Herman Miller Inc. has been facing a real problem in a virtual world. The Zeeland, Mich.-based company is known throughout the globe as a high-end maker of distinctively stylish and ergonomic furniture. For the past few years, however, unauthorized copies of its furniture began to appear–in Second Life.

Second Life is a 3-D virtual online world whose content is created by its users. Through their personalized avatars, more than 11 million members of Second Life interact with each other. They buy and sell items and build real-estate developments; they do just about everything that people do in real life–and more.

There are even online currency exchanges that allow “in-world” money to be converted into U.S. dollars. Thus, individuals who make money in Second Life can see the results in their real-world income.

Some entrepreneurs in Second Life were making money by creating and selling unauthorized copies of Herman Miller’s furniture. These copies were often shoddy; they didn’t look like the creations of a top-flight business. They definitely weren’t something with which Herman Miller wanted to be associated.

Other well-known brands have been facing similar problems in Second Life. It’s easy to go in-world and buy counterfeit Rolex watches, Gucci handbags, Ferrari cars and Apple iPods, which are often pre-loaded with unauthorized copies of songs. Unauthorized use of companies’ names, logos and designs is rampant in this virtual world.

Stopping these virtual counterfeits is no simple task. “Enforcing your rights is a tricky thing in virtual worlds,” says Alan Sutin, an IP attorney in Greenberg Traurig’s New York office.

Brand Impact
Why should companies care what happens in virtual worlds? After all, counterfeit virtual goods don’t compete with real-world goods. And the revenue from virtual sales is too tiny to interest good-size corporations. “If you earn $50 a week [from selling virtual items], you’re doing very well,” says Douglas Wolf, a trademark attorney in Boston’s Wolf, Greenfield & Sacks.

However, many businesses see virtual worlds as great marketing opportunities. The “population” of Second Life and other virtual worlds has been exploding, and the residents’ demographics make them prime targets for many marketing pitches. “Those people tend to be … a captive audience, so this is a good marketing opportunity,” says Alan Behr, an IP attorney in Alston & Bird’s New York office.

More than 100 major brands are legitimately marketed in Second Life, including Nike, Toyota and eBay. And the numbers are expected to grow.

“Virtual worlds is a concept that is here to stay,” says Kraig Baker, an IP attorney in the Seattle office of Davis Wright Tremaine. “So if I’m Coca-Cola or Herman Miller, I have to get into this space in order to reach my potential customers.”

But virtual worlds can help a company’s marketing only if the virtual marketing is done well. Which is why many businesses are concerned about virtual counterfeiters.

“[The] problem is that someone will project your brand image in a way that you don’t want,” Baker says. “And as these worlds become more and more a reflection of [users'] lives, it will impact more on how people view the brands.”

Innocent Infringer
There’s no easy way to stop virtual counterfeiters. An IP owner could try to sue the company that runs Second Life, San Francisco-based Linden Lab. Linden, however, takes the position that it is an Internet Service Provider (ISP) under the Digital Millennium Copyright Act of 1998 (DMCA) and is thus not responsible for any copyright infringements committed by its users.

Linden could also assert the innocent infringer defense under Section 32(2) of the Lanham Act, the federal trademark statute. This provision states that an innocent infringer is not liable for damages and can only be required to comply with an injunction to stop further infringements of plaintiff’s marks.

The courts have held that a trademark infringer is innocent, under Section 32(2), so long as the infringer did not act with either (a) knowledge of the infringement or (b) reckless disregard as to whether the offending material infringed the trademark owner’s rights. Linden Lab could assert that it is an innocent infringer because it is unable to monitor all the activity in Second Life and thus is unaware of any trademark infringements that have occurred.

Rather than suing Linden, IP owners may prefer to work with the company. Linden has a policy of protecting trademarks and copyrights. If a trademark or copyright owner informs Linden that a specific virtual item is infringing, Linden will remove the item. But it is up to IP owners to find any such infringing items. That means IP owners have to play Whac-A-Mole with the many and changing infringements in Second Life.

Virtual Solution
A disgruntled IP owner could sue a Second Life resident for infringement, but it is uncertain how the courts would apply trademark and copyright law to virtual worlds. “There is little guidance on how the courts will view these things, so we are sort of finding our way in the dark,” Baker says.

Then there’s the danger of creating some very bad PR. Siccing lawyers on a Second Life resident can create a “very Internet-savvy, disgruntled person who can stir up a lot of grass-roots negativity,” Sutin warns.

In-world infringements are very different from real-life commercial infringements, so experts say IP owners should respond differently. Second Life residents are more sophisticated than most real-world counterfeiters, and the amount of money involved is far less. Thus, “a reasonable discussion is a better way to approach the issues, rather than a whole portfolio of litigation,” Wolf says.

But the best way for a company to defend its IP rights may be to open its own in-world store. “By being an early adopter, you head off potential problems, you get good PR and you get to present your brand the way you want,” Baker says.

That’s the approach Herman Miller took. Last October, the company opened a store in Second Life that sold high quality virtual furniture based on its real-world goods–and for a limited period, the company allowed residents to exchange (for free) their fake Herman Miller virtual furniture for the real thing. Along with the carrot, the company gently used a stick. It sent polite cease-and-desist letters to creators of in-world counterfeits. “Some have complied, others have countered with proposed partnerships, and some have yet to respond,” a company spokesperson said.

And now there are far fewer counterfeit chairs in one virtual world.