Lab updates SL’s Terms of Service

secondlifeThose logging-in the Second Life on Tuesday May 7th, 2013 were confronted with the need to accept the platform’s terms Terms of Service (ToS) once more. An official blog post on the matter states:

When you log in to the Second Life Viewer today, you’ll be asked to accept an updated Terms of Service. As with any legal document, it’s important to read in its entirety before accepting, but we wanted to highlight one of the changes we’ve made in this update: to better protect Second Life users against fraud, the updated Terms of Service make it clear that trading of Linden dollars (L$) on exchanges other than the LindeX, Second Life’s official L$ exchange, is not authorized or allowed.

 As the official exchange owned and operated by Linden Lab, the LindeX is the best place to buy and sell L$ for use in Second Life. It consistently offers the best rates for both buyers and sellers, and by limiting L$ trading to the exchange we operate, we are better able to protect users against fraudulent activity.

 The majority of Second Life users who purchase L$ do so through the Second Life Viewer by clicking on the “Buy L$” button. There will be no change to that function, as these orders are placed directly through the LindeX. Similarly, shopping on Marketplace will not be impacted.

The post also includes a link to the Knowledge Base article on the LindeX and the Quick Tips video on getting and spending Linden Dollars.

The core change to the ToS is section 5.3, which has been revised to read:

Third party exchanges are not authorized by Linden Lab and Buying or Selling Linden dollars on third-party exchanges are not authorized transactions. Third party exchanges are wholly distinct from both the LindeX exchange and Linden Lab and they have no affiliation with Linden Lab. We do not endorse or otherwise guarantee the legitimacy of the Linden dollar transfers offered on them, and we are not liable for purchases of such Linden dollars. Buying or Selling Linden dollars anywhere other than the LindeX is done so solely at your own risk. If you Buy Linden dollars that are traced to unauthorized credit card activity or other fraudulent activity, we will recoup these Linden dollars from your Account. The only authorized exchange is the LindeX.

All reference to any third-party exchanges using the Lab’s “Risk API” tool has been removed from the ToS, and the Risk API wiki page has been removed from the SL wiki, although the deletion log is retained for reference purposes.

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31 thoughts on “Lab updates SL’s Terms of Service

  1. Confusing ToS, not everybody can or want to buy from the inworld buy tool.
    But i know other bank thats for years in sl and is fine.

    The say your not allowed to buy from otehrsd and at the same point the say you can buy but dont yell if something go wrong. Still confused.


    1. The LindeX has the backing of Linden Lab. What they are effectively saying is that other mechanisms may not be so trustworthy, and as with all things, caveat emptor.


      1. That has always been the case, LL have never taken responsibility for transactions on third party exchanges, even when they used to have a page linking to them.

        The blog post and terms of service are also not consistent, the blog post says:
        ” the updated Terms of Service make it clear that trading of Linden dollars (L$) on exchanges other than the LindeX, Second Life’s official L$ exchange, is not authorized or allowed.”

        The terms of service makes no reference whatsoever to trading on third party exchanges being not allowed, it says it’s done at your own risk.


        1. Yes, it has always been the case.

          However, you argument could also be applied to previous versions of the ToS, wherein they potentially gave even more credence to 3rd party exchanges, including through referening the list obtained via the Risk API tool, which in turn could expose the Lab far more to the possibility of legal action involving them them.

          The revised ToS, however, removed that ambiguity (there is no longer any implied encouragement to use third-party exchanges) while at the same time being careful not to expose the company to any legal obligation to pro-actively police third-party exchanges – which might well have otherwise been a risk in including terms such as “not allowed” in what amount to a legal document.

          So yes, it is still a case of caveat emptor, but one which is now far more clearly underlined.


  2. The last time I had to pay any money to Linden Labs, I received a warning letter from my bank, on the subject of going abroad without telling them. I cannot honestly say that what LL says about the L$ makes me feel they are worthy of my trust. It’s just Premium membership, so it’s hardly worth worrying about. Make it a few hundred dollars a month and it would feel different.

    I used to do VAT accounting. There’s something that feels wrong about the way LL handles VAT. They should have a VAT registration number, but where is it? (The exemption they refer to is down to how VAT-registered companies handle VAT payments on imports, a different accounting procedure. Not what I would call an exemption.)

    And the last email receipt I had doesn’t match the standard my accountant expected.


  3. The confusion isn’t related to the risk of using third party exchanges, it’s whether it’s implied that by using one, you’re breaching the terms of service, if that is the case then the implications are larger than just using one at your own risk, you’re risking your account as well as your money if it’s a TOS breach. They should make this clear.


    1. The Risk API seems to be dead.

      As usual, definite info is thin on the ground. I’ve seen one very indirect report of Linden Labs sending mail to the third-party exchanges. So far, the public texts seem confused. Deal at your own risk? Not really new. Further action against the third-party exchanges? Your guess is as good as mine.

      There’s one obvious motive. Once you have L$ in your account, the chances to profit from the process shrink. LL make money from the transaction between USD and L$, and if somebody such as Virwox are doing that, LL don’t get any money.

      The turnover for Virwox is pretty big. Their trading volume for 2012 was 9.6 billion L$, which is roughly 38 million USD, and their spread is about 1.6%. That’s half a million dollars that LL doesn’t see. Sounds a lot, but compared to the annual total for tier it’s not so much. Still, it’s a motive.

      I expect Godot Linden will come and explain what is really happening. Just call me Vladimir.


      1. Yeah, Risk API is no more from what I could see in digging around yesterday.

        I think you’re closer to the mark than a lot of the speculation going on as to why the move. Hlaf-a-million doesn’t sound a lot – but it could go a long way toward offsetting an annual reduction of $762,000 in tier revenue (which is roughly what the Lab suffered in 2012).


        1. I did a bit more digging around, and my initial estimate may be low. It’s hard to compare the different exchanges, because of other fees, and unknown costs, but the total from all the alternative exchanges could easily exceed that drop in tier revenue.

          And once Linden Labs control the only market how long before the spread between Buy and Sell widens?


    1. I’d considered the FinCEN guidelines when I saw the LL blog piece, having written about it back in March myself. However, I’m not 100% convinced the FinCEN guidelines were the motivating factor behind the update. For one thing, there isn’t anything in the guidelines to suggest that LL would in any way be held accountable for any failure on the part of a third-party MSB than is currently the case.

      As such, I tend to go with this being more a move directed at further limiting the opportunities for frauduent actions involving SL users which may have an impact on the platform as a whole, rather than a direct result of FinCEN issuing a set of intrepretive guidelines.

      That said, I would add that there could be a potential overlap between the two (the FinCEN guidelines and the SL ToS change) inasmuch as by attempting to limit any exposure of L$ to third-party exchanges and confine trading to LL’s own mechanism (the LindeX), the Lab might be trying to strengthen their position that the L$ is a “gaming token” rather than a “virtual currency” – which cuts to the heart of the core difference in their interpretation of the Linden Dollar’s status, and how FinCEN might regard it.


      1. I think I’ll focus my attention on your comment’s last paragraph. I wonder if LL is trying, by amending its ToS in this way, to make the Linden Dollar look a bit more like the “ambrosia” in GameForge’s Ikariam (ambrosia, in that game, is a token that users can purchase so that they’ll exchange it, in-game, with certain extra abilities for their cities).


  4. Wonder if this new law has any implication on open sim grids, where there is not even a currency to trade with in 1st place, like OSgrid!
    And guess its time for a commercial grid outside USA (Seems Brasil already have one!)


    1. There is no “new Law” per se. The FinCEN document relates to the Bank Secrecy Act (1970), the regulations for which, so far as I can tell, haven’t actually been amended since March 2011.


    2. Any new Grid faces the problem of recovering the social connections. Do you leave your friends behind?

      The Tinies of Raglan Shire are the sort of group which could pull off such a move. There must be others, maybe the stronger role-play groups.

      I do know people in SL who cheerfully give away their creations, so does a grid need money?


  5. The basic principle is that if you take money from people, hold on to the money for a while, and give the money back then, for all intents and purposes, you are some kind of financial institution. And that means all kinds of laws apply — money laundering, tax reporting, and a whole bunch of consumer protection laws.

    It doesn’t matter what you call it. If, for example, your company issues a gift card that’s a virtual currency of a form. If it can be redeemed only at the store, it’s a “closed loop.” If you can turn it back in for cash, it’s “open loop”. Typically, merchants looking to issue “open loop” gift cards use an existing credit card company or bank as a business partner, and just put their brand on the card, to avoid having to do all the regulatory stuff that the financial institutions have to do.

    These laws have been on the books for ages, just get updated once in a while, or have “guidance” issued to cover new situations.

    Back when the Internet first became popular, a whole bunch of online payment companies sprung up without bothering to comply with any of these laws. As they got larger, regulators cracked down. PayPal, for example, has long ago registered as either a bank, money transmittal service or other type of financial institution (specific laws vary by jurisdiction) in most of the countries where they do business.

    Large virtual currency companies — the Facebooks, the Zyngas — have typically been careful to issue only “closed loop” currencies that cannot be redeemed for cash. Although it would of course be nice if they were redeemable — I’d be a millionaire just from FarmVille gold alone.

    I’m not sure how the Lindex has been able to survive so long — maybe the regulators have had other things to worry about. OpenSim grids that issue their own currencies all have the same issues.

    There is one loophole, however, in all this. Business partners are allowed to withdraw money. Say I partner with Zynga or Facebook for some kind of in-game promotion. At the end of the day, the business partners will be passing money back and forth, and will need to, say, convert in-game gold into real dollars (usually at some kind of steep discount, often around 30 percent). As long as the folks cashing our are real business partners, this doesn’t violate the “closed loop” policy that applies to consumers. Maybe Second Life considers folks cashing out the currency on Lindex to be business partners and not retail customers. The existence of third-party exchanges then, which anyone could use, would then weaken their argument.


  6. A grid does not need to have a currenyc for sure, see OSgrid, Metropolis or any open grid!


    1. Um, exactly how many content creators who have been engaging in selling merchandise in SL to supplement their income (some of them actually rely on their SL sales for their livelihoods entirely) would be willing to go to a grid that has no currency or one that does not allow cashing out?


  7. Quoting:
    Not to change the subject too much, but I noticed that LL is not responsible for “termination of service.” I couldn’t find a copy of previous TOS but that phrase seemed a bit jaring….how long has it been in TOS that LL says it can terminate Second Life? Just wondering.
    Wonder the same!


  8. To me it sounds like either some of LL’s lawyers screwed up (the ToS, once again, becomes contradictory, and leaves the meaning of “authorized” unclear — i.e. it requires a lawyer to define, in court, what it means), or LL is really wanting to turn the L$ into a monopoly.

    Well, that’s fine, if they’re aware that around 60% of all SL residents are not allowed to use the LindeX, which is the main reason for so many other L$ exchanges to flourish: they accept payments under different mechanisms, which LL always refused.

    In my country, the ATM network operator (a consortium of all Portuguese banks) exchanges Euros for L$. They certainly have waaaay more permits and authorizations to do money transactions than Linden Lab. But even the National Postal Service, through a sister company (which runs small electronic terminals in a network made of kiosks, bookshops, tobacco shops, and similar local businesses), allows anonymous exchanges of Euros for L$. I mean, we’re not just talking about VirWox (nothing against them, btw, I happened to do a few test runs with them for OpenSim and loved their tech support!), but the whole idea that the L$ is a commodity that is still viewed by “real” banks, “real” payment gateways, and “real” public institutions as an interesting service to provide to their citizens… who often don’t have access to credit cards, much less to PayPal (who is, at best, a very dubious organisation…). So is LL really wishing to abolish all that?


      1. This is one of those times I have the urge to ask for a citation, both on the numbers and on the situation in Portugal. It’s partly a hangover from being at school when people still used slide rules. It’s a tool that requires you to do a rough calculation to fix where the decimal point should be, and I still have that habit of trying to get a plausible answer in my head.

        As for buying L$ in Portugal, it seems odd. Possible, since outfits such as VirWoX have/had an API for going through their system, but odd. How big a market would it be, and would the work to support such an option ever get enough use to recover the costs?

        If you’ve seen web pages in Portuguese, was it some operation in Brazil?


        1. Indeed Wolf, what Gwyn said strikes me as surprising and odd at the same time. Simply put, there’s just no reason for banks’ ATMs to allow “normal” currency to L$ transactions (BTW, in the world of Fiat money, all currencies are, well, virtual and have no inherent value; all money currently is make-believe money), because (i) there is no such thing as a market of sufficient size for this, (ii) no one would leave the safety and comfort of their home to go to an ATM in order to buy L$.

          As for leaving the office to go to an ATM in RL to buy L$… Well, I’m perfectly sure that, even if our firewall or internet use policy at the office prohibited access to such websites, I wouldn’t have a nagging voice in my head saying “gee, I need to top up my SL account with L$.” I’m sure that, even if the time to renew my premium membership or pay my tier was approaching, I’d say “oh well, I’ll do it at home.”


  9. Being Portuguese the only thing i know is that several Banks had a presense on SL and at least CGD, the official goverment bank still has some termimnals in world!
    I only use paypal and only buy L in world as i dont use Sl for a living but rather for my joy!
    Also i think that the worst that happened to SL was the greed and the desire of many to make from it a real life budget or even their only mean of survival!
    I do believe that a close currency and to make sure that ALL will realize that SL should be only a tool for our enjoyoment rather then a meaning to make up some cash, is the best!
    I played for long several Bethseda games and the amzing was that its mod comunity will would only work for the joy of creating and sharing, as many other games.
    The mentality of being in SL to earn a profit is what make it so disgusting, placing all the real life greed and troubles inside a place that should be only a tool for our dreams our imagination.
    I’m sorry for those that depend on SL for a leaving?
    No, i’m sorry for those organizations, like feed a smile, that will loose most of their support , due to the massive loss of donations that will happen now, as Second Life is full of the ones that want to profti isntead of enjoying!
    Im sorry for the Musicians and all artists that where using Sl, making it the most amaznig cluster of global arts, that will loose a lot of incentive to do do?
    No cause there are many others that stil perform on Open Sim grids where there is no currency, just for the plaeasure of having some enjoying their performances!
    Same with creathors!
    Let SL have a close currency even at the cost of loosing some or most of its creathors and artists and for sure increasing outiside Liden Lab hand, real money exchanges!
    Cause nobody doubts, greed will not leave SL, it will only find another way!|


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