on in them poses increasingly serious challenges to our notions about the nature of property, the legal rights of players in virtual worlds and even the presumed boundary between the real and the imagined worlds, according to Wharton legal studies professor Dan Hunter.


The challenges are there because those who participate in virtual worlds – a group composed of people who are on average 25 years old and who include an increasing number of women over the age of 30 – spend considerable amounts of money. They spend that money for the right to participate in the virtual worlds. Just as important, they spend to buy the virtual tools and accessories important to the characters they play – their avatars – and the avatars’ ability to survive and succeed in the virtual social worlds and communities.


Moreover, a major trade in these virtual goods has cropped up in the real world. Players who have an overabundance of virtual goods because they play their games exceedingly well sell their overstock on eBay and other Internet auction sites. So do non-players who have gotten their hands on the rights to these virtual goods. The result of all this is significant. “We are creating new categories of property that are valuable without understanding what it means or what the implications are for our understanding of the nature of property,” says Hunter.


Virtual games have been around since 2,500 B.C., when people first gathered around a board to pretend they were in the land of Ur, according to Hunter, who recently co-authored a paper entitled, The Laws of the Virtual Worlds, with Philadelphia attorney F. Gregory Lastowka. What is different in today’s Internet-dominated world, however, is that virtual worlds have taken on the trappings of real economic orders.


In some virtual worlds goods, land and personal property are amassed through labor, by carrying out tasks or meeting challenges. In other worlds players charge their credit cards to buy online currency to spend within their virtual worlds. That could mean buying property to build a house, to change an avatar’s hair style or to own a magic board that will whisk the avatar around the virtual world.


The economic activities going on in these real worlds are so life-like and expenditures so intense that at least one company running a virtual world has hired an economist to help it avoid the sort of hyperinflation that would destroy the game. For that matter, Hunter says, Edward Castronova, an economics professor at California State University at Fullerton, studied the economics of the virtual world Norrath and found that the exchange rate between its currency and the U.S. dollar is greater than the exchange rate between the dollar and the yen. If Norrath were a real country, Castronova found, its gross domestic product would be greater than Bulgaria’s.


Virtual economies are spilling into the real world, in part because there are players who don’t have the patience or ability to amass the goods required to succeed in their virtual games. They have learned that they can turn to eBay and other online markets to buy what they need and take it back into their virtual worlds to further their aims. That can mean spending $50 for a million Star War Galaxies credits, $22 for a magical sword for engaging in successful battles in Diablo, or $9.50 for 10,000 thousand copper ingots for use in Ultima Online. After a sale is consummated in the real world, purchaser and seller step back into their virtual world where the goods are handed over. In some cases the transaction takes place within the boundaries of the virtual world because its developers have made provisions for such transactions.


It is even possible to buy an avatar and all it has amassed, though that is considerably more costly. “They sell for as much as $25,000,” Hunter says.


This economic interaction between the virtual worlds and the real world is so pervasive that many sellers are making some very serious dollars. “Probably 25 of these guys are making a six-figure income,” Hunter says. “One guy out there is reputed to make more than a million bucks a year.”


And as if that were not proof enough of the virtual-worlds-real-world melding, a now-defunct company found the profit potential alluring enough to set up computers in a building in Tijuana and pay Mexican laborers menial wages to sit at the PCs to play Dark Age of Camelot around the clock. The company then sold the commodities and credits that the players-workers amassed online for very real American dollars.


Although the Internet’s virtual worlds increasingly take on real-world economic trappings, raising the groundwork for property related disputes, the mythical goings-on are also being tinged with real-life social issues, rife with their own potential for conflict. That is not surprising, Hunter says in the paper he co-authored with Lastowka, given that human players become deeply vested emotionally in their avatars, thereby developing very real expectations about having meaningful “human and constitutional rights” within the virtual worlds they frequent.


“While an avatar’s owner may be perfectly comfortable killing the avatar when she grows sick of it, she may feel genuine anger when a higher level avatar decides that player-killing is fun, and uses her avatar for target practice,” Hunter and Lastowka point out in their paper, adding that emotions roil especially deep when sex is involved. “Residents of virtual worlds commonly complain of sexual harassment when their avatars are propositioned by others and involuntarily grabbed or kissed.” While those sexual violations are carried out only in a programmed code, the resulting anger and humiliation are very real to the people involved. “The owner feels the injury because she has projected herself into an avatar body.” 


The participation of millions of people in virtual worlds also is likely to spawn quarrels between the players and the games’ developers, Sony and Microsoft, which Hunter and Lastowka call the “god-corporations.”


Studies show that for many virtual world participants their lives in those worlds is “psychologically important, for a few they are fiscally important, and for several thousand individuals, their virtual lives are claimed to be more important than their real lives,” according to Hunter and Lastowka.


If a virtual world collapses – goes offline – for reasons beyond the control of the developers, players might feel bereft, yet may accept their financial losses. But Sony, says Hunter, “could choose not to continue (maintaining a virtual world). They could just say we are sick of this, we are not making enough money or there is too much whining going on.”


In that case, players are likely to react more forcefully in the real world because they are committed to the notion that what happens to their avatars has legal significance. Hunter and Lastowka write: “At some stage there will be a tipping point where avatar lives may present real legal issues. For instance, how comfortable would you be, if in the near future, you lived, worked, and invested within a massive corporate-owned virtual world in which you lacked any meaningful legal protections or control over the shape of your environment?”


Hunter says that it is likely that many property disputes between players, between players and eBay entrepreneurs and between players and the god-corporations could be settled according to conventional, real-world contract law. But he also points out that we cannot assume that all of the property – or the constitutional and human rights issues arising in virtual worlds – can be settled that way.


For starters, the developers of virtual worlds are going to have to think more creatively about solving disputes inside their worlds, Hunter believes. Today, if a player feels she has been wronged within the game by another player and complains to the developers, they may just throw some virtual money at her – so she can buy something she needs within her virtual world, say – to make the problem go away. But eventually, Hunter says, virtual world developers may have to create virtual legal systems to deal more effectively and realistically with the disputes that arise within their worlds.


And lawyers and judges in the real world also will have to pay attention to issues arising out of virtual world conflicts, and adjust as well. “We need to recognize that a large number of people are making significant amounts of money,” says Hunter. “And, as more and more people are investing more and more money and get returns on their investment, we will see more litigation and situations where our courts will be confronted with these problems.”