Virtual copy write infringement

Apparently a Second Life entrepreneur is having his virtual sex machine pirated and sold at a lower cost than the original. I am not sure if this belongs in a real court, a virtual court or if Linden Labs should just step in to handle the dispute. Another question is does Linden Labs have any liability here to protect entrepreneurs from having their products copied and resold. Can you and should you be able to copy write "Virtual" items? I personally think this does not belong in a real court wasting tax payer money. Lindon Labs should have software usage agreements to deal with the virtual items made in its world. Read the Reuters article here.