Xbox Live 360.com. Games and Games.

CNN.com put up an article (which quotes me) on the Chinese virtual currency rules mentioned earlier this week on Law of the Game. GamePolitics has also posted two pieces on the rule, with different takes on the issue. It will certainly be interesting to see how this all plays out in practice.

This week, we talk about lawsuits between players. A new Craigslist-based verdict puts a serious damper on many possible avenues.

Read on!

News reports have come out that China has both defined 'virtual currency' and barred the use of that currency for purchase of real world goods. In theory, this is to combat certain underground uses of vitrual money by limiting their use to the purchase of virtual items. In practice, however, it could prevent the spread of virtual worlds like Second Life into China. Based on the Chinese definition of 'virtual currency,' the Linden Dollar used in Second Life is undoubtedly covered, and thus the interplay between the Linden Dollar and real currency would likely be problematic, though the use of Linden Dollars to purchase in-world goods may not be. It will be interesting to see how this continues to play out, especially in view of last year's finding that a virtual seizure had a real world value in China.

I wanted to take a moment to mention that I will be speaking at the Worlds in Motion Summit at GDC 2009. Information about my session, "How to Avoid New Legal Pitfalls in Virtual World Design and Policy," can be found here. As it currently stands, here is the session information:

(306) How to Avoid New Legal Pitfalls in Virtual World Design and Policy
Speaker: Mark Methenitis (Attorney, The Vernon Law Group, PLLC)
Date/Time: Tuesday (March 24, 2009) 3:15pm — 4:00pm
Location (room): Room 132, North Hall
Experience Level: All
Track: Worlds in Motion Summit
Format: 45-minute Lecture

Session Description
There are always new legal pitfalls and challenges emerging in relation to virtual worlds, especially as the field continues to grow. This lecture gives attendees an opportunity to hear from a foremost legal scholar on virtual world legal issues and discuss new areas of concern, including updates on well known cases. The focus of the lecture will be an exploration of recent cases and emerging legal issues involving game and virtual world producers with an emphasis on �lessons learned,� including areas such as user disputes with virtual world owners, intellectual property enforcement, in-world gambling, and privacy concerns. Mark Methenitis will also be open to audience questions about virtual world concepts and design elements that may have unforeseen legal consequences.

Hope to see some of you there! Please feel free to come up and say hi if you're a Law of the Game or LGJ reader.

This week's LGJ revisits the always popular topic of taxing virtual worlds.

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In the most recent LGJ, I apply law to the allegations discrimination against World of Warcraft players.

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This week's LGJ focuses on the potential problems associated with virtual currency, and what might drive the government to regulate it.

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In this week's Law of the Game on Joystiq, a little gambling law as it relates to the Pub Games.

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This week's Law of the Game on Joystiq tackles virtual world taxes.

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In this week's Law of the Game on Joystiq, I discuss MMORPG gambling.

Read on!

On this week's Law of the Game on Joystiq, MMO theft.

Read on!

Let's say you have a Thunderfury, Blessed Blade of the Windseeker. And let's say you bought this item for $100 US. If Blizzard repossess this item (i.e. takes it from your inventory), does this cause you an actual financial loss? Or, in the alternative, let's say you manage to somehow get an Ashbringer (despite theoretical impossibility, it happens), do you have a monetary loss if Blizzard takes it, merely because you could have sold it for $1,000 US?

According to a story from Pacific Epoch, it would seem that is the case in China. The jist of the story is that Shanda Interactive has been forced to apologize to a gamer and pay that gamer 5000 Yuan (just under $700 US) because they removed six virtual item from his account in the MMO The World of Legend. The items were removed pursuant to an investigation in stolen good sales in the game, and after police ordered Shanda to return the items post-investigation, Shanda failed to do so.

While I wouldn't go as far as to say this sets up a virtual "search and seizure" precedent, it does present a greater case for actual value of virtual goods. And while there's no such thing as "international precedent" that would bind courts in other countries to the decision, it does provide a perspective that US judges could look to when deciding their own virtual asset cases. It also seems to paint a further picture of inevitability to the idea of virtual assets being assigned value in the US officially by either the courts or the IRS, those being the two most likely to make the first statement in the arena.

[Via PlayNoEvil, Thanks Cameron]

Worlds in Motion has an article up detailing a new surge in the efforts to legitimize real money transactions in MMO games. Generally, the idea is a good one, as RMT can provide the players what they want, as demonstrated through the vibrant black market, while the legitimization gives the developers what they want. In fact, RMT based games are widely successful in other parts of the world. However, given the current state of US gambling laws, increased RMT in MMO games where gambling exists could put the MMO providers on thin ice. Second Life has already seen attention for gambling, and other worlds may not be far behind.

The tricky issue to deal with is the conversions between the virtual goods or currency and real currency. This is something I've discussed at length in my SSRN Papers. From a broad perspective, if a game either lacks gambling or lacks RMT, then there should be no cause for concern. However, when both elements are present, it becomes more problematic. Second Life (while gabling was still permissible), for example, as a direct currency exchange, could be viewed no differently than online casinos. In fact, even if gambling were using a more barter-like system, where, for example, weapons were wagered in fights, there could be a gambling issue assuming the weapon has a real world value, for example, from the ability to buy or sell it for real currency. The even more complex situation arises where the market price can fluctuate, especially given the prospect of reporting winnings or losses for tax purposes.

Obviously, this issue could take a number of turns depending on what the developers end up implementing in future games. It will be interesting to see if more developers place outright bans on wagering to avoid the issue entirely.

In an astonishingly anticlimactic ending to what could have been the landmark first case on virtual property, Bragg and Linden have entered into a confidential settlement agreement. And while I wouldn't hold my breath waiting for the agreement to be leaked online, even if it were, there would still be no precedent set on virtual property from this case. I imagine it's only a matter of time until some other case does just what many of us expected from Bragg v. Linden, but we will have to wait and see what case does just that.

Previous Law of the Game Coverage can be found here.

[Via Virtually Blind, Game Politics]

A point I brought up in my 2005 paper, which was recently touched on by Symantec according to an article, is the possibility for money laundering through MMO games. The idea is simple enough: push money through virtual transactions to lose the connection to crime. According to the report:

"... a criminal enterprise could open several thousand MMOG accounts. Each could be used to trade with other players in the purchase or sale of in-game assets, the funds from which would ultimately be withdrawn from the accounts. Since thousands of accounts may engage in millions of transactions, each with small profits or losses, it would be difficult to trace the true source of the funds when they are withdrawn. These transactions can be conducted worldwide without the oversight that typically accompanies international bank remittances. In fact, in February 2007, China's central bank and finance ministries called upon companies to stop trading QQ coins and virtual currencies, presumably to curb the unregulated exchange of currency."

I estimate that Symantec's solution to the problem is with greater security and client verification. However, a more simplistic approach would be taxation on virtual revenue, even if the concept is opposed by players. Think of it this way: Right now, income from sales in MMO games is supposed to be reported as ordinary income. Many people neglect to do this whatsoever. If, instead, there was automatic reporting to the IRS (or other country's tax agency, based on the residence of the player) of income derived from MMO sales, then the tax agency would know to expect payment from said individuals. Moreover, it ties a person to the MMO account, eliminating the possibility of spreading one person over 100 accounts and going unnoticed. Of course, this would have to be based on a cash out value, as has been suggested before by both myself and Bryan Camp. In any event, the process of losing money in the transaction generally makes different things less appealing as money laundering vehicles, and thus virtual taxation could be one answer to the problem.


[Via Kotaku]

An interesting piece was recently posted on Virtually Blind by Israeli attorney Jonathan J. Klinger. The crux of his argument was:

For example, earlier this year, Michael Carlton, CEO of online sportsbook Victor Chandler, was arrested in Israel. An Israeli court asserted jurisdiction over Carlton, a foreign citizen, and stated that as long as a portion of the illegal activity (here, gambling) occurred in Israel, there is no need for universal jurisdiction, and the website operator is subjected to the Israeli law (State v. Carlton, Hebrew decision). The court stated that it was in Victor Chandler’s responsibility to bar all communication from Israel since the activity they offer is illegal for Israeli citizens to participate in.

Using the same rationale, any employee of Blizzard or Linden Lab could be subjected to the Israeli penal code, as they are allowing illegal conduct (under Israeli law) to take place on their servers. Blizzard could face harsher liability as it distributes World of Warcraft actively in Israel, while Second Life is only available for download.

The only solution to these legal problems is to separate players according to countries, or even states (as some state laws in the US differ regarding pornography and violence). Any other solution may cause a conflict of laws, and subject the industry to liability twice: the first is the constitutional tort, where legal expression is barred though there is no local legal reason to bar it (e.g. ageplay in the U.S.) and the second is potential criminal prosecution by another state which may prosecute company leaders for user actions that are actually legal in the home country of the company.

I, however, do not agree. Moreover, I believe the precedent set by Isreal should be looked at with disdain by the legal community. Take note here that I'm departing from an actual analysis, which the above quote limits itself to, and moving into theoretical alternatives that would generally be beneficial to all those involved.

I want to begin with a meta-theoretical statement. The purpose of virtual worlds is to bring people together. As such, the solution that either people must be divided on geographical lines or game providers must be subjected to liability is a pure frustration of purpose. Of course, the concept of making a "virtual world" an actual nation is equally blasphemous. In fact, it seems at though negative consequences could easily result from creating "independent nations" within nations that exist on servers. So, what solutions are available to the problem? Clearly the social conscience of a person in Texas cannot be made to match a person in Isreal or Japan or France. That idea is equally impracticable, and in the same vein, the pipedream of creating "universal rules" to govern the internet is impracticable. Moreover, the idea that we allow complete free speech to govern our online worlds only gives rise to the most deplorable of content, as child predators would take refuge under the "free speech" of the digital world. There is also the final consideration that, ultimately, the server space is private property. The Grid belongs to Linden. Azeroth (all of the various iterations on the various servers) belongs to Blizzard.

So where does this leave possible solutions? Governing in-world conduct being left to the worlds owners, how should jurisdiction be handled? I think it is time for a paradigm shift an analyzing jurisdictional elements with virtual worlds. Put simply: Server location dictates jurisdiction. While this idea won't bode will with the "minimum contacts" proponents out there, the theory does have a logical base. Ultimately, the activity occurs on the server, not at the user end. I can click buttons all day long on my personal computer, but without the server end, there is no net effect. As such, the server is the critical component. This is the basis for a client-server model, and this is, in my opinion, how it should be treated under the law. This provides the maximum certainty for the developer.

This, of course, leaves the issue of performing an activity illegal in one country on a server located in another. Ultimately, issues like these will have to be resolved by the governments, rather than putting the developer in the line of fire or forcing the defeat of the purpose of virtual worlds. So, for example, if a 3rd world nation hosts "Child Porn: The Game," it will be up to the international community to pressure that country to abolish the game. (Moreover, with something as pernicious as child pornography, local governments could likely track subscriptions and users in order to find offenses in the local countries. I can't say I favor invasion of privacy, but I also can't say I oppose using any means necessary to remove dangerous predators from the streets.) On the other hand, with something as hotly debated as online gambling, rather than leaving the user and developer in difficult and awkward positions, it would have to be resolved between nations. Ultimately, either the moralists would win, or the simple positive economics would. In either case, the burden is on the government, or indirectly on society as a whole, rather than punishing the developer or the user based on what are largely ambiguous lines.

Will this paradigm shift happen? It seems doubtful given the overwhelming analysis of jurisdiction to the contrary. However, I think that we have reached a time in which the old analysis need to be seriously re-examined based on the dramatically different world and virtual worlds that technology has created.

[Via Virtually Blind]

An editorial on China View has some rather harsh words for the online gaming industry in China, specifically for those in the "black market" of virtual goods. The sibling to the gold farming issue in China is the theft and resale of virtual goods.

The article brings up a number of interesting points, but also seems to confuse the "virtual theft" concept with the "gold farming" one, although both issues have been met with cries for regulation, along with the already regulated "underage gaming" issue in China.

The editorial, however, leaves me with mixed feelings. On the one hand, it is always positive to see people outside the gaming establishment finally realize and accept that these virtual goods, be they land in Second Life or an Infinity Blade in World of Warcraft, do have a "value." Moreover, the idea of protecting players from theft is definitely a positive one. On the other hand, the idea of additional government regulations never seems to be the most appropriate approach. While this could be in China rather than the US, I still can't help but feel the regulations are inappropriate.

The major difficulty would be the near impossibility of government alone policing those systems, but on the flip side, the game providers lack any real enforcement tools if and when they can track virtual wrongdoings. The logical outcome would be a necessity for cooperation between government and game providers, but I think the mandates should come from the game providers, not the government. After all, the government does not seem to, on a basic level, understand these games. This would only lead to ineffective legislation that would breed resentment in the gaming community or lead to a downward trend in the games overall.

Regardless of your stance on game regulation, the wisdom of self regulation is evident in many industries, from law to medicine. In this case, where a real crime is involved, similar cooperation has worked for other industries. Of course, only time will tell if any actual regulation is attempted, but given the trend to monetize virtual worlds, some sort of "law enforcement" is almost inevitable.

[Via GamePolitics]

Back in late April I finished an article titled A Tale of Two Worlds: New U.S. Gambling Laws and the MMORPG. That article has been published in the now available August edition of the Gaming Law Review. I must admit that some of the substantive MMORPG analysis is a bit simplistic (mostly in defining the volume of real money transactions as they relate to World of Warcraft), in part due to to audience considerations, but the legal analysis is quite thorough. While my SSRN revisions are still under review, the paper is available to those who may have access to the journal through academia or other means.

For those interested, here is the reference information:

Abstract

Full Citation:
Mark Methenitis. Gaming Law Review. 2007, 11(4): 436-439. doi:10.1089/glr.2007.11404.

Gaming Law Review, Volume 11, Number 4


[UPDATE: Just to clarify, the simplification was in the following regard: I assumed, for the purpose of the paper, that Blizzard's ban on real money transactions was completely effective, rather than just mostly effective. The concept of the "black market" complicated the comparison to a high degree and would have easily doubled the length of the paper. It also plays to a greater assumption that Blizzard will, in all likelyhood, continue to crack down and may eventually wholly eliminate real money transactions, even those on the "black market" type level.]

As I continue to play catch up from my hiatus, I have been hit by a bit of an irony. During my time away, I did submit the finalized version of "A Tale of Two Worlds: New US Gambling Laws and the MMORPG," which will be appearing in this month's Gaming Law Review. Of course, a mere few days later, Virtually Blind reports that Second Life has issued a clear "ban" on in game gambling, making some of the examples I used in the paper moot.

While I do agree with Virtually Blind's Benjamin Duranske that the revised policy statement is far clearer than the previous, I can't go as far as to call this a true "ban." The revised statement leaves many loopholes that I'm certain will be exploited in the days, weeks, and months to come. The policy states that games cannot "(1)(a) rely on chance or random number generation to determine a winner, OR (b) rely on the outcome of real-life organized sporting events, AND (2) provide a payout in (a) Linden Dollars, OR (b) any real-world currency or thing of value."

First, the statement really makes no claims at all with respect to games of skill. In fact, Second Life poker wouldn't violate this policy under many interpretations of "relying on chance." Whether it would be interpreted this way under the UIGEA is an entirely different debate (without an answer at this point), but more than likely poker would not violate the Second Life policy. The same could be said for any other game of skill that could be integrated into the grid. I suspect it will only be a matter of time before someone builds a Quake Zero betting system that plays through Second Life.

The second loophole is actually one that was mentioned in the article, being that only betting on the outcome of "real-life organized sporting events" is banned. Thus, if your event is either not real life, not organized, or not a sporting event, it is excluded. Virtually Blind mentioned the Oscars or Survivor (although Big Brother would be more timely at the moment). But there are a large number of other excluded events. MMO-based sporting events (in Second Life, World of Warcraft or elsewhere) would not be "real-life" events, so they would be excluded. This means that theoretically you could bet on PvP matches. The definition of "organized" will likely be pushed, probably in drawing a line between "professional" or "league" play. However, the most critical designation may be "sporting." What is defined as a sport? Is Major League Gaming a sport? I know of people who would argue on both sides of that debate. This restriction is by no means as comprehensive as it appears.

Perhaps the biggest loophole is in the "payout in (a) Linden Dollars, OR (b) any real-world currency or thing of value" clause. First, as Virtually Blind points out, the phrasing doesn't seem to restrict gambling in virtual items "of value." This, taken broadly, means that a simple casino chip system implemented in Second Life could circumvent the restriction. The only restrictions are on betting with Linden Dollars or real world currency or items of value. Thus, any virtual good that can be bought, gambled with, and resold for value would not be included. While actual chips might be argued to be the equivalent of currency, a system that operates in a similar manner without using chips may skirt the rules. Moreover, as Play No Evil's Steven Davis points out in comment 1, the use of a pachinko style system would skirt the restriction. For those unfamiliar with Japanese gambling, pachinko is a game in which you play with, earn or lose metal ball bearings. Having played the game while in Japan, it's much like a cross between a slot machine, a pinball machine, and a video game. These ball bearings can be redeemed for prizes. Among the prizes are a tokens that are, in the parlor, worthless, but if you take them to a booth nearby, they can be exchanged for cash. A similar model could be employed in Second Life as a means to bypass this policy.

While this new policy does help in some respects, it is still probably inadequate to deflect the pressures the UIGEA is placing on the system. Whether these loopholes were intentional or the result of an oversight will not impact the government's investigation, which seems to be an inevitability at this point.

China Daily is reporting that the official Chinese crackdown on extended gaming sessions by teenage users has begun. The concept is one that many hope never reaches the level of government regulation in the United States. Specifically, users under 18 are allowed to play online as long as they wish. However, after 3 hours of play, any points earned (i.e. experience points in RPGs) are cut in half. After 5 hours of play, no points are earned at all.

How is this system enforced? Game companies are required to integrate a uniform Chinese ID into their system. It would be the equivalent of a game company requiring your Driver's License number to register to play. The game company can then know your age and limit you if necessary.

Of course, there is always the potential for fraud, such as a kid using a parent's ID number. Pacific Epoch is reporting that The9 (the Chinese provider for World of Warcraft) will have a tool that allows parents to see if their IDs are being used. While this is certainly something, it seems like the system will never likely be perfect, short of requiring biometrics or something similarly difficult to circumvent.

While I can see the value of limiting a child's play time, the role of acting as the limiter will hopefully remain with the parents in the United States. There is no reason to appoint the government as a pseudo-parent for issues such as these that are so easily manageable by the parents themselves. However, software companies may see a benefit to incorporating a system that the parent can enforce in countries like the US. However, no technology can ever truly take the place of simple presence. Children can inevitably find ways around most technological or other barriers, but they can't get around a responsible parent.

[Via PlayNoEvil]