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.