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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What happens if I delete your avatar?

I’ve thought for some time that it would be interesting to write a post about the legal implications if someone was deliberately to delete someone else’s avatar, or for that matter to steal it.

As it turns out, over at Terranova they’ve been having a similar discussion.  This from Richard Bartle:

So, this is a video a woman made in which she deletes her boyfriend’s World of Warcraft characters. It rather upsets him.

So, if he sued her, what would the legal arguments involve?”

It’s well worth having a read of the comments if you are interested in the legal arguments regarding virtual goods.  I’ve previously discussed the legal debate over virtual goods ownership and will write another post when I’ve had a chance to digest this interesting Terranova discussion, so watch this space…

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Class action lawsuit targets ownership of virtual goods

Just a quick post – Cnet reports that a group of Second Life resident have commenced a class action lawsuit against Linden Labs and its former chief executive, in which they complain that they and other residents were forced to agree to terms of service that eroded their ownership rights to virtual property and goods within Second Life.
As I’ve written about previously, there is a battle over the ownership of virtual goods which has been brewing for a while.  It has flared up from time to time, notably in the 2007 American case of Bragg v Linden Labs, but has never been definitively decided (Bragg settled, for example).  Now it looks as though it may be flaring up again.  At stake is the issue of ownership of virtual goods potentially in every corner of the games market, from social games to MMOs.
I have not yet been able to read the (65 page) Complaint – that’ll be a job for this weekend, at which point I will update this post.  But, from what I have seen so far, it goes into some detail as to the complainants’ legal ownership of virtual goods/property within Second Life.  If that argument was substantiated in court then, as I’ve said previously, it could send shockwaves through the games industry with its increasing reliance upon the monetisation of virtual goods.  As always, watch this space…
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Opinion: Vietnam and the legal battle over virtual goods

I wrote just now about the report that Vietnam’s Ministry of Information and Communications (MoIC) is working on a draft decision regarding online games in Vietnam.  You can read my views on that here.  I wanted to write a separate post about the most interesting aspect of that draft decision: its implications for the timebomb issue of virtual goods ownership.  

The report:

The MoIC draft decision, according to, said this about virtual goods:

“Related to virtual assets in games, the draft said that 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.”

This superficially innocuous statement actually conceals a great ongoing debate as to the legal ownership of virtual goods, the resolution of which will have significant implications for any games company that sells or interacts with virtual goods.

Caveat: the following is a whirlwind tour through the issues over virtual goods and is not meant to be a detailed exposition!  If you want more information, look at sites like Terranova or tVPN.

The issues over virtual goods:

As I and many others have have been saying for some time, virtual goods ownership is a ticking timebomb of a legal issue, which has been around ever since virtual goods themselves but has been growing increasingly important with the massive growth in the sale of virtual goods over the last few years. These are the critical questions:

  • Are virtual goods ‘property’?
  • Alternatively, are they just electronic ‘services’ in which there can be no property rights?
  • If they are ‘property’, then does the player have property rights in them?
  • If they do have property rights, then which ones? The right to hold and sell the virtual goods? The right to take the virtual goods or their equivalent monetary value out of the game? The right to destroy the virtual goods?
  • Can players go to court to protect these property rights, as they could for e.g. a car or a house?
  • If virtual goods are property, should they be taxed like any other property? If so, how?
  • Most importantly, if virtual items are property, then how will games companies have to adapt legally? (more on that below)

The question as to whether virtual goods are ‘property’ in the legal sense is complex (and way too detailed to be resolved here).  Many games market virtual goods as being ‘property’ which you can buy and do anything you like with, in return for which you have to pay real currency.  There is now good academic analysis which argues that, for this and other reasons, virtual goods should be classified legally as ‘property’.  In particular, two academics called Lastowka and Hunter have argued with force that virtual goods have all the characteristics of property and therefore ought to be treated as such – in which case all of the above issues come into play.  On the other hand, in some basic sense should ‘virtual property’ – for which there is no concept of limited supply, for example – be different to ‘real property’? 

The meaning of ‘virtual goods’ has become increasingly complex as well.  Is a product which you can code from scratch in Second Life and use as you wish the same kind of ‘virtual good’ as some corn seeds or livestock which you can purchase in Farmville and only use as the game designer lets you?  As a result, should they both be considered property?  The answer to that is entirely unclear (and it’s worth keeping that in mind during the rest of this post…)

How are virtual goods dealt with currently?

To date, games companies have dealt with virtual goods in their legal paperwork (typically a EULA) by stating that all aspects of a games whatsoever belong to the game company, to which player can have access on a strictly defined licence basis and which the games company can revoke at any time for stated reasons.

This works fine for the player’s access to the game itself, but does that argument work when you encourage a player to ‘buy’ an item from you?  Again, there is good academic analysis suggesting that it isn’t enough.  In a very short nutshell, it is said that the problem with the current EULA model of dealing with virtual goods is that they are a contractual attempt to deal with a property issue.  Terms and conditions etc can impose limits on the use of purchased virtual goods, but they do not resolve the question of whether those virtual goods are property or something else instead. 

Take a real world example: if Alan and Bob sign a contract in which Alan says that a particular car is his property and can be used by Bob on certain conditions in return for a monthly payment, that contract does not of itself mean that Alan (or Bob, for that matter) owns the car.  You have to look at real world property questions (like ‘did Alan pay money for the car?’) to establish ownership.  The same applies with virtual goods (or so the argument runs).

So, there is a decent argument that the current model doesn’t deal with the property issue very well: they simply amount to an assertion that virtual goods are not property, or alternatively are the property of the games company notwithstanding everything to the contrary which is said to the player at the time of the purchase.  (This is pretty much exactly what the Vietnamese official said: “virtual items are not assets and they can’t be converted into money or assets in any form“.) 

But, there are more sophisticated alternatives that could be deployed to deal with this thorny problem of virtual goods and property:

Alternative #1: virtual goods are a service, not property

One alternative approach is to argue that virtual goods aren’t property but they are services: i.e. ‘you pay us money and we will generate an item for you which we will host on our servers and you can use in our game until such time as we decide to discontinue it or you cease paying us a subscription etc’.  If virtual goods are services, then essentially the EULA model could be modified into a services model and none of the above property issues would apply (although there would then be separate issues about what constitutes a ‘service’ and when a games company can/cannot terminate that service).

But is that enough?  Does that satisfy the very basic problem that the player is being encouraged to think he is ‘buying’ an item which then becomes ‘his’?  What if he spends very significant sums on that ‘service’

Alternative #2: recognise that virtual goods are property, and adapt accordingly

Another option is to recognise that virtual goods are property and to treat them with property law solutions rather than contractual terms and conditions.  For example, using some form of lease arrangement (‘this virtual cow is a piece of virtual property, I will lease it to you on these terms’) rather than a EULA/licence model.

Alternatives #1 and #2 are interesting, but diametrically opposed: virtual goods can either be property or services, but not both.  Different people have different views on that one, which it would take too long to rehearse here (I realise that’s partly a cop-out, but my purpose is to show the virtual goods issue exists, not to answer it in a short blog post!)  In any event, I think the only way this could be resolved definitively is through either a judicial or legislative decision (more on that below).

Does this really matter?

Definitely.  If you have players paying millions of $1 or $5 to social games companies per annum, or even individual players paying huge amounts of money for virtual goods (like the guy who spent $330,000 for a space station in Entropia Universe, sooner or later someone is going to turn around and start asking questions about what they ‘own’ in return for their money.  What happens if a whole bunch of people start asking for property rights in their virtual goods, perhaps even to the extent of class action lawsuits to force the issue?  If successful, it could change the way in which the games industry has approached virtual goods – which to date has effectively been to treat them as the holy grail of games monetisation with relatively little regard to the accompanying legal issues.

In fact, in the past there have been people who’ve asked questions exactly like that.  For example, back in 2006 a Second Life player called Mark Bragg brought a case against Linden Labs over their closure of his account, which he said deprived him of access to substantial amounts of virtual goods that were his property.  The case settled and as a result there was no detailed analysis of the property issues, but clearly they were there (and the court didn’t dismiss Bragg’s arguments, either).

That said, (so far as I’m aware) no Western court has had to consider the issue in detail yet, nor has any Western government/regulatory authority set out its position firmly on the matter. But, with the sheer amount of money coming in through virtual goods, virtual currency and micro-transactions of all kinds, I think it’s just a matter of time before that changes.  There have already been suggestions for some time that the IRS in the States and HMRC in the UK intend to look more closely at the taxation of virtual goods, which inevitably will focus a spotlight on virtual goods more generally.

In the meantime change is already coming in the Far East, as this Vietnamese report suggests.  For example, what if the Vietnamese government were to pass a law stating quite clearly that virtual goods are not property?  Together with other changes happening over there (such as a recent Korean case on the legality of RMT), this could well have a significant impact on the legal status of virtual goods. 

So, if that legal battle over virtual goods isn’t already here, it’s coming.  Watch this space…

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Vietnam takes steps to control online games reports that the Ministry of Information and Communications (MoIC) is working on a draft decision on managing online games in Vietnam.  This has interesting implications for the regulation and sale of games in Vietnam, one of the big games markets in the Far East.

Managing online games:


According to the draft decision, the Government will assign provincial governments to set opening and closing times for Internet cafes. In locations with no regulations, Internet cafes will not be allowed to supply online game service after 10pm.

For games that have interaction between gamers with servers, gamers are not permitted to play the same online game more than 3 hours per day. Those that have limited number of gamers and the interaction between them is simple and low-tension, such as chess, game providers are allowed to provide 24/7 service. Cultural and educational games are encouraged by permitting a gamer to play 4-5 hours/game/day.”

I’ll leave it to wiser heads than mine to comment on why the Vietnamese government feels it necessary to restrict the amount of time in which games can be played at net cafes, what effect that could have on games or, for that matter, on the Vietnamese games industry.  It does seem though to chime in with reports from other Far Eastern countries, such as China and South Korea, that governments are concerned about the effects of long gameplaying sessions on gamers.

The article goes on to state:

To restrict small firms with weak capital and technology from distributing online games, which makes the online game market scattered, MoIC and the Finance Ministry will issue licensing regulations. The draft also encourages Vietnamese firms to develop online games and restrict foreign game imports. Accordingly, game providers have to register games one year before they import the games.”

These measures, if adopted, look like a classic protectionist measures intended to benefit domestic games over foreign games – cue the classic free trade v protectionism debate, albeit in a games context.  It will be interesting to see whether (i) Vietnamese gamers/games industry support them; and (ii) whether legally Vietnam would be able to pass them, given the inevitable international competition issues it would raise (as a side-note, that kind of measure would never get anywhere in the EU due to EU competition rules).

Virtual goods:

This is the really interesting issue.  So interesting in fact that I’ve written a separate post about Vietnam and the battle for virtual goods here!

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FarmViller player runs up £900 debt, could be sued by mother?

The Guardian reports “a mother has warned of the risk of children spending hundreds of pounds on ‘free’ online games available through Facebook after her 12-year-old son ran up bills of more than £900 without her knowledge“.  This raises interesting issues about the extent to which she could recover her losses: in a nutshell, only if she sues her son.  (Which she won’t, obviously, but it let me write a slightly more interesting headline than usual.)

But seriously – the issue of recovering loss suffered through inadvertant spending on a social game is an interesting one and I think this case is just a taste of things to come.  The facts according to the Guardian are that “last month [the mother’s] son…spent more than £900 on FarmVille. He had emptied his own savings account of £288 and had used her credit card to the tune of £625 to pay the bills“.  She apparently tried to obtain redress from Zynga, who refused.  Facebook has disabled her son’s account.  She tried to call HSBC to ask for a refund, but she was “told she would only qualify for a refund if she reported her son to the police and obtained a crime number“.

Sounds rather sensationalist, I know, but HSBC were right: under consumer credit legislation, a credit card company is only obliged to offer a refund to a consumer if the card has been used fraudulently/for criminal purposes, so the mother would have to report her son to the police in order to be able to claim that refund.  Which, obviously, she didn’t want to do as it would involve her son being given a criminal caution!

There might be a bit more of an argument over Zynga’s receipt of the money, but I imagine they may argue that they’re right to have refused a refund on the basis that, while in fact they may have received the money without the authorisation of the owner of the money, they accepted that money in good faith without knowledge that the son did not have his mother’s authorisation to use her credit card.  Is that sufficient?  Hmm. One to think about…

Anyway.  The Guardian article goes on to say:

She does not blame Facebook, Zynga or HSBC, saying that her son was the one using the card and is entirely at fault. But she added: “I do think they need to shoulder some responsibility in this business and put systems in place to stop this happening again. The fact that he was using a card in a different name should bring up some sort of security and the online secure payment filter seems to be bypassed for Facebook payments.”

A spokeswoman for HSBC said that had the credit card been used on a gambling site it would have started alarm bells ringing for “unusual usage”. But because the card had been used to buy Facebook credits HSBC did not consider the transactions to be suspicious, even though £625 was spent in just two weeks

The idea that Facebook’s social games platform did not put adequate safeguards in place to ensure that a child cannot use a card in another person’s name is an entirely valid parental consideration, but is that really Facebook’s responsibility?  Perhaps the mother is right that there should have been some additional security involved which the son could not breach but ultimately, no matter how many levels of security you impose, if a child obtains all the relevant details from his/her parent then it it’s difficult to see why the games company/web site should be at fault.

This incident also may have implications for banks and other consumer finance providers – is it right that spending substantial and unusual amounts of money on social games in a short period of time should not qualify as “unusual usage“?  Looking at it another way, if your card is used to spend a lot of money on social games currncy in a short period with no prior record of such purchases, should your bank give you a friendly call to make sure you authorised the payments?  Answers on a postcard please…

Bottom line: money is pouring into social games companies, but it’s just a matter of time before they have to deal with real issues of consumer credit liability and fraud.  Best for everyone to get the proper safeguards in place now.

[Image credit: Zynga]

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