The Case for Government Regulation in the Virtual Context

Calling for regulation of the Internet immediately elicits negative symbols of Orwellian censorship.  However, once you get past the notion of a virtual book burning, it becomes clear that regulation of certain aspects of the Internet is no different than the regulation of anything else.  As the line between the virtual and the real world continues to blur, the same arguments for or against regulation in an Internet context become nearly identical to the arguments made for or against regulation in the offline context.  With the continued evolution in Internet technology, to not regulate actions on the Internet solely because they are “virtual” ignores their very real effects and the rationales that induced the regulation of an activity in the first place.

A culture of deregulation was able to take root online because during the Internet’s infancy, independent regulation targeted solely at the Internet was really not warranted.  The initial packet-sharing system allowed users to share information and little else.  Still very much akin to a modern version of the telegraph, conspiracy and wire fraud statutes adequately governed the potential negative uses for the Internet.  However, as the Internet has developed into an environment where users can share pictures and music, bank, shop and interact in real time, the regulations that govern its use need to develop as well.

Specifically, instead of regulating the Internet per se, the government needs to adopt new laws that allow already regulated behavior to be recognized and regulated in the virtual context.  Although the Internet is still controlled by words and commands, it has become ludicrous to think that simply because something is done online, it isn’t real, and thus not worth regulating.  The societal rationales that lead to regulation of certain industries and activities like gambling, copyright infringement, and private currency are just as real online as off.

Regulations governing the protection of copyrights have existed in America since its incorporation (see Article I, Section 8, Clause 8 of the Constitution).  The protection of artistic and scholarly work has consistently evolved with both new forms of art as well as with new mediums of recording those works.  Copyright’s Constitutional purpose to “Promote the Progress of Science and the useful Arts…” did not change when Edison recorded sound or when Betamax introduced time-shifting, and it will not change as the Internet and computer technology evolve.

A completely unregulated Internet would allow users to rip movies, songs, books, and software without any negative personal consequence.  While this seems like a great idea to anyone tired of paying $13 for a CD, if making one physical copy can rightly be regulated, how can making a million virtual copies be any better?  The introduction of file sharing programs in the late 1990’s such as Napster and Kazaa allowed individuals to essentially do just that (by some estimates over five billion files a month were shared by Americans in 2003[i]).  Whether you agree or disagree with the rationale for protecting copyrights is one thing, but the argument that it should not be regulated merely because it occurred digitally ignores reality and the reasoning behind regulating it in the first place.

Like copyrights, gambling has a long history of regulation in America.  At various times gambling has been completely unregulated, somewhat regulated, and often completely prohibited.  Classic concerns surrounding gambling like cheating, corruption, addiction, money laundering, and the involvement of minors exist at least as much online as they do off.  Senator Barney Frank’s proposal in H.R. 2267 inherently recognizes these concerns.  The legislation title, “Internet Gambling Regulation, Consumer Protection, and Enforcement Act,” is indicative of the government’s continued involvement in gambling activities.  Complete deregulation of gaming activities would make the Internet version of an activity which has long been regulated “free” simply because it occurs online. Such a notion naively ignores the fact that actions on the Internet come with the same negative elements that the government tried to eliminate with legislation of the real world activity to begin with.

This last June, the Chinese government made “gold farming” operations illegal.  Gold farming, popular in games such as World of Warcraft (WoW), is the process of earning virtual currency inside a computer game and then selling that to other players for real money.  Although virtual currencies like WoW Gold seem simply like any product that can be bought to enhance a game, as soon as it is used to buy thing outside of the game context, it is basically functioning as its own currency.  Essentially, the process is equivalent to someone playing Monopoly and then using the rent they collected from owning Boardwalk to buy items outside the game, such as groceries or even other games.  As such, saying that the Chinese government is wrong for regulating the use of virtual currency is no different than saying they cannot regulate and ban real world competing currencies from being produced within the country.  Obvious concerns about inflation, counterfeiting, and economic stability have long been accepted as reasons for governments to control the issuance of money.  Why should the situation differ simply because the money has moved to an intangible medium? As long as people have confidence in money and will accept it, all the reasons for regulation apply and the distinction between real and virtual becomes so blurred that it is essentially moot.

Outside of the libertarian ideas of deregulation (in both the real and virtual context), there is also the notion that the Internet should be self-regulated.  Proponents of self-regulation ascribe to an idealist dream that Internet users can simply agree to their own terms and conditions to control behavior.   Discussed in detail in previous posts, TOS and EULA “agreements” are contracts between Internet sites and their users that aim to govern the behavior that occurs at that particular site.  Although the terms of these contracts are self-written, 18 U.S.C. §1030 provides some government-backed enforcement of the terms with criminal sanctions.  However, this approach to law making fails to take into account the rationales that necessitated government regulation in the first place.  Merely having a website where everyone agrees to share music does not protect the copyright holder and fulfill the Constitution’s goal to promote the creation of new ideas.  Moreover, such contracts are almost always unilaterally created by the owner of the website.  A take-it-or-leave-it approach to the Internet hardly seems to be a desirable solution merely to avoid all government regulation.

Government regulation of activities should not be viewed any differently whether those activities occur online or off.  The Internet is no longer a modern version of the telegraph, but a complex environment that allows people to act in very real ways.  Although the online renditions of those activities are still referred to as virtual, they carry the same real world consequences that initially warranted government regulation.

[i] See Testing File-Sharing’s Impact by Examining Record Sales in Cities; Stan J. Liebowitz;


~ by alexkarden on October 6, 2009.

10 Responses to “The Case for Government Regulation in the Virtual Context”

  1. Each of this week’s main posts present differing viewpoints on governmental regulation of the internet. While both of the differing views raise excellent points, one paints government regulation in a very good light to protect crime and bad acts going on on the internet, and the other portrays government regulation in a negative way restricting the freedom of the American people. It is quite difficult to disagree with either of these conclusions.

    While Americans (and just humans in general) should be able to spend their money as they wish, a line must be drawn somewhere because everyone’s wishes are different and some people’s wishes infringe upon other people’s rights. We cannot make everyone happy. I remember when Napster first came out and there was nothing better! You could download thousands of individual songs without paying for them and without buying a full CD for $15-20 for the 2-3 songs you actually liked. While my wishes were to enjoy all of this free music, it was not long before I finally understood what I was doing. At the age of 13-14 I did not understand copyright infringement and what my free music was doing to the people who wrote and sang these songs etc. This is only a mild example of the need for regulation. What happens online does not differ wildly from what happens in real life. The only reason it is currently different is that it is easier to get away with because the necessary laws are not in place.

    When considering the DMCA, I find that it is not the “lobbying muscles” of a select few that do not allow us to take the protections we wish for our DVDs and other media, but it is the dishonesty and bad acts of another select few that make this regulation necessary.

    I very much appreciate the analogy of Gold Farming on WoW and using Monopoly money in the real world. When gold farming is framed in this way, it is so much easier to understand. No person in their right mind would think to use Monopoly money in the real world, nor would they think that Monopoly money should have any real world value. One day, people will understand virtual worlds and concepts such as gold farming and the problems that arise in virtual reality as easily as they can understand that you should not use Monopoly money or trade Monopoly money for real dollars. It is only a matter of time until the law and the rest of society catch up to what is going on online.

  2. I think that both bloggers this week did a good job presenting partially opposing viewpoints between a) the need for some governmental regulation of the internet and b) the need to ensure that governmental regulation best represents the interest of all users and not just a privileged few.

    The case for governmental regulation in the virtual context reiterated what many have said over the first units: that as technology and the internet develop, activities carried on in the “virtual world” also develop stronger and stronger real world consequences, which is a viewpoint that I myself ascribe to. At some point, governments need to realize that even though you can boil down all actions on the internet to, as some classmates have put it, “ones and zeroes”, the consequences of these actions transcend lines of computer code and impact the people and societies that are interacting in virtual space in a very real way. I also agree that for any meaningful regulation of virtual space to occur, governments must step in at some point. One would like to believe in the ideal utopia that the creator of Second Life dreams of, but most people that have actually spent time in the real world understand that is not the world in which we live. That being said, the force of the government and real world sanctions are needed to ensure that any type of regulation of the internet enjoys long-term success.

    As to the pandering to special interests blog, I myself miss Party Poker and have always wondered how such an amendment was secreted into an anti-terrorism bill. I also agree that a much better solution would be for the U.S. to allow domestic companies to run regulated internet gaming sites, so that they can tax the multi-billion dollar industry, because those who really want to gamble online can find loopholes to do so, so why not get a piece of the action (but then again when have you ever known a bureaucracy to do something so logical and efficient).

  3. I agree with your suggestion that, rather than developing new laws to apply to the internet, existing laws should be modified to explicitly apply to the virtual world. This is the most utilitarian solution and also attaches a history of strength and reliability to the law as it applies to the virtual context. Otherwise, with a new paradigm, the laws would be easily challenged unreasonable, overstepping, etc.. The modifications would place the internet regulation in the context of law that Congress and the people have already accepted as reflective of social norms.

    As for internet gambling, I also agree that it should not be free of regulation. However, given the fact that online gambling regulations have, as my colleague mentions above, slipped into unrelated bills as earmarks, I think that Congress has hidden motives in the extreme regulations in place on internet gambling. It seems like Congress simply saw a market that could be harnessed and turned into lucrative American commodity. By the same token though, internet gambling has not been opened in a regulated manner to U.S. companies. Given the fact that casinos are becoming more prevalent on U.S. soil, what is the harm in allowing U.S. companies, under government regulation, to run casinos online?

  4. Alex recommends adoption of new laws to allow conduct that is already regulated in the physical world to be regulated in the virtual context as well. I think that’s wise, and I agree. But I can’t figure how that would work in a situation like gold farming, because I don’t understand enough about how those currency exchanges happen. Would a new law to regulate (not prohibit, just regulate) those exchanges have to recognize a new form of currency for use outside of the game?

  5. As I understand, any need to regulate any action on the internet would be based on the inherent results of the action, not because of the actions being on the internet. Yet, I think there is something about the internet that adds another dimension to this. Some actions that might not need intervention grows to a much bigger problem on the internet. Would the underlying actions be regulated, or should the act only be regulated in relation to the internet?

  6. Many of the ideas here concerning the lack of understanding virtual actions having real consequences can be drawn back to virtual crimes. The concept of drawing these “online” actions into the folds of current laws and jurisdictions seems much more practical than attempting to write new laws fast enough to keep up with the inexorably fast pace technology has set. China’s first step should be viewed as a first step towards the finish line, not out of bounds.

  7. This blog post illuminates the disconnect between advances in technology and the applicability of laws currently on the books. I agree that it is naïve to assume that when an action occurs in the digital world or in an online community that there are no real-world repercussions. Especially today when students are continuously told to watch what they post on social networking sites like Facebook because of the real-world implications they are subjecting themselves to. More and more employers are logging onto Facebook to see how their employees are representing themselves to this digital community. In fact, recently a story broke that the Florida Bar will begin to search Facebook pages of bar candidates that require extra scrutiny for the character and fitness test. One need look no farther to see that actions online have very swift consequences in real life.

  8. I think that regulation of the internet in necessary. It is imperative!!! The internet is a world of its own. It is not just a virtual concept or some kind of game. The internet, the virtual world, is life. To some people it is not just a second world, but it is their first world. A person can do anything online. For instance, people have relationships and occupations that are solely on the internet. Accordingly, the virtual world must be regulated, because it is more than the “internet”, the internet is similar to a country.

    There are real consequences to online dealings, like the real world. Additionally, interactions online effect real world dealings. Therefore, government has a duty to step in, and protect its citizens. I do no think that the virtual should be governed like the real world, but lawmakers can tailor laws and procedures that work for the virtual world. I do not believe that the internet should be a “free for all”, where people can do any thing, and there be no penalty. If that were the case, virtual child pornography, online money fraud, and other crimes would flourish. Criminals would create new crimes that would drastically affect the real world, and maybe threaten the real world’s social order. It is not only about protecting people from crime, but basic regulation is necessary to preserve order. It may be hard to regulate the internet, but it can be done. In order to protect society, and to protect the continually growth of the virtual world, regulation is vital.

  9. The best thing for governing the internet needs to be for the government to adopt new regulations that can handle them. The current laws are not up to par to deal with the new age type of crimes that are emerging. There are numerous crimes that are done in real life that are also done online like gambling. Gambling online should be dealt with in the law just as gambling in real life is dealt with in the law. The two crimes should not be treated as being different. They both can cause the same effect in the society so they should be handled the same way when it comes to making the laws.

    I think that the government should be able to regulate what happens on the internet. Especially when it has real world effects. I also think that the government should be able to regulate what happens even if there is no real world effect. I think that we need to plan towards the future and the internet is the future. We need to be ready for what is to come. I don’t understand the difference between someone using real money to buy something and someone using money they received from a virtual world to buy something. They should be treated the same. Just the same as if someone commits a crime like gambling. It is the same in the real world and in the virtual world and it should be treated as such.

    I don’t think that self-regulation is a good idea. It seems like it would be too hard to do. Like the TOS is too complicated whic is why people don’t read them. I don’t see that changing because the company has all the power and I don’t see why they would give that up. They decide what is in the TOS and the only way that would change is if we regulate them and that is just a vicious circle.

  10. I still have hope for self regulation, as several communities are relatively successful at it. The problem facing self regulation is that the internet has a great disparity in those with technological know-how and those who don’t, which makes it easier for those experienced to be able to disrupt self-regulated communities than it is for moderators to restore order. With that being said, an all across the board regulation may have a stifling effect on expression in communities where it is accepted that “anything goes” and the participants are willing to participate even at risk of offense or otherwise.

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