Online “virtual worlds,” such as Second Life, have their own cultures, customs and economies.  This presents new challenges for applying existing intellectual property laws to user-created content in such virtual worlds, as illustrated by a recent case in the Northern District of California, Amaretto Ranch Breedables, LLC v. Ozimals, Inc..

Second Life places users, or “residents,” into a virtual world where they participate in a virtual economy, trading virtual goods and services with each other.  Residents also have the ability to create new content using a programming language built into Second Life.  Under Second Life’s Terms of Service, residents retain ownership of the copyright in any content they create.  Second Life is thus a breeding ground for digital rights disputes, as residents spend virtual “Linden Dollars”—which can be exchanged for “real world” currency—for virtual goods created by other residents, implicating legally protected rights that have dollar value in the “real” economy.  In other words, as one blog describes it, “[w]hile it may be a virtual world, it still has to deal with real-life intellectual property shenanigans.”

The dispute in Amaretto Ranch concerned the sale of “breedable” virtual animals created and sold to users within Second Life.  Ozimals accused Amaretto Ranch of selling “virtual horses” that used the same code used to create Ozimals’ “virtual bunnies,” thereby infringing Ozimals’ copyrights.  Ozimals sent a Digital Millennium Copyright Act (“DMCA”) takedown notice to Linden Labs, the operator of Second Life, demanding the removal of Amaretto Ranch’s virtual horses, sparking a public war of words between Ozimals and Amaretto Ranch.

Amaretto Ranch responded by suing Ozimals for violation of Section 512(f) of the DMCA, which provides a cause of action (including recovery of attorneys’ fees) for sending a takedown notice containing material misrepresentations.  Amaretto Ranch also asserted a state law cause of action for tortious interference with contract based on Ozimals’ takedown notice.  Amaretto sought and obtained a temporary restraining order and a preliminary injunction requiring Ozimals to withdraw the DMCA notice.  Therefore, Linden Labs did not remove any of the allegedly infringing materials from Second Life.

On a first motion to dismiss, the court disposed of Amaretto Ranch’s Section 512(f) claim fairly easily, dismissing the claim because Linden Labs had never actually removed the allegedly infringing material.  Removal of the allegedly infringing material is a requirement to state a claim under the statute.  The court also dismissed without prejudice Amaretto Ranch’s claim for tortious interference with contract because it was not “plausibly pleaded.”

Amaretto then amended its complaint, and Ozimals filed another motion to dismiss.  The amended complaint asserted additional state law claims — defamation, trade libel, intentional interference with contract and interference with prospective business advantage — based on Ozimals’ takedown notice.  In contrast to the state law claim in the first complaint, which the court dismissed because Amaretto had not pleaded sufficient facts, the amended complaint required the court to consider tougher questions regarding federal preemption of state law claims stemming from a DMCA takedown notice.

Perhaps unsurprisingly, the court followed two previous cases from the Northern District of California holding that Section 512(f) preempts state law claims based on DMCA takedown notices, Online Policy Group v. Diebold, Inc. and Lenz v. Universal Music Corp. According to the court, Diebold and Lenz stand for the proposition that a DMCA takedown notification is “a creature of a federal statutory regime, and . . . that regime preempts any state law claim based on an allegedly improper” takedown notice.

Amaretto Ranch tried to distinguish Diebold and Lenz by pointing out that, in those cases, an actual takedown occurred, while in this case Linden Labs never actually removed the allegedly infringing materials.  Therefore, argued Amaretto Ranch, the court should follow Rock River Comm., Inc. v. Universal Music Group, Inc., a case we have reported on previously).  In Rock River, a Central District of California court held that the DMCA did not apply to the cease and desist letter at issue and, therefore, the DMCA did not preempt a state law tortious interference claim based on the letter.  The Amaretto Ranch court, however, did not find this argument persuasive.  According to the court, Rock River was distinguishable because, in that case, there was no takedown notice under the DMCA in the first place, whereas Amaretto Ranch had plainly alleged that Ozimals takedown notice was “within the ambit of the DMCA.”

Based on this analysis, the court held that Amaretto Ranch’s state law claims were preempted by the DMCA.  Of course, as noted, the court had also dismissed Amaretto Ranch’s DMCA claim, leaving Amaretto Ranch without any remedy at all.  This outcome reveals how thin the protections against misuse of DMCA takedown notices can be where no removal of the allegedly infringing materials has occurred.  As other commentators have noted, the DMCA sometimes does not provide for efficient resolution of copyright disputes.  No matter what harm results from the issuance of a DMCA takedown notice, and even if the notice contains flagrant misrepresentations and false accusations of copyright infringement, the Amaretto Ranch approach denies the accused party any remedy unless the service provider actually removes the allegedly infringing content.  At the very least, Amaretto Ranch highlights an important strategic consideration:  When a competitor sends out a groundless DMCA notice, should the accused infringer immediately seek judicial intervention or is it better to wait for the service provider to remove the accused materials?  If the accused infringer gets an injunction to prevent takedown of the accused material, that success could ultimately preclude any recovery for harm resulting from the notice.