Virtual Property, Real Law: The Regulation of Property in Video Games

Canadian Journal of Law and Technology Canadian Journal of Law and Technology

Volume 6 Number 2 Article 1

4-1-2007

Virtual Property, Real Law: The Regulation of Property in Video Virtual Property, Real Law: The Regulation of Property in Video

Games Games

Susan H. Abramovitch

David L. Cummings

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Virtual Property, Real Law: The Regulation of Property in

Video Games

By Susan H. Abramovitch† and David L. Cummings‡

Abstract

his article considers property created and used in the virtual realm of video games, which is often given real-

Tworld value. From the unauthorized copying of designer clothes sold on

Second Life

for in-game cash, to real

court damages awarded against game operators’ deletion of player-earned swords on

Mir 3

, a bridge has been

taking shape from video gaming’s virtual economies to real-world economies. However, virtual property created in

virtual worlds has yet to be formally recognized by North American courts or legislatures. This article attempts to

touch on some of the legal considerations paramount in determining how such property can or should be

governed. Virtual property shares many of the characteristics found in tangible property, and it is possible that it

could be treated, at least in a legal sense, similar to tangible real-world property. Moreover, virtual property can

carry both physical and intellectual property rights. While video game developers generally retain these rights via

online agreements, policy reasons may have emerged for lawmakers to consider when deciding how to treat

virtual property under these agreements. Property rights in virtual property are currently being recognized by

some foreign legal bodies and North American courts and legislatures have also begun to deal with this novel

issue. In response, some video game developers are taking new approaches to the rights granted to players in

respect of the use of virtual property.

that virtual property is being commoditized in the real

Introduction

world, and accordingly, real-world legal implications

follow. However, virtual property created in virtual

aws in the Western world have traditionally recog-

worlds has not yet been formally recognized by a North

Lnized that people value their property and therefore

American court or legislature. This paper will attempt to

protecting rights in an individual’s property — be it real

touch on some of the legal considerations that are para-

property, chattels, or ideas — is fundamental to societal

mount in determining how such property can or should

legal regimes. In the last few years, a new form of valu-

be governed. It can be shown that virtual property shares

able property has been emerging, and it is uncertain as to

many of the characteristics found in tangible property,

whether current laws can adapt to its novel characteris-

and it is possible that virtual property could be treated, at

tics. Though video games have existed for some time, it

least in a legal sense, similar to tangible real-world prop-

is only recently that gaming technology has allowed for

erty. Despite its intangible nature, virtual property can

the evolution of virtual worlds made up of virtual prop-

carry both physical and intellectual property rights, and

erty. From the unauthorized copying of designer hair-

the developers of virtual gaming worlds generally retain

styles sold on

Second Life

for in-game cash,

to real court

these rights via online agreements. Although these agree-

damages awarded against game operators’ deletion of

ments have in the past been held to be enforceable,

player-earned swords on

Mir 3

video games are mere

policy reasons may have emerged, and may continue to

fun and games no longer.

emerge, for lawmakers to consider when deciding how

Property created and used in the virtual realm of

to treat virtual property and the demarcation of rights

video games is often given real-world value, and as a

under these agreements. In particular, property rights in

result, a bridge has been taking shape from video

virtual property are currently being recognized in some

gaming’s virtual economies to the real-world market-

real-world courts and laws of foreign legal bodies. North

place. The reality of the virtual video gaming world is

ebec,

and the New York Bar. Susan is a partner at Gowling Lafleur Henderson LLP in its Toronto office, practising exclusively in the area of entertainment law.

‡David Cummings, Hon B.A., LL.B., is an associate at Gowling Lafleur Henderson LLP in its Toronto office, practising in the areas of entertainment law

and business law.

The views expressed in this paper are personal to the authors and do not necessarily represent the view of Gowling Lafleur Henderson LLP or clients

of the firm.

74 Canadian Journal of Law and Technology

American courts and legislatures have also begun to deal Virtual Economies Within Virtual Worlds

with this novel issue. In response to these realities, some

Virtual property is vital to the functioning of most

video gaming companies are taking new approaches to

virtual worlds, as they are often based on virtual eco-

the treatment of virtual property by allowing users to

nomic systems. The virtual property within these virtual

trade such property in the real world, even creating mar-

worlds provides the incentive for players to participate,

ketplaces for same, and by granting intellectual property

and to continue to participate, in virtual worlds. In-world

rights to users in their created content.

currencies can be used to ‘‘purchase everything from

experience points to spells, and virtual goods such as

clothing and weapons’’.

As the foundation for virtual

What is Virtual Property?

economies that imitate many real-world economies,

especially Western capitalist economies, virtual property

Main Characteristics

can be seen to have many similarities to real-world prop-

erty.

For instance, in massively multiplayer online role-

efore exploring some of the legal issues surrounding

playing games (‘‘MMORPG’’) ‘‘virtual chattels existing in

Bvirtual property, it is important to establish an

virtual worlds clearly mimic real world goods’’: a player

understanding of how it is created and to review some of

could hypothetically use his or her avatar to create or

its main characteristics. At its base, virtual property is

obtain a shovel, which could then be used in turn to

simply computer code. In contrast to computer code

build another piece of virtual property.

No other player

that expresses mere ideas, virtual property computer

would virtually own that shovel, and the shovel would

code is ‘‘designed to act more like land or chattel’’.

The

be available to the player as long as he or she subscribes

original virtual properties in the online world included

to the game. The player could also sell the shovel to

‘‘[d]omain names, URLs (uniform resource locators),

another player for whatever currency system is available

websites, [and] e-mail accounts’’.

Such property ‘‘consists

within the game.

of computer code (and thus qualifies as ‘virtual’), . . . can

be owned by one entity, which has the right to exclude

Real-World Trading

others from its use, . . . does not go away when you close

your web browser; rather, it remains available’’,

and it

In addition to swapping virtual items exclusively

can be sold among entities. In that regard, domain

within the virtual worlds, players can swap virtual prop-

names, URLs, Web sites, and e-mail accounts exhibit

erty amongst each other in the real world. In-game items

certain key general characteristics of virtual property:

can be exchanged for in-game money, and both in-game

exclusivity, persistence, and transferability.

money and in-game objects can be exchanged for real-

world money.

For example,

Second Life

currency can

Understanding Virtual Property in Virtual

be swapped for U.S. dollars on a currency exchange cre-

Worlds

ated by Linden Labs, the creators of

Second Life

These

transactions occur as follows: one avatar finds another

Defining Virtual Worlds

within the game who has a desirable piece of virtual

property. After a negotiation, the deal is completed

The virtual worlds of online video games opened

through an instant message screen and an online pay-

the door to the creation of a new type of virtual property

ment service such as PayPal. Since the goods all require a

that looks more like a chattel or real property than intan-

certain amount of virtual money amassed, and the

gible property. Virtual worlds are ‘‘digital [representa-

accumulation of virtual money requires the expenditure

tions] of a physical space’’ that are often ‘‘created and

of time, these trades ‘‘[amount] to a basic exchange of

maintained as an online game’’.

Theodore Westbrook

money for time’’.

There is a real-world value for the

has explained a virtual world as follows:

virtual goods and currencies.

Essentially, it is a host location that mimics aspects of our

own universe. When a personal computer (‘‘PC’’) user logs

into a virtual world, he is then represented by a visual

Real-World Value

depiction that acts as his proxy within this world, obeying

his keyed and clicked commands. Unlike the typical console

Real-world markets boasting impressive real-world

or non-networked PC game atmosphere, a virtual world is

values exist for the trading of virtual property. The

host to many such representative proxies, known as ‘‘ava-

MMORPG market is comprised of 10 million users in

tars’’, ranging from a few to over one million. These avatars

the United States and 73 million users worldwide, all of

perform various activities; they interact through . . . commu-

which are concentrated within 19 games.

In 2005, this

nications, they move about the virtual world, and they

manipulate the various aspects of the world that have been

market was estimated to be valued at US$1.9 billion

designed for such manipulation.

worldwide and is ‘‘growing continuously and exponen-

Simply put, virtual worlds are simulated depictions of tially’’.

Edward Castronova, an economist who studies

the physical real world, although at times fantastical, virtual economies, studied the MMORPG market in

encompassing virtual public spaces (such as stadiums, 2002 and measured the wealth produced by real-world

restaurants, and malls) and virtual goods (such as T-shirts, trades of Norrath virtual property — the virtual world of

helmets, and guitars). the MMORPG

Everquest

— in terms of

per capita

gross

Virtual Property, Real Law: The Regulation of Property in Video Games 75

domestic product. It was concluded that, if the

Everquest

interests that are merely fixed in form. For example, a

players were viewed as a national economy, the market’s leasehold is an intangible property interest fixed in

wealth would have made Everquest the seventy-seventh written format that provides evidence of the interest. In

richest country in the real world in terms of

per capita

virtual property, the relevant useful unit is the computer

gross domestic product, ahead of several countries code of the piece of virtual property. The operation of

including Bulgaria, China, and India.

such code flows via the Internet, which is made up of the

following components:

The physical computers and connections that are the back-

Tertiary Markets

bone of the net form the basis for internet communication;

Third-party markets exist for the trading of virtual

layered on top of that are the transfer protocols that enable

property in the real world. Many Web sites have sprung

communications between computers; layered on top of that

up to accommodate the real-world trading of virtual

is the basic code that creates a website or a virtual world;

layered on top of that is the intellectual property that

property, as businesses have clearly recognized its profit

inheres in the content of the website or the virtual word;

utility.

These Web sites allow users to buy and sell

and layered on top of that are the creations of the environ-

virtual property for real dollars, just like traditional prop-

ment users.

erty.

They operate as open markets and effectively akin

Simply put, there exists two kinds of code: the code in

to stock exchanges.

One such popular Web site is

the virtual world itself and the code in virtual objects.

Internet Gaming Entertainment (‘‘IGE’’), which dubs

itself as ‘‘the worldwide leader in the market for buying

Professor Fairfield has thus argued that the appro-

and selling virtual property used in multiplayer online

priate package for determining property rights in virtual

games’’.

The auction Web site eBay was a large player

property is at the level of code.

In order to monetize

in the real-money trading market, but in January 2007, it

virtual property, users need a unified use of the whole

decided to ban the sale of virtual goods, save for goods

piece of virtual property.

Ownership of a piece of code

from the virtual world of

Second Life

Castronova com-

of a virtual house is useless, but ownership of unified

ments that eBay’s decision can likely be attributed in

code that makes up the whole virtual house has value.

part to a wish to stay clear of possible future debates

Furthermore, this says nothing of the code that makes up

between game developers and government regulators

the virtual chattels that could exist inside the virtual

regarding the legal treatment of virtual property.

house and which could have value. The code of each of

these pieces of virtual property is what is transferable and

can be monetized.

Virtual Property Compared to Real-World

Property

Virtual-World Property Distinguished

Indicia

of Virtual Property in Virtual Worlds

from Intellectual Property

In order to identify virtual property in virtual

worlds, some legal commentators have written of certain

Acquiring Copyright

indicia

to detect. At its base, virtual property is essentially

code designed to ‘‘[mimic] the properties of real-space

Despite the real-world implications of virtual worlds

objects’’.

Joshua Fairfield, a technology law professor at

and the trading of virtual property, no court or legisla-

Indiana University, has proposed that ‘‘[v]irtual property

ture in North America has yet to enforce or enact laws

shares three legally relevant characteristics with real

granting property rights in virtual property. At present, a

world property: rivalrousness, persistence, and intercon-

combination of intellectual property laws and contract

nectivity’’.

Rivalrousness

is the ability to use something

are used to govern virtual property. With respect to intel-

to the exclusion of others. A player that has a virtual

lectual property laws, ‘‘[c]opyright protection is currently

shovel is able to use that shovel exclusively.

Persistence

a primary source of protection for computer programs

the quality of an object having longevity. The player’s

and other works in digital form’’.

Computer programs

virtual shovel remains in existence in the virtual world,

are protected under the Canadian

(the

and it remains the property of that player, even after he

‘‘Act’’).

or she logs out of the virtual world.

Interconnectivity

In order for copyright to exist in a work under the

the capability to convey or transmit virtual objects

Act, the work must fall within one of the following

among different players. It is what allows players to trade

enumerated categories: literary, dramatic, musical, or

virtual goods either in a given virtual world or in the real

artistic work.

The meaning of ‘‘literary work’’ includes

world.

‘‘computer programs’’, which is defined as ‘‘a set of

instructions or statements, expressed, fixed, embodied or

Affixing to the Intangible

stored in any manner, that is to be used directly or

Despite these parallels, since virtual property is indirectly in a computer in order to bring about a spe-

inherently intangible, can such real-world property traits cific result’’.

In the case of

Apple Computer Inc. v.

really be affixed to virtual-world property? Real-world

Mackintosh Computers Ltd.

the Canadian Federal

property interests are often granted

vis-

a-vis

intangible Court of Appeal affirmed that computer assembly source

76 Canadian Journal of Law and Technology

code is protected under the

as it falls American legislature or court, at present, such rights are

within the definition of a ‘‘literary work’’.

Thus, there is determined via contract. In the case of online virtual

protected intellectual property in the code used to create worlds, the contract is typically the end-user license

a Web site or virtual world and in the content and agreement (‘‘EULA’’). Players generally cannot take part

creations of such Web sites and virtual worlds.

in a virtual world without first agreeing to the EULA

proposed by a video game developer. With respect to its

MMORPG

Everquest

, for example, Sony Online

Virtual Property Can Co-Exist with Intellectual

Entertainment LLC requires players to agree to a ‘‘click-

Property

wrap’’ EULA prior to being able to enter and take part in

Recognizing property rights in virtual property at

the virtual world.

the level of code does not correspond with the simulta-

neous elimination of intellectual property. Rather, they

can complement each other. Professor Fairfield explains

Relationship of the Parties

this concept further:

Video game developers use computer code to con-

We understand instinctually and logically that ownership of

trol what goes on within a virtual world (e.g., by control-

a thing is always separate from ownership of the intellectual

ling and/or changing the virtual environment) and they

property embedded in a thing. Ownership of a book is not

use a contract to govern what occurs supplementary to

ownership of the intellectual property of the novel that the

author wrote. The book purchaser owns the physical book,

the workings of the virtual world.

EULAs enumerate

nothing more. Ownership of a CD is not ownership of the

the rules of virtual worlds, including the ramifications of

intellectual property in the music. The music purchaser

contravening those rules, by encompassing ‘‘features of

owns that copy of the music, nothing more. In precisely the

proper play and decorum that cannot be easily written

same fashion, ownership of virtual property does not

threaten the intellectual property interest held by the cre-

into’’ computer code.

They allow a video game devel-

ator of the property. It protects the interests of the purchaser

oper to confirm the relationship between it and the

of the object. An owner of virtual property owns the same

player as a relationship of licensor–licensee:

rights that the owner of a book does.

Usually, online service providers make large initial invest-

Thus, intellectual property need not conflict with virtual

ments in computer hardware, software, and intellectual

property. In fact, the two, if well-balanced, will complement

property to establish a community or web-space with long-

each other.

term growth potential. Service providers then license access

If property rights in virtual property are ever recognized to these expensive resources to users. Users manipulate,

interact with, and develop these resources according to cer-

at the level of code in North America, intellectual prop-

tain rules set by the service provider, as would a licensee

erty can still exist with regards to virtual property.

acting within the bounds of a license.

It is the characteristic of rivalrousness that allows

The EULA permits the player to operate the product

virtual property: (a) to behave like real property; and (b)

pursuant to rules and it follows that if the player does

to be differentiated from intellectual property, which is

not abide by the contract, he or she may be restricted

both intangible and non-rivalrous.

For instance, if a

from participating in the virtual world.

beverage company (‘‘ColaCo.’’) creates a virtual bottle of

cola in a virtual world, the code relating to the virtual

bottle in and of itself will be separate from the intellec-

Demarcation of Rights in Virtual Property

tual property in that virtual bottle. The virtual bottle of

While the specific terms of EULAs differ and are

cola may be conveyed by one user to another, in either

varied from contract to contract, in general they place

the virtual world or the real world, and the intellectual

rights that may arise in virtual property squarely in the

property remains with ColaCo., which is the original

hands of video game developers. Typically, the EULA

creator. Owning the right to a particular code does not

explicitly states that ownership of any rights will remain

necessarily mean that the owner of a piece of virtual

with the video game developer. The following is an

property has the right to copy the intellectual property of

example from Blizzard Entertainment, Inc.’s MMORPG

the virtual thing.

World of Warcraft

All title, ownership rights and intellectual property rights in

and to the Game and all copies thereof (including without

Governing Rights in Virtual

limitation any titles, computer code, themes, objects, charac-

ters, character names, stories, dialog, catch phrases, locations,

Property

concepts, artwork, character inventories, structural or land-

scape designs, animations, sounds, musical compositions

and recordings, audio-visual effects, storylines, character like-

End-User License Agreement

nesses, methods of operation, moral rights, and any related

documentation) are owned or licensed by Blizzard.

Application of Game Developers To Establish

According to many EULAs, the video game developer

Contractual Rights

would hold rights even where a player has created a

egardless of whether and what rights within virtual virtual property item. For instance, the EULA for the

Rproperty are ever recognized through a North MMORPG

City of Villains

reads as follows:

Virtual Property, Real Law: The Regulation of Property in Video Games 77

Members can upload to and create content on our servers in

required to obtain or build much virtual property.

various forms, such as in selections you make and characters

From the video game developer’s point of view, pur-

and items you create for the Game(s), and in bulletin boards

chasers of virtual property otherwise would have had to

and similar user-to-user areas (‘‘Member Content’’). By sub-

spend money on subscription fees.

mitting Member Content to or creating Member Content

on any area of the Service, you acknowledge and agree that

EULAs can be implemented to protect the video

such Member Content is the sole property of NC Interac-

game developer’s expectation of maintaining a subscrip-

tive.

tion-based avenue to profits. They allow video game

Through the EULA, video game developers attempt to

developers not to have to ‘‘assert their exclusive rights to

avoid conflict over claims of rights in the virtual property

protect the revenue streams they expect from their

created by individual players.

works’’.

By vesting and reserving all rights in virtual

property with the video game developer, EULAs gener-

Avoiding Potential Liability

ally prohibit the real-world sale and/or transfer of virtual

property amongst players: ‘‘if the [players] don’t own

If new property rights are ever recognized as

what they are selling, they can’t (legally) sell it’’.

More-

existing within virtual property, the EULA can serve as a

over, some EULAs specifically prohibit the transfer of

tool to help video game developers avoid potential lia-

virtual property:

bility.

Some video game developers have now begun to

include clauses in EULAs ‘‘incorporating an express

You may not transfer, sell or auction, or buy or accept any

offer to transfer, sell or auction (or offer to do any of the

waiver of the right to assert a claim against the developer

foregoing), any content appearing within the Game environ-

for loss of’’ virtual property.

Moreover, a common tactic

ment, including without limitation characters, character

employed by video game developers is to insert a grant

attributes, items, currency, and objects, other than via a per-

of rights clause whereby the user agrees to transfer any

mitted Character Transfer as described in section 3 above.

You may not encourage or induce any other person to

rights in virtual property that could be recognized by

participate in such a prohibited transaction. The buying,

law:

selling or auctioning (or any attempt at doing so) of charac-

To the extent that NC Interactive cannot claim exclusive

ters, character attributes, items, currency, or objects, whether

rights in Member Content by operation of law, you hereby

through online auctions (such as eBay), newsgroups, post-

grant (or you warrant that the owner of such Member Con-

ings on message boards or any other means is prohibited by

tent has expressly granted) to NC Interactive and its related

the EULA and a violation of CCP’s proprietary rights in the

Game Content Providers a non-exclusive, universal, per-

Game.

petual, irrevocable, royalty-free, sublicenseable right to exer-

EULAs thus provide a tool by which developers can try

cise all rights of any kind or nature associated with such

Member Content, and all ancillary and subsidiary rights

to stop the monetization of virtual property by players in

thereto, in any languages and media now known or not

the real world.

currently known.

These types of clauses will help in instances where, for

Enforceability of the EULA?

example, a developer shuts down a virtual world or a

force beyond the control of the developer causes the

Validity of EULAs

virtual world’s server to cease functioning. Although the

Strictly speaking, EULAs are enforceable. In the

common EULA used for virtual worlds does not explic-

Ontario case of

Rudder v. Microsoft Corp.

certain sub-

itly recognize virtual-property rights, it protects video

scribers of the Microsoft Network (‘‘MSN’’) service ques-

game developers if courts or legislatures ever legally rec-

tioned the enforceability of a specific clause in the MSN

ognize such rights by allowing video game developers to

online member agreement. As part of the sign-up rou-

retain ownership interests in all rights possibly inherent

tine, new customers were required to acknowledge their

in virtual property.

acceptance of the agreement’s terms and conditions by

clicking on an ‘‘I Agree’’ button presented on their com-

Protecting Developers’ Investments in Virtual

puter screen at the same time as the agreement.

The

Worlds

plaintiffs argued that individuals read only portions of

In addition to avoiding potential liability, EULAs

such contracts and therefore could not be bound to a

serve a useful function for video game developers by

provision of which they had no notice. It was held that

protecting the investment they make in their products.

the terms of the member agreement were unambiguous

Developers invest large amounts of money ‘‘in equip-

and were presented fairly. Thus, Canadian case law has

ment, capital, software and intellectual property’’ and are

upheld click-wrap agreements where the terms and con-

therefore generally ‘‘unwilling to abandon any assets of

ditions of the agreements were agreed to online by an

value, intangible or otherwise’’.

They have an interest

end-user.

in ‘‘capturing the value of virtual property’’ and in main-

taining the subscription fees that players pay in order to

Will EULAs Always Be Enforced?

partake in virtual worlds.

However, real-world trading

of virtual property could ultimately reduce video game Although EULAs are generally enforceable, can they

developer profitability. The sale of in-game property per- be overcome? EULAs may not be enforceable in all cases,

mits purchasers to skip the time and effort that is especially where policy reasons point to reasons for not

78 Canadian Journal of Law and Technology

enforcing them. For example, in the case of

Davidson &

tual goods from theft by a third party. The court of first

Associates Inc. v. Internet Gateway

a video game devel- instance held in favour of Li and ordered Beijing Arctic

oper’s EULA was held enforceable. Both companies were to ‘‘pay damages equal to the amount of money Li had

large and established players in the technology industry, spent on game subscription fees’’.

The effect of the

fully aware of industrial norms and practices. To employ decision, which was confirmed on appeal, was to restore

Davidson’s product, users had to sign an EULA that Li’s property.

The case is important because it indicates

restricted the product’s use. Davidson alleged that that at least ‘‘some courts may be willing to view virtual

Internet Gateway had breached this agreement. In property as property that is worthy of protection under

agreeing with the allegations, the judge found that the law’’.

The Court protected the property owner’s

Internet Gateway had ‘‘reverse engineered Battle.net to rights to exclusively own the piece of virtual property

set up an alternative but free service, and were them- contrary to all others, even to the third party that did not

selves relatively sophisticated about contractual terms in perpetrate the theft.

the industry’’.

By focusing on the defendant’s level of

The decision regarding Li Hongchen does not stand

sophistication, the judge illustrated the importance that

alone with respect to China and the support for virtual

courts may place on ensuring contracting parties actually

property rights. An appeal by Yan Yifan was dismissed by

understand the agreement to which they are signing.

a Chinese court after the lower court had convicted and

One must therefore wonder ‘‘whether EULAs being

fined Yan for stealing and then selling virtual property

enforced against ordinary users would fare as well given

(in this case, game identification names and online

the significant inequality of bargaining power between

equipment) belonging to players of the game

Da Xihua

the parties’’.

Xiyou

In light of the general increase in occurrences of

In determining possible future cases regarding rights virtual property theft in China, the country’s Public

to virtual property as governed by EULAs, courts (and Security Ministry published an advisory letter regarding

legislatures) could eventually decide that property inter- virtual property theft in order to assist police with pun-

ests in virtual objects must be factored in and pro- ishing such crimes.

Moreover, Chinese lawyers have

tected.

As the real-world commodification of virtual been calling for stronger and clearer virtual property

property increases, it is possible ‘‘that current legal rules laws.

A proposal was submitted in 2003 to the ‘‘Law

(e.g., . . . EULAs) may not be enforceable in all cases if Committee of National People’s Congress seeking a law

valuable property interests are at issue’’.

EULAs pres- to protect virtual property’’.

The calls for stronger rec-

ently allow video game developers to effectively run their ognition of virtual property have been noted by some

virtual worlds unabridged. For instance, they can shut- commentators to be in line with the Chinese govern-

down a server or end a virtual world service,

but ment’s hope to encourage the development of a compet-

players with virtual property in a respective virtual world itive technology industry, particularly the video game

find themselves without remedy against the developer industry.

under the common EULA.

Virtual worlds operate on

economic systems that promote players to treat virtual

Taiwan

objects akin to traditional real-world property.

As long

In Taiwan, the government has enacted statutes to

as markets and investments in virtual property prolif-

protect virtual property at the level of code. Under the

erate, it is not clear that courts will enforce EULAs

Taiwanese

Criminal Code

(the ‘‘Taiwanese Code’’), vir-

encompassing excessive restrictions that allow platform

tual objects are considered ‘‘property’’ if they possess

owners to do whatever they like with valuable virtual

characteristics similar to property, such as rivalrousness,

property.

and are alienable and transferable.

The Taiwanese

Code recognizes ‘‘that virtual property qualifies as elec-

tromagnetic records and should be considered moveable

Other Policy Reasons To Recognize

property in cases of fraud and theft’’.

Thus, the right to

Property Rights in Virtual Property

control virtual property is acknowledged at the level of

code and it is granted to the owner of the code, ‘‘not the

Laws Against Criminal Activity

owner of the server on which the code happens to reside,

or the intellectual property owner of the code’’.

The

maximum penalty for offences regarding virtual property

China

in Taiwan is three years imprisonment.

egimes in Asia have started to recognize interests in

Rvirtual property both through case law and legisla-

Canada’s

Criminal Code

tion.

The Chinese case of

Li Hongchen v. Beijing Arctic

Ice Technology Development Co.

exemplifies this rec- The Canadian

Criminal Code

(the ‘‘Code’’) does

ognition. In that case, a third-party rogue hacked into Li’s not currently contain explicit provisions regarding vir-

account in the game

Red Moon

and stole his virtual tual property. Nevertheless, it may be argued that some

property. Li consequently sued Beijing Arctic, the devel- of its provisions are broad enough to protect virtual

oper of the

Red Moon

game, for not protecting his vir- property from theft and vandalism. Such an argument

Virtual Property, Real Law: The Regulation of Property in Video Games 79

ever, you must make certain representations and warranties,

could be premised upon the notion that virtual property

and provide certain license rights, forbearances and indem-

code falls under the Code’s meaning of data, namely:

nification, to Linden Lab and to other users of

Second

‘‘representations of information or of concepts that are

Life

being prepared or have been prepared in a form suitable

It should be noted that players’ ownership of their cre-

for use in a computer system’’.

ated content does not extend to full property rights.

The Code provides that any person who destroys,

Players have rights to the ‘‘software patterns used in

alters, interrupts, or denies access to the legal enjoyment

making virtual objects, but no rights to the objects them-

of data is guilty of mischief and can carry a maximum

selves’’.

Thus, a player creating virtual clothing will own

penalty of two years imprisonment.

If the mischief

their designs, but not the specific pieces of clothing.

causes actual danger to life then the maximum penalty

Linden Labs retains rights to the actual virtual property.

can be raised to imprisonment for life.

Further, the

This method of granting rights in virtual property gives

Code provides protection against the fraudulent and

further credence to the ability of intellectual property

unauthorized use of any computer service or device and

and actual property rights in virtual property to co-exist.

such an offence can carry a maximum penalty of

In another indication of the possible direction of

10 years.

Although the Code does not specifically men-

the virtual property industry, Sony Online Entertain-

tion virtual property, the provisions protecting computer

ment LLC has come up with a compromised approach

use and data may potentially cover virtual property that

to the trading of virtual property. With respect to the

is legally stored in a computer system.

company’s MMORPG

Everquest II

, Sony has created its

own auction Web site to facilitate real-world trading of

Activity in North American Courts

virtual objects.

The Web site is called ‘‘Station

The American case of

Blacksnow Interactive v.

Exchange’’ and Sony’s impetus to create it, in part, was to

Mythic Entertainment, Inc.

illustrates that, despite the

provide a secure platform (as opposed to third-party

intangible nature of virtual property, courts in North

Web sites that may be unsecure) for real-world trading of

America are beginning to recognize that virtual property

virtual property so as to protect the residents of

Ever-

has utility in the real world. Mythic is the developer of

quest II

Some commentators have taken the position

the MMORPG

Dark Age of Camelot

. Blacksnow was a

that the next logical step is for the law to make a similar

virtual-property farming (‘‘the activity of playing a game

acknowledgement because, ‘‘[a]s a matter of policy,

to get valuable items to sell offline’’)

company that

where a free market cultivates value, courts should pro-

‘‘farmed’’ for virtual property in

Dark Age of Camelot

tect that value, as long as other substantive rights are not

When Mythic prompted eBay to stop the auctioning of

infringed, . . . and should avoid excessive’’ restrictions on

Dark Age of Camelot

items, Blacksnow sued Mythic for

creativity.

The existence of Station Exchange suggests

unfair business practices and interference with ‘‘prospec-

that Sony has indicated, at least on a corporate level, a

tive economic advantage’’.

Blacksnow sought damages

willingness of a developer to acknowledge that real-

and a ‘‘court order declaring that the sale of items and

world trading is occurring despite the notion that devel-

accounts outside the game [did] not infringe on Mythic’s

opers may otherwise wish to limit such transactions

copyrights’’.

Although the case was settled in Mythic’s

from occurring.

favour before judgment, it is notable because the facts

demonstrate that at least one party has attempted to

Possible Legislative Recognition

challenge the general legal position held by developers

that real-world trading of virtual objects is not sanc-

Ultimately, virtual property is increasingly being

tioned. It is possible that more lawsuits of a similar

viewed as property and virtual worlds encourage players

variety will arise in North America in the future.

to treat their creations as such. Virtual worlds operate on

the various commodities within them, which is sup-

Novel Approaches ported by the fact that a congressional committee in the

United States has been looking at whether virtual prop-

Industry Trends erty and assets should be taxed.

Tax is already appli-

cable in the United States on the incomes of those who

The MMORPG industry has begun to move in the

cash out of virtual worlds by converting their assets into

direction of providing its users with rights in their virtual

real-world money. The issue that now arises is whether

property. The most recent trends establish that firms

one can have a virtual asset and virtual capital gains

have begun to grant players more rights rather than to

without ever lifting those assets from the virtual world.

restrict them.

Linden Labs, the creators of

Second Life

In one sense, virtual assets are similar to stocks traded on

is now allowing certain intellectual property rights to

real-world stock markets.

100

Stocks are intangible prop-

content created by the virtual world’s residents.

Second

erty interests represented by stock certificates that

Life

’s Terms of Service regarding user-created rights reads

increase and decrease in real-world value. Stock markets

as follows:

allow analysts to provide real-world valuations, based on

You retain copyright and other intellectual property rights

the performance of these assets, even where the owner of

with respect to Content you create in Second Life, to the

extent that you have such rights under applicable law. How-

a stock has not realized such value. Similarly, virtual

80 Canadian Journal of Law and Technology

assets increase and decrease in value in their own mar- is beginning to consider the real-world effect of such

ketplace and this value can eventually be realized in the property.

real world. It is thus a logical possibility that virtual prop-

That technology will evolve at a quicker pace than

erty could be recognized for the purpose of taxation.

the law responds is inevitable, but it is crucial that the

law not fall too far behind. Without legal intervention,

the parties that value virtual property will be left to

establish their legal rights amongst themselves and

Conclusion

without clear law governing virtual property, it is uncer-

lthough it is difficult to compose a decisive legal

tain as to how courts and other legal bodies will respond.

Adefinition for virtual property, it is clear that many

Eventually, it is possible that there will be strong policy

parallels exist between virtual property and real-world

grounds for overriding EULAs including the view that

property, and the intangible nature of virtual property

such agreements are too one-sided given the valuable

does not necessarily rule out the possibility of treating

nature of the property contemplated by the contracts. If

virtual property akin to physical property for legal pur-

and when the law does respond to the virtual world, it is

poses. The size of the real-world market for virtual prop-

possible that the rights currently retained by developers

erty, both in its value and number of participants, indi-

through EULAs will be unenforceable and legal liability

cates that the trading of virtual property is obviously

may ensue. It would therefore be prudent for developers

important to a large number of individuals. In response,

of virtual worlds to attempt to begin dealing with these

lawmakers in both China and Taiwan have enacted legal

possibilities at the present time to ensure that their rights

regimes designed to recognize and begin dealing with

and interests are legally protected as the virtual economy

the contemporary reality that is the commodification

evolves in the real world.

and monetization of virtual property created in virtual

worlds. At least one law-making body in North America

Notes:

Benjamin Duranske, ‘‘

Second Life

Hairstyle Raises Copyright Question’’

Michele Mandel, ‘‘Money for Nothing’’

Toronto Sun

(13 March 2005),

(15 February 2007), online: Virtually Blind <http://virtuallyblind.com/ online: Canoe Network <http://www.canoe.ca/NewsStand/Columnists/

2007/02/15/second-life-hairstyle-copyright-question/>. Toronto/Michele_Mandel/2005/03/13/959227.html>.

Alan Sipress, ‘‘Where Real Money Meets Virtual Reality, The Jury is Still

Daniel Terdiman, ‘‘eBay Bans Auctions of Virtual Goods’’

CNET News.

Out’’

Washington Post

(26 December 2006), A01, online: The Wash-

com

(30 January 2007), online: CNET Networks <http://news.com.com/

ington Post Company <http://www.washingtonpost.com/wp-dyn/content

eBay+bans+auctions+of+virtual+goods/2100-1043_36154372.html?tag=

/article/2006/12/25/AR2006122500635.html?nav=rss_technology/

item>.

techpolicy>.

Ibid.

Joshua Fairfield, ‘‘Virtual Property’’ (2005) 85 B.U.L. Rev. 1047 at 1049.

Supra

note 3 at 1063.

Ibid.

Ibid

. at 1053.

Theodore J. Westbrook ‘‘Owned: Finding A Place for Virtual World Prop-

Ibid

. at 1076.

erty Rights’’ (2006) 2006: 3 Mich. St. L. Rev. 779 at 783.

Ibid.

Ibid

. at 1077.

Ibid.

at 783-4.

Ibid.

Danny Bradbury, ‘‘Are Virtual-Reality Games The New Wild West, and if

Barry B. Sookman

, Computer, Internet and Electronic Commerce Law,

so, Who Will Police Them?’’

Backbone Magazine

(27 October 2006),

loose leaf (Scarborough: Carswell, 2007) vol. 1 at 3-2.1.

online: <http://www.backbonemag.com/Magazine/

R.S.C. 1985, c. C-42, s. 3.

E_Law_10270601.asp>.

Ibid.

, s. 2.

F. Gregory Lastowka & Dan Hunter, ‘‘The Laws of the Virtual Worlds’’

(2004) 92 Cal. L. Rev. 1 at 30.

Ibid.

Supra

note 5 at 784.

(1987), [1988] 1 F.C. 673.

Ibid

. at 786; Molly Stephens, ‘‘Sales of In-Game Assets: An Illustration of

Ibid

. at para. 41.

the Continuing Failure of Intellectual Property Law to Protect Digital

Creators’’ (2002) 80 Texas L.R. 1513 at 1515.

Supra

note 3 at 1096.

Supra

note 8.

Supra

note 18 at 143.

Ibid.

Sony Online Entertainment LLC Terms of Service

, online: Station.com

<http://www.station.sony.com/en/termsofservice.vm>.

Supra

note 5 at 785.

Ibid.

Richard Raysman & Peter Brown, ‘‘Property Rights in Cyberspace Games

and Other Novel Legal Issues in Virtual Property’’ (Paper presented to the

Ibid.

at 786.

Ontario Bar Association, Technology in Bloom 2006: New Develop-

Allen Chein, ‘‘A Practical Look at Virtual Property’’ (2006) 80 St. John’s L.

ments in Technology Law, Toronto, Ontario, 27 March 2006) [unpub-

Rev. 1059 at 1068.

lished].

Charles Blazer, ‘‘The Five Indicia of Virtual Property’’ (2006) 5 Pierce L.

Jack M. Balkin ‘‘Virtual Liberty: Freedom to Design and Freedom to Play

Rev. 137 at 148.

in Virtual Worlds’’ (2004) 90 Va. L. Rev. 2043 at 2049.

‘‘In Norrath, Tattoine and Rubi-Ka, Just What are Your Legal Rights?’’

Supra

note 18 at 151.

(24 September 2003), online: Knowledge@Wharton <http://knowl-

edge.wharton.upenn.edu/>.

Supra

note 38 at 2049.

Virtual Property, Real Law: The Regulation of Property in Video Games 81

World of Warcraft End User License Agreement

, online:

World of War-

‘‘Verdict on Virtual Property Thief Upheld’’

The Sydney Morning Herald

craft

<http://www.worldofwarcraft.com/legal/eula.html> (Last updated (4 April 2006), online: smh.com.au <http://www.smh.com.au/news/

2 February 2007). breaking/verdict-on-virtual-property-thief-upheld/2006/04/04/

1143916492279.html>.

City of Villains User Agreement

, online: PlayNC.com <http://

www.plaync.com/us/help/eula_cov.html> (Last modified November

Supra

note 3 at 1085.

2006).

Supra

note 71.

Supra

note 5 at 803;

supra

note 18 at 154. 74

Supra

note 37 at 17.

Supra

note 5 at 787. 75

Ibid

supra

note 3 at 1085.

Supra

note 42. 76

Supra

note 3 at 1086.

Supra

note 5 at 803;

supra

note 18 at 152. 77

Supra

note 37 at 17.

Supra

note 18 at 154. 78

Supra

note 3 at 1087.

Ibid.

Supra

note 37 at 17.

Anders Eriksson & Kalle Grill ‘‘Who Owns My Avatar? – Rights in Virtual 80

R.S.C. 1985, c. C-46.

Property’’ (Paper presented to the Digital Games Research Association

Ibid.,

s. 342.1(2).

2005 Conference: Changing Views – Worlds in Play, Vancouver, British

Columbia, 16–20 June 2005) [unpublished] at 4.

Ibid.,

ss. 430(1.1), 430(4).

Stephens,

supra

note 11 at 1528.

Ibid.

, s. 430(2).

Dr. Richard A. Bartle, ‘‘Pitfalls of Virtual Property’’

The Themis Group

Ibid.

, s. 342.1(1).

(April 2004), online: <http://mud.co.uk/richard/povp.pdf> at 21.

See Justin, ‘‘Blacksnow Versus Mythic’’ (27 October 2002), online: Con-

Eve: The Second Genesis, End User License Agreement

, online: EVE

trol and Property in Play-Based Online Worlds <http://

Online <http://www.eve-online.com/pnp/eula.asp>.

www.gamegirladvance.com/mmog/archives/2002/10/27/black-

snow_versus_mythic.html>.

[1999] O.J. No. 3778 (S.C.J.) (QL) [

Rudder

Ibid.

Ibid

. at para. 12.

Ibid.

Supra

note 28, vol. 2 at 10–13, noting

Rudder

David Becker, ‘‘Game Exchange Dispute Goes to Court’’

CNET News.

334 F. Supp. 2d 1164 (E.D. Mo. 2004)

com

(7 February 2007), online: CNET Networks <http://news.com.com/

Jon Festinger,

Video Game Law

(Markham: LexisNexis Canada, 2005) at

2100-1040-832347.html>.

101, n37.

Supra

note 17 at 1088.

Ibid.

Supra

note 2.

Supra

note 38 at 2070.

Second Life Terms of Service

, online:

Second Life

<http://secondlife.com/

Supra

note 37 at 13.

corporate/tos.php>.

See

supra

note 52. Section 6.A reads: ‘‘CCP does not guarantee that it will 92

Supra

note 2.

continue to offer access to the System or support the Game. CCP may, in

Ibid.

its sole discretion, cease to provide any or all of the services offered in

connection with EVE™ (including access to the System and any or all

Supra

note 17 at 1088.

features or components of the Game), terminate the EULA, close all

Supra

note 21.

Accounts and cancel all of the rights granted to you under the EULA . . .’’.

Supra

note 18 at 146.

Supra

note 37 at 13.

Supra

note 21.

Supra

note 38 at 2073.

Daniel Terdiman, ‘‘IRS taxation of online game virtual assets inevitable’’

Supra

note 9 at 51;

supra

note 38 at 2072.

CNET News.com

(4 December 2006), online: CNET Networks <http://

Supra

note 3 at 1084.

news.com.com/IRS+taxation+of+online+game+virtual+assets+inevitable/

2100-1043_3-6140298.html>.

Supra

note 3 at 1084.

Adam Reuters, ‘‘US Congress Launches Probe Into Virtual Economies’’

Supra

note 5 at 805.

Second Life News Center

(15 October 2006), online: Reuters/Second Life

Supra

note 57 at 102.

<http://secondlife.reuters.com/stories/2006/10/15/us-congress-launchs-

Supra

note 5 at 805. probe-into-virtual-economies>.

Supra

note 3 at 1085.

100

Ibid.