Friday, September 21, 2007

The virtual property debate revisited

Appearances can be deceiving. Most players of MMORPGs like World of Warcraft believe that they somehow own their characters, and the virtual items on those characters. And they also believe that these virtual properties have some dollar value, as there are obviously people buying and selling virtual items and accounts. But in reality the legal situation in most countries remains unresolved, only China had some virtual property lawsuits resolved in court. The position of most game companies is that they are the sole owner of all characters and their virtual possessions, and that these virtual items have absolutely no value, as you aren't allowed to buy or sell accounts or virtual items. But they are doing their utmost to never have that question be resolved in a court of law in the US, because the consequence could be terrible for the game companies as well as the players.

The biggest concern for the game companies is that if virtual property has a value, then the game company could be liable for any losses. Every game company is aware that MMORPGs won't be commercially viable forever, so one day even the biggest game is going to be shut down. But if virtual property has value and is owned by the players, closing down the servers decreases that value to zero, and the players could sue the game company for damages. Similar damages could occur if virtual property gets destroyed by bugs. And every patch and change to the game might change the value of the existing virtual property, likewise causing property damage to the players. A good example is the Burning Crusade expansion, which diminished the value of the WoW gold piece due to increased availability, and totally destroyed the value of level 60 epics and similar virtual items.

But the players wouldn't be better off if some court decided that they own whatever their avatar carries and that this virtual property is valuable. Look at the guy who just sold his account for $10,000. Apart from other legal problems, he just received $10,000 of taxable income. If he fails to declare it he'll make himself guilty of tax fraud. If he declares it, he'll have to pay some income tax on it. As he received real money, the tax situation is pretty much clear here. But what about some other player who happens to have a character just like the one that got sold for $10,000, but doesn't want to sell it? Taxable income isn't limited to cash earnings only. The tax authorities could easily argue that the player "earned" the current value of his character, and after deducing the cost for the WoW game and monthly fee, the player would be liable for taxes on the added value. If you find the Sword of Uberness in the game, and this sword has a value of $100, you'll have to pay taxes on $100 of income. You'd also need to pay taxes on every gold piece you find. That would make a game like World of Warcraft prohibitively expensive very quickly.

So at least in what regards the value of virtual property, it is better to regard it as worthless or near worthless. This is easy to defend: The money people get for gold and virtual items on EBay or gold selling sites is only the "black market" value, which is very much inflated because the trade isn't allowed and risks your account getting banned. A game company like Blizzard could easily produce WoW gold out of thin air and sell it for a tiny fraction of the current market value. They just don't do it because it would harm the game, even if it would be a surefire way to ruin all gold farmers.

In property rights I think with time there will be some development where players get slightly more rights than they have now. The current situation where the game company can ban you for whatever reason they see fit, including for founding a "gay friendly" guild or an "extreme erotic roleplaying" guild, is probably not going to be the last word. Especially with business models like lifetime subscriptions sooner or later a customer is going to sue if his lifetime subscription account is banned after a short while because the game company doesn't like his lifestyle. And just like Microsoft ran into trouble with the European authorities over some too restrictive terms in their Windows Vista license agreement, game companies might find that restricting account access to only one person is against some national laws. Blizzard isn't quite as big as Microsoft yet, but the more widespread MMORPGs become, the more likely it becomes that their EULAs and ToSs get scrutinied by some lawyer.

Sooner or later we'll see a big US lawsuit about virtual property rights. And that could have a big impact on game design, for example forcing all items to be bind on pickup to avoid them becoming a tradeable virtual property. But until some court decides, we'll remain in a legal gray zone on virtual property.

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