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Virtual Conflicts, Real Problems
December 2006 | Intellectual Property & Technology | IP Edge

Gilbert LEONG

In this article, we examine some of the issues surrounding virtual games, also called "online games".

Online gaming is big business. According to DFC Intelligence, the worldwide online game market is set to continue growing from $3.4 billion in 2005 to over $13 billion in 2011. In the Asia Pacific region, the market is expected to grow at a compound annual growth rate of 21% from 2006 to 2010, reaching $3.6 billion by 2010, largely driven by the run-away success of Massively Multiplayer Online Role-Playing Games ("MMORPG"). It is in this context that the Infocomm Development Authority of Singapore ("IDA") has set out to position Singapore as Asia's foremost Digital Content Exchange Hub and since 2003 has put in place a series of ambitious initiatives to attain its goals.

In particular, IDA has underscored the fact that Singapore's intellectual property rights protection regime ranks right at the very top.

But, IPR protection is simply one facet of the legal framework that is needed to bring order to these brave new worlds. Being the top-ranked country for IPR protection counts for nothing, if pressing issues facing the virtual community were not those concerned with intellectual property in the first place.

Virtual Property
Virtual property can be defined as any asset collected by a player within a MMORPG, for example, currency, land, weapons, power, characters and other goods. These can be used, traded, exchanged or sold and therefore have "value" in the context of the game. The difficulties arise when these virtual goods attain a value in the real world such that a player would pay another in real world currency (or barter with tangible goods) so as to obtain the virtual property. When this takes place, real world legal intervention or regulation becomes inevitable.

The key questions really are "is there such a thing as virtual property? And if so, who owns it?" The answers to these questions would impact on the resolution of virtual property disputes such as virtual theft, fraud and even the ability of game developers (or operators of the game) to terminate their game or services.

Virtual Crimes
One of the more unfortunate offshoots of MMORPGs is exploding "virtual crime" rates. In South Korea, there was an astounding 22,000 claims of theft of virtual property reported to the police in 2004. In 2003, a gamer in China who had his account on the game Red Moon hacked into and lost all his weapons took his case to court demanding compensation from the game company. The Chinese Court ruled in his favour in what was China's first virtual property dispute case. Since then, the cases have been coming thick and fast. Virtual fraud is another growing problem with increasing instances of gamers "scamming" others by receiving real money but not delivering the agreed virtual item(s).

The "property" debate becomes even more pronounced when gamers who have been wronged seek compensation from game developers (with the deeper pockets) as well as or instead of hunting down the offending virtual world thief/fraudster. Game developers would also be concerned that rights in virtual property could require them to recompense gamers for economic loss when the game developers decide to discontinue the game.

Several East Asian countries have passed legislation which acknowledges the existence and value of virtual property. South Korean law recognises that virtual property is a valuable commodity independent of the game's developer, likening virtual property to money deposited in a bank. Taiwan sees virtual property as electromagnetic records that are considered movable property in cases of fraud and theft, while the Hong Kong police have a dedicated technological crime division.

Tortious Liabilities
Game developers also face potentially devastating civil suits when online games trigger offline, real world assaults. In the US, families of three slain police officers are suing Sony and various retailers for $600 million because the teen who committed the killings claimed he was influenced by the game Grand Theft Auto. There are other tragedies as well: a Chinese gamer was sentenced to life imprisonment in 2005 after stabbing his friend to death for selling off a precious virtual weapon he lent him. Would there come a time when game developers have to put "health warnings" on games?

Jurisdictional Issues
What happens when the virtual dispute involves two parties in different jurisdictions in the context of a game created in a third jurisdiction? Which law would then be applied? There might be contractual provisions in the End User License Agreements ("EULAs") dealing with the choice of law issues but as we shall see, such terms may not always work.

EULAs and Terms of Service
At present, game developers largely rely on contractual limitations in their EULAs and/or terms of service to protect themselves. The catch though is that nobody can be sure if and to what extent these contractual limitations can be enforced by the game developers. If indeed the gamers' rights in virtual property are recognised, there is a very real likelihood of courts striking down overly harsh license terms that infringe upon those rights. The limitations in the EULAs would also not apply to a person who is not a party to the contract.

Prior to us rushing off to pass laws to address the situation, we ought to study the experiences of other countries. Any such laws ought to balance the competing interest of game developers (who would want to have maximum freedom in the design and operation of the game), users (who would like to ensure that their virtual property is protected against marauders, fraudsters and, to a certain extent, the game developers themselves) and third parties (who would like to have some form of security in the event that they lend "real" money secured on the virtual property or if they had performed some service in the real world in exchange for payment in the form of virtual property). Ideally, these laws should also bring a degree of legal certainty to the virtual worlds.

Future Shock
One consideration that must not be overlooked is the fact that there is no one single, accepted or acceptable way of laying out how a game universe is to be governed. The term used to described such a situation is "multiverse". Some virtual worlds are, as Balkin puts it, vehicles of commerce that allow for and indeed encourage real world commodification of in-game assets. Others are coded by game developers to try to maintain a non-commodified world. Therefore any legislation which adopts a one-size-fits-all approach would not adequately address the unique characteristics of different virtual worlds or the fact that there exists more than one type of virtual world.

Statutes of Interration
One possible model of regulation as proposed by a notable virtual world economist, Edward Castranova, is an "interration" model where governments can offer legal as well as financial incentives and protection to game developers to encourage them to "interrate". These statutes of "interration" are modelled after statutes of incorporation. Game developers would then be able to choose different types of legal regimes for their virtual worlds to operate within depending on their game's goals and design, much like how businesses now can choose between sole proprietorships, partnerships and corporations. For example, in a virtual world designed to discourage real world commodification, gamers would not have any real world rights in their virtual assets. In worlds that permit real-world commodification, the gamer's rights would be appropriately protected. Game developers on the other hand would welcome statutory protection from liability for the acts or omissions of individual gamers. The result would be a win-win situation for the parties involved.

This is perhaps the right time to examine issues pertaining to virtual worlds. We are, as a nation, striving to be Asia's foremost Digital Hub. Given our past experience in other kinds of hub activities, a defined, rational and stable legal system to govern all aspects of activities within virtual worlds and, more importantly, the interaction between the virtual and the real world would be essential.

This article was co-written with Jay Lee, a recent graduate of the National University of Singapore who is currently pursuing his professional qualifications.