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Category — Virtual Property Cases

China Curbs Use of Virtual Money

Categories: Agency/Board ActionsVirtual Crime CasesVirtual Property CasesVirtual Property Taxation

In an effort to stave off a new form of money laundering, prohibited gambling and threats to the Chinese yuan (Chinese currency), Chinese Web sites have been ordered to limit the use of virtual money. Public prosecutor Yang Tao says “The QQ coin is challenging the status of the [yuan] as the only legitimate currency in China.”

Specifically, virtual money may only be used to buy virtual products and services the companies provide themselves, issuance will be limited, and users are “strictly forbidden” from trading it into legal tender for a profit.

QQ coins, issued by Tencent.com – China’s largest instant-messaging service provider – are the most popular form of online credits used by 220 million users. They are being used to pay for an increasing array of services including gambling, phone sex services and shopping online

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eBay Bans Virtual Property / RMT Auctions

Categories: Gold FarmingVirtual Property Cases

Hot on the heals of South Korean Gold Famers forming a lobby group, EBay has banned the sale of such virtual property on its popular online auction system – often referred to as Real Money Trading (“RMT”) of virtual goods. Many online gaming publishers prohibit such trading, while others, like Linden Lab’s popular MMRPG, Second Life, not only permit it, but encourage it and even promote it as a beneficial feature to gamers.

Specifically, the following items cannot be auctioned of on eBay going forward:

  • characters
  • in-game currency (a.k.a. “gold”)
  • weapons
  • character attire
  • online game accounts

Significantly, the eBay ban does not apply to RMT of Second Life virtual property.

This ban will be a boon to IGE, a popular site for real money trading of virtual property. While eBay is likely doing this to avoid lawsuits from online gaming publishers that prohibit RMT, it is also walking away from a huge growth “industry” with the value of such annual trading estimated to be between $200 M and $1 billion.

Sources: CNet | GamePolitics.com | Slashdot | TechNewsWorld | Gamasutra | Wired | Virtual Economics | SeekinAlpha

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PC World: Virtual Gold Could Draw Real Taxes

Categories: Virtual Property CasesVirtual Property Taxation

PC World discusses Congressional investigations into whether virtual gains will be taxable.

Click here to read the article.

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Gold Farmers Form Lobby Group in South Korea

Categories: Gold FarmingTrade AssociationsVirtual Property Cases

In an attempt to legitimize their ‘business’ and lobby governments, South Korean virtual gold farmers have formed the lobby group Digital Asset Distribution Promotion Association (DADPA). The “industry” is reportedly worth $1 billion a year.

Sources: Ars Technica | GamePolitics.com | ETNews | Ralph Koster

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GameSpot Article: IRS Taxation of Game Assets Inevitable

Categories: Virtual Property CasesVirtual Property Taxation

According to GameSpot, it won’t belong before the IRS starts taxing gains made while playing virtual reality games.

Dale’s Comment: I agree. If a school teacher named Ailin Graef (a.k.a. Anshe Chung in Second Life) can make $1,000,000 in real world currency by playing a video game, you can bet Uncle Sam, or in Ailin’s case, the Bundestag, will want a part of it.

Source: GameSpot

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Anshe Chung Becomes First Second Life Millionaire?

Categories: Virtual Property CasesVirtual Property Taxation

Business Week and others are reporting that Anshe Chung, a Second Life character created by Ailin Graef (a teacher born and raised in China – now residing in Germany) has grown an initial $9.95 “investment” into virtual property worth and estimated $1M U.S. based on Linden’s most recent Economic Statistics.

She did this by buying large parcels of Second Life virtual real estate, subdividing, developing it (using Photoshop and other tools to add rivers, forests, mountains etc.) and selling off smaller plots to other Second Life residents.

Second Life’s in-game currency, Linden Dollars, can be converted into U.S. dollars.

Sources: Business Week | ValleyWag.com | Gamasutra | Sydney Morning Herald | GigaOM | TheStreet.com | Red Herring | CNet Blogs | GameSpot | *CNN Money |Ailin Graef Press Release

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Article: Are Virtual-reality Games the New Wild West?

Categories: Featured ArticlesVirtual Crime CasesVirtual Property CasesVirtual Property Taxation

Dan Bradbury writes an interesting piece in Backbone Magazine about the virtual goings on in MMORPGs and some of the legal implications. Among other things he discusses Mark Bragg's virtual property case and a virtual "mafia" of sorts in Second Life where users take it upon themselves to enforce the rules within the virtual world when no other recourse is available.

Source: Backbone Magazine

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Mark Bragg File’s Virtual Property Complaint Against Linden Labs

Categories: CheatingHackingMisc. Contract CasesModding CasesPlayer BansUnfair Business Practice CassesVirtual Property Cases

Text of Bragg v. Linden Labs Complaint (Oct 4, 2006)[.zip format]
Jurisdiction and other Interim Court Filings
While I was converting this blog to WordPress over the last 8 weeks, Mark Bragg sent me his updated complaint against Linden Research Inc. ("Linden") that was filed on October 4 in the Chester County (Pennsylvania) Court of Common Pleas.  Mr. Bragg is seeking a jury trial. On November 7, Linden petitioned the US District Court for the Eastern District of Pennsylvania to take jurisdiction of the case. 

I'm just now getting the time to review the claim and post this blog entry about it. 

The complaint contains a terrific history (frankly, the best I've read) of Linden, its MMORPG Second Life and describes how Linden differentiated Second Life from its competitors by granting "ownership rights" to in-game property (most MMORPG publishers claim/retain ownership in all related virtual property). It also contains a history/description of virtual property generally in the context of the growing MMORPG phenomena.

The 239 paragraph complaint alleges violation of Californian and Pennsylvanian unfair practices and consumer protection laws, fraud, violation of California's Civil Code concerning auctions, conversion (theft), interference with contractual relations, breach of contract, unjust enrichment and tortuous breach of the covenant of good faith and fair dealing. He discounts many of the provisions of the Linden Labs Terms of Service ("TOS") as being unenforceable due to unconscionably. Suffice it to say, when this case is over, I suspect Linden will be updating its TOS! Laughing

This Law.com article provides a good summary of the facts. The complaint, itself, is worth reading if only for its best-in-class description of the MMORPG industry and related virtual property issues. Excellent job Mark!

Dale's Comment: Given that many courts in many countries have upheld the validity of extremely one-sided Internet-service click-wrap/shrink-wrap agreements, I think Mark will have a tough time overcoming the clear provisions contained in the TOS. But he makes many compelling arguments pertaining to the contradicting public statements of Linden representatives, rights in and to virtual property purchased from other Second Life users, and the right to recoup the real $U.S. dollars he paid into the Second Life economy and not returned when Linden booted him from the game.

Bragg is claiming ownership to his in-game property. I am quite sympathetic to his arguments and have advocated, here, for the the recognition, at law, of rights in and to virtual property. But, if analogies to real-world and intangible property are taken to their logical extreme, Second Life players could argue that Linden would never have the right to shutdown their MMORPG and deny virtual property owners of their "right" to access, use, sell and other wise deal with their virtual property when, as will inevitably be the case one day, Second Life ceases to be a profitable game for Linden. 

This could be a very important, precedent setting case if it goes to trial. It could set the ground rules for the application of laws to virtual property going forward. Needless to say, I'll be following this one closely.

[Dec 13, 2006 Update: Mark has sent me this link where the most recent court filings in the case can be found. At the moment the parties are fighting over the most appropriate jurisdiction for further proceedings.] 

Sources: *Law.com | Blogger News Network | MMORPG BLog | Pilly.com

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Australian Tax Office Will Tax Income from Virtual Transactions

Categories: Virtual Property CasesVirtual Property Taxation

A spokesperson for he Australian Tax Office, in what is probably a world first, has said that if a virtual transaction has real world implications – if it can be attributed a monetary value – it attracts the attention of the Tax Office. In her words:

“The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars,”

Australia seems to be heading in a different direction on this issue as the U.S. is based on Representative Jim Saxton has recently said.

Dale’s Comment: Frankly this makes complete sense to me. I see no reason to make a distinction between real-world revenue generated from virtual activities and any other income.

Sources: TheAge.com | Kotaku | nzherald.co.nz | TaxNews.com

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Representative Jim Saxton Believes Taxing Virtual Economies Would be a Mistake

Categories: Virtual Property CasesVirtual Property Taxation

JEC Press Release The Chairman of the U.S. Congressional Joint Economic Committee (JEC), Jim Saxton, believes taxing virtual economies would be a mistake. The goal of a forthcoming JEC study is to head off any premature attempt to impose tax on virtual economies.

[November 9, 2006 Update: Despite heavy Republican House losses in the November 7 midterm elections, Rep. Jim Saxton held his seat and won for a 12th term.]

Sources: GamePolitics.com | Reuters | nzherald.co.nz | TaxNews.com

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Group Prosecuted in China for ‘Arms Dealing’ in Legends of Mir

Categories: CheatingHackingVirtual Crime CasesVirtual Property Cases

A former deputy manager of Shanghai-based Shanda Network Development, Wang Yihui, and two accomplices are being prosecuted in China for illegal virtual weapons trade. Mr. Yihui changed the underlying game database of the popular Legend of Mir video game to produce, and replicate, two high powered weapons and provide them to two registered gamer accomplices. They, in turn, sold multiple copies of these weapons for profit. The group was able to make around $250,000 between September 2004 to August 2005 by such sales. Users of these weapons have an unfair advantage that allows them to advance through the game at a much quicker pace. The group are being prosecuted for copyright infringement.

Sources: Bit-tech.net | ars technica | Live Science | Spong | Taipei Times | 7 Days | IEET | War Cry | China Post

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Is an Eve Online Ponzi Scam an Actionable Fraud or Taxable by IRS?

Categories: Virtual Crime CasesVirtual Property CasesVirtual Property Taxation

Gamer’s with Jobs has a very interesting article about a recent Eve Online virtual ponzi scheme where ‘Dentara Rast’, the gaming name of an Eve Online player, scammed 700 billion ISK (the in-game currency) from other players. Given that ISK is convertible into real-world currency, making his ‘winnings/earnings’ from the scam roughly equal to $81,667 USD, would the other players have an actionable real-world fraud claim against the player? Are his ‘winnings’ taxable by the IRS? If Dentara Rast does not convert his winnings into cash, are his winnings taxable on the same theory as unrealized capital gains from exercised stock option purchases? Does Eve-Online’s EULA, claiming ownership rights to all in-game property, affect the result given that ISK is bought and sold on e-Bay in contravention to the EULA? Or, does the voluntary participation of other gamers in the free-wheeling, unregulated, world of Eve Online, comprise implicit consent (as with a poker-player’s implicit consent to being lied to by another player that bluffs) to in-game fraud and other shenanigans that would be illegal in the real world? All interesting questions explored in this article.

Sources: Gamers with Jobs | Joystiq | CNet | Gaming Insider | Gamasutra | Game Politics | Google Cache | Dentara Rasts Downloadable Confession

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Japan Investigates Illicit Gold Farming

Categories: Gold FarmingVirtual Property Cases

Japan’s Ministry of Economy, Trade and Industry (METI) intends to look into wrongdoing perpetrated in connection with online games and virtual currencies.

Source: GameSpot

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Linden Lab Sued for Alleged Breach of Virtual Land Contract

Categories: Virtual Property Cases

A Pennsylvania lawyer, Marc Bragg, is suing Linden Lab, the publisher of Second Life, alleging the company unfairly confiscated tens of thousands of dollars worth of his virtual land and other property. The suit seeks financial damages in the thousands, in part for a breach of a virtual land auction contract and for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Linden Lab froze Bragg's account after a suspicious online auction in which he acquired significant plots of virtual land for far below market price. Bragg reportedly acknowledges exploiting the auction interface but maintains that the onus is on Linden Lab to run their auctions securely. Sources: Wired | Joystiq | 1Up.com | Kotaku | PR Newswire GamePolitics.com Dale's Comment: As noted in my earlier comments, following virtual property theft convictions in China, legal rights to virtual property will likely be recognized in the west. It was only a matter of time before this kind of law suit was filed. Dale's Comment (May 21 Update): In a May 20th e-mail from Mr. Bragg, he indicated that he was in the process of revising the complaint and, once finished, will e-mail me a copy of it for posting here. He also had this to say in his e-mail:

I'm doing this because what the company did was wrong, just plain ethically and I believe legally wrong, and I believe letting other consumers know about it is important. Having nearly $8,000 + / – U.S. dollars in the game and countless hours of adding value to the game by building and enhancing the development of in game concepts, I don't think it's right for the company to freeze the assets they claim I rec'd title to when I bought them. Tossing me from the game, I could really care less. But freezing assets when they're in error, is not right. And not even a phone call.

I also spoke with Paul Coates, another prospective complainant, who explained the situation as follows. From time to time Linden Lab's puts in-game virtual property up for auction. The auctions are run for real $U.S. dollars on the Second Life/Linden Labs website. Minimum bids are established by Linden Labs for each new virtual property (from as low as $1.00 to as high as $1,250.00). When an auction is complete the winner has 7 days to claim, and pay for, the virtual property. If the virtual property is not claimed, the second-highest auction bidder is sent an e-mail and given the option to purchase the virtual land. However, if neither person claims the land, a glitch in the Linden Labs auction system allowed for the auction to start anew, with NO minimum bids. As I understood it, Mr. Bragg, Mr. Coates, and other players realized that this was happening, waited for this to happen, and when it did, bidded in the no-bid-minimum auctions. Just as with the first auction, winners of the second no-bid auctions, were sent an e-mail from Linden Labs indicating they had won the second auction and were instructed on how to pay for and claim their virtual property. This effectively allowed the purchase of virtual property at prices below that which Linden Labs had set. It is important to understand, from Linden Labs perspective, that it has a financial stake in these new virtual properties, especially the expensive ones, as they must expand their IT infrastructure (adding new servers etc.) to support them. The problem is, according to Mr. Coates, that Linden Lab's response, when they realized what was happening, was to treat these players with one broad brush – as if they were hackers that had somehow intentionally hacked the system, rather than, admittedly, taking advantage of a flaw in the system that Linden Labs had established. Linden Lab's response was to ban these players, with no way to appeal. The players are upset because they have spent real-world money to play the game, purchase their virtual property, and then they were abruptly shut out of the game, their virtual assets (paid for with real U.S. dollars) ceased, with no recourse or appeal. If a representative from Linden Labs contacts me with their side of the story I will update this story with their response.

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Entropia Universe to use Real ATM Cards

Categories: Virtual Property CasesVirtual Property Taxation

The Entropia Universe bills itself as “the first virtual universe – with a real cash economy” (the Second Life operators may dispute this claim). It’s operator/developer, Mindark PE plans to introduce a real-world ATM card that will let players withdraw hard cash automatically converted from their virtual game treasury. Entropia runs on its own currency, Project Entropia Dollars (PED), that is explicitly backed by real-world dollars at a conversion rate of one U.S. dollars equals 10 PED.

Sources: BBC | ars technica | CNet – NY Times | ars technica ABC News | market wire | MMORPG blog | WarCry Network | 1UP.com | GameDev.Net

Dale’s Comment: Video game universes are increasingly overlapping with the real world. The Entropia Universe’s use of a convertible currency raises obvious currency exchange, tax law and money laundering issues/concerns. What will happen to users’ accumulated currency when/if the Entropia Universe ceases to exist, or its Swedish operator, MindArk, ceases to exist or goes bankrupt? Will users have claims as creditors against MindArk?

The wildly popular Second Life MMORPG also allows users to use real currency to purchase virtual property. Second Life actually publishes how much real-world money is spent in the game each month. U.S. currency is converted to the in-game $Lindex currency and, through the games ‘Marketplace’ users can convert $Lindex back to real currency. As will be the case in the Entropia Universe, this “virtual” property has real-world value that, if stolen etc., may (should?) give rise to enforceable property rights in the real world.

See a related story posed on April 3, 2006, where a Chinese man was convicted of stealing virtual property and sentenced to a fine of 5,000 yuan (US$617). I suspect it will not be long before this type of case makes its way into Western courts.

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Chinese Man Looses Appeal to Reverse Conviction for Stealing Virtual Property

Categories: Virtual Crime CasesVirtual Property Cases

Last December, Yan Yifan was convicted of stealing virtual property and sentenced to a fine of 5,000 yuan (US$617) by the court of Guangzhou’s Tianhe District. He appealed on the grounds that virtual goods should not get legal protection. The court found that, because game players had put time and money into getting the virtual equipment and because Yifan had profited from selling the goods, they did deserve protection.

Sources: People’s Daily Online | The Register | CNet | ZDNet | CRI 1 | CRI 2 | Reuters | Top Tech News | P2PNet | Washington Post | Zinhau Net 1 | Zinhau Net 2

Dale’s Comment: I find it ironic that the law of virtual property seems to be developing in communist China where property rights are historically lower than in capitalist countries. Given the enormous amount of time people spend accumulating/earning/winning virtual property within MMORPGs, I see virtual property as equally deserving of property protection as, say, lottery winnings. Clearly there is an increasing real-world value to virtual property. To the extent virtual property can be monetized in the real world, I submit that it should be given legal recognition as a property interest deserving of protection just like any other property.

See, for instance, the new and wildly popular Second Life MMORPG where users frequently use real money to purchase virtual property. Second Life actually publishes how much money is spent in the game each month. Real currency is converted to the in-game $Lindex currency and, through the games ‘Marketplace’ users can convert $Lindex back to real currency. Clearly, this “virtual” property has real-world value that if stolen etc. may give rise to enforceable property rights in the real world. I doubt it will be long before this type of case makes its way to the courts.

See also, the many related gold-farming stories referenced in my March 16, 2006 post. See also the related June 8, 2005 story where a Shanghai man narrowly escaped a death sentence after killing another man that had stolen (and sold0 his virtual sword. The man committed the murder after first being rebuffed by the police when he approached them for help in the matter. The police turned him away because virtual property, at that time, was not recognized as property.

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Dragon Slayers or Tax Evaders?

Categories: Virtual Property CasesVirtual Property Taxation

Buying and selling imaginary goods in computer-game worlds is big business. Now let’s figure out whether gamers should pay real-world taxes on virtual treasures.

Source: Legal Affairs

Related Virtual Taxation Stories: ars technica | Sci Tech

Related Virtual Currency Stories: Gamespot (Sep 12, 2005 | PC Magazine (Jun 1, 2005) | Gamespot(May 6, 2005) | Wired (Jan 23, 2004) | GameZone(Jan 5, 2004)

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Video Games Create a Whole New World of Legal Liabilities

Categories: CheatingFeatured ArticlesProduct Liability CasesStartup Game Developer IssuesVirtual Crime CasesVirtual Property CasesVirtual Property Taxation

Chris Bennett, of Davis & Company, LLP describes numerous possible new legal liabilities flowing from video game play. He discusses online theft, online assault, offlline assaults and cheating.

Source: Lawyers Weekly

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Virtual Gaming’s Elusive Exchange Rates

Categories: Virtual Property Cases

MMORPG assets are being traded for real-world money. Are these virtual economies giving gamers their fair share?

Source: Gamespot

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The Virtual Crimewave

Categories: Featured ArticlesVirtual Crime CasesVirtual Property Cases

The world of online gaming is in the grip of a festering crimewave. As role-playing computer games such as EverQuest and Lineage have surged in popularity, a dark criminal underworld has emerged to capitalise on their internal economies.

Source: Times Online

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Man Arrested for Virtual Mugging in Lineage II

Categories: CheatingPolice ActionsVirtual Crime CasesVirtual Property Cases

A man has been arrested in Japan on suspicion of carrying out a virtual mugging spree by using software “bots” (a form of cheating) to beat up and rob characters in the online computer game Lineage II. The stolen virtual possessions were then exchanged for real cash.

Sources: New Scientist | Gamespot | The Enquirer | BBC | CNet | GamePolitics | Ferrago

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Chinese Gamer Sentenced to Life

Categories: Criminal ConvictionsCriminal ProsecutionsVirtual Crime CasesVirtual Property Cases

A Shanghai online gamer has been given a suspended death sentence for killing a fellow gamer. Qiu Chengwei stabbed Zhu Caoyuan in the chest when he found out he had sold his virtual sword for 7,200 Yuan (£473).

Sources: BBC | MSNBC | PC World | CBC News | CNet UK | China Daily | American Chronicle | NewsSGD.com | CNN Money

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In-Game Virtual Property ‘Theft’ Lead to Fatal Attack

Categories: Criminal ProsecutionsPolice ActionsVirtual Property Cases

Shanghai gamer Qiu Chengwei killed player Zhu Caoyuan when he discovered he had sold a “dragon sabre” he had been loaned, while playing the online game Legends of Mir 3. Before the attack Mr Chengwei told police about the theft who said the weapon was not real property and took no action.

Sources: BBC | MSNBC | ABC News | Guardian Unlimited | Sydney Morning Herald | RPGamer | The Register | Taipei Times

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Spurned Woman Charged after Deleting Ex’s Lineage II Gaming Data

Categories: Criminal ProsecutionsPolice ActionsVirtual Crime CasesVirtual Property Cases

A Japanese woman faces a charge of “illegal access” to someone else’s online account after using her ex-boyfriend’s username and password to access online game Lineage II and deleting game data, including weapons.

Sources: Gamespot | The Register | Boomtown | Guardian Unlimited
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