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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.
- posted by Tobold @ 2:00 PM Permanent Link
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But don't people buy and sell virtual items all the time in Second Life?
I saw a programme on tv where a woman was renting out virtual property in that game for hundreds of pounds (ok, they paid for it in Lindens or whatever it's called, but they still had to pay for that virtual currency).
I saw a programme on tv where a woman was renting out virtual property in that game for hundreds of pounds (ok, they paid for it in Lindens or whatever it's called, but they still had to pay for that virtual currency).
# posted by 
: 21/9/07 15:22
: 21/9/07 15:22
If they think they own their characters, they are sadly mistaken. There is nothing to own. There is no material property that was transferred, and the intellectual property remains securely in the hands of the developer. You no more own your World of Warcraft characters than I own "my" posts on YOUR forum. For that matter, you don't even really own your account, the developer owns that too.
If virtual items can have value, who cares what happens to MMOs; we'll end up with people arguing that other aspects of their online existence has value. Like this one: I declare that my comment on your forum is my property and I own the product of my labor. Furthermore, it is worth way more than a penny. So don't even think of deleting it or shutting down your blog, ever. Or you'll have destroyed my comment, and therefore its value. My lawyer will be watching.
If virtual items can have value, who cares what happens to MMOs; we'll end up with people arguing that other aspects of their online existence has value. Like this one: I declare that my comment on your forum is my property and I own the product of my labor. Furthermore, it is worth way more than a penny. So don't even think of deleting it or shutting down your blog, ever. Or you'll have destroyed my comment, and therefore its value. My lawyer will be watching.
But don't people buy and sell virtual items all the time in Second Life?
Second Life has different virtual property rights than the more gamey MMORPGs. This is due to items in Second Life being code programmed by the users, and Linden Labs acknowledging the programmer's intellectual property rights to some extent. But the Sword of Uberness you find in some fantasy MMO was only *found* by you, the code was written by some employee of the game company, not you.
Second Life has different virtual property rights than the more gamey MMORPGs. This is due to items in Second Life being code programmed by the users, and Linden Labs acknowledging the programmer's intellectual property rights to some extent. But the Sword of Uberness you find in some fantasy MMO was only *found* by you, the code was written by some employee of the game company, not you.
Also, the Second Life EULA is a hodgepodge of contradictions. You own your property -- but you can be banned at any time. And I think there's a liability waiver. It's a mess, and it's going to get them in trouble. They've already been sued once.
There's a big sack of academic literature about how virtual property rights should be enforced, and so on. This seems insane to me. The problems of enforcing it are neverending, and just defining what you "own" is impossible.
There's a big sack of academic literature about how virtual property rights should be enforced, and so on. This seems insane to me. The problems of enforcing it are neverending, and just defining what you "own" is impossible.
This is the reason you take a EULA or a TOS with a grain of salt. At this point the game companies put in all of the standard "you don't own this" garbage but so far it really hasn't been pressed in a court of law. The logic behind that is because these same companies who are forcing you to agree to their TOS realize that the risk of a loss in court is so great that they can't risk it.
At some point somebody will push the point and we'll get an offical legal ruling. I honestly believe that ruling would prove catastrophic for game companies and players. I'd have to imagine the game companies feel the same way based on how reluctant they are to try it. In the meantime, they hide behind their TOS and try to pretend that it's legally binding as what we're dealing with isn't worth fighting against for the vast majority of us.
At some point somebody will push the point and we'll get an offical legal ruling. I honestly believe that ruling would prove catastrophic for game companies and players. I'd have to imagine the game companies feel the same way based on how reluctant they are to try it. In the meantime, they hide behind their TOS and try to pretend that it's legally binding as what we're dealing with isn't worth fighting against for the vast majority of us.
I don't even see what the debate is. The value of "real" property is already so variable that it seems silly to treat virtual property as if it were any more solid. People bought iPhone's for $600 to eBay for $1000, only to see Apple quickly drop the price to $400. Cars lose money when they're driven off the lot and computers are obsolete by the time they're unboxed. Stocks can be flying high one day only to see their bubble burst the next. The US dollar can free fall to the worth of the formerly laughable Canadian dollar. To imagine the lawyers have any say in this is high fantasy.
I think my last example hints at the best approach: treat the virtual world like a sovereign nation. Whatever the value items have they have in that region independently, and everything else is subject to an exchange rate. You wouldn't get taxed here for a sword in WoW any more than you'd get taxed here for a yacht in Luxembourg. And if a server crashes or an upgrade dings your stats, you'll have to suck it up just like if there is a coup that results in your foreign property being seized. It all seems so straightforward that I don't get what all the hand wringing is about.
I think my last example hints at the best approach: treat the virtual world like a sovereign nation. Whatever the value items have they have in that region independently, and everything else is subject to an exchange rate. You wouldn't get taxed here for a sword in WoW any more than you'd get taxed here for a yacht in Luxembourg. And if a server crashes or an upgrade dings your stats, you'll have to suck it up just like if there is a coup that results in your foreign property being seized. It all seems so straightforward that I don't get what all the hand wringing is about.
# posted by : 21/9/07 22:30
: 21/9/07 22:30
I think my last example hints at the best approach: treat the virtual world like a sovereign nation. Whatever the value items have they have in that region independently, and everything else is subject to an exchange rate. You wouldn't get taxed here for a sword in WoW any more than you'd get taxed here for a yacht in Luxembourg. And if a server crashes or an upgrade dings your stats, you'll have to suck it up just like if there is a coup that results in your foreign property being seized. It all seems so straightforward that I don't get what all the hand wringing is about.
No offense, but that's an incredibly simplified view of things. The reason it's oversimplified is what makes the world go around...money. There are transactions taking place for not inconsequential amounts of money which currently no government has a finger in. How many transactions in the US can you think of that are completely tax free? There's a reason you're struggling to think of any outside the virtual realm.
Calling a virtual world a sovereign realm only works if you are dealing only in virtual dollars. As soon as real world dollars enter the equation you can bet that the government will take more than a passing interest in finding out how they get their piece of it.
No offense, but that's an incredibly simplified view of things. The reason it's oversimplified is what makes the world go around...money. There are transactions taking place for not inconsequential amounts of money which currently no government has a finger in. How many transactions in the US can you think of that are completely tax free? There's a reason you're struggling to think of any outside the virtual realm.
Calling a virtual world a sovereign realm only works if you are dealing only in virtual dollars. As soon as real world dollars enter the equation you can bet that the government will take more than a passing interest in finding out how they get their piece of it.
As soon as real world dollars enter the equation you can bet that the government will take more than a passing interest in finding out how they get their piece of it.
What part of "exchange rate" didn't you understand when you quoted it? More to the point, please explain to me what about the nature of virtual worlds is so damn complicated that existing international currency law can't cope with it. It doesn't take a genius to see that the border crossing to WoW et al. is vastly more simple than anything in the real world. Of course a local powers are going to want a cut, but they should only go after what is in their realm of control. Taxation without representation is still poor form, and last I checked there weren't any Elves holding political office.
What part of "exchange rate" didn't you understand when you quoted it? More to the point, please explain to me what about the nature of virtual worlds is so damn complicated that existing international currency law can't cope with it. It doesn't take a genius to see that the border crossing to WoW et al. is vastly more simple than anything in the real world. Of course a local powers are going to want a cut, but they should only go after what is in their realm of control. Taxation without representation is still poor form, and last I checked there weren't any Elves holding political office.
# posted by : 22/9/07 02:14
: 22/9/07 02:14
I understand the point that you are trying to make, but virtual property is similar to non-virtual property in that just because something has a theoretical value doesn't mean that you have to pay taxes on it.
Take, for example, an unused tennis racquet that I purchased at a generic sporting goods store for $100. Should I be taxed on the value of this tennis racquet, because it conceivably has a secondary market value of $50?
We pay property/wealth/asset taxes (Depending on your country) on things such as land, machinery, buildings, motor vehicles stocks, and other major products. We do not pay asset-related taxes on tennis raqcuets, silverware, washing machines, notebook paper, or any other similar items.
I guess the issue comes down to this: At what point does virtual property stop being a simple possession and start becoming an financial asset? I would argue that merely possessing an item that could conceivably have value, such as a World of Warcraft account with a powerful character, is not enough to qualify it as an asset . If you try to sell it, then sure -- pay your income tax or what-have-you, but it does not make sense to pay any kind of wealth tax on (this kind of) virtual property.
Take, for example, an unused tennis racquet that I purchased at a generic sporting goods store for $100. Should I be taxed on the value of this tennis racquet, because it conceivably has a secondary market value of $50?
We pay property/wealth/asset taxes (Depending on your country) on things such as land, machinery, buildings, motor vehicles stocks, and other major products. We do not pay asset-related taxes on tennis raqcuets, silverware, washing machines, notebook paper, or any other similar items.
I guess the issue comes down to this: At what point does virtual property stop being a simple possession and start becoming an financial asset? I would argue that merely possessing an item that could conceivably have value, such as a World of Warcraft account with a powerful character, is not enough to qualify it as an asset . If you try to sell it, then sure -- pay your income tax or what-have-you, but it does not make sense to pay any kind of wealth tax on (this kind of) virtual property.
# posted by : 22/9/07 04:54
: 22/9/07 04:54
You could treat earning gold or improving a character in an MMO as an unrealized capital gain. You are only taxed on it when you actually sell it for money.
That would be the quick and easy way to tax people who engage in RMT, while avoiding impacting people who just play the game.
That would be the quick and easy way to tax people who engage in RMT, while avoiding impacting people who just play the game.
...and upcoming Wrath of the Lich King will plummet the real estate values of each and every piece of land property in Azeroth, as the free land area for building expands again on the whim of Blizzard...
The virtual property should be thought as virtual anyhow. IMHO the seller of the account wasn't stupid for selling: it was the buyer who was stupid enough to pay for it.
EULA states clearly the game manufacturers and service providers part of the equation, so in that sense both the seller AND the buyer should have known that this transaction isn't approved.
My thoughts on the 10k deal: these things happen because its possible.
Copra
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The virtual property should be thought as virtual anyhow. IMHO the seller of the account wasn't stupid for selling: it was the buyer who was stupid enough to pay for it.
EULA states clearly the game manufacturers and service providers part of the equation, so in that sense both the seller AND the buyer should have known that this transaction isn't approved.
My thoughts on the 10k deal: these things happen because its possible.
Copra
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