Is your online game gold real?

If you’ve been reading this blog for a while, you know that my law review article about virtual items was published in the William Mitchell Law Review this month.  I’m very excited about it, and apparently, I’m not the only one.  My research was the subject of a nice piece in the St. Paul Pioneer Press today.  It’s all about the future of virtual items and property rights.  I think it’s a great summary of the article for everyday people, but, judging from some of the comments, some people aren’t getting the point of the research.  Rather than address them in the comments, which is typically a recipe for disaster, I thought I’d discuss their concerns here.

First, I don’t deny the legality of intellectual property in any way.  I’m married to a patent attorney, so things in our house would be pretty awkward if that were the case.  Virtual items are definitely the intellectual property (usually copyrighted works, but sometimes trademarks or servicemarks) of their creators.  Most of the time, it’s the world or game creators who own those intellectual property rights; usually in how the item is named, how it is rendered, how it functions or some combination of the three.  But just because someone owns the intellectual property rights to an item doesn’t mean that they’re the owner of the actual item itself.  Think of any book or DVD on your shelf at home.  The movie studio or author owns the intellectual property rights to that content, but you own the copy of it.  In some ways, virtual items are similar, except that you don’t own the copy, either! This is because you just have a right to log into the world and interact with the environment.  Very rarely can you own anything there in the same way that you legally own a house or a car in the real world.

Second, the first commenter also gets a little confused about bank accounts.  They aren’t really intellectual property (copyright, trademark, patent or trade secret).  Instead, Professor Lastowka is spot on: they really are a form of virtual property.  Think about it this way: you own the content of the account, but there’s just nothing you can see, hear, smell, touch or taste.  In that respect, bank accounts are like virtual safe deposit boxes, but instead of a physical box where you put your cash, you get a number that is unique to you (and maybe your spouse or significant other).  That number lets you tell bank tellers and ATMs where to get your money so you can buy things with it or put new money that you acquired from grinding working.  Unless you ask the bank for a withdrawal in physical money, all you do is transfer information from one computer to another.

Third, anyone worried about getting taxed for their virtual world possessions or transactions can take a big sigh of relief.  Niether Congress nor the IRS really care about your WoW gold stash,really! They had one hearing several years ago and then… NOTHING.  They lost interest in virtual worlds–probably because some other virtual assets (aka credit default swaps and collateralized debt obligations) nearly destroyed the global banking system.  For now, your transactions buying and selling virtual items only become taxable when you cash them out for real money in the real world.  As far as the IRS is concerned, exchanges within a virtual world are like bets in a casino: it only matters how much went in and how much came out–everything that happened in between is too difficult to trace.  Now, any time you make money from any sort of transaction, you’re supposed to include that as income on your tax return (see 26 USC § 61).  Unless you’re the guy who made $300,000 selling a space station in Entropia Universe (which I’m pretty sure you’re not),  you probably don’t have much to worry about because few worlds in the United States allow for real money trading.  But it’s not as though the government is creating new ways to tax people.  If you make money in this country, odds are that you owe taxes on it.  If you don’t like it, call your Congressional representatives.  I’m just the messenger.

Finally, this debate has been going on for a while because no one has definitively answered the questions we have raised.  To be blunt, no one has really tried all that hard, mostly because the law is pretty well tilted toward the creators of the virtual worlds and social games that most virtual items appear in.  It’s all in the contracts you read and agree to before signing up.  Which is why I think there needs to be a better system in place to encourage and enable people to read the standard form contracts that we see on everything these days.  We, as Americans, have gotten so used to these annoying windows full of text that stand between us and the cool service just beyond that we forget that they almost completely replace the laws and protections we ordinarily expect to prevail.  I think it’s an important debate and just because I point out questions that don’t have good answers doesn’t mean that they shouldn’t have been asked in the first place.

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 Multi-user Online Environments, Social Networks, Virtual Currency, Virtual Items / Virtual Goods, Virtual Land, Virtual Stuff..., Virtual Worlds and tagged , , , , , . Bookmark the permalink.

11 Responses to Is your online game gold real?

  1. Erik says:

    I agree that in-game items are not real currency, and you’re absolutely right about access to them being a license of sorts (implied for sure, in most games). However, that license has a real-world value (if it’s transferable).

    Can someone steal a license? Maybe that’s the bigger question. I recall the long, drawn out battle over the domain. Someone apparently broke into the owners account and transferred it. The domain name is not “owned”, it is “registered”. But that registration has a real world value.

  2. Lawrence San says:

    “Which is why I think there needs to be a better system in place to encourage and enable people to read the standard form contracts that we see on everything these days.”

    Certainly we need a better system, but I’m not sure it’s about encouraging people to actually *read* the stuff. Most people will never read multiple screens of all-caps incomprehensible legalize that the lawyer/authors don’t really even want them to read; as you know, almost everybody just scrolls through and clicks “OK.” Also, how standard are these “standard form contracts” now? Perhaps if we had laws truly standardizing a few forms of online contracts (one for games, one for software, etc.) — and simplifying them, and making them more balanced than the one-sided EULAs we see now — then consumers might learn what the standard deal is for specific categories of goods or services, without needing or attempting to actually parse the lawyer-gibberish.

    • Justin Kwong says:

      That’s exactly a point I raise in my law review article. We expect people to read and understand and then memorize these extensive contracts (when people who do that for a living still have a hard time with them) and they’re only getting longer! Something needs to be done, but whether that’s regulation or some sort of self-governance, I don’t know. Calls for more government regulation would result in people with torches and pitchforks in my front lawn (and they wouldn’t be there to rake up the leaves), so I’m sensitive to that. It’s also problematic to rely on government, when they have a history of being too slow in responding to developing trends online. So far, I think that just requiring companies to provide a change-log so that people can see right up front what changed from one version to the next would be the most helpful. That way, no one has to spend time reorganizing or modifying their existing contracts. Thoughts?

      • Anthony says:

        I’m not sure a change log would be appropriate. Change logs are something that developers can grok pretty easily, but as far as lawyers are concerned: it doesn’t matter what the previous version said, the current-and-full version of the agreement is in effect.

        I’m not a big fan of Apple’s 70+ pages of EULA that users have to agree to every time they do an over the air App Store update (because the EULA actually seems to have changed every time there’s an app update), but they at least seem to do one thing right here: they have a button to e-mail the new EULA to you. At least this allows the consumer to have a copy of what it is they’re agreeing to, and could take it to their own solicitor or lawyer if they choose to. I wish more companies would provide this type of functionality.

        70+ page EULAs are ridiculous, though. If governments were to step in maybe they should require point-form EULAs – if it needs a scroll bar to read it’s too verbose.

  3. Lawrence San says:

    I think your point about the limitations of government for online regulation is a good one. But I doubt that a Change Log would help much; for one thing, it implies that people have read the original, which is the baseline for the changes. I don’t know the answer. Perhaps a major non-profit consumer organization could propose a few simple, balanced, standard agreements for common categories of online goods and services. These could be publicized with catchy names and logos that participating merchants would be free to place on their own web pages, with the logos linked to plain-English explanations on the consumer organization’s website. This would give merchants an opportunity to get “certified” as consumer-friendly for free — and possibly even save them some money (legal fees) in the process. Just a thought off the top of my head.

  4. roger says:

    By way of suggesting a manner in which EULA’s could be regulated, I would suggest having a look at the Contracts Review Act 1980 (as presently in force in NSW, Australia). A copy of that Act can be found here:

    The Act has typically found use in relation to the banking and finance sector, however, that does not preclude the Act applying in other circumstances.

    Given that it would typically apply to computer software predominantly used for personal, household or domestic purposes and the, typically, low value of that software, there would need to be some method of providing for relatively low cost access to relief (such as by way of an administrative tribunal which can reach a conclusion on the papers).

  5. Daniel C says:

    There is the Frogster America problem that occurred earlier this year where they took back virtual currency because they believed they gave out to much. A good example where the virtual item isnt yours.

  6. Kevin Reilly says:

    Justin, very well researched and written article. Having represented several game companies as in-house counsel and now in private practice, I have had experience drafting EULAs, TOS and Privacy policies. I agree with your conclusion that the terms contained in these documents are more often than not written in a legal prose that is laborious to read and hard for the lay person to comprehend. However, companies like Blizzard don’t expect the ordinary consumer to read the EULA or the TOS before clicking “I Agree”. The goal of the game company is to avoid liability in the event of a law suit and the goal of the lawyer is to draft a document that complies with the minimum protections required by the law and protect their client from getting sued.

    After the Supreme Court decision in AT&T Mobility v. Concepcion enforcing arbitration clausesthat waived right of private class action and buried in the TOS (specifically overturning California law that such arbitration clauses and waivers are unconscionable because it is pre-empted by the FAA), I don’t see how or why any online service provider would voluntarily change their standard practice of drafting one-sided EULAs and TOS without legislative action. Sony recently changed their terms for the PSN service to include similar language from AT&T’s TOS amid some uproar, but it has been adopted by most other game companies who have an interest in limiting consumer actions. So standardization is occurring, whether gamers like it or not.

    • Justin Kwong says:

      You are absolutely right, but it’s difficult to end a paper with “Abandon hope, all ye who enter here…” Perhaps some day people will demand that a line be drawn and afford them more rights. It will come with a cost–it always does–but consumers have accepted those higher costs with standard physical goods, so it shouldn’t be too hard to swallow. Of course on the one hand, once people are used to getting something for “free,” it’s a challenge to get them to pay for it. On the other hand, the iTunes store has demonstrated that people will pay for music that was/is available for free illegally, so anything is possible. Thanks for the insight.

  7. Anthony says:

    I came across this article this morning and thought I would share…

    Down and out in EULA-ville

    It’s not really covering anything we didn’t already know but does talk about an online photo editing suite, Aviary, whose ToS is laid out in two columns: the left with full legalese and the right with a human-friendly summary…

    In the “Human-Friendly Summary,” that section is paraphrased like this:
    + We own our website.
    + You own your content.
    + If you allow another user to make a derivative, you still own your work.
    + Please don’t disregard our copyright notices. 🙂

    • Justin Kwong says:

      Anthony, thanks for the article. I just got around to replying, but I enjoyed it. I am a fan of the dual ToS approach (one simple, one detailed), but other attorneys I have talked to have raised issues with them, particularly with respect to which one to ultimately rely on in a dispute. For example, how do you summarize several lines (or pages) of text into one phrase without losing the full meaning and potentially cutting off some of the protection you’ve created for yourself in the full text? Also, if the law tends to bind people to 25 page contracts they never actually read, why should a company pay a lawyer for an extra couple of hours to add, essentially, more text that will also go unread? Our legal system has created an incentive for ever more detailed and explicit contracts at the expense of simplicity and readability. We attorneys are generally to blame (when are we ever not to blame, really), since the whole point of the ToS / EULA combo is to create a shield from liability that protects against litigation and even prevents it in the first place. This may be oversimplifying things just a bit, but the only reason we have more than just the law of /caveat emptor/ is due to consumer protection legislation and regulation. We have had close to 20 years of accumulation in software contracts, perhaps it’s finally time for legislators to weigh in. Whether you agree with his politics or not, Al Franken (D. MN) has been working very hard to at least bring attention to these issues. Maybe he’ll actually succeed in bringing change. We’ll see.

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