In general, market-based solutions visualize a society where the ongoing interaction between

consumers and vendors lead to a combative market in which users are presented with various
options that offer an array of privacy standards. When faced with several options, while
taking into account their own privacy preference, the services the websites provide, their
terms of service (including price), and finally, their privacy practices, users select their
websites of choice. Eventually, market forces will institute the various balance “prices” at
which users assess their privacy preferences in comparison to other benefits and
requirements.
The key ingredient to the success of any market-based solution in the online privacy milieu is
the website operator’s proper staging and enforcement of their respective privacy policies.
Operators must clearly exhibit such policies, while indicating the privacy practices and
standards they put up with. Thereafter, the public (through private actions) and the Federal
Trade Commission (which has been doing so with only mixed success) will enforce these
policies.1 In addition, self-regulatory schemes rely on trusted third parties (such as BBB
Online or TrustE) to provide websites with “seals of approval” that are contingent on their
privacy standards and actual practices.2The efforts of such third parties aid users in following
up on the activities of these commercial websites and assuring that they maintain their
respective policies.
The market-based solution faces powerful critiques, stating that it is doomed to failure, for
(among others) the following reasons:3
1. Privacy policies are an inadequate tool to enforce privacy standards; users do not read or
understand them (as they are at times cloaked in heavy legalise) nor have the attention
resources to comprehend every policy they encounter. Additional critiques point to the fact
that the FTC lacks the manpower to enforce privacy policies, and that “third party” trusties
might not be trustworthy, as they receive their compensation from the very same websites
they are supposedly monitoring,4 and

1
On the FTC’s commitment to enforce privacy promises, see http://www.ftc.
gov/privacy/privacyinitiatives/promises.html (last visited Oct. 7, 2004). See also SOLOVE & ROTENBERG, supra
note 5, at 540.
2
On the issue as to whether it is worthwhile for a company to retain such a “seal” and a description as to what
such retention entails, see Jeremy Quittner, Should You Pay for a Privacy Seal of Approval?, BUSINESSWEEK
ONLINE, Apr. 27, 1999, at http://www.businessweek.com/smallbiz/news/date/9904/f990427.htm
3
For a recent critique of market-based solution in the privacy context, see James P. Nehf, Recognizing the
Societal Value in Information Privacy, 78 WASH. L. REV. 1, 63 (2003).
4
See Zarsky, supra note 14, at 23. For an in-depth analysis as to the effectiveness R
of third party “seals”, see Ann Cavoukian& Malcolm Crompton, Web Seals: A Review of
Online Privacy Programs, at http://www.privacy.gov.au/publications/seals.html#424 (last visited Oct. 7, 2004).
2. The market solution for privacy will fall short in view of the high costs user face, such as
high switching costs between online vendors and high information costs linked with the
understanding of how the personal information might be used in the future.
Examining these critiques of the “market-based solution” with respect to our virtual world
analysis leads to an interesting and mixed result: Some of the specific characters of virtual
worlds show that “market-based solutions” have a better chance of success in this sphere,
while others lead to the opposite conclusion.
On one hand, in virtual worlds, privacy policies are a more efficient means of conveying
information and implementing privacy.
Here, users can limit their interactions and attention to a limited number of service providers
(game sites), in contrast to the general online context where users might come across tens of
different websites — and thus privacy policies — every month. Therefore, users benefit from
having all interactions conceded within one virtual world and being subject to only one,
overall agreement, as the “attention costs” of understanding the various provisions of privacy
policies are noticeably lower. With only one or two relevant policies to review, the user will
have the time and attention resources to contemplate whether he or she finds their terms and
privacy implications suitable.
On the other hand, virtual worlds change the “privacy market dynamic” in ways that will
cause some of the abovementioned concerns to aggravate. For an open market to provide
solutions to privacy concerns, a competitive atmosphere is required in which users choose
and decide on the basis of their privacy preferences, and in that way signals these preferences
to other market members.
Yet virtual worlds present users with high switching costs that impede on such indicators. In
other words, users that might consider switching between “games” — should their game’s
operator change its privacy policy in a way they find undesirable — will be reluctant to do so.
Users have gone to many lengths to create and maintain a virtual persona in a particular
virtual realm, and will be averse to forfeit the prestige and “assets” they gathered, as they
cannot transfer their attained wealth and reputation to other worlds. These realities create
very high switching costs, and at times even lock-in effects, and will prevent switching in a
response to changes in privacy policies (and on the basis of privacy preferences).119An
additional reason for the inaptness of market solutions to privacy problems in virtual worlds
concerns the overall number of players in the virtual world’s market. A sufficient number of
participants both on the supply and demand sides of the equation are required for an efficient
and effective market based solution to privacy concerns. In this context, the “virtual world”
market is very different from the “general” online world that presents comparatively low
entry costs for vendors and service providers. Yet the fixed costs for creating and maintaining
a virtual game are extremely high, and therefore the number of leading MMORPGs products
is consequently low.
Thus, there is no guarantee that privacy-sensitive users will be offered sufficient alternatives
(namely, optional virtual worlds), and an open market will fail to generate a virtual world that
maintains high privacy standards.
A. Market-Based Solutions and Public Opinion
Public opinion has always been a dominant force in the ongoing debate about privacy
standards and concerns.121 In view of the unevenness of power between individual users and
information collectors, the role of public opinion is vital in assuring that companies abide by
their privacy polices, and daunting business schemes that raise privacy concerns. In terms of
the previous analysis, an active public discourse about privacy issues reduces the user’s
information costs that are connected to comprehending the future uses of their personal
information. It also “signals” the individual’s discomfort with or disapproval of various
privacy practices in a way that is more verbal than the voice of a single individual.
The might and significance of public opinion has been apparent in the Internet context, as on
several occasions Internet vendors and service providers changed their problematic privacy
practices in view of “bad press” and threats of consumer retaliation. The powerful force of
“public opinion” in the online context results from the speed and efficiency in which news
and information flow throughout the web, and consequently, aid the rapid formation of
resistance groups and communities. The social networks built online allow their members to
easily communicate with each other (via an email list, a listserv, or a chat-room) and work
together toward a universal cause, even though the participants come from various
backgrounds and geographical locations.
Establishing the difference between the forces of public outlook in virtual worlds as opposed
to the general online context is a difficult task. Game activists and players will assert that the
gaming environment provides unusual strength and weight for the user’s opinion, citing the
advantages of the game’s social network environment (similarly to the arguments made in the
online context, above). Furthermore, users are in a tactically higher position in virtual worlds,
because the consumer is the major resource of the game producer’s income. Therefore, it
seems reasonable to expect that game controllers will be considerate towards their users’
requests and complaints. In virtual worlds, however, game controllers have a key advantage
that might obstruct the supposed strength of public opinion — the ability to silence opposing
voices. They can achieve this objective by simply removing critical speakers from game
space.124 When separated from the virtual world, these “abolished speakers” will come
across severe difficulties in gathering support for antagonistic ideas, and will be forced to try
and reach their audience through alternative resources, such as web forums devoted to a
specific game (which is clearly a less effective way to communicate). Since the gaming
worlds are “guarded” by code, undesired speakers will find it impossible to re-enter and voice
their opinion. Furthermore, there are other, tenuous ways for the game controllers to “silence”
antagonists. As game controllers can personally view the ongoing communications and
discourse among the various users, they might attempt to hinder the distribution of these
antagonistic messages by interfering with the virtual world’s infrastructure (by setting
mountains between potential antagonists, or not allowing them to talk with more than one
person at a time).
To abridge this brief analysis of the market-based and self-regulatory solutions to privacy
concerns in virtual worlds, it appears that the success of any such scheme will depend on the
ability of users to continuously and constantly network, without the fear of censorship or
abolishment by the game operators. The degree of privacy concerns and problems will be
closely connected to further understanding the speech rights of players interacting within the
game. Society may avoid the privacy concerns illustrated above, by maintaining a regular
flow of information among players without requiring the overall regulation of the game
controllers’ practices of collection and use of “player data.” Specific intrusions however
might still be required at the problematic stages.

EULA

The following are EULA guidelines (the “Model EULA”) for adoption by virtual world
developers. By applying these suggestions, developers can build a better virtual environment
that closely supports the developer and user incentives. These will also facilitate development
of pioneering solutions to virtual world problems in the competitive market, including those
problems that haven’t even been recognised or imagined yet. As a result, additional users and
investment dollars will stream into virtual worlds.
It is quite probable that an individual developer at first, views a more competitive
marketplace as unfavourable to his business. However, this view is short-sighted because
while the existing developers may be able to band jointly and control the license terms
offered, this creates a favourable environment for a start up company to enter the market
place, offer enhanced terms of agreement and steal prospective customers.
A more competitive marketplace will be established through survival of the fittest, the best
possible conditions for administering a virtual world. If developers provide these optimal
conditions it will lower consumer search costs and improve user experiences, attracting more
customers to the marketplace5 and enlarging the profit margin of all participants of the virtual
world market. Instead, if the improvements are obviated in lieu of control, the innovation
course will slow down. This will be injurious to the growth of this industry as user
satisfaction will weaken.

As an example, consider the suggestion that a developer allow a user to “cash out” and move
between virtual worlds.6 At first, developer might believe it necessary to do everything in its
power to avoid a user from leaving its world, say, World A and going to a competitor. But it
must be the developer would be better off without users who are less than content with their
experience in World A, in fact the developer may bring upon himself additional costs from
such user through complaints or behaviour that has an unpleasant impact on other users. If
users are provided with an open environment, discontented users could cash out and they
would then be free to pick and enter a different virtual world. This might seem like a loss to
the developer but the security that he provides his customer by giving them the option of
“cashing out” will make it well-liked in the market and it will be preferred over other
competitors by the probable customers as well as existing users. Hence the loss will be offset
by new users. Other developers may also follow its footsteps and allow cashing out. Now
there is also the opportunity of gaining users who are cashing out of other worlds and
switching into World A. It is a win-win situation for all the developers as well as users. So, in
quintessence, it is possible for the developer to trade a displeased customer with a satisfied
one. Also, in this scenario, developers will have the motivation to create the best possible
product, with the reward being the ability to attract more users, since these users are able to
move more freely among virtual worlds and incline to their preferred product.
The terms proposed below are not intended to be adopted as part of a governmental
regulation of internet worlds. This would be a non-optimal solution, since the judicial and

5
6
See, Jason T. Kunze, Regulating Virtual Realms Optimally: The Model End User License Agreement, 7 Nw. J.
Tech. &Intell. Prop. 102(2008).
http://scholarlycommons.law.northwestern.edu/njtip/vol7/iss1/7
political systems of the physical world are slow to respond and likely do not fully understand
the challenges and needs specific to the virtual environment. Furthermore, attempted
enforcement in court leads to all sorts of jurisdictional problems, while putting an additional
load on an already overburdened system. The risk of regulation, however, might encourage
“voluntary” adoption by developers. More likely, developers will know the benefits bestowed
on both users and developers when more favourable contract terms are utilized. If not, new
market participants can make a distinction themselves by offering better terms (while making
sure to clearly communicate these advantages to the customer). Yet another possibility, based
on the open source model, would be for multiple parties to build on the proposed terms
below, while also creating a free database that evaluates how existing EULAs fare against
these terms.7
However when it comes to culmination, the concepts below should be included into virtual
world EULAs. This will uphold a better virtual world experience and will provide for
continued flourishing development and speedy growth of virtual worlds.
A. Make a Reasonable Effort to Balance Power Between the User and the Developer
The first and most evident benefit of making a bilateral contract—especially for the
developer—is it will more likely be enforceable in court. As the Bragg case demonstrated,
EULAs that retain unilateral power for the developer may be struck down for
unconscionability reasons.8
There are several other gripping benefits to this change. Contract drafters who make a
balanced contract will have to think about the desired regulatory environment for their virtual
territory, instead of simply maintaining complete control to establish the rules along the way,
however and whenever they deem fit. In turn, the information formed by this drafting process
will be built-in into the EULA, and will allow users to better understand what is and is not
allowed in the virtual world. Because users will have a higher understanding of their rights ex
ante, rather than being surprised later, the spectre of complex and costly litigation to clarify
and enforce those rights will be reduced.
As a further advantage, the chilling effect produced by having an indefinite agreement will be
reduced. A chilling effect crops up when behaviour might run afoul of the EULA, but the

7
This process may already be in the works. See Building a Better EULA Wiki,
http://www.bettereula.com/index.php?title=Main_Page (last visited Oct. 23, 2008) (“[T]he next stage of
evolution in virtual space involves the rights and ownership of the participants in that virtual space, and that
existing forms of virtual government and user rights are antiquated and insufficient to give virtual citizens
the investment necessary to ensure their long term buy-in with a virtual world.”).
8

Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593, 607 (E.D. Pa. 2007).
agreement may potentially be unenforceable, so parties err on the side of too much vigilance
in order to avoid the possible risk that exists in the grey areas of the agreement. This affects
actual users and also prospective users, who choose to keep away from the virtual world
because the supposed risks are too high.
For instance, consider the clause regarding management of the Linden dollar. Although
Linden Lab reserves the right to eliminate the entire LindeX at any time, with no liability o
any customers, it is questionable whether they could actually do this.64 Indubitably, players
who persisted real money losses of thousands of dollars would contest this action. Because
the result of this potential litigation is indefinite, it is arguable whether or not Linden Lab
could actually close this market without any aftermath. Subsequently some users may shun
the LindeX completely, because of the lack of safety that this uncertainty creates. As a result,
both parties suffer. Linden Lab misses out on potential market entrants (and the associated
revenue), and current Second Life participants who own Linden dollars are unable to protect
themselves without the extreme time and expense of a legal battle.65 A more balanced
condition would still place the risk of any market variations on the users, but the
responsibility for providing the market itself on Linden Lab.
Although the developer will invite some additional costs as it works to describe the best
regulatory agreement, the long term benefits will far overshadow these costs. First, the
developer stands to benefit from reduced litigation expenses, which would undoubtedly
reduce the additional upfront development expense. Also, the developer will make better the
experience of its customers by giving a more user friendly virtual world. In a domain where
everyone is connected, user opinions can be an incredible benefit—or an atrocious
detriment—to the growth and success of the product. The outcome will be added growth of
the customer base for creative developers, as new customers will be fascinated to the worlds
with license agreements that guard their interests, and discontented with the worlds that rely
on overbroad and indeterminate license agreements that concentrate all the power with the
developer.
B. Provide Concise Agreements Written in Plain Language
The apparent goal of this Model EULA element is to get more users to read and comprehend
the EULA. This would allow users to assess and compare various EULAs offered by
developers, and integrate this information into their purchasing decision. Ultimately this will
lead to a more proficient market. Developers can endorse a virtual dominion based on its
EULA provisions, and inventive competitors can be rewarded.
Users can then have significant choice between competing products. Furthermore, users will
be able to better comprehend what conduct is acceptable and what is forbidden, and can tailor
their actions accordingly.
With an unambiguous, understandable description of the rights between the developer and the
user, the developer stands to profit as well. A game owner could create multiple worlds, with
the differentiating characteristic being rights conferred under the EULA, and let the customer
decide (and pay for) what rights best fit his desired virtual world experience.68 As a result, a
more spirited gaming set up could emerge. But without a readable EULA, it becomes very
difficult to commune this market demarcation to customers.
C. Disallow Specific Disclaimers of Notice and Liability
Certain EULA disclaimers are so disorderly that they should be disqualified in all
agreements. Two clauses are immediately suspected, and future experience may show that
other restrictions fit in this category as well.
Another term that should not be permitted is the blanket disclaimer of accountability that can
be found in most, if not all, virtual world EULAs. It is explicable that virtual worlds may be
subject to events that are unforeseeable (or at least unpreventable—such as server crashes)
and developers should not be responsible for these circumstances. But it would be
informative to differentiate between those unmanageable events that should not trigger
liability—think of these events as the “force majeure” of the virtual world—and events due to
the slackness or malfeasance of the developer, to which accountability should attach. It is
uncertain from a legal standpoint if the developer can actually deny any liability for
negligence in a form contract—the contract would have to be checked in court—which leads
to the same problems discussed in Part IV.1, supra, when parties are undecided of their actual
rights and responsibilities. It would be better to overtly determine liability ex ante and, in the
spirit of Model EULA element one, balance the liability suitably between the parties, as
disclaiming all liability allows developers to escape all charge for running their businesses
and leaves paying customers out in the cold.
D. Provide a Fast, Low Cost Dispute Resolution Mechanism
The expansion of optimal virtual world EULAs will require a repetitive process of trial and
error. The crafting of EULAs (and the governing of virtual realms in general) is extremely
multifarious and some obstacles are expected along the way. The obligation of domineering
arbitration clauses in EULAs obstructs this process by causing complaints to be suppressed
and escalating the time and cost to have a dispute heard. Most users will not have the means
and legal expertise that Mark Bragg relied upon when testing the provisions of Second Life.
As a result, these problems will not be solved, resulting in displeased, angry customers and
unfavourable contract terms.
Ultimately the Bragg case led to a far superior arbitration agreement. In fact, the new Second
Life arbitration agreement, which allows for inexpensive arbitration through online
proceedings (as well as phone and written proceedings), is a model that has great promise for
all virtual worlds.71 It makes tremendous sense to have an online dispute resolution
mechanism. It is accessible to all users—every participant already has online competence or
else they would not be in the game in the first place. It is faster than traditional solutions, and
therefore more capable of putting up with the pace of a virtual world. And it is far more cost
efficient for all parties. But because the previous version of the Second Life arbitration
agreement was poorly made, the process of disputing any of the terms of the agreement was
laborious, and any resultant changes were precluded.
The low cost criticism that will be attained through an efficient dispute mechanism is
tremendously precious. Virtual world developers need this feedback to scrutinize and
continually make better the virtual world experience. The developer is unknowingly shooting
himself in the foot when enforcing a soaring cost dispute mechanism, by effectively choking
off user complaints that could potentially be used to appraise and improve the governing
policy of the virtual realm. And from the user viewpoint, the opportunity to simply be heard,
instead of thwarted by a repressive and expensive dispute resolution mechanism, will
improve the user’s virtual world experience. By allowing parties a quick and low-priced
medium to resolve disputes, the iterative procedure of refining the EULA can be accelerated,
resulting in a quicker evolution process, better agreements and more content customers.
V. CONCLUSIONS
Because developers have the capability to lay down the terms of the EULA, and have made
these terms to give themselves all the power, virtual worlds are encumbered with non-optimal
license agreements. By improvising these agreements, the rights of users can be marked out
while providing a greater market for innovation by developers. As a result, the virtual world
economy will continue to develop and burgeon as users are more willing to spend when they
are better able to comprehend the rules of the world and what rights they have within that
domain. Also, outside investors will be better able to estimate risk, and the possibility of
litigation over EULA terms will be reduced, causing bigger ventures in the growth of virtual
worlds and furthering their development. And by drafting agreements that customers can
understand, the ability to compare products and evaluate substitutes will allow greater
competition and better, more creative products. These precise agreements will permit
exceptional developers to distinguish themselves via their higher product offerings. Overall,
this will allow for further successful development of virtual worlds and lay the groundwork
for their expansion into areas far beyond gaming.