__VIRTUAL PROPERTY__

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With the emergence of persistent online environments comes the existence of persistent virtual items that people begin to treat as personal property. Revenue from trading these virtual items has grown into an estimated yearly U.S. one-billion-dollar industry. From people who have made thousands in one transaction, to Second Life's first millionaire, there is no doubt that the profits realized from this trade are real and lasting accessions to wealth.

substantial profits are being realized in sales of virtual items.

Coupled with the rise in profits, rising questions of how to treat these money-making virtual items emerge. Courts may soon recognize rights in virtual property that are similar to rights in real property. Virtual gambling for virtual property may soon be viewed under the same rules that restrict real world gambling. As these virtual items begin to gain real world value, the ever present question of proper taxation also appears. Courts are questioning their roles in this new phenomenon, and the law is still in flux over just how to treat virtual things.

This site is a consolidation of research on topics in Virtual Property, the following subjects are presented:

Virtual Property Rights in Online Games

Jason Zack, Comment, The Ultimate Company Town: Wading in the Digital Marsh of Second Life, 10 U. PA. J. CONST. L. 225 (Dec. 2007).

This article explores the concept of whether those that play “Second Life” can make constitutional claims for the taking of virtual property they acquire during the course of the game. Those that play Second Life acquire their own virtual property much like people do in the real world. In one case, a player sued the company for $8,000 in damages when it unilaterally shut down his account, cutting him off from access to his virtual “property.” The comment further asserts that those that play may have due process claims in such cases if the company confiscates their “property” without compensation. The company, the author reasons, becomes a state actor because it functions in a public role much like the government’s role in the real world.

Jacob Rogers, Note, A Passive Approach to Regulation of Virtual Worlds, 76 GEO. WASH. L. REV. 405 (Feb. 2008).

This note gives several examples of current and potential disputes related to virtual property in the gaming industry. The author recognizes that it is a multi-billion dollar industry that is growing more each year. He proposes a simple solution to resolve potential disputes that may arise. He indicates that terms-of-service contracts should regulate all transactions that occur completely inside the virtual world, thus granting protected property interests in the subject matter of those transactions.

Allen Sipress, Where Real Money Meets Virtual Reality, The Jury is Still out, Washington Post (Dec. 26, 2006), at A01, available at http://www.washingtonpost.com/wp-dyn/content/article/2006/12/25/AR2006122500635.html (last visited April 8, 2008).

This article points out the difficulty that courts are beginning to experience in applying property law to virtual property in gaming, particularly Second Life. The creators of Second Life granted its users intellectual property rights to their own online creations. Since then, the market of selling and buying items like “magical swords” or “online real estate” has skyrocketed. In fact, Congress is completing a study to determine whether income derived from this “virtual economy” is taxable.

Julian Dibbell, The Life of the Chinese Gold Farmer, N.Y. TIMES, June 17, 2007, http://www.nytimes.com/2007/06/17/magazine/17lootfarmers-t.html?r=2&pagewanted=print&oref=slogin&oref=slogin (last visited April 9, 2008).

This article gives an interesting overview of the gaming virtual property industry in China. The author explains that the gross domestic product for today’s virtual economies is anywhere from $7 billion to $12 billion, which exceeds that of countries like Bolivia, Albania, and Nepal. He tells the story of several employees of a “gaming plant” in China. Their job is to play games like World Warcraft, collect the needed coins, and sell them to over eight million World Warcraft players across the world. For every 100 coins they gather, they earn approximately $1.25 USD. The plant employs an estimated 100,000 workers.

Gold coins are the currency in Blizzard’s World of Warcraft®.

Virtual Online Gambling

Online gambling, even within virtual worlds, is increasing in popularity.

Janet Babin, No Virtual Gambling In a Virtual World, July 27, 2007,

http://marketplace.publicradio.org/display/web/2007/07/27/no_virtual_gambling_in_a_virtual_world (last visited Apr. 16, 2008)

This was a brief article. It combines virtual property theories on videogames and gambling. A particular videogame, called Second Life, had casinos in their videogame world where you could win and lose the units of money used in the game. The makers of the game had to eliminate the gambling in their videogame world for fear that they would get in legal trouble with the real world by violating real world laws.

6 CANDIDUS DOUGHERTY, VIRTUAL GAMBLING: BETTING ON 'IN-WORLD' EVENTS, WORLD ONLINE GAMBLING LAW REPORT, No. 11 (Nov. 2007), http://ssrn.com/abstract=1092287

Begins with a discussion of Linden’s, creator of Second Life, attempt to ban their gaming before it was made illegal. The article made a comparison of the online gambling taking place and fantasy sports leagues. Additionally, the exception for fantasy sports in the Unlawful Gambling Internet Enforcement Act was discussed. The article then compared real world sports and videogame sports. Most of the discussion is dedicated to discussing the details of how the UGIEA affects Second Life and Second Life’s possible liability.

Mark Methenitis, Internet Gambling Regulation Present and Future: Technology Outpaces Legislation as the MMORPG Problem Emerges, Dec. 2005, http://ssrn.com/abstract=987056

Article opens with the current status of the law. This includes the various laws and types of gaming that the laws apply to. Next, the article goes into an in-depth analysis of how the gaming laws are potentially going to affect MMORPG in the future. The analysis includes the potential for gaming in the virtual worlds and possible future regulation. The article wraps up with a discussion of how the videogame world gambling can affect real world people who love to gamble and give them a new channel of gambling. This was by far the most comprehensive and helpful document I read.

Benjamin Duranske, Kwari Wants to Be “Your Virtual Arms Dealer”, Sept. 5, 2007,

http://virtuallyblind.com/2007/09/05/kwari-simplifies-rmt/

This article primarily discusses the game Kwari. It compares and contrasts the game to MMORG games and internet poker. The interesting part of the article discusses the possibility of the Skill Game Protection Act carving out a possible exception for skill games, like poker. Next, there is a discussion as to the deceptiveness of the word skill in the title of the Act and actual skill involved in poker.

Taxation of Virtual Property

Arthur J. Cockfield, Transforming the Internet Into a Taxable Forum: A Case Study in E-Commerce Taxation, 85 Minn. L. Rev. 1171 (2001).

Under problems associated with taxing profits from servers, and taxing computer code, the author of this article discusses problems in source based and revenue based tax systems of e-commerce. He also discusses the problems posed by taxing virtual income and the double taxation exposure of companies residing under source-based income tax governments that do business through servers with governments that tax server-location-based income.

Bryan T. Camp, The Play's the Thing: a Theory of Taxing Virtual Worlds, 59 Hastings L.J. 1, (2007).

The author presents evidence in this article that trade in virtual items generates real economic value because of the potential to sell virtual items for real money. Problems are posed by the persistence of online environments and virtual items within them. A person can acquire a large accession to wealth in virtual items only through virtual exchanges, gaining real economic value from each exchange with no appreciable tax liability. Questions remain as to whether this is income "from whatever source derived" under section 61 of the I.R.C., and how basis and amount realized would be calculated under section 1001 for virtual property sales. The most difficult questions arise when one considers taxes paid on fair market value of property owned. The author poses answers through analysis of realization and imputed income.

Leandra Lederman, "Stranger Than Fiction": Taxing Virtual Worlds, 82, N.Y.U.L. Rev. 1620 (2007).

In discussing persistent online games, this article highlights the differences between "game worlds" and "intentionally commoditized worlds". The author argues for a more favorable tax treatment for "game worlds" than for "unscripted worlds" for several reasons. "Game world" players acquire items exclusively for use in game play, while "intentionally commoditized world" players often invest in virtual items for the point of profit. The author goes on to compare virtual windfalls and barter transactions to real world occurrences of the same nature. The article concludes by advocating a "cash out" rule for "game worlds", and an in world taxation rule for "intentionally commoditized worlds".

Virtually certain?

Legal Costs of Virtual Property

Deenihan, Kevin Edward, Leave Those Orcs Alone: Property Rights in Virtual Worlds (2008). http://ssrn.com/abstract=1113402

This note addresses many significant issues involving the highly debated need for government regulation of virtual property. The student starts off by analyzing how consumer rights to virtual property are encompassed in several areas of law including property law, contract law, and intellectual property. The note explains how virtual property is different from common real property. The author explains how virtual property is purchased for social reasons like status, fun, and entertainment. While real property is often purchased for security and investment purposes. The main purpose of the note is to convince readers that the American court system is no place to resolve virtual disputes. Edwards indicates that the developers are in the best position to handle disputes through user agreements. This article is interesting and thought provoking.

No room for virtual disputes in U.S. courts?

Benjamin Duranske, Virtually Blind, http://virtuallyblind.com/2008/03/21/virtual-law (Mar. 21, 2008).

Virtually Blind is a legal blog that discusses legal issues that affect virtual worlds. The blogs editor is Benjamin Duranske. He is a blossoming virtual world author and intellectual property lawyer. Within the blog are links to current legal cases involving virtual world disputes. Viewers are able to post comments and interact with each other about the current legal issues. The blog also contains up to date articles pertaining to virtual property.

Virtual Worlds News, Linden Lab's Bank Ban Passes Buck to Government; Do Worlds Need Property Regulation? http://www.virtualworldsnews.com/2008/01/linden-labs-ban.html (updated April 2008).

This website contains current Virtual World articles. Currently the site is focusing on the latest development by developers of Second Life, Linden Lab. Linden Lab formally announced to the press that it is banning unofficial banks from Second Life. The article explains that by choosing to ban certain banks that cannot verify proof of applicable government registration or charter, Linden Lab is essentially “passing the buck to the government” to regulate the virtual world issue. The site also provides useful information about virtual trade events, media, and online research. The website seems like it is still being developed but is quite useful for those who are interested in the topic of virtual property.

Benjamin Tyson Duranske, Virtual Law: Navigating the Legal Landscape of Virtual Worlds, Chicago, IL, April 2008.

This book is the first of its kind that focuses on the legal concepts surrounding virtual property. The book is sponsored by the ABA. The author, Benjamin Duranske, chose to take a very common real world approach to the legal topic in hopes that this book would not only be an aid to attorneys who are interested in virtual worlds but would also be understood by consumers and developers of virtual property. The book analyzes current case law in this area and gives predictions on how the law could potentially form in the future. The author gives advice to attorneys on how to set up and effective practice based on virtual property.

Contributing editors: John Rhodes, Keith Pangburn, Craig Horvath, Kimberly M. J. Lynch