Can you sell virtual counterfeits in Second Life?

This is definitely out of our domain - but too convoluted and fascinating to ignore: an avatar (an online representation of a real person) in Second Life is attempting to sue another avatar (but in real life) for counterfeiting an online virtual 'product'. (Read Wired's coverage). It's not at all clear what law may have been broken, if any, or even in which country the lawsuit would apply. One problem (of many) is that the defendant avatar, Volkov Catteneo, is, of course, not using his real name. And no-one knows his real name. We won't reveal the counterfeited virtual product ... but it sells for 46 real US dollars, apparently. Confused?