Napster's Second Life?--The Regulatory Challenges of Virtual Worlds

More than a decade ago John Perry Barlow envisioned a cyberspace free from real-world regulation. His vision was flawed. But virtual worlds, in which millions of users around the world spend significant amounts of their time (and money) interacting and transacting with each other, may prove Barlow right after all. In this paper, we look at the universe of these virtual worlds and how virtual world providers compete with each other, trace the likely development of regulatory interdependence and suggest how real-world lawmakers may want to facilitate virtual world self-governance. As virtual world providers transform themselves from offering content to offering a virtual space in which users can settle with their intellectual property, they begin to compete over the regulatory frameworks they offer their users. Users free to take their property and move to a different virtual world at relatively low cost, unleash intriguing regulatory dynamics between the virtual worlds. Will they engage in touch regulatory competition? Will pockets of cooperation develop and if so why and where? Or will virtual world providers much like Tiebout suggested differentiate based on user preferences, and will the virtual world universe hence reach a stable equilibrium? A similar dynamic may ensue among real-world lawmakers attempting to regulate virtual worlds. Virtual world providers may relocate to more welcoming jurisdictions, taking revenue streams with them. Coordination among real-world regulators may offer reprieve from a potential regulatory race to the bottom, but only temporarily. The more real-world lawmakers are tempted to reign in virtual worlds, the likelier that virtual worlds will become decentralized like peer-to-peer networks, leaving real-world jurisdictions without an easily identifiable entity to regulate. To avoid the birth of such a Barlowian virtual space, we suggest real-world lawmakers are better off facilitating the inculcation of real-world governance values into the nascent virtual worlds of self-governance.