Virtual Property
Kurt Hunt - Law 897
November 1, 2006

An Introduction to Virtual Property

Virtual property, in a nutshell, can be thought of as "property" that exists only in the digital domain. As of right now, its most obvious and pervasive incarnation is in Massive Multiplayer Online Roleplaying Games (MMORPGs). In MMORPGs, players create and collect virtual characters, items, land, and currency, some of which has developed real-world value.

An attorney who recently interviewed me embodied the typical outsider view of virtual property. This person scoffed at the idea, said it was "just a game," and declared that the people buying virtual property should be subjected to psychological evaluations. Of course, that task might take longer than expected, considering that there are tens of millions of MMORPG players worldwide.

Hopefully, this seminar will come to a more nuanced understanding of virtual property. To do this, we must first understand the context in which virtual property arises. Read the Wikipedia entry on virtual economy and pay close attention to the "Overview" and "Controversy" sections. Then read F. Gregory Lastowka and Dan Hunter's The Laws of the Virtual World, section II, "Virtual Properties" (pages 13-23, but skip the "Early Conceptions of Virtual Property" subsection).

Of course, some people aren't convinced that players should own virtual property at all. Read Virtual World Ownership and look through some of the comments. What do you think of Matt Mihaly's 9 cases that courts couldn't possibly sort out? What exactly is he saying in this post? Does he support limited virtual property rights or no virtual property rights? Note that he comments that virtual items are "meaningless outside of the context of the game... this idea will come up again in a more useful way later in this assignment.

Also read Virtual Worlds... Trouble Ahead (start at the fifth paragraph, where it talks about the Themis Group). What do you think of the five pitfalls summarized in this article? Are any of them insurmountable?

The Possibilities

As you read on Wikipedia, the 2006 virtual property secondary market was estimated to be between $1 and $3 billion dollars. But what do these transactions look like?

Browse through the official Second Life auctions (keep in mind that $250 Linden dollars is roughly equivalent to $1 US dollar). Take a peek at Game Price Watcher, which provides price comparisons of various vendors of in-game currencies. From there, click on "Second Life" and then "Main Server" to check out the current Linden exchange rate (note that when this chart says "5 Linden" it means "5K Linden"). Do you understand why someone would pay real money for virtual money? Does the existence of these exchange rates indicate that in-game currency needs legal protection similar to that given real currency?

Now that you've had the chance to see some of the marketplaces, let's look at some case studies. Read The Virtual Rockefeller, about a Second Life player who makes an estimated $150k USD per year selling virtual real estate. To get a sense of the different ways people make real money off of virtual property, read Making Money on Second Life.

Problems with Developers

The primary issue with virtual property is that almost no one agrees on how to think about it.

Linden Labs, the developer of Second Life, has taken a progressive stance by acknowledging that "subscribers . . . retain full intellectual property protection for the digital content they create." Read their press release, and also read about Fabjectory, a real-world business that takes full advantage of this policy. Do you think this policy is wise?

Most other developers are not quite so excited about virtual property. Read sections 2, 3A, 6, 9, 11, and 13 of the World of Warcraft EULA. Note that WoW is widely considered to be the most popular MMORPG in the country.

Then there are those developers, like Mindark, that send mixed messages. Read about this record-breaking transaction (and ask yourself "he paid how much for a fake space station?) and then visit the homepage of Entropia Universe. Compare how Mindark advertises the game with section 7, paragraphs 3-5 of its Entropia Universe's EULA. What on earth is going on here? What are these people buying if they cannot gain "any ownership interest whatsoever in any Virtual item"? Is Mindark just trying to have it both ways, or is their approach mutually beneficial?

Problems with Law

Due to the relative newness of the problem, only a handful of lawsuits have resulted from virtual property disputes.

Read about this Chinese case, in which a game developer was held to be negligent and was ordered to restore the plaintiff's stockpile of virtual biological weapons. Do you agree with this verdict? With the remedy? Would you like to see this sort of approach applied in the U.S.?

Now let's read about Bragg v. Linden Labs, one of only a very few U.S. virtual property cases to be filed. Read this overview of the case and browse through the discussion on Prof. Orin Kerr's blog. What do you think about the commenters' debate about the Second Life EULA? Think about these same problems as they apply to the Entropia Universe EULA. Is the existence of a EULA always going to be dispositive? For fun, check out the .pdf of Marc Bragg's one-page complaint. Thoughts?

Is the lack of litigation an indication that formal legal protection is unnecessary, or is it an indication that disputes are going unresolved? If we are to extend protections to virtual property, what should those protections look like?

Even Congress has started to pay attention to MMORPG economies. Why, you might ask? Why, taxes, of course. Read US Congress launches probe into virtual economies from Reuters' Second Life News Center. Yes, Reuters has a news service specific to Second Life.   Optional: If you find this as curious as I do, you can read this interview with Reuters' Second Life correspondent.

Legal Scholarship

First, think back to the Lastowka and Hunter article at the beginning of this assignment. That provided an excellent introduction to several of the fundamental legal issues.

Jack M. Balkin argues that there is a First Amendment "right to play" in virtual worlds, but points out that, like real-world rights, that right to play is not unlimited. Part of this right to play--and the potential source of one kind of injury--is the possession of virtual property. He argues that increasing real-world commodification (that is, the increasing amount of real-world value attached to virtual property) makes it impossible to ignore the issue. Read "The Costs of Commodification" (pages 28-32) of Balkin's Virtual Liberty. In this section, he identifies several obstacles that may arise from the recognition of an ownership interest in virtual property, and weighs various options available to legislators and developers for keeping those obstacles under control. What do you think of his distinction between virtual worlds that encourage real-world commodification and those that don't? Does basing protections on the developer's intent resolve the issue?

For a more thorough conceptualization of possible virtual property doctrine, read Michael Meehan's Virtual Property: Protecting Bits in Context, starting with the "Conceptualizing Virtual Property" section (page 21 of the article) and continuing all the way to the end of the article. Do you think his approach would give developers sufficient freedom to run their games successfully? Also, what do you think of his idea of favoring the player in disputes involving devaluation or destruction of virtual property in continuing games but favoring the developer in disputes involving the termination of an entire game?

Some Questions to Consider

1) Should players have a legally protectable ownership interest in virtual property? If not, why not? If so, what are the limitations of that protection? What happens when a hacker compromises the game database, when a storm fries the server and destroys the player's character, or when a developer shuts down a game for good? Should these protections be legislated, or should they be allowed to develop within the games?

2) What role do End User License Agreements and Terms of Service play? Can a company just contract around the virtual property problem?

3) Is this all just much ado about nothing? Will the issue of virtual property rights be relevant 10 years from now?

4) I joke about the government's quest for taxes, but it's a relevant concern. If there are billions of dollars being traded, should these purchases be subject to taxes? Should in-game businesses be subject to standard US business laws, or should they be governed only by in-game rules?


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