This case was moved from court to private mediation on October 7, 2010 and plaintiffs filed for voluntary dismissal of the charges on March 15, 2011 under FRCP 41(a). Rule 41(a)(1) allows for the plaintiff to dismiss an action without a court order by filing a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment. In this case it appears that a satisfactory solution was reached in ADR leading the plaintiffs to end their civil court case. The court dismissed the case on March 16, 2011.

Case Update:

As many of you know, and as was discussed in our previous post, Linden Labs runs and operates the internet-based interactive computer simulation Second Life which allows participants to see, hear, use, and modify the simulated objects in the computer-generated environment. Second Life is famous for its free-market economy. Players of Second Life, called “Residents,” can buy and sell goods with Second Life currency (“L$”). L$ can be exchanged for real currency.

Eros, LLC (“Eros”) and Shannon Grei (“Grei”) have filed an Amended Complaint against Linden Research Inc. and Linden Research Int’l., Inc. (“Linden”) alleging violation of real-world intellectual property rights and infringement of the trademarks and copyrights owned by the Plaintiffs. Eros markets a line of erotic items within Second Life under the mark SexGen® (See U.S. Reg. No.3483253, registered on August 12, 2008). According to Eros, over 100,000 active Second Life Residents are customers. In the Amended Complaint, Eros alleges that its SexGen® products have been “counterfeited, cloned, and ripped off countless times by a multitude of Second Life Residents.” Similarly, Shannon Grei markets clothing and other coverings, including “skins” for Residents to wear within Second Life. The Amended Complaint indicates that since 2004, Grei has sold hundreds of thousands of her products within Second Life, making her one of the most popular and successful sellers in the game. Ms. Grei has allegedly suffered financial loss at the hand of pirates who have made and sold copies of her “skins” for real-world profit, and infringement of her rights in the copyright to “Nomine Araignee Set,” which was registered on September 24, 2007 as VAu000958340. Similarly to Eros, Ms. Grei alleges that the Defendant, Linden, has profited off of these pirates with each transaction.

The Amended Complaint reiterates many aspects of the original Complaint. It alleges that Linden “knowingly and willingly profits" from infringing activities through several mechanisms. As asserted by Eros and Grei "pirates must rent (for real-world currency) virtual world ‘locations.’ …Second, pirates must then ‘upload’ their infringing work, products or services into the Second Life virtual world, for which Defendants impose a fee. Third, all inworld transactions on Second Life are made through the exchange of Linden Dollars. …Not surprisingly, Linden Lab also operates the most widely used currency exchange platform in the Second Life community, LindeX, for use at which it imposes an exchange fee of 3.5%. Fourth, Linden Lab operates the website XStreetSL.com, which is an online marketplace for goods and services to be used in Second Life. Fifth, Linden Lab also operates an in-world classified ads system. Pirated works are available both on XStreetSL.com and the in-world classifieds system.”

Eros and Grei acknowledge that “[t]he Second Life Grid utilizes what is effectively a Digital Rights Management (‘DRM’) scheme," but allege that "the nature of the system allows third-party programs to bypass the DRM.” The Amended Complaint further alleges that “Linden Lab conducts little supervision or enforcement to insure that such content copying is eliminated, minimized, or detected. Moreover, whatever DRM-type protection Linden Lab offers against such piracy-enabling programs is easily circumvented and hopelessly ineffective.” The Plaintiffs acknowledge that use of such programs is against Linden’s Terms of Service and that may result in the Resident being banded, but according to the Complaint, Linden “will not ban a user for simply uploading or even selling copied content [and t]hese actions evidence that Linden Lab limits its enforcement of intellectual property law to that required by the ‘safe harbor’ provisions of the Digital Millennium Copyright Act, therefore filing a real-world lawsuit is necessary to protect ones interests.”

The Plaintiffs have alleged twelve (12) causes of action:

1. Trademark Infringement, 15 U.S.C. § 1114(1) (on behalf of Eros)





2. False Designation of Trademark Origin, 15 U.S.C. §1125 (on behalf of Eros)





3. Contributory Trademark Infringement, 15 U.S.C. §114 (on behalf of Eros)





4. Vicarious Trademark Infringement, 15 U.S.C. §1114 (on behalf of Eros)





5. Direct Copyright Infringement—Public Display, 17 U.S.C. §501 (on behalf of Grei)





6. Direct Copyright Infringement—Reproduction, 17 U.S.C. §501 (on behalf of Grei)





7. Contributory Copyright Infringement, 17 U.S.C. §501 (on behalf of Grei)





8. Vicarious Copyright Infringement, 17 U.S.C. §501 (on behalf of Grei)





9. Violation of Cal. Bus. Prof. Code §17200 (on behalf of all Plaintiffs)





10. Violation of Cal. Bus. Prof. Code §17500 (on behalf of all Plaintiffs)





11. Intentional Interference with Economic Relations (on behalf of all Plaintiffs)
    
    



12. Negligent Interferences with Economic Relations (on behalf of all Plaintiffs)
    

The Plaintiffs also allege that Linden’s acts of infringement have been willful, intentional, and purposeful, and that the Defendants have caused injury to both Plaintiffs in the form of lost sales and revenue, lost business reputation, and consumer confusion.

We will continue to monitor this case.