Can you actually own the Sword of Azeroth?

The trade in virtual goods is growing fast, with the US virtual goods market being estimated at US$3 billion this year, and the Asian market at over US$10 million. However, there are questions about whether or not virtual goods can be construed as “property” at law.  For further detail, see here, a tremendous slide pack by Jas Purewal of Gamer/Law, presented at the Social Gaming conference 2012.

What are “virtual goods”?

The term “virtual goods” does not have a precise definition, but is generally understood to refer to any intangible objects that exist in an online environment, typically in-game items in online computer games. Examples of virtual goods include Magic weapons in Blizzard’s World of Warcraft, the decorative hats for characters in Valve’s Team Fortress 2, or poker chips in online gambling websites.

A subset of the virtual goods category is virtual currency, which is regarded as a substitute or competitor for ordinary currency.  One of the most prevalent virtual currencies are “Bitcoins”, a peer-to peer decentralized digital currency.   For more info on Bitcoins, see mashable’s handy summary here.

Virtual goods are typically tradeable with other players within their respective games, but are also frequently transacted in other markets, like eBay, for “real-world money” (as lampooned in this scene from CBS’s television series The Big Bang Theory). In fact, in the massively multiplayer online (MMO) game Eutropia Universe, virtual real estate (a virtual resort called Club Neverdie) has been sold for real-world value of US$635,000, a feat which has put it in the Guinness World Record Book. (The previous record was for the sale of a space station in the same game, for over US$300,000).   The net circulation of Bitcoins is estimated at over US$100 million.

What’s the issue?

The real-world value attributed to virtual goods, and the frequency with which they are traded suggests that many (if not most) users of these systems believe that the virtual goods are their property, and that they can buy or sell them at will. However, the end-user license agreements (EULAs) issued by many virtual goods providers state that virtual goods are not property, or that the end-user is only granted a licence over the virtual goods and does not own them.  Blizzard, for example, refuses to recognise any out-of-game purported trades of virtual goods (although this may change given the inclusion of real-money-trading houses in its recent title Diablo III).

This presents a string of legal issues, for example:

  • If virtual goods are legal property, do contracts (like EULAs) have an effect if they say otherwise?
  • Are virtual assets taxable, either under sales taxes (ie GST/VAT) or income/capital gains taxes?
  • Can virtual assets be used as security for a loan?
  • Can virtual goods be stolen or loaned, and if so, would or could a court compel their return?
  • What happens if a virtual goods/currency provider goes bankrupt or closes their servers?

Bitcoins (and other virtual currencies) raise further legal issues. Because Bitcoin accounts are identified by a serial number, not a name, and it is therefore hard to determine the identity of the account holder, Bitcoins can be easily transferred without a trail.  This could make them attractive to those who may be involved in funding illegal activity, money laundering or Ponzi schemes (a claim the US Security Exchange Commission started investigating in September in respect of one particular trader).   Because Bitcoins are a digital-only currency questions of online fraud, theft and misuse, in the absence of regulation, are of central importance.

How have virtual goods been treated by courts globally?

The legal treatment of virtual goods differently is creating a burgeoning new discipline across multiple jurisdictions.  Here is an overview of some recent developments:

  • USA: Several proceedings have been filed against Linden Labs, the developers of the virtual world Second Life, on the basis that Linden have represented that the virtual real estate and goods they have offered for sale are property (See Bragg v Linden Labs [Wikipedia], which settled, and the ongoing class action Evans, Spencer, Spencer, Carter and Ors v Linden Labs and Rosedale [plaintiffs’ website]).
  • Canada:  In Re Gauntlet Energy Corporation, the Court of the Queen’s Bench of Alberta held that the Albertan equivalent of our recently-enacted Personal Property Security Act applied to seismic data and confidential information, even though they are not otherwise personal property.  In this case, the oil and gas industry routinely treated such data/confidential information as property, by purporting to buy or sell data/confidential information, and referring to it as proprietary information.  The Court interpreted the PPSA in the same way.  It is possible that virtual goods could be treated as intangibles under the same legislation, based on the number of players buying and selling their magic armour or in-game money for real value, but there has been no test case for this in Canada yet. Given the value of some virtual assets it could just be a matter of time before a creditor pushes for their liquidation as part of a security arrangement.
  • China:  The widespread use of virtual goods to conduct transactions concerned Chinese authorities enough that they passed regulations in 2009 intended to protect their economy from negative consequences of these activities.  China has also been the home of a number of “gold farming” abuses, in which prisoners or other vulnerable people are forced to repetitively accrue virtual resources which can then be sold for real world money by the prison guards or other abusers.
  • Vietnam:  The Ministry of Information and Communications have expressed a view that virtual goods are not proprietary, and that any disputes between users are personal, not civil disputes.  In 2011, Ho Chi Minh City People’s Committee appealed to the Prime Minister to ban the trade of virtual goods entirely.
  • UK:  In 2011, a UK man was charged with criminal conduct for hacking into Zynga and stealing $12 million in virtual currency (for a profit of £50,000).  However, he ended up pleading guilty under the Misuse of Computers Act and Proceeds of Crime Act, and was not actually prosecuted for theft or other property crimes.
  • Holland:  Also in 2011, the Dutch Supreme Court found two teenagers guilty of theft for assaulting and threatening another teen with a (real) knife to force him to transfer a virtual amulet in the MMO game Runescape. The court stated that virtual goods had genuine real-world value and should be treated accordingly, even though they were also data (Google Translated decision). However, the focus of the case was on the violence of the perpetrators rather than addressing the issue of property, so is not likely to be enough to conclude that virtual goods will be recognised as property under Dutch civil law.

What about in Australia?

At the moment, Australia has no official legal recognition of virtual goods or currency. However, following the Canadian thinking in Re Gauntlet, virtual goods could be considered property under the PPSA regime as an “intangible”.  The definition of goods in the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act) includes computer software and/or accessories/components of computer software, but no judicial or legislative authority has specifically said that virtual goods can fall into either category.

Virtual goods transactions continue to grow in volume and value around the world, but they are still on new and uncertain legal ground. Time will tell whether these virtual economies will eventually be accepted by governments as a legitimate practice worth legally protecting like any other property, or be left as non-proprietary objects with no legal status.  Watch this space.