Bragg v. Linden Research

Citation: Bragg v. Linden Research, Inc., 487 F.Supp. 2d 513 (E.D. Pa. 2007).

Factual Background
Philip Rosedale is the CEO of Linden Research, Inc. (Linden) operator of the virtual world “Second Life”. Through an advertising campaign beginning in late 2003, in which Mr. Rosedale participated extensively, Linden announced that it would be the first virtual world to fully recognize intellectual property rights in user-created content. Rosedale made appearances (in virtual town hall meetings within the virtual world), issued press releases, and conducted interviews discussing Second Life and the notion of virtual property rights.

Marc Bragg claims that the representations made by Linden and Rosedale piqued his interest in owning virtual land and in 2005 he signed up for a subscription to Second Life Before starting an account on Second Life a user must agree to the Terms of Service (TOS) by clicking a button on the sign-up screen. Bragg stipulates that he clicked “accept” button for the TOS.

The portions of the TOS at issue in this case are a California choice of law provision, an arbitration provision, and a forum selection clause. Within a year Bragg had purchased a number of plots of land, paid taxes, and created digital fireworks for sale to other avatars. On April 30, 2006 Bragg acquired “Taesot” a parcel of land Linden claims was gained through an exploit and all of his virtual property and currency were confiscated and his account was frozen.

Bragg filed suit against Linden and Rosedale on October 3, 2006 in the Court of Common Please of Chester County, Pennsylvania. Rosedale and Linden removed the case to this court, the U.S. District Court for the Eastern District of Pennsylvania, and moved to dismiss for lack of jurisdiction and to compel arbitration.

District Court Decision
The District Court found that personal jurisdiction existed through Rosedale's participation and organization of a nation-wide advertising campaign and denied the motion to dismiss for lack of jurisdiction and found the arbitration clause unconscionable and refused to compel arbitration.

Pennsylvania has a long-arm statute that "is coextensive with the limits placed on the states by the federal Constitution." To establish the district court's jurisdiction over Linden and Rosedale the court must determine whether there are minimum contacts with the forum, and whether jurisdiction will comport with the traditional conceptions of fair play and substantial justice.

Relying on Wellness Publishing v. Barefoot for Rosedale's activities in the advertising campaign, and Toys "R" Us, Inc. v. Step Two for the promotion of the Second Life website, the court held Rosedale's involvement to be more than passive and instrumental in inducing users to participate in the real estate market in the virtual world. These actions satisfied the minimum contacts requirement for personal jurisdiction and comported with traditional notions of fair play and substantial justice.

To compel arbitration a party must show that a valid agreement to arbitrate exists and that the dispute at issue falls within the scope of that agreement.

The District Court held that the TOS was a contract of adhesion offered with not only no chance to negotiate terms but also without any alternatives because Second Life was the only virtual world that offered intellectual property rights to their users. Furthermore, because the relevant issues of the TOS were buried in a "GENERAL PROVISIONS" section of the agreement and because Linden was free to modify the agreement at will, the district court found the TOS unconscionable and denied the motion to compel arbitration.