Perhaps the Mises Institute has arrived in Second Life just in time. While it may be a virtual world, it still has to deal with real-life intellectual property shenanigans. A reader alerted me to a federal district court decision last month in Amaretto Ranch Breedables, LLC v. Ozimals, Inc., a copyright case involving — wait for it — virtual pets. Judge Charles Breyer, brother of the Supreme Court justice, explains what may be the most bizarre attempted use of copyright ever imagined:
One type of popular user-created object sold in Second Life is the breedable animal. Essentially, these objects mimic the life cycle of a real animal; they eat to survive, sleep, and replicate. Amaretto created a breedable horse and associated virtual horse food, both of which it sells in Second Life. Amaretto competes in the market of virtual animal sellers with Ozimals, which owns and sells virtual breedable bunnies.
In early November 2010, Ozimals sent Amaretto a “cease-and-desist” letter alleging that (1) Amaretto’s virtual horses were a “virtual clone” of Ozimals’s virtual bunnies and (2) Amaretto was infringing Ozimals’s copyrights. The assertions in the cease-and-desist letter were false. Ozimals made similar false statements to “other members of the Second Life community.” Amaretto responded to Ozimals’s cease-and-desist letter in late November 2010, asserting that it was not and could not be infringing any valid copyrights.
On December 1, 2010, Ozimals filed with Linden a [Digital Millennium Copyright Act] Takedown Notification pursuant to 17 U.S.C. § 512(c)(3). The Notification sought, among other things, the removal from Second Life of Amaretto’s virtual “food” and “water.” Had the takedown occurred, the virtual horses would have “died” from “starvation” and/or “thirst” within 72 hours.
Amaretto sued Ozimals and Judge Breyer issued an injunction requiring Ozimals to withdraw its DMCA takedown notice. Linden Labs never acted on the notice, and the virtual animals were presumably spared an agonizing demise. Because there was no takedown, however, Breyer said Amaretto could not maintain its claim against Ozimals for damages — which the law permits when a party is injured by a false copyright claim — but he allowed the lawsuit to proceed on other claims arising under federal “misuse of copyright” and California “unfair competition” statutes.
While the subject of “virtual pets” seems silly, the fact that Ozimals and Amaretto have the resources to engage in IP warfare indicate there’s a viable market to fight over. In a December 2010 statement defending its position, Ozimals claimed it had no choice but to defend itself:
We communicated our concerns and rights in June  and attempted to very politely inform Amaretto that they must develop their own concept so that any problems could be avoided. We were deeply saddened that they chose to ignore the notice we gave and release a product that infringed on the intellectual property of Ozimals.
Once we were made aware of the released product, we contacted our intellectual property attorney who began an investigation, gathering information on the scope of the infringement. Normally in a situation of copyright infringement in Second Life, the copyright holder files a DMCA against the infringing material which would have it completely removed from the grid.
Yet Ozimals ascertained copyright infringement by comparing the functionality of its virtual pets with Amaretto’s, as opposed to looking at the actual source code. When Judge Breyer later ordered an exchange of code as part of discovery, Ozimals’ own expert agreed that “no literal copying occurred,” and that Amaretto simply “produced similar traits” in its virtual pets “using a different set of written code.”
What more likely transpired here, as a commenter on one virtual worlds discussion blog said, is that Ozimals simply faced a strong competitor and wanted the state’s IP regime to rescue it from the market’s cruel judgment:
Ozimals was failing miserably. Almost all of their customers had diverted to Amaretto over the last few months, tired of Ozimals Market sabotage, unprofessional conduct and consistently botched updates. Not to mention the debacle wherein she blacklisted dozens of her own player, refused to tell them why, wrote their names on her public forums and encouraged her users to blacklist them – she never let them plead their case, declaring that if they wanted to defend themselves they had to do so publicly on the forums.
Ozimals pulled their own trigger over and over. They have fallen from Grace, not because of Amaretto, but because of their own misconduct and notorious reputations. What [Ozimals' owner Candy Cerveau] has done is motivated by a pure vendetta. Candy was once the jewel in the crown of breedables, and had to hand over the crown to Amaraetto Horses. Candy is not making the money she once was. She has seen Amaretto have strides of success, and she is seething.
Why didn’t Candy sue the creators of the Bright Pet Cats who also boast hovertex in the same fashion as Amaretto Horses, right down to the “Love” meter called “Desire.” Why didn’t she DMCA the people who developed clams, or grouse, or the dragons or fairies, all who boast a similar formula of eating, drinking, sleeping and breeding. Why did she turn a blind eye to the Pinkie Pigs and the Wyldwood cats who both possess the same visual statistics and require the same need fulfillment.
Why? because Candy didn’t see them posing enough of a threat, or taking enough of a chunk out of her demographic to be bothered with. And Amaretto was making BIG BUCKS
And why, out of nowhere, go and attack Amaretto 6 months after their release? Certainly she has seen a horse in the last half year. Why Issue Amaretto a Cease and Desist letter and encourage them to resolve the matter by coming to some settlement -READ: You pay us money- seemed an attempt to extort money from the competition. When Amaretto refused that option, that is when Ozimals filed the DMCA to Linden Lab requesting all Horses be removed from the grid due to copyright infringement.
Now let that absorb for a moment. Over 100,000 horses on the grid, countless customers all who absolutely adore the Amaretto Owners.. and then suddenly all of them are gone. Poof. Thousands upon thousands of US Dollars residents have wrapped up in their horses – and they would be gone in the blink of an eye.
Well that’s what can happen when you try and apply 18th century mercantilist principles to a 21st century economy. And while Amaretto beat back the IP charge this time, the problem isn’t going away. As virtual worlds continue to grow and evolve, IP lawyers will be looking to get their cut by snookering firms like Ozimal into using DMCA takedown notices as a legitimate business tool. Because Judge Breyer’s ruling indicated that there’s no penalty for filing a false DCMA notice if it’s never acted upon, many IP zealots will take that as a license to engage in wholesale harassment of virtual businesses who are unschooled in the finer points of IP.
Even Amaretto’s response here is cause for concern. While they were no doubt right to demand an injunction against Ozimal’s aggression, the counterclaims include one under California’s notoriously broad “unfair competition” law, a state version of the Federal Trade Commission Act. If virtual business disputes start resorting to these sorts of attacks, even in self-defense, it’s an open invitation to the FTC to start taking on such matters directly. The FTC is already sniffing around virtual worlds like Second Life looking for any excuse to impose federal mandates. FTC Chairman Jon Liebowitz has already said he wants control over virtual worlds to, no surprise, “protect children” from bad online influences. Just imagine the kind of chicanery he’ll get into once he decides he needs to protect virtual bunnies and horses.