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Contracts in the Virtual World

As part of a series of colloquia organized by the new Enlightening Games Group at Indiana University, Joshua Fairfield of the School of Law spoke yesterday about “Social Contracts: The Problem of Contractual Regulation of Online Communities.” In a nutshell, Fairfield spent an hour explaining why the end user licensing agreement (EULA) is not as binding as many would like to believe.

Co-creation of content is a defining property of Web 2.0 applications. YouTube provides the scaffolding and diffusion mechanisms, but its members provide all the content. Second Life and World of Warcraft are the hosts and infrastructure of in-world interactions between avatars and virtual artifacts created by users manning the controls. MySpace is entirely comprised of a network of personal blogs, photo galleries and social interactions. Yet the EULAs are all written with a common language that attempts to negate elements of law contracts are not meant to address.

Fairfield explained law as falling into four types: Torts, Property, Constitutional Law and Contracts. Torts are reciprocal negative, meaning a person is bound to any other person to not do certain things in exchange for that person also not doing the same things. Property is a social negative whereas Constitutional Law is a social positive. In other words, an individual has legal rights to keep everyone else from doing things to what she owns and allowing her to do things in the company of others. Contracts, though, are asymmetric positive, which means two parties negotiate an exchange where value is equated but not implicit. New legal rights are created through this process. Contracts differ from the social laws in that it is a one-to-one agreement, as opposed to one-to-many. They differ from torts by including a valuation of goods and services.

EULAs are contracts that try to dictate more than contracts are allowed. By including language that allocates rights to content created on their sites or in their virtual spaces to the company, the EULA attempts to negate property law. This was recently illustrated in the MySpace community when rocker Billy Bragg spearheaded a protest of the company’s sub-licensing agreements by removing all of his music. A month later, MySpace clarified their policies by opening up the language, allowing Bragg enough comfort to return his downloadable music to the site. EULAs also try to control individual rights and limit liability, something that makes for weak contract language. This is especially true since the EULAs are boilerplates that apply to all members and are never negotiated. Fairfield argues that a EULA is not a contract because it eliminates legal rights, rather than creating them.

There are a couple wrinkles that make these agreements problematic. According to Fairfield you can’t force asymmetric trades without a thick market. That is, the opportunities where consumer need and desire are high enough to merit a purchase are plentiful. Given it’s relatively low usership, Second Life is a thin market. Also, the co-creation model no longer puts the creator of intellectual property (IP) on the same side as the drafter of the contract. The contract dictates terms without any property existing. This leads to two big problems:

  1. Contracts cannot create the multilateral rights needed to support a community—Contracts are good at 1:1 relationships but cannot govern an entire community.
  2. Preventing exit creates a market failure in online communities—Without the ability to take property with them, a consumer has no incentive for investment and thus little reason to stick around.

Property and torts are the natural “community” law in online spaces, not the contract. We should be concerned both with the missing legal incentives to create content and the effect a blocked exit has on the market.

While law is not my main interest, nor are gaming sites per se, the legal blur of EULA is a barrier to participation. There are many barriers—registration, prior knowledge, initial experience—that affect a new member’s incentive to become active, but there are also barriers that exist for veteran members. This is true when negating rights to co-created content, often the main activity in Web 2.0 spaces. Communities need sustainable dynamics in order to survive, so understanding the limits of online contracts and the detrimental effects of broad, unenforcible legalese is relevant to community building.


Fairfield is author on a couple papers relevant to this topic: “Virtual Property” (distinguishing VP from IP) and “The Search Interest in Contract” (search-oriented contracting and common law).

By Kevin Makice

A Ph.D student in informatics at Indiana University, Kevin is rich in spirit. He wrestles and reads with his kids, does a hilarious Christian Slater imitation and lights up his wife's days. He thinks deeply about many things, including but not limited to basketball, politics, microblogging, parenting, online communities, complex systems and design theory. He didn't, however, think up this profile.