Over the last few years a new genre of computer gaming has evolved referred to as Massively Multiplayer Online Role-Playing Games (MMORPG). Within these games, game players design their own fictional character (such as a wizard), which they then immerse into a virtual world containing millions of other people who have done the same. The players control the actions of their characters and guide them throughout this virtual world completing various tasks, venturing on quests, trading their treasures, earning and spending virtual money, and interacting with other players. With the growing popularity of these games many questions are raised as to what laws, if any, govern this virtual world, especially since this is an environment that is not under the control of any given government, or within the borders of a given territory.
Within these MMORPG games the players obtain treasures and money through game play, which they can then use within the game to buy better equipment or other property for their characters. In some games, players can also buy their own virtual land. It often takes many weeks of game play for a player to earn some of the more valuable treasures. There is a rising trend for players to trade their virtual property in the real world, using real cash. Some real world companies have actually been formed to “farm” game characters and equipment and sell them for real money to individuals who want a quick way to get ahead in the game. The purpose of this paper is to examine if these virtual characters, treasures, and land are actually considered property in our real life existence and can be traded or sold. Furthermore, if it is real property then who is the true owner of it, the creator of the game or the player? Lastly, can this property be stolen or can trade be taxed? If it can be traded and taxed in the real world, then why shouldn’t the taxation be extended to transactions into the virtual world on transactions involving only the virtual money.
To get a sense of how closely the economies in these virtual games and environments parallel the real world, one must look at a recent transaction that occurred in October, 2005 and involved real world currency buying virtual real estate. A player of the game Project Entropia paid $100,000 to purchase a virtual outer-space station resort that was auctioned off by the games creator, MindArk. By purchasing this virtual space station, the player now has the rights to operate this virtual real estate which includes a 1,000 unit apartment complex, a shopping mall, sports stadium, and a night club. The player is entitled to the revenues generated through renting out the spaces in his resort, and even gets to collect the hunting and mining taxes that are imposed on other players within his resort.
The unique thing about Project Entropia is that the game’s creator has established a fixed exchange rate between Project Entropia Dollars (PEDs) and US Dollars (USD): 10 PEDs equal 1 USD. This means that virtual items acquired inside the Entropia virtual world have a real cash value. A participant may, at any time, withdraw their accumulated PEDs and convert them back into real world currencies according to the fixed exchange rate. The prospect of making money attracts many players to play Project Entropia, and MindArk is actively encouraging this in their advertising stating that the service "must offer unlimited income opportunities to the player".
Project Entropia is not the only game in which this trend of owning virtual property is occurring in. Games like World of Warcraft, Everquest, and Second Life also allow a player to accumulate virtual property. In some cases the game maker facilitates the conversion between real and virtual currencies (Second Life), and in other cases the game maker discourages the players from buying virtual items with real currency (Warcraft and Everquest). However, in games such as WarCraft and Everquest, real world businesses are being created to “help” you obtain the equipment you need in the virtual environment. Companies such as IGE and Power Leveling are being formed whose business models are to accumulate virtual property inside of games and then sell it to other players in the real world. They primarily use low cost labor from India and China to play the games all day accumulating virtual property, and then they will auction the property off of their own websites or through eBay. These companies even run ads in popular gaming magazines for their services.
One must ask what is making these virtual environments so popular. First off, in these virtual environments the players are able to model a character that has all the perfections the player desires in real life. The character can model a real world player, a popular celebrity, or something as odd as a crocodile with a chef’s hat. The bottom line is that possibilities exist for people to become a character limited only by their creativity. It’s not surprising that many of the characters in these games resemble people in their 20’s, are extremely physically fit, and wear only the nicest clothes. The other element that is making these virtual environments popular is the aspect that they are comprised of the digital creations of hundreds of thousands of people. One can walk around a virtual world, such as Second Life, and see some of the wildest things imaginable. The players create their own stores, beaches, golf courses, bars, resorts, office buildings, and even sex clubs. It shouldn’t be surprising that some of the most popular and frequented virtual businesses are the sex clubs where players can chat with each other about their fantasies and have their characters perform X-rated animations with each other.
Is this virtual environment just about people playing games and indulging in their sexual fantasies? The answer is an overwhelming no. Big businesses are also investing in these virtual environments. In companies such as IBM, employees are obtaining their own characters and conducting company meetings and business within environments such as Second Life. IBM Chairman and Chief Executive Sam Palmisano has his own character from which he uses to hold town hall meetings with other IBM employees in this virtual environment. IBM even owns a virtual private company island within the Second Life world that its employees can congregate on.
Aside from IBM, other major companies are investing in this virtual world technology. A major UK based grocery firm is experimenting with an environment where shoppers can buy real world groceries in an online 3-D world environment. Some of the world’s biggest technology players are investing in these virtual environments such as Mitch Kapor (creator of Lotus 123), Pierre Omidyar (founder of eBay), Jeff Bezos (CEO of Amazon.com), and Ray Ozzie (Microsoft Chief Technology Architect). With the amount of people that are joining these virtual environments, the potential for business opportunities cannot be ignored. The game Second Life has about 334,000 regular users, and more than 2.6 million have tried the environment out. Project Entropia has over 563,000 regular users from over 220 countries, with virtual money turnover equaling $350 million USD. With the large numbers of people that are joining and participating in these virtual environments, businesses are now trying to find the best way to capitalize on this trend.
Even with all of this effort and money being poured into virtual worlds, it is still a largely uncharted territory with regards to the legal system. Various questions arise such as who owns the property created in these worlds, should transactions be taxed, who is responsible for the content, and what happens if someone commits a virtual “crime” equivalent to theft or murder in the real world? Furthermore, who gets to control the laws and precedents set within these virtual worlds? Will there be a virtual courtroom? While the physical computers that house these virtual environments may be within one or more countries, players are able to enter the environment from anywhere in the world.
These questions have not yet been fully tested in the courts, but as the popularity and utility of these virtual environments increase some laws and controls will have to be put in place. The first and flagship case related to the ownership of virtual property within a game or other virtual environment is currently in the court system. Marc Bragg, a player of Second Life and an attorney in the real world, bought $8,000 worth of virtual real estate within the game. The problem is that he was able to exploit a problem with the computer system that allowed him to buy the land at below market prices through an auction that nobody else was able to bid in. When Linden Labs, the creators of the game Second Life, found out, they seized the virtual land Bragg owned, shut down his character’s virtual business, and closed his account. Now Bragg is suing Linden Labs, saying that the land is rightfully his. The case is currently in the U.S. District Court in Pennsylvania with Judge Eduardo Robreno being faced with a major problem. The disputed land doesn’t really exist. The case is now about ten months old, and Linden Labs is making a motion to force the sides to meet for out-of-court arbitration in California. On an interesting side note, a Harvard Law School class held a mock trial for this case within Second Life using their own virtual characters. The mock jury found that while Bragg may have employed questionable business practices, he did indeed own the property and deserved compensation from Linden Labs.
Another interesting aspect of Second Life involves the question of who has the rights to intellectual property created within the game. Is it the operator of the game, or the players? Before the Bragg case occurred, the service agreement that Second Life players agreed to stated that Linden Labs "recognizes residents' right to retain full intellectual property protection for the digital content they create in Second Life, including avatar characters, clothing, scripts, textures, objects and designs." Furthermore, Linden’s intellectual property policy states that these rights are enforceable both within the game and offline, for both nonprofit and commercial ventures. However, after the Bragg case was filed, Linden updated its service agreement to explicitly state that the company retains ownership of player accounts and related data, "regardless of intellectual property rights you may have in content you create or otherwise own."
To date there have been no real precedents set arising from cases involving property within these virtual worlds. There are many complexities in taking a case to court involving virtual property, including the main question of where to file the suit. In order to try to create some order within the environment, the Second Life Bar Association (a virtual group of lawyers) has been created to formalize online arbitration as a required first step to handle Second Life disputes. However, even with an online arbitration system, the question arises of who will get paid to be an online arbitrator? As the popularity of these online environments grows, there will need to be some sort of legal system to protect the property that people earn or create. Right now the whole environment is too new and changing too fast for legislators to figure out how real world law fits into a virtual world. The next few years will be interesting to see what legislation is created and what court precedents will be set that merge the laws of the real and the virtual worlds.
References
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Carless, S (2006, August 25). IGE: Inside The MMO Trading Machine. CMP Game Group. Retrieved April 7, 2007 from http://www.gamasutra.com/features/20060825/carless_01.shtml
Kirkpatrick, D (2007, January 23). Second Life: It’s not a game. CNNMoney.com. Retrieved April 7, 2007 from http://money.cnn.com/2007/01/22/magazines/fortune/whatsnext_secondlife.fortune/index.htm?cnn=yes
Loftus, T (2005, February 7). Virtual worlds wind up in real world’s courts. MSNBC.com. Retrieved April 7, 2007 from http://www.msnbc.msn.com/id/6870901
Millston, K (2007, February 27). Pixilated property dispute a real issue in court. Columbia News Service. Retrieved April 8, 2007 from http://jscms.jrn.columbia.edu/cns/2007-02-27/millstone-videogamelaw
Sanders, T (2005, October 25). Gamer shells out $100,000 for virtual property. Vnunet.com. Retrieved April 7, 2007 from http://www.vnunet.com/vnunet/news/2144707/gamer-shells-100-virtual-space
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