The use and legal status of virtual goods and currency

It’s conference season right now, so guess what? I have more slides for you!  Last month I spoke at Social Gaming 2012, a conference bringing together the gambling industry and a few select figures from the interactive entertainment industry…including me.  I was asked to give a presentation on the use and legal status of virtual goods and currency, which led to me speaking for an hour or so about why virtual goods and currency are popular and a summary of the current legal developments regarding them around the world. Continue reading The use and legal status of virtual goods and currency

Blizzard, Valve and the future of virtual goods

This is a long(ish) post about some moves that Blizzard and Valve have recently announced regarding Diablo 3 and Steam respectively, and what they mean for the future of virtual goods in games.  Here’s the short version for lazy sods:

The second virtual goods crime: is Runescape theft, theft?

The Dutch Supreme Court will be invited later this year to conclude that the theft of virtual goods from Runescape constitutes theft under Dutch criminal law; indications to date suggest that it may conclude that theft of virtual currency/goods IS criminal theft.  To my knowledge, this is only the second time that a Western court has considered the (increasingly important) issue of the relationship between virtual goods and criminal law, the first time having been a UK criminal court earlier this year over Zynga chips.*

According to Futocop, this Dutch case apparently forms part of a long-running matter which began in 2008 when two boys were sentenced to community service and suspended juvenile detention after they forced a 13-year old to transfer a Runescape virtual mask and a virtual amulet from one avatar to another under the threat of physical violence.  The detail is not entirely clear from Futocop, but I think what happened next is that the case was appealed, but the Court of Appeal ruled against the defendants and the case is now going even higher, to the Supreme Court.

One point in particular is worth noting.  As part of the referral of the case to the Supreme Court, the Dutch  Advocate General (a sort of legal expert whose job is to assist the court to make its decision) said that the economic value of the virtual goods is of particular interest to the question whether there is theft:

Virtual objects can represent an economic value both inside and outside the game. They are also individually distinguishable and transferable“.

This comment is interesting because, if it was accepted by legal authorities, then basically that on its own could bring virtual goods and currency within the existing law.  Put it another way: if both physical goods and virtual goods are recognised as having the same economic value even though one exists in the real world and one does not, then that is a powerful argument for both of them to be protected in the same way legally.  In a way this is nothing new really: after all shares, electronic money and electricity are all legally protected even though you can’t physically touch them.  But it is taking some time for courts to recognise that virtual goods fall into this category too.  Of course, once that recognition is made, it opens up a whole new can of worms for the games and tech industry: who owns virtual goods?  What can you do with them?  What classes as virtual goods – game items, ebooks apps? And so on (more details on that here).

Anyway, in the meantime this case is due to go to the Supreme Court in October 2011, so expect more details later in the year…

* For those virtual goods scholars who are reading this post, to clarify: I know there have been previous opportunities in the West to consdier the legal status of virtual goods (e.g. Bragg v Linden Labs), but to my knowledge all of them resulted in settlements etc with no judicial pronouncements being made.

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Gold farmer turns WoW gold into real gold, loses it, sues

An Australian woman is suing her insurer over the theft of 74 bars of real gold bullion worth $74,549, which she bought using profits made from gold farming in World of Warcraft.

Adelaide Now reports that Kristina Fincham was a (clearly successful) gold farmer in WoW who sold in-game gold to players in return for substantial profits.  She then decided to convert the profits from the WoW gold into real-world gold bullion.  [EDIT: as Daniel points out in the comments below, gold prices are doing well at the moment, which is a good reason to buy gold atm]

The bullion was allegedly stolen from her home in March 2008.  She is now suing her insurer, AAMI, for failing to reimburse her for that theft.  AAMI’s response appears to be that the theft was staged by Fincham and therefore it has no obligation to pay her.  They said “Ms Fincham was not covered for any loss caused by, or arising from, fraud or fraudulent means used by her or anyone acting on her behalf”.  Trial is set for May 2011.


So this Australian woman farmed WoW gold, turned it into real gold and then allegedly faked its theft?  Good grief.

I’m afraid this case sets no new legal precedents, since the fact she was a WoW gold farmer does not appear to be an issue.  The real issue is what happened to the gold bullion.  Still, the whole case seems so mad, I had to blog about it!

Of course, this would be a lot a more interesting if she had tried to insure the gold that she farmed from WoW, but I suspect we’re some distance from that kind of thing yet…

(NB Adelaide Now reports that this case could be the first case to recount in-game WoW events in a trial.  That’s not right – it’s happened many times before, such as in the WoW Glider case.)

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Image Credit: Activision-Blizzard/Wired

The first virtual currency crime: hacker jailed after $12m Zynga theft

Last week a hacker faced a substantial prison sentence after pleading guilty to stealing approxmately $12 million worth of Zynga chips, a virtual currency used in its poker game.  This is big stuff (more on that below).

I spoke with Develop about this fascinating development – here’s their article:

“An IT businessman is facing a substantial prison sentence after pleading guilty to stealing around $12 million in online game currency.

Ashley Mitchell, 29, based in the Devonshire costal town of Paignton, admitted to hacking into the accounts of social gaming giant Zynga.

He transferred around 400 billion virtual poker chips into his account and began selling the currency on the black market. He had made £53,000 before his arrest.

Mitchell stood to make around £184,000 from the chips, the court heard, though Zynga’s sale value of the currency is $12 million.

Judge Philip Wassall said Mitchell faced a substantial jail term for the offences, according to regional paper Herald Express.

Mitchell was remanded in custody after the case was adjourned for reports.

Digital economy

The actual value of Zynga’s intangible and instantly replicable online currency sparked a debate in court.

Prosecutor Gareth Evans said Zynga had not been, in essence, deprived of any goods. He claimed there may be a knock-on effect as more customers bought the poker chips on the black-market instead of paying Zynga.

Judge Wassell asked if the case was any different from stealing notes from the Royal Mint – the UK’s body that manufactures British currency.

Prosecutor Evans replied that, in theory, there was no difference because the mint can produce more currency if its goods were stolen.

He said there is, however, a difficulty in valuing the chips because they are digital. But if Zynga had sold them legitimately the value would have been around $12 million.

Jas Purewal, lawyer and author of Gamer/Law, explained to Develop that the case has set a new precedent.

“This shows that the legal regulation and protection of virtual goods and currency, which historically has been fairly uncertain, is evolving fast – driven partly by the boom in virtual goods sales in games.

“This case is particularly interesting because it involved a UK court recognising virtual currency – in this case, Zynga chips – as legal property which can be protected by existing UK criminal laws.

“The court effectively found that, even though virtual currency isn’t real and is infinite in supply, it still can deserve legal protection in the same way as real world currency”.

Purewal said the case is a “vindication” for Zynga and other virtual goods providers.

Hacker record

Judge Wassell heard that Mitchell’s offences were in breach of a previous suspended sentence he was handed in 2008.

Mitchell had previously been convicted of hacking into the Torbay Council website and changing his personal details.

Defence solicitor Ben Derby said as a plea in mitigation that Mitchell had been “wrestling with a gambling addition” at the time of the Zynga theft.”


As I said to the Develop guys, this case really does seem to break new legal ground.  For the first time (so far as I’m aware anyway) in the West, a court has looked at virtual currency and seemingly accepted on relatively little argument that it can be classified as ‘property’ within the meaning of (UK) criminal laws (though NB I can’t state definitively the the court found virtual goods = property, because we don’t have the court transcript).

So what?  Well, as longtime readers will know, I’ve been exploring for some time the legal status of virtual goods, which I think is going to come under significant pressure from different directions in the next few years.  The key issue is whether virtual goods are ‘goods’ (i.e. property) or whether they are services or something else.  If they are property, then in principle they could be bought/sold/assigned etc – which goes way beyond the way in which virtual goods are currently dealt with.

Until now, there has been relatively little by way of official analysis of this issue – which is why this case, where a judge seemed willing to convict a man based effectively upon theft of a virtual currency – is significant.

We may not hear much more about this particular development (except possibly when the man is actually sentenced) but this is definitely not the last we’ve heard about the interaction between games, virtual goods and the criminal law (in fact, I might even write a piece on that next month!)  As always, watch this space…

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"The goal is to make Facebook Credits into an international virtual currency"

Here’s that quote again: “The goal is to make Facebook Credits into an international virtual currency”
The quote comes from a VentureBeat article summarising a talk from Facebook’s Deborah Liu at the Virtual Goods Summit in San Francisco, in which she discussed Facebook teaming up with virtual currency services provider Playspan in order to ramp up sales of Facebook Credits.  Facebook Credits are an increasingly healthy source of revenue for Facebook – consumers pay real money for Credits and use those Credits in virtual goods transactions, e.g. in games like Farmville, with Facebook deducting a 30% transaction fee.

All good so far.  But it was this bit of the article which got me:

“Liu said the goal is to make Facebook Credits into an international virtual currency. The analogy is Europe’s euro, the currency whose introduction resulted in the broadening of trade beyond country borders. Roughly 70 percent of Facebook’s users are outside the U.S.”

Imagine the future.  You go on to the web or your smartphone Facebook app and buy some Facebook Credits.  What do you do with them?  Well, remember, Facebook Credits are an “international virtual currency” now.  So, there’s lots you could do:

  • Buy some virtual goods in Farmville 2 from Zynga, or maybe buy them from another player directly, or maybe even through a second hand virtual goods market.
  • Buy some groceries from Tesco or Walmart and have them sent home.
  • Send the Facebook Credits to your friend or family abroad, or maybe have them converted into the local currency first before you send them.
  • Put them in a savings account or perhaps purchase a bond or life insurance with them.

I have no doubt that we will see something like this happen in the coming years.  Clearly, whether it is actually Facebook Credits that does it, and whether it goes as far as the above examples, is another question – but something like this is going to happen, is already happening in fact.  And I also want to emphasise that, as a gamer/techy/lawyer, this is really exciting.  BUT.  BUTthis is going to raise some really critical legal, financial and cultural issues:

  • As soon as you have a true “international virtual currency“, the banking laws of every country in which it is sold will jump on it.  There will be money-laundering, consumer protection, potentially even capital adequacy requirements and many more.  How will Facebook deal with all that very heavy compliance?
  • A true virtual currency will only gain widespread acceptance when it becomes ‘cash out’, i.e. when you can take become able to take cash out of virtual goods as well as put them in.  IF that happens it will fundamentally change how Facebook operates – and introduce a whole further tranche of legal issues.  For a start, what if you have to pay tax on your virtual currency?  I cannot emphasise how critical the ‘cash out’ issue is going to be in the future.
  • How long before regulators and politicians start taking a really hard look at Facebook Credits?  Example: what happens if the global anti-trust/competition regulators decide that they need to be cut down to size?
  • What about all the macro and micro economic implications?  How will Facebook deal with currency fluctuations, inflation and deflation and so forth?  How do you deal with consumers in the US having to pay much more or much less in real terms than Chinese or European consumers because of what’s happening in the currency markets?  What happens when there is future market chaos and investors start buying up Facebook credits as a safe haven?
  • How will Facebook get people comfortable culturally with the interaction between ‘real’ and virtual currencies?

I could go on, but there’s enough meaty issues there already.  Longtime readers will know I’ve already written previously about the legal challenges that the rise of virtual goods/currency are presenting, and I think it’s time I started thinking a little more deeply about how these kinds of issues could be resolved.  In the meantime, what do you think readers?  Let me know in the usual ways…

Image credit: Mashable/Facebook

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