Unreal Property – Owning Binary Goods

March 1, 2006

There are dozens if not hundreds of worlds, universes and parallel realities today in which your neighbours, colleagues and friends are building themselves colourful lives. These are the virtual worlds of Multi-player Massive Online Role-Playing Games or MMORPGs as they are commonly referred to (however, for brevity, we shall use the term MMGs). Their nature is varied, from dungeons to galaxies to surprisingly ordinary facsimiles of real life. These were once the preserve of the most geeky of technophiles and aficionados of William Gibson. Now, however, they are big both in population and economic terms. One game alone, the World of Warcraft, has a population of five million people and, to one extent or another, all MMGs are developing economies. Within them people devote hours of time to trading, mining, training in professions and crafts, building and buying and selling virtual estates.

The Economics of MMGs
In 2001 Edward Castranova, now a professor at Indiana University, wrote the seminal paper on online economies (Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier) in which he calculated that one game, Everquest, with a user base of around 500,000 had a real GDP of $135 million, about half that of the Dominican Republic, a country of some nine million people. In 2004 he attempted a similar calculation for all the major online games and their combined GDP was reckoned to be nearly on a par with that of Jamaica (more than US$10 billion). This figure was reached, in part, through the existence of a real-world market for goods and services with people paying on eBay and other exchanges to buy items that only existed in the virtual world. It has now become as easy to buy virtual clothes for real money as it is to purchase real clothes from a department store and rather easier to buy a virtual missile than a real one!

More recently a career has evolved linked to the online world – that of “grinder”, someone who will advance a character through levels in the online world for payment, in effect a rather novel form of outsourcing. Some gaming parents let their proficient teens run their characters through tedious tasks that improve a character’s attributes or makes them money, other players pay people in other countries to do this when they are asleep. High level grinders automate this process and make a decent wage, whilst others work for as little as $1 per hour in Asia.

The value attached to virtual objects was most clearly demonstrated last year when a Chinese man was imprisoned for the murder of a friend who had stolen his sword and sold it for $473: the sword only existed in a game called Legend of Mir 3.

The very existence of these online economies shines a light on the nature of economics and of law. Whilst ostensibly based on the most fundamental aspects of unevolved law (the notion that possession equals ownership for as long as the owner has strength to retain possession), the reality is that these economies are the most evolved version of our own in that they are wholly based on trust or faith in the system working, in other words a system based upon rules (or law). In the real world, the value of shares, bonds, and money itself is to a large degree based on the trust invested in them by the larger community; trust in the real value of the assets and belief in the fair enforcement of the owner’s rights.

In the online environment nothing, in theory, currently prevents the game designers upending the entire economic system, robbing all or some of their players, creating inflation or invalidating the entire currency base. They are prevented from doing this more by the economic reality of what would happen to them than being hauled before an online court system. If economic reality imposes the need for MMG designers to maintain a stable economic model and not turn the rules upside down then what of the goods created in these worlds – particularly, who owns them and thus who can dispose of them?

Ownership of Virtual Property
One school of thought emanating from the US (the home of the majority of game developers) is that items belong to the MMG owners and they can remove them, alter them or change their properties at will. Their logic is that these items and artifacts exist solely as the product of the software code owned by the MMG developers; their virtual existence and how they come into a player’s hands is determined by the computer code. These goods are actually part of the “content” of the program and form part of the software licence.  This argument is stretched, but is still tenable in the case of user created or customised goods. Although there is an investment in time and effort by the user and the results are determined by their actions and interaction with the online environment, the goods are still largely the result of the software. 

The balance is shifting, however, as customisation becomes more prevalent (largely through more sophisticated software). Where the good produced arises largely from the creative effort of the user (albeit using tools provided within the MMG) the efforts of the developer to claim ownership or the result of the user’s time and effort becomes more tenuous, just as Microsoft cannot claim copyright in this article merely because it supplied the software through which it was created. Likewise the cinematic representation of a battle fought on a computer simulation could not be said to have been created by that game’s developers. They made the tools available, but the owner of that work is the creator of that particular representation. In the case of items whose nature is largely determined by user action I would argue that ownership vests in the creative genius and not in the developer. For the developers to assert otherwise the user would need to assign their rights rather than there be a mere statement that the developer owns all content as is currently the case. Whilst such a step would be available to developers, and might possibly be a wise one from the perspective of their legal advisers, the consequence would be that the online community of users would, in all likelihood, desert that game. One point that needs to be remembered is that online game players are likely to be educated and they talk to each other – a lot.

Asia’s Impact on MMGs
The view that users may own their virtual property would be supported in many areas of Asia (where the grinders largely reside and the online gaming community is largest). Professor Zhou Changcheng of Wuhan University and Professors Wang Zongyu and Yang Lixin, both of Renmin University of China, have expressed the view that virtual property is deserving of legal protection and Professor Zongyu has further stated that virtual property is the result of player’s labour on which time and money have been expended.  

We would argue that the reasons they put forward, and the fact that the creative effort and value invested in many of the items being offered for sale derives very much from the individual’s choices rather than a programmed response, support the right of the individual to own these items and have these rights enforced. We would also suggest that, just as the world derived much of the legal grounding underpinning e-commerce from the US, its most developed market, most of the formative opinions here will derive from Asia as the area whose involvement and economic clout is most focused on this emerging area and whose courts are going to produce much of the early case law. 

Although China has no laws acknowledging the legal existence of virtual property, game developers must take seriously the fact that, in December 2003, a group of lawyers introduced a proposal to the Law Committee of the National People’s Congress (NPC) calling for the establishment of regulations to protect virtual property.

In 2004, Li Hongchen, a gamer in north China’s Hebei Province, discovered that all the virtual biological weapons he had accumulated playing Hongyue (Red Moon), an online game from Arctic Ice Technology Development Co Ltd (AITD), had disappeared. This arsenal had cost him thousands of hours of gaming time and tens of thousands of yuan in fees and “real” purchases to accumulate. It ultimately transpired that another player had stolen this rather disturbing collection of material. Li took AITD to court for failing to protect his virtual property rights. The Chaoyang District People’s Court in Beijing ultimately ruled that AITD should restore Li’s lost “weapons” and pay 1,140 yuan (around £70) in costs, but rejected his claim for psychological damages.

China has a history of intervention in the virtual world and has also attempted to place a restriction on the time people spend in online games – requiring that games based in China impose restrictions so that if players spend more than five hours playing their characters will suffer in-game penalties. Whilst some may point to this as a restriction on the individual’s freedom, others may look at Western governments strictures on preventing an individual from harming themselves and draw a parallel.

The Emergence of Virtual Marketplaces
Although the game developers have initially been at pains to ban the sale of virtual goods ranging from simple proscription to setting up internal market places, the MMG user-base has consistently demonstrated a desire and willingness to trade outside the game. E-bay, inevitably, is host to many such transactions with 1000 gold pieces in World of Warcraft selling at a remarkably stable $40 or so, slightly less than it did a year ago and at a very steady rate of exchange, whilst high level characters and their equipment may be sold for sums in excess of $1,000. There are also numerous dedicated sites whose sole business is the selling of virtual items. There has been a realization, by the gamers, at least, that some users can and will act as farmers and use the MMG’s systems as tradesmen of varying degrees of skill and sophistication to produce virtual goods rather than hack and slash their way through orc infested lairs.  Rather than playing the game as adventurers, some have chosen to become expert in manufacture and make money from trade.

Most developers effectively acquiesce in this market, whose right of transfer they deny, but the existence of which they cannot prevent.  Some, however, positively encourage such activity and probably represent the next evolution of MMGs into structures where legal rights will be enforced due to the direct link between financial investment by a player and the virtual assets they own. Two such are Project Entropia and Second Life whose virtual economies are linked to the US dollar. In these games money is convertible from real to virtual and back again. If a character wants to hike themselves up the gaming world ladder they can invest real money to acquire virtual assets, likewise they can withdraw virtual money to add to their real bank account. Here people are making a living from owning virtual real-estate and exploiting it, whether it be through rental payments (one lady reportedly makes an income of $150,000 in the real world as a landlady in Second Life) or through virtual/real crossovers – a space station in Project Entropia was bought for £13,000 last year and is now being run as a night club for which an entry fee may be charged and in which real companies pay to advertise. This again emphasises the importance of faith in the system – if Project Entropia made dozens of such pieces of real estate its value would plummet, but the buyer and others have faith that there will be no such cheating or exploitation.

This raises a difficult point. We believe that players in online games have rights in the property they create, a point we find easier to justify the more individual those items are. The nature of those rights is more problematic. It is tempting to analyse these goods as the derivations of a computer program whose only existence is within the boundaries of that program. As such they are arguably a form of derivative work and protected by copyright. However, if we look at their treatment this analysis would not hold good. These are effectively commodities and when traded they pass from one person’s ownership to another. The owner does not have any licence to allow another to replicate that item whilst retaining the original nor do the transactions follow any of the other standard processes within which copyright materials otherwise fit. Proposing creation of a sui generis right defeats our argument that these are enforceable rights against the world, however, the law is nothing if not adaptable to protect rights in a changing world. 

We suggest that the right involved in the ownership of virtual property was first mooted in an e-commerce sphere by Jonathan Sumption in the One in a Million domain name case, namely a chose in action. This may be defined as an intangible, personal property right whose existence is recognised and protected by the law, but which has no existence apart from the recognition given by the law, and which confers no present right of possession of a tangible object.

A further consideration is what the likely impact would be on the liability of MMG developers if they openly acknowledge that the users and/or creators are the legal owners of the virtual property they have created, found or purchased. Could a grinder bring an action against the MMG developer if a bug in the game causes his pneumatic drill to stop working, and thereby prevents him from “earning” income? It is likely that such “rights” would be deemed to be unenforceable and no doubt the conditions attached to the MMG would prevent such a claim being brought. However, the more commonplace such scenarios become, the more likely the MMG developers are to face such unique problems.

Where Next for MMGs?
We have already seen that the virtual worlds within Project Entropia and Second Sight are fast becoming as sophisticated as the real world that we live in. This leaves us with the tantalizing prospect of how evolved these games can become and whether the law will play any part in shaping their future. For instance, we have already seen that virtual property is being exchanged for thousands of pounds, but what happens when there is a problem in such a transaction? It is unlikely that anyone would take action if the £5 magic sword they had bought turned out to be not so magical, however, it is far more likely that someone would seek recompense if the property they had bought with an ocean view turned out to in fact have a view of a mining station. The question is therefore whether such an individual would seek to make a claim in the courts or perhaps whether an ingenious soul will see the potential for some form of dispute resolution within the game itself.

Stephen Dooley is an associate in Bevan Brittan’s commercial department where he specializes in IT and IP issues. Harry Karaoulou is an assistant in the firm’s commercial litigation department. The authors would like to thank Philip Saunders for his assistance in this article.