Regulating the Virtual World: A Losing Battle?

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New developments in cyberspace may be challenging the state’s regulatory capabilities.

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Is the “virtual world” impossible to regulate?

Almost, claims Gabriel Michael, a doctoral candidate at The George Washington University who addresses this question in a new working paper,  Anarchy and Property Rights in the Virtual World: How Disruptive Technologies Undermine the State and Ensure that the Virtual World Remains a “Wild West.” In his paper, Michael explains how the state’s ability to regulate the virtual world, which includes cyberspace and the internet, is decreasingly rapidly. The result, he claims, is a virtual environment characterized by “anarchy.”

Michael contends that while the number of laws which seek to regulate the virtual world grows, actors can get around them with such little difficulty, and the state so seldom enforces them, that people can flout them without facing consequences. Although some cases of enforcement have received widespread attention, Michael claims, enforcement is uncommon for the average user.  Because the conventional wisdom among legal scholars fails to appreciate that the virtual world is characterized by anarchy— defined as “the lack of practical resort to the state as an effective arbiter of disputes and enforcer of judgments”—these scholars incorrectly assume that the virtual world is headed for an “era of greater control and regulation.” On the contrary, Michael argues, the virtual world is headed for “an era of less control” because the state cannot meaningfully enforce laws that attempt to regulate people’s conduct in the virtual world.

By way of illustration, Michael recounts his experience circumventing a government-imposed restriction on internet use designed to prevent against copyright infringement by file-sharing–the practice of sharing digital content, such as documents and music. In 2012, Michael attempted to access The Pirate Bay, an infamous file sharing website, from his computer in Brussels. The Belgian government had directed Belgian internet service providers to obstruct access to The Pirate Bay, and so Michael’s search was diverted to a webpage telling him that the site he sought to visit enabled copyright infringement and had therefore been restricted. Within 60 seconds, Michael had circumvented the restriction by changing his domain name server to one provided by Google, and accessed The Pirate Bay site.

Part of what makes the virtual world difficult to regulate, Michael contends, is that it is “a space defined primarily by social constraints rather than physical constraints.” Rules, including formal laws as well as behavioral customs, rather than rivalry and excludability—two characteristics of physical property—constrain the virtual world, and these social constraints can change easily. Also, it is easier for violating entities in the virtual world to reconstruct themselves after facing an enforcement challenge, and they can do this quickly; Michael explains that “[e]ven if a state captures, prosecutes, or imprisons individuals, or seizes hardware or domain names, other individuals with new hardware can promptly take their place.”

Enforcement of the law is only one of several ways that internet users’ behavior can be regulated, and Michael argues that legal scholars overstate its power over the virtual world. Rather, Michael notes, non-law social considerations chiefly influence these users’ behavior.

Michael uses the example of file-sharing, which often implicates copyright concerns, to illustrate this point. “Forwarding a copy of a journal article, streaming a television program from a foreign website, or even printing a copy of a web page: all of these common, everyday practices likely involve copyright violation,” Michael states. He argues that “price and availability” rather than the threat of enforcement, motivate copyright infringement and piracy. Copyright infringement has become so prevalent, Michael argues, that referring to “pirates” or copyright infringers as if they were marginal actors is inapt. Now, simply “operating in the virtual world at all [] makes one an outlaw.”

Attempts to curb this illegal activity have failed, Michael claims, and this failure illustrates the state’s decreasing ability to regulate the virtual world. He notes that the Recording Industry Association of America’s (RIAA) giant lawsuit initiative, whereby it sued many thousands of people who had shared files, failed to stem the widespread practice of file sharing and “ultimately proved so ineffective that the RIAA abandoned its campaign in 2008.”

In addition to file sharing, Michael points to two other “disruptive technologies”—3D printing and digital money–that challenge the state’s ability to regulate the virtual world. 3D printing, which Michael describes as creating models and other three-dimensional objects by printing layer upon layer of material, poses a particular concern that individuals may be able to create otherwise regulated objects in an unregulated way. For example, Michael cites Defense Distributed’s recent claim that it had managed to create the lower part of an AR-15 rifle and use it to shoot in a test run. He points out the clear challenge 3D printing of weapons could pose to gun laws because attempts to prevent the sharing of designs for these guns may prove just as futile as current file sharing initiatives. He notes that the “potential ubiquity of easily accessible, undetectable, untraceable, and inexpensive firearms will ultimately doom any attempt at their regulatory control.”

Similarly, Michael contends that Bitcoin, a “digital currency that is distributed over a peer-to-peer network,” poses grave concerns for government regulators. It allows individuals to conduct online transactions in an anonymous fashion, and as a result is favored by actors conducting illicit business. Bitcoin users may also fail to report Bitcoin income on their tax returns. And because Bitcoin lacks a central controlling body, regulators cannot easily shut it down.

Despite these challenges to the state’s ability to control the virtual world, Michael does not contend that regulation of the virtual world is impossible. He notes that “legitimate, stable businesses and customers who value reliability and legality” will want to adhere to regulations, even if they are more costly. Michael also notes that certain matters will be governed effectively by social norms rather than regulations. Even Silk Road, a website for illegal products, renounces pedophilia, against which Michael argues there is strong societal sentiment.

Nevertheless, Michael contends that regulation in the virtual world will only occur if either the benefits of adherence to regulations exceed the costs or social norms influence actors to play by the rules. For example, Michael implies that a decrease in the price of copyrighted material and an increase in its availability have spurred an uptick in legal purchases of certain copyrighted material. “What does not work” he concludes, at least for non-authoritarian regimes, “is relying solely on the threat of compulsion by the state.”