Archive for the ‘virtual worlds’ tag

Virtual Worlds; Real Theft?

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by: Andrew Gioia, Associate Editor, MTTLR

Last week, a court in the Netherlands criminalized the theft of”virtual goods.” (Dutch news report.) According to a ruling handed down by a Dutch court, two teenagers, aged 14 and 15, were found guilty of theft after physically coercing a 13-year-old boy into transferring virtual money, a virtual amulet, and a virtual mask to their accounts in the online fantasy adventure game, RuneScape. Though the court only dealt with the theft issue and not the more obvious assault, it plainly and forcefully held that “[t]hese virtual goods are considered goods under Dutch law, so this is theft.”

Despite both the clarity of this ruling and the apparent intellectual property and monetary value that can be derived from games with their own currency and property, game-based virtual theft claims have had a rather uncertain history. For instance, Second Life, one of the Internet’s largest virtual realities, has seen both the wrongful “taking” of in-game land and a lawsuit between users for copying the design of objects sold in Second Life’s marketplace in the past year alone.

In the US, Minnesota police refused to recognize $4,000 of virtual currency stolen in Final Fantasy as a crime, explaining that because virtual items “are devoid of monetary value,” no crime had actually been committed. Perhaps even more significantly, the MMORPG, EVE Online, saw a large-scale banking scheme that defrauded a number of users. The stolen money was estimated to be worth as much as $170,000 in the real-world marketplace, and the scam even got the attention of some in the legal community who likened it to “actionable real-world fraud”.

Virtual goods like these, including game-based currencies, may not only have real economic value, but online communities like Facebook, Live Journal, and even Dogster have begun to create sentimental, communicative, and self-expressive value in virtual gifts that members can send to each other. These businesses, as well as games like Second Life and Gaia, are in some cases making tens of millions of dollars in revenue by selling virtual goods to personalize virtual avatars, land, and the like, and at least South Korea has even begun taxing these virtual property transactions.

Ultimately, as long as virtual goods inside of video games can be converted into real economic value, online thefts like the one seen in the Netherlands will continue or even increase “as ‘criminals’ may think the court systems and the police are not educated in online gaming, or the law as it pertains to in-game items and cash.” As one Dutch columnist argued even before this recent virtual theft, “[a]s long as the original owner loses something of value (such as virtual items) due to the act of another individual who gains possession over the item, it should . . . be qualified as theft, no matter whether the locus delicti is in the physical or the virtual world.”

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October 28th, 2008 at 3:54 am

Death and Taxes Not a Certainty in the Virtual World

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by: Joydeep Dasmunshi, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds – Part one explores parallels between virtual property and real-world property. Part two (this post) examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

Virtual worlds on the Internet have been getting a large amount of media attention over the past couple of years, due to the millions of users who have created “avatars” to interact with each other virtually. Many of these users are playing a type of large scale, interactive, computer game through their avatars, known as massively multiplayer online role-playing games, or “MMORPGs”. World of Warcraft is one of the more popular MMORPGs, for example, in which “thousands of players adventure together in an enormous, persistent game world, forming friendships, slaying monsters, and engaging in epic quests that can span days or weeks.”1 Other virtual worlds such as Second Life do not offer a gaming environment per se, but rather an interface in which users, through their avatars, can perform activities like going to concerts, attending lectures, creating and using objects, and even owning property. Second Life avatars are known as “residents” and the world even has its own currency, Linden Dollars, which can be exchanged for US Dollars at a fluctuating exchange rate 2


Image by Pathfinder Linden.
Used under a Creative Commons BY 2.0 license.

These virtual worlds are a big deal. In sheer numbers, there are millions of users in these virtual worlds: for example, World of Warcraft recently surpassed 10 million users 3, and Second Life has had over 20 million accounts registered (though many are inactive, duplicated, and not necessarily indicative of long-term consistent usage 4). Many of these users are doing things through their avatars that seem like they would be taxable activities in the real world, which raises the question: “Should there be taxes in virtual worlds?” This is a real issue, highlighted by the announcement that the Joint Economic Committee of Congress that it was looking into issues related to the economies of virtual realities. 5

While not many of us round up a group of friends to go slay a dragon in real life, one can make the case that discovering “loot” in an MMORPG is analogous to receiving a gift in real life. Or, more directly, receiving Linden Dollars (which are exchangeable for US Dollars) from another Resident in exchange for a virtual product seems awfully close to the definition of gross income in the Internal Revenue Code: “…all income from whatever source derived, including … Gains derived from dealings in property”6.This isn’t a unique question, it’s just the first time that it has really been considered in the virtual world. When the IRS cracked down on “barter clubs” in the ’70s, they ruled in 1980 that transactions involving “trade dollars” in virtual currency could be taxed, even though there was no actual money involved.7

In a recent article, Leandra Lederman considered many of these issues to reach differing conclusions depending on the type of virtual world, whether it was a MMORPG, World of Warcraft type world, or a Second Life type world8. One of the integral issues that this hinges on is whether or not the creations in these worlds are “property” or not. I won’t go into that issue here, because the arguments on both sides have been presented in numerous forums, including, very recently, this blog9,10. But, in essence, Leandra argues, in the Second Life-type worlds, if Second Life residents are deemed to have property rights in their own creations, then sales of these items should be taxable11.

Personally, this makes sense to me on a basic level. It doesn’t seem sensible that an individual should have to pay taxes just because of playing a game and killing orcs, but at some point, virtual world interactions go beyond the scope of games for fun, and start to look like real-world business transactions. When we’ve reached the stage where reputable companies like Microsoft and Verizon are hiring employees through “virtual interviews” in Second Life12, it seems perfectly natural that the government will want to get a cut of the action. As Dwight in the NBC show “The Office” responded when Jim asked him about his avatar, “Second Life is not a game.”13


1 Blizzard Entertainment, World of Warcraft FAQ, (last visited Feb 4, 2008).
2 Linden Labs, Second Life LindeX Market Data, (last visited Feb 4, 2008).
3 Leigh Alexander, World Of Warcraft Hits 10 Million Subscribers, Gamasutra.com, Jan. 22, 2008.
4 Wikipedia.com, Second Life, (last visited Feb. 5, 2008).
5 J. Economic Comm., 109th Congress, Virtual Economies Need Clarification, Not More Taxes, Press Release #109-98 (Oct. 17, 2006).
6 I.R.C. § 61(a)(3) (2007).
7 Clay Risen, Taxing Virtual Economies, N.Y. Times, Dec. 10, 2006, §6 (Magazine), at 77.
8 Leandra Lederman, “Stranger than Fiction”:Taxing Virtual Worlds, 82 N.Y.U.L. Rev. 1620 (2007).
9 Elizabeth Hertz, Virtual Property – Real-World Problem, The MTTLR Blog, Feb. 4 2008.
10 Erik Paulson, Virtual Property Protection: Continue the Experiment, The MTTLR Blog, Feb. 7, 2008.
11 Lederman, supra note 10, at 1658, 1670.
12 Hannah Seligson, Sight Unseen, New York Post Online Edition, (last visited Feb. 5, 2008).
13 The Office, Season 4: Local Ad (NBC television broadcast Oct. 25, 2007). Clip containing quote available at http://www.gametrailers.com/player/usermovies/149565.html (last visited Feb. 15, 2008).

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February 15th, 2008 at 10:32 pm

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Virtual Property Protection: Continue the Experiment

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by: Erik Paulson, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds – Part one explores parallels between virtual property and real-world property. Part two (this post) examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

How should intellectual property laws protect ownership in virtual property? Second Life, a virtual world, has grown explosively since 2003 attracting millions of members from around the globe.1 The creators of Second Life describe the online game as “a 3-D virtual world entirely created by its Residents” who retain rights to their digital creations.2 Residents of Second Life can use Linden Dollars to purchase virtual cars, nightclubs, and even islands. These virtual items are worth real money. Islands cost a whopping $1675 US each,3 and IBM recently purchased twelve.4 Second Life has an exchange where US dollars can be converted to Linden dollars and vice versa. Hundreds of thousands of US dollars worth of exchanges occurs every day.5 With this amount of money being invested in virtual worlds, property rights become very important. There has already been litigation, but the question remains, who actually owns this virtual property? More importantly, should legislatures step in to protect it?

EULAs govern

Currently, End User License Agreements (EULA) govern the legal relationship between most virtual world users and virtual world creators. EULAs are contracts users agree to be bound by before using computer software. Effectively, EULAs give virtual world creators the legal power to determine how virtual property will be protected. However, users are not left without remedy. Unlike the lawlessness of the Wild West, EULAs are governed by contract law principles, so they may not be “unconscionable” and are limited by “reasonableness” requirements. Additionally, consumer protection statutes in many states limit the enforceability of contracts. Most importantly, world creator power is limited by users’ ability to choose whether or not to enter a virtual world.

Virtual worlds are created for different reasons. Some, like World of Warcraft are video games, created to provide entertainment. In game-like virtual worlds, the real world sale of virtual property is often discouraged since the creators feel it detracts from the gaming experience. Other virtual worlds, such as Second Life, are intended as havens for virtual property, and as mentioned above, even set up real world monetary exchanges for virtual currency. The goals of virtual worlds are different and would not fit easily under a single virtual property protection regime.

Virtual world creators are not ignorant of the needs of their users. Users are the essence of any virtual world. Varying levels of virtual property protection may attract a certain user base, and given the ease with which users can join or leave a virtual world, if they are being treated unjustly they can quickly move to another venue with a few clicks of the mouse. Unlike the real world, virtual world costs to move from one world to another are relatively low. Virtual world creators competing for users will create virtual property protection that best suits their business model.

Competition between virtual worlds will ensure creators give adequate consideration to the type of property protection desired by users. The simultaneous successes of Second Life (with strong virtual property protection) and World of Warcraft (with weaker virtual property protection) provide strong support for this assertion – different users seem to be attracted to different levels of virtual property protection. Of course, factors other than virtual property protection affect a user’s decision to join one virtual world or another. But only the individual can adequately weigh the importance of virtual property protection when choosing a world to join.

Alternatives to the EULA scheme

Consumer contracts can be criticized for binding users who neither read nor understand the contract. This same criticism can be leveled against EULAs and in favor of a legislatively-imposed standard virtual property regime. But a protective regime is unnecessary for several reasons. First, from a public policy standpoint, unlike contracts involving real-world property, most users are not significantly invested in virtual property. Second, users of virtual worlds are educated at higher levels than the general population – one study found 65% of Second Life users have attained a college degree6 as compared with 29% of the US population.7 Users of virtual worlds do not need the government’s protection, since the users are positioned to be more informed and better understand conditions imposed by a EULA compared to the average denizen of the real world. Third and most importantly, users have a general awareness of virtual property rights associated with the world they participate in from a variety of sources including blogs, news articles, and community members. In the real world, people rarely read long form contracts they are required to sign. Yet, people understand the general implications of agreeing to contracts. Without reading the EULA, the typical user of Second Life is likely aware they have more virtual property protection than a World of Warcraft user.

Virtual property rights should be allowed to vary depending on the goals of the world creators. Well-functioning standard contractual agreements have developed previously without legislative intervention. The GNU standard for software licenses embraced by the open-source software community is an example.8 GNU licenses provide different levels of protection depending on the desires of the software developer.9 Both developers and consumers know what to expect with a particular GNU license without needing to read the language of the contract. Virtual property rights are well suited to a tiered level of protection. An internal standardizing body could create different levels of protection. Once widely adopted, users could gravitate towards the virtual property protection regime they prefer. In addition, user rights groups will likely develop to lobby on behalf of virtual citizens. Legislative intervention is not a pre-requisite for virtual property protection. As noted by a recent commentator, many virtual world users may prefer legislatures stay out.10

Most importantly, virtual world citizens are not a captive group. They can leave their virtual worlds at any time, granted they must leave potentially valuable virtual property behind. But since users are the most important element in the virtual world business, creators have plenty of incentive to treat users fairly. In the future, we may see virtual world coalitions that create standards for transferring virtual property between virtual worlds. The optimal level of virtual property protection is unknown. But what is certain, an open market in virtual worlds and virtual citizens should be left to its own devices to coalesce around a virtual property protection regime of its own development. Courts do have a place in this: virtual property rights should be enforced in accordance to EULAs. However, legislative tampering or the creation of a one-size-fits all standard for virtual property rights will not benefit virtual worlds, or virtual citizens.


1 Second Life, What is Second Life?, (last visited Jan. 26, 2008).
2 Id.
3 Second Life, Land: Islands, (last visited Jan. 23, 2008).
4 John Bringardner, IP’s Brave New World, Law.Com (Feb. 1, 2007), (last visited Jan. 23, 2008).
5 Second Life, LindeX Market Data, (last visited Jan. 26, 2008).
6 New World Notes, Surveying Second Life, (last visited Jan. 26, 2008).
7 U.S. Census Bureau, One-Third of Young Women Have Bachelor’s Degree (Jan. 10, 2008), (last visited Jan. 26, 2008).
8 Gnu.org, The GNU Operating System, (last visited Jan. 26, 2008).
9 Gnu.org, Licenses, (last visited Jan. 26, 2008).
10 Kevin Deenihan, Leave Those Orcs Alone: Property Rights in Virtual Worlds, (last visited Jan. 26, 2008).

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February 7th, 2008 at 4:36 pm

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Virtual Property – Real-World Problem.

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by: Elizabeth Hertz, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds – Part one (this post) explores parallels between virtual property and real-world property. Part two examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

As a society, we’ve long been comfortable declaring property rights in ideas. The explosion of immersive online games, however, has raised the question of whether there should be legal rights in what is essentially another person’s idea translated into a conglomeration of ones and zeros that is only useful within the confines of a virtual world. To add to the legal confusion, people are exchanging real-world money for virtual property.

In a recent article entitled “Leave Those Orcs Alone: Property Rights in Virtual Worlds,”1 Kevin Deenihan argued that online games and the virtual property therein should continue to be governed by the End User License Agreement (EULA) scheme rather than real-world property law. In
arguing against the application of legal rights to virtual property, Deenihan relies on a distinction between virtual and traditional property. However, I found myself unconvinced. If virtual property is truly its own category, deserving of a special legal exemption, the distinction must rest on more than the “communal, social atmosphere of virtual worlds.” 2

Deenihan states that virtual property possesses no special value “except as a record of achievement” and “an aid to socializing.”3 Virtual property derives its value from the status it confers on its owners, showcasing the time and skill they have invested in its procurement.4 This may be true, but it is true of traditional property as well; I suspect it would be difficult to sell a five thousand dollar handbag if it conferred no status benefits on the buyer.

Deenihan supports his position on the distinctiveness of virtual property by citing the controversy over so-called gold farmers, players who perform repetitive tasks to earn items and virtual money, which they then sell for real money.5 Such players warp the ‘economy’ of the game and make it difficult for others to maintain their status; to keep up with the rising costs, people are forced into doing the ‘less playful’ tasks that earn virtual money. Sound familiar?

Even the player-lauded efforts of developers to shut down, kick out, and generally punish those who would upset the status system don’t prove the distinctiveness of virtual property. The heart of the regulation is keeping high-status items out of the hands of those without the requisite characteristics; in short, game developers are mimicking sumptuary laws.

Deenihan seems to operate on the implicit assumption that property law is meant solely to protect necessities and govern commercial exchange.6 Most property isn’t necessary, and few people outside of business and law are concerned with large contractual borrowing. The fact of the matter is that people have a lot of property that falls into neither of Deenihan’s categories but nonetheless enjoys the protection of the law. The mere fact that large portions of American property law wouldn’t apply to virtual property
doesn’t mean that the remaining law should be inapplicable as well.

Perhaps the only reason the one-sided EULA scheme has not been more critically scrutinized is that the value of most individual players’ virtual property is low. The Linden dollar, the currency of Second Life, is worth roughly 1/270th of an American dollar.7 All that the average player has invested in a game is a few dollars and a lot of hours that, presumably, he or she enjoyed. But in the aggregate, these investments do add up to significant amounts.

It’s all very nice to think of the virtual worlds as extralegal spheres of community and fun, but virtual worlds involve real money. As any reader of the news will know, Second Life has already produced a millionaire,8 and the plaintiff in a recent suit against Linden Labs claimed to have invested over eight thousand dollars in virtual real estate.9 With this kind of money at stake, there will come a point when a settled virtual property law becomes a necessity rather than a point of debate.


1 Kevin Deenihan, Leave Those Orcs Alone: Property Rights in Virtual Worlds, Virtually Blind, January 15, 2008.
2 Id. at 16.
3 Id.
4 Id.
5 Id. at 17-18.
6 Id. at 23-24.
7Stephen J. Dubner, Philip Rosedale Answers Your Second Life Questions, Freakonomics Blog, December 13, 2007.
8Rob Hof, Second Life’s First Millionaire, Business Week, November 26, 2006.
9 Declaration of Mark Bragg, Esq. ¶33, Bragg v. Linden Research, Inc., No. 06-CV-4925, 2007 WL 526313 (E.D.P.A. Jan. 25, 2007) (zipped file (“Bragg’s Motion for Injunction, Brief and Exhibits 1/25/07″) containing Declaration (“Exhibit 1″) available from http://secondlife.typepad.com/second_life_lawsuit_bragg/second_life_lawsuit_pleadings_with_the_court/index.html.

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February 4th, 2008 at 12:50 am

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