The use and legal status of virtual goods and currencies

The Use and Legal Status of VirtualGoods and CurrencySocial Gaming 201230 October 2012Jas Purewal

osborneclarke.comOverview• What are virtual goods and currency?• Why do they matter?• Legal issues in virtual goods and currency:  Legal status  Consumer protection  Data protection  Advertising and marketing  Gambling and virtual goods  E-money 1

osborneclarke.comAbout Osborne ClarkeOsborne Clarke is the leading interactive entertainmentlaw firm in Europe.We advise the full range of interactive entertainmentand digital businesses, from small developers to globalpublishers and distributors. Our clients includehousehold names like Nintendo, Jagex and Facebookas well as innovative developers like NinjaTheory, Hutch Games and 22Cans. 2

osborneclarke.comAbout me• Im an interactive entertainment and digital media lawyer at Osborne Clarke – I advise clients on contracts, IP, regulation and disputes.• I write and speak on legal issues in interactive entertainment and digital media, including on my blog: www.gamerlaw.co.uk.• I like Twitter: @gamerlaw. 3

osborneclarke.comWhat are virtual goods?What has "Club Neverdie" got to do withvirtual goods? 4

osborneclarke.comWhat are virtual goods?Answer: Club Neverdie is a virtual good withinEntropia Universe, sold in 2010 for $635,000. Itis the most valuable virtual good ever sold (yet). 5

osborneclarke.comClub Neverdie was so famous that evenBritains Daily Mail reported on it… 6

osborneclarke.comSome more virtual goods (and currency) 7

osborneclarke.comSo what are virtual goods and currency?• No settled definition of virtual goods or currency• Wikipedia: "Virtual goods are non-physical objects purchased for use in online communities or online games…Virtual goods have no intrinsic value and are intangible by definition"• Virtual currency is an online, intangible currency typically used to purchase virtual goods. Virtual currency is partly a subset of virtual goods itself, but presents its own particular issues too 8

osborneclarke.comWhy do virtual goods and currencymatter?• Theyre pretty big business: • In 2009, the World Bank estimated the total virtual goods market was at least $3bn (source: BBC) • The US virtual goods market alone reportedly will reach $2.9 billion in 2012 (source: TechCrunch)• Virtual goods and currency are a key component in the massive growth in social and mobile games• Their potential is still only being tapped 9

osborneclarke.comWhat are virtual goods used for?• In-game progress• Socialising• Decorating• Shopping• Gifting• Showing-offThe list goes on… 10

osborneclarke.comWhy do people buy virtual goods?• Theyre impatient 11

osborneclarke.comWhy do people buy virtual goods?• They want better things 12

osborneclarke.comWhy do people buy virtual goods?• They want to feel important 13

osborneclarke.comWhy do people buy virtual goods?• They want to express themselves 14

osborneclarke.comWhy do people buy virtual goods?• They want to build relationships 15

osborneclarke.comWhy do people buy virtual goods?• They want to show they care and feel good 16

osborneclarke.comHow do virtual goods make so muchmoney?Just a few reasons:• They offer experiential content at variable price points: people spend what they want (in theory)• Theyre engaging• Theyre capable of detailed analysis and experimentation• They develop broader audience spending• Theyve worked well with new technologies and payment options 17

osborneclarke.comLegal issues in virtual goods and currencyKey issues well discuss:  Legal status  Consumer protection  Advertising and marketing  Gambling and virtual goods 18

osborneclarke.comLegal status of virtual goods and currencyThe $64,000 question: are virtual goods and currencygoods? services? neither?What the providers think:• Deny virtual goods have any property existence.• To the extent they do, they are licensed, not sold.Example #1: Facebook payment terms (Aug 2012) – “When you purchase or receive Credits, you do not own those Credits. What you have is a limited right to use the Credits in connection with certain features on Facebook, such as the purchase of a virtual good…” 19

osborneclarke.comLegal status of virtual goods and currencyExample #2: World of Warcraft EULA (Aug 2012) - "Blizzard owns, has licensed, or otherwise has rights to all of the content that appears in the Game. You agree that you have no right or title in or to any such content, including without limitation the virtual goods or currency appearing or originating in the Game, or any other attributes associated with any Account. Blizzard does not recognize any purported transfers of virtual property executed outside of the Game, or the purported sale, gift or trade in the “real world” of anything that appears or originates in the Game. Accordingly, you may not sell in-game items or currency for “real” money, or exchange those items or currency for value outside of the Game. 20

osborneclarke.comLegal status of virtual goods and currencyWhat consumers think:• We spent money on buying them• We are strongly attached by investment by time and motion on them• We own the virtual goods/currencyWhat the legal system thinks:• Typically no statutory guidance• Little (but growing) judicial and academic guidanceResult: no clear (or just no) answers…yet 21

osborneclarke.comLegal status of virtual goods andcurrency: the UKR v Ashley Mitchell (2011) (unreported)• Defendant, a UK citizen, jailed for hacking Zynga and stealing ~$12m in in-game currency• Made real-world profits of approx £50k• Pleaded guilty to 5 charges under Computer Misuse Act and Proceeds from Crime Act• No prosecution for theft or other property offences – so was anything actually stolen? 22

osborneclarke.comLegal status of virtual goods andcurrency: the UKPosition under UK civil law? Surprisingly unclear:St Albans City & District Council v International Computers ([1996]4 All ER 481): suggested a computer program might (or might not)constitute goods, but the physical medium on which it is stored isSubsequent (rare) case law has not authoritatively decidedwhether even software constitutes goods or servicesBUT, proposals afoot at UK and EU level to classify software (andimplicitly virtual goods therefore) as definitively eithergoods, service or a new sui generis right/asset 23

osborneclarke.comLegal status of virtual goods andcurrency: HollandRunescape case (2009 – 2011):• 2009 – virtual amulet taken using a real world knife. Defendants convicted of theft.• Appealed ultimately to Dutch Supreme Court in 2011.• Court held that the virtual items held genuine value and that the victim was deprived of that value by the defendants.• Is this sufficient for civil law purposes? 24

osborneclarke.comLegal status of virtual goods andcurrency: USAMelvyn Bragg v Linden Labs (2007): • Bragg was a Second Life resident whose account Linden Labs terminated for alleged fraudulent in-game activities. He sued for compensation for/recovery of around $8,000 of his in-game assets. • If successful, it would have involved a seminal judicial recognition of virtual goods. • One interlocutory judgment supporting Braggs argument in principle. • Then it settled instead. Oh well. • (NB: Lindens EULA already permitted ownership of virtual land in principle) 25

osborneclarke.comLegal status of virtual goods andcurrency: USAEvans, Spencer, Spencer, Carter & Ors v Linden Research Inc &Rosedale (US federal case, ongoing): "The Complaint alleges that Linden Labs and Philip Rosedale, its founder, lured consumers across the United States to invest real money into Defendants game world by promising those users that they would own the virtual land and property they purchased as well as the content they created, and then unilaterally, without the consumer owners consent, knowledge, or permission, changed the terms of the service agreement to state that these land and property owners did not own what they had created, bought and paid for, and that these consumers had no choice but to click on a new terms of service agreement or they could not have access to their property…” Case (apparently) ongoing… 26

osborneclarke.comLegal status of virtual goods andcurrency: Far East• Judicial discussion of virtual goods in Korea and China: distinction between legitimate trading (permitted) and illegal trading (banned)• But legislative scrutiny may be going the other way. Example - Decision by Vietnams Ministry of Information and Communication (Apr 2010): “Virtual items are not assets and they can’t be converted into money or assets in any form. An MoIT official remarked that objects in online games are not recognized as assets in the world and conflicts between gamers and game providers are not civil conflicts."• Chinese government restrictions since 2009 on use of virtual currency and its exchange for real currency/goods/services 27

osborneclarke.comLegal status of virtual goods andcurrency: uncertainty is bad because…We dont know answers to following questions: •Can users sell their virtual goods/currency to each other? •Can they sell them in return for real world money or moneys worth? •If so, should they be taxed? •Can they destroy their virtual goods/currency? •Is misappropriation of them a civil or criminal matter? Both? •Can they break the game rules with them? •What happens if the game closes down…? 28

osborneclarke.comWhat happens if a game shuts down?Speed Racer (Zynga) • Shut down on one months notice • No refunds, but credits could be transferred to other games (following protest)Superpoke Pets (Google/Slide) • Game owner bought by Google – game then shut down • Class-action lawsuit progressingBaking-Life (EA/Popcap) • Two weeks’ notice • No refunds • Some players given Zuma/Bejeweled rewards instead 29

osborneclarke.comOther legal issues for virtual goods andcurrency• Consumer protection: how should laws regarding e.g. quality of goods/services, distance selling, consumer redress be applied to virtual goods?• Advertising/marketing: how should advertising/marketing of virtual goods/currency be governed? What about when the virtual goods are themselves advertising (e.g. branded goods)• Data protection: data about virtual goods use and acquisition is considered non-personal data and typically given almost no protection. Will that remain the case? 30

osborneclarke.comOther legal issues for virtual goods andcurrency• E-money and other money regulation: can/should virtual currency be regulated under these laws? 31

osborneclarke.comQuestions? Jas Purewal Senior Solicitor Osborne Clarke T +44 (0) 207 105 7268 jas.purewal@osborneclarke.com Twitter: gamerlaw 32

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The use and legal status of virtual goods and currencies

by Jas Purewal on Oct 26, 2012

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