Blizzard Changes Course, Integrates Real Money Trading Into Diablo III

If you’re a hardcore player of World of Warcraft, you know how stringently its parent company, Blizzard, has fought to keep the spectre of real money trading (RMT) from corrupting the game.  Gold farming and power leveling were/are scourges of the game for people who believe you need to earn your epic armor by actually playing the game.  So it’s hard to believe that Blizzard would ever even contemplate, let alone actively incorporate RMT into its highly anticipated expansion of the popular Diablo franchise.  But that’s exactly what they’re doing.  They will enable an option for players to choose between in-game currency and RMT so there’s something for everyone.  The idea is to bring the shadow economy into the light and take a cut of the profits that had been going to Chinese sweatshops and former child stars.

If you want to know more about the technical details of the new trading system, you can read more about them here.  Frequent readers of this site will, however, know that I can’t raise a virtual items story without focusing on the potentially huge legal implications of this development, from banking to gambling to property. Most of the worlds that have featured some sort of virtual currency

with RMT have done so in a way that manages to avoid most real world implications. There’s no formal taxation on Second Life transactions in the U.S. (value added taxes, however, do apply in EU countries) and, as far as I know, no 1099 issued for money withdrawn from either SL or Project Entropia, the other world with a well-known RMT system operating in the U.S. I attribute this lack of government attention to the relatively small number of users on these platforms, but that could change if Diablo III takes off.

A screenshot of the new auction house. Items can be listed and purchased with real dollars or in-game currency.

Although the government lost interest after one Congressional hearing back around 2007, technically, any income from these services is taxable upon conversion to real money.  I haven’t seen anything about Linden issuing 1099 forms, however, since they don’t formally oversee the Lindex currency exchange. It’s up to players to keep track of it all themselves.  The Diablo III auction house may be different because it will be run by Blizzard.  Whether state sales or use taxes apply still remains to be seen.

Aside from tax implications, there are also the virtual property issues to think about. This problem is usually solved by setting forth in the terms of service that the items aren’t anything of value, but rather just limited license rights to access a particular aspect of the game service. Of that sounds over-lawyered, that’s because it is. The fallout from the Bragg v. Linden case was a deliberate move by virtual world providers to avoid allowing any players from acquiring any rights to anything at all. It’s sort of like the elephant and the tent analogy, once it gets its nose in, eventually you end up with the whole darn thing in your lap. Blizzard seems to be inviting this pachyderm well into its wigwam by establishing a full-scale RMT auction system, in that everything will have a real monetary value and they will have accounts that store that value for users to extract whenever they choose.

Now, one way they might avoid becoming a de facto bank is if they provide no guarantee of the value of items, such that you can only sell and buy them from other users, not from Blizzard itself. If you have no promise of an item’s value, then the company probably can’t be held responsible if something happens to it. I’m thinking of theft or server failure here, but there could be other ways that items might be lost and the implications of that will have to be addressed with some significant detail if they are to avoid going the way of Linden.

The design of the game will also help avoid any potential run-ins with gambling laws because the acquisition of items is based mostly on skill rather than chance.  There’s some chance involved in what drops, but the average value of each drop will most likely be determined by the player’s skill in defeating mobs, just as in World of Warcraft and past Diablo versions.

I’ve been thinking about this for quite some time, hence the delay in getting this posted, but I guess now I ought to just let it out there and see what people think. Either way, I’m eagerly awaiting the release of this game whenever it hits the shelves, and not just because I’ll be able to write it off as a business expense! Blizzard products are incredibly well-polished and their TOS’s are equally well-considered. If all goes well, this could be the start of a virtual items revolution that has been itching to break into the mainstream in a way that only Blizzard can manifest.

UPDATE: There’s also the possibility that the new Diablo RMT system could be the target of the substantial MMO gold farming operation out of North Korea.  The Hermit Kingdom’s isolation and international sanctions have limited its ability to get currency to purchase fancy toys and guns for its military, so they have turned to one of the last bastions of available cash–virtual worlds.  Edward Castronova summarizes articles from Forbes and the New York Times nicely over at Terra Nova.  The fun just won’t stop!

About Justin Kwong

An attorney in the Twin Cities and adjunct professor at William Mitchell College of Law where I teach a seminar on the law of virtual worlds.
This entry was posted in International News, Multi-user Online Environments, Virtual Currency, Virtual Items / Virtual Goods and tagged , , , , , , , , , , , . Bookmark the permalink.

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