September 21 2007, 22:11
The increasing availability of broadband Internet has led to the popularization of virtual worlds. As of September 17, 2007, Linden Research, Inc. ("Linden Lab") boasted 9,562,490 "residents" in Second Life, an Internet community modeled after real world environments and mimicking real life interactions.  Those who are more interested in escaping reality can happily immerse themselves in Paragon City, where a mere $29.99 membership and a $14.99 monthly fee allows an online gamer to battle villains and connect with other players as a spandex-clad superhero in NCsoft's "City of Heroes" ("CoH").  Market analysts predict that online games will yield $11.5 billion of revenues worldwide in 2011 at a 25.2 percent compound annual growth rate.  Virtual worlds have become the newest medium in which Internet denizens explore, play, and interact.
A virtual economy is present in most virtual worlds. An inhabitant of the world can exchange many kinds of virtual property for virtual currency. Virtual property comes in several forms:
An avatar is the in-world graphical representation of a player. Through this character image, the player interacts with the virtual world of the game he is playing. 
An item is how this article will refer to personal property of an avatar. During a player's journey through the virtual realm, his avatar will come across any number of virtual objects that it can carry around and "own." These include virtual weapons, clothing, supplies, and other non-monetary possessions.
In-world virtual currency is any fictional currency that fuels the virtual economy like gold, "Linden dollars," or "influence." 
Land or (virtual) real property is a novel concept unique to Second Life. Linden Lab periodically auctions in-world real estate to players to let them develop the new land and start businesses.
Similar to trading Monopoly money for Boardwalk, game developers structure a virtual property transaction on the premise of a fair market value based on in-world supply-and-demand, where there is equal consideration for both parties.  But what happens when a Monopoly player, down on his luck, tries to exchange $5 of real-life money for Boardwalk because he doesn't have enough fake cash? As long as a piece of property is scarce and coveted enough that someone is willing to engage in a real money transaction ("RMT"), other players can capitalize on the demand by accepting outside currency into the system.
One consequence of cashing in is the weakening of the virtual economy. Honoring real-life currency in-game affects the value of the virtual currency and allows the formation of a "gray market" in virtual goods. RMTs also detract from the game experience for more honest players, who often spend hours in gameplay to amass virtual wealth that is suddenly available to unexperienced newcomers. These considerations, among others, lead game developers to regulate their virtual economies to ensure the viability of their creation.
Very little has been decided in the US courts on the specific subject of virtual property ownership. An avatar that "owns" a virtual item in its inventory doesn't necessarily own property rights to it in real life. What a gamer buys when he signs an End-User License Agreement (EULA) is permission to enter the virtual world; The game company retains all other sticks in the bundle.
The first obstacle to recognition of gamer rights is due to federal copyright protection of the virtual world as a creative work. Although some may argue that a storyline may play out infinitely different ways due to gamer participation, the nature of the contribution to in-game elements does not reach the level of originality to be accorded copyright protection.  As stated in Midway Mfg. Co. v. Arctic Int'l, Inc., players that engage in a video game are merely interacting with a pre-determined set of developer-created expressions, "choos[ing] one of a limited number of sequences the game allows him to choose."  Therefore, the player doesn't truly own his avatar or its virtual property, because they are defined within and made possible by the virtual world. Each is little more than a string of ones and zeros on a server. If the player doesn't own the copyright to anything within the game, it's unlikely he has the right to sell it.
The second obstacle is that gamers are often contractually precluded from claiming any property rights under the EULA.  Blizzard Entertainment ("Blizzard"), who makes "World of Warcraft" ("Warcraft") has a license agreement with its users, retaining "[a]ll title, ownership rights and intellectual property rights in and to the Game and all copies thereof (including without limitation any title, computer code, themes, objects, characters, character names, stories, dialog, catch phrases, locations, concepts, artwork, character inventories, structural or landscape designs, [etc] . . . ."  Failure to comply can result in confiscation of all virtual property and termination of the member account.
In spite of these legal deterrents, the more daring gamers are not dissuaded from capitalizing on a virtual economy whose growth parallels the expansion of the in-world community. Accordingly, game companies have dealt with the ownership issues in various manners.
In the brief history of online gaming, companies that provide virtual worlds take the full ownership approach, laying claim to any and all creative content in the game as expressed in the binding EULA. After Sony Computer Entertainment, maker of "Everquest," began enforcing its EULA terms in demanding third-party websites to cancel online auctions where users were selling avatars and virtual items for cash , auction powerhouse eBay declared all RMTs for virtual items off-limits beginning January 2007: "Due to the legal complexity associated with these types of items, the sale of 'virtual game items' is now banned on eBay. . . . The seller must be the owner of the underlying intellectual property, or authorized to distribute it by the intellectual property owner." 
In spite of the policy, players still thrive in the gray market, sneaking their avatars and items postings onto personal websites and auction sites like eBay. A quick search for "City of Heroes" pulls up level 50 avatars for sale and numerous Google ads for online companies hawking CoH virtual currency. Those who sell in-world currency are particularly reviled as "gold farmers": players who work in virtual sweatshops, pointing and clicking their way to amass fictional money for the sole purpose of exchanging it for real money. These "farmers" spam the in-world communication channels regularly for customers, and have multiple accounts to ensure that the operation doesn't end when one account is terminated. Game companies like Blizzard have come up with some clever ways to thwart this practice like enacting "bind on pickup" rules for rare items , or implementing a time-delay for the transfer of virtual property between players , but it remains to be seen whether these stricter in-game methods cannot also be circumvented.
Sony Station Exchange
Sony Entertainment Online, maker of "Everquest II" and "Star Wars Galaxies," has taken steps to curb gold farming by providing its own auction site where its players can transfer virtual property in real money transactions.  The CEO stated in an interview that RMTs are "a billion dollar industry worldwide and we as game makers need to seriously work to handle it in-game. There is rampant farming in these games . . . . With this kind of money involved, it's not going away."  The appeal of Station Exchange is that it provides a safe, easy and legal transaction for the parties involved, without getting into messy questions of copyright and ownership. The minimal service fee is a small price to pay in return for security against caveat emptor traps like password changes, bait-and-switch tactics, and non-delivery.  So although Sony Entertainment Online may retain all copyrights to the creative works within their virtual worlds, the company loosens its grip on the right to sell to reduce infringement and the cycle of oneupmanship.
Linden Lab had a different approach.  The Second Life community allows a uniquely high level of user interaction with the virtual environment compared to most online games. The official website has video footage documenting how players have created their own virtual objects using a graphic design program similar to AutoCAD. This in stark contrast from classic massive multiplayer online role-playing games (MMORPGs) where items that could be invented within the system were identical to others of its kind, and had a predefined, unwavering formula of ingredients. There is an abundance of creativity and user originality beyond that contemplated in Midway Mfg., that warrants a deeper consideration of gamer rights in a finished virtual product. The Second Lab EULA unsurprisingly allowed gamers more intellectual property ownership: "[S]ubject to the terms and conditions of this Agreement . . . [the user] will retain any and all applicable copyright and other intellectual property rights with respect to any Content [the user] create[s] using the Service, to the extent [the user has] such rights under applicable law." 
The implication is that any player other than the creator of a new virtual object (who owns the copyright) and Linden Lab (who owns a license) that clones the object without permission may be liable for copyright infringement. The first virtual property case in the US has recently been filed in the 13th Federal District Court as of July 2007 to test copyright infringement theory on the Second Life virtual world ; The complaint involved an unauthorized cloning of a virtual bed. 
Another curious distinction between Second Life and classic MMORPGs is that real money transactions are welcomed and mostly unregulated. Players invest heavily in Second Life's virtual real estate and opportunities to grow startup businesses ; Though many come to the virtual world to play and interact, stories of success and overnight millionaires bring others who are there to make a buck while the income is still untaxed by the IRS.  A Linden dollar to US dollar conversion rate is calculated daily, and is currently at a 266:1 ratio.  Real money can easily be extracted from the virtual system using the conversion rate and Linden Lab's Dollar Exchange program. However, Linden Lab expressly retains the right in its Terms of Service, to tax Linden dollars, distribute them without charge, or cancel accounts without refunds.  Though characterized by Linden Lab as "in-world fictional currency," the direct USD to Linden dollar conversion suggests otherwise.  It would seem that the broad grant of property rights to the members of Second Life under the Terms has encouraged players to visit the courts to determine what exactly their rights encompass in this medium.
While the US courts have yet to decide the boundaries of gamer rights and settle concepts of virtual world property, some other countries have decided to weigh in on the issue. In a 2003 case against a gaming company, a Chinese court found in favor of the gamer plaintiff, demanding that the defendant return the equivalent of the plaintiff's stolen virtual property when a hacker exploited a security vulnerability in the software.  Last year, South Korea proposed a bill that would prohibit the commercial sale of in-world currency to cut down on the the horrible conditions that some gold farmers are forced to work in by employers. 
Ridiculous as it may seem to some, online personalities are exchanging real money to stay in the virtual world a little longer. As Judge Richard Posner of the Seventh Federal Circuit Court of Appeals recently remarked in a Second Life appearance, "with real money being invested in virtual worlds, there need [sic] to be law-like rules to resolve disputes, protect property rights, enforce contracts, protect intellectual property and so forth."  It is only a matter of time before the implications of real money transactions command attention from more than just the game companies that run virtual worlds.
 Second Life Economic Statistics, http://secondlife.com/whatis/economy_stats.php (providing daily economic statistics for Second Life) (last visited Sept. 21, 2007).
 Play NC, https://secure.plaync.com/cgi-bin/Store.pl (displaying price for "City of Heroes") (last visited Sept. 21, 2007).
 Ben Kuchera, Report: MMORPGs Revenues to Explode Over Next Few Years, ARS Technica, Sept. 12, 2007, http://arstechnica.com/news.ars/post/20070912-report-mmorpgs-revenues-to-explode-over-next-few-years.html.
 Game developers have not allowed the trade of avatars, either inside or outside the virtual world. However, avatars are commonly auctioned without permission.
 "Linden dollars" make up the Second Life currency, while "influence" is the CoH equivalent.
 Dr. Richard A. Bartle, Pitfalls of Virtual Property, Apr., 2004, at 5, available at http://www.themis-group.com/uploads/Pitfalls%20of%20Virtual%20Property.pdf.
 Mia Garlick, Player, Pirate or Conducer? A Consideration of the Rights of Online Gamers, 7 Yale J.L. & Tech. 422 (2005) (discussing obstacles to court recognition of gamers' virtual property rights).
 Midway Mfg. Co. v. Arctic Int'l, Inc., 704 F.2d 1009, 1012 (7th Cir. 1983).
 Garlick, supra note 7.
 World of Warcraft End User License Agreement, http://www.worldofwarcraft.com/legal/eula.html (describing Blizzard EULA for Warcraft).
 EverQuest "Virtual Item" Debate Goes to the Courts, IGN, Jan. 30, 2001, http://pc.ign.com/articles/090/090838p1.html.
 Wagner James Au, eBay on RMT: World of Warcraft, No... Second Life, Yes, Gigagamez, Jan. 29, 2007, http://gigagamez.com/2007/01/29/ebay-on-rmt-world-of-warcraft-no-second-life-yes.
 "Bind on pickup" refers to a category of items in Warcraft that can only be used by the first avatar that picks it up. Therefore, there is no chance that the property will be traded if it won't function for anyone else.
 Posting of Play No Evil Game Security News & Analysis, http://www.playnoevil.com/serendipity (Sept. 20, 2007).
 Station Exchange, http://stationexchange.station.sony.com (showing terms for Sony Entertainment Online auction site).
 Michael Zenke, SOE's Station Exchange - The Results of a Year of Trading, Gamasutra, Feb. 7, 2007, http://www.gamasutra.com/features/20070207/zenke_01.shtml.
 One could argue, as eBay did when it excluded Second Life virtual property from the list of auctions to be banned (supra note 12), that Second Life is not a traditional MMORPG like the other examples given in the article, and is not defined as a game by its creators. Because new questions of virtual property arise from the least-restricted RMTs within Second Life, the virtual world will be treated as a game for the purposes of this article.
 Second Life Economic Statistics, supra note 1.
 Onder Skall, Prokofy Neva, & Curious Rousselot, Stroker's Bed Heads to Court, Jul. 3, 2007, http://www.secondlifeherald.com/slh/2007/07/virtual-sex-bed.html.
 Second Life, http://secondlife.reuters.com/media/SDOC1202.pdf (describing the details of the court filing for Eros, LLC v. John Doe).
 See e.g., Luigi Benetton, Lawyers Hang Their Virtual Shingles Online in Second Life, Lawyers Weekly, Sept. 21, 2007, http://www.lawyersweekly.ca/index.php?section=article&articleid=535. See also Roger Parloff, Anshe Chung: First Virtual Millionaire, CNN Money, Nov. 27, 2006, http://money.cnn.com/blogs/legalpad/2006/11/anshe-chung-first-virtual-millionaire.html.
 Daniel Terdiman, Congress Set to Issue Virtual Taxation Report in August, CNET News, June 22, 2007, http://www.news.com/8301-10784_3-9733848-7.html.
 Second Life Economic Statistics, supra note 1 (displaying daily the fluctuating value of a Linden dollar as compared to USD).
 See e.g., Eric J. Sinrod, Perspective: Virtual World Litigation for Real, CNET News, June 13, 2007, http://www.news.com/Virtual-world-litigation-for-real/2010-1047_3-6190583.html (remarking on a recent case brought against Linden Lab by a plaintiff whose account and earnings were confiscated); Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593 (E.D. Pa 2007)). See also Posting to Play No Evil Security News & Analysis, SecurePlay, Gold Frauders, Virtual Theft, and Property Rights, http://www.playnoevil.com/serendipity/index.php?/categories/22-Virtual-Theft-Property-Rights (July 25, 2007).
 Jay Lyman, Gamer Wins Lawsuit in Chinese Court Over Stolen Winnings, Tech News World, Dec. 19, 2003, http://www.technewsworld.com/story/32441.html.
 Ryan Paul, Korea Considering Gold Farming Regulation, ARS Technica, Dec. 27, 2006, http://arstechnica.com/news.ars/post/20061227-8503.html.
 The Second Life of Judge Richard A. Posner, New World Notes, Dec. 11, 2006, http://nwn.blogs.com/nwn/2006/12/the_second_life.html.