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This paper addresses policy challenges of complex vir- tual environments such as virtual worlds, social network sites, and massive multiplayer online games. The com- plexity of these environments--apparent by the rich user interactions and sophisticated user-generated content that they offer--poses unique challenges for policy management and compliance. These challenges are also impacting the life cycle of the software system that implements the virtual environment. The goal of this paper is to identify and sketch important legal and policy challenges of virtual environments and how they affect stakeholders (i.e., operators, users, and lawmakers). Given the increasing significance of virtual environments, we expect that tackling these challenges will become increasingly important in the future.