More Than Just Games: Virtual

Property Rights In Massively

Multiplayer Online Games

C H R I S S T A L M A N S

M
ASSIVELY MULTIPLAYER ONLINE (MMO) GAMES ARE PLAYED ON
the internet and can support hundreds of thousands of players
simultaneously.1 MMO games enable players to “interact with
one another in real-time in a shared environment, even though these users
may be separated by vast geographic distances.”2 Players can acquire virtual
property by completing tasks within the game or by purchasing items with
real world currency.
The purpose of this paper is to explore the legal issues related to
virtual property rights in MMO games. Part I will briefly describe why
MMO games should be considered as more than just games. Part II will
examine the current status as to whether virtual property is “property” in a
legal sense, and whether it belongs to MMO game players rather than to
game creators. Part III will argue that it is important and beneficial to
recognize virtual property in favour of MMO game players and will
address some common criticisms of recognizing virtual property. Conflicts
involving virtual property in MMO games are inevitable and it is hoped
that an evaluation of the current state of the law will allow for a better
resolution when these issues reach Canada.
For the purpose of this paper, virtual property rights will be defined as
in-world objects, including avatars (or characters), items, user accounts,
and land that can be possessed by one user to the exclusion of others in
MMO games. This paper is not interested in intellectual property rights
within MMO games.

 B.A. (Simon Fraser University); J.D. (University of Manitoba)

1
Roger McFarlane, Network Software Architecture for Real-Time Massively Multiplayer Online Games
(M Sc Thesis, McGill University School of Computer Science, 2005) [unpublished], online:
eScholarship <http://digitool.Library.McGill.ca>.
2
Ibid at 14.
 204 ASPER REVIEW XII

There is an important distinction between property-averse worlds and

property-promoting worlds.3 MMO games that feature property-averse
worlds state in their end user licensing agreements (EULA) and terms of
service (TOS) that players cannot gain virtual property rights in the game
and that the sale of game items can result in disciplinary action.4 For
example, in December 2005, Blizzard Entertainment, the maker of World
of Warcraft, shut down 18,000 player accounts for selling game assets on
third-party auction sites.5
Linden Lab’s Second Life is an example of a property-promoting
world in that it “purports to protect the virtual and intellectual property
rights of its users”6 and allows the open sale of virtual property. The CEO
of Linden Lab, Philip Rosendale has stressed this concept and publically
stated “[y]ou create it, you own it—and it’s yours to do with as you please.”7
However, the EULA and TOS of Second Life are less emphatic about
acknowledging virtual property rights. Second Life’s TOS state that users:

acknowledge that Virtual Land is a limited license right and is not a real
property right or actual real estate, and it is not redeemable for any sum
of money from Linden Lab . . . [and] agree that Linden Lab has the right
to manage, regulate, control, modify and/or eliminate such Virtual Land
as it sees fit and that Linden Lab shall have no liability to [users] based
on its exercise of such right.8

This discrepancy was relevant in the Evans class-action case, discussed

below.9

I. MORE THAN JUST A GAME

MMO games are not just games. In 2005, it was estimated that up to
100 million people worldwide participated in an online digital world.10

3
Steven J. Horowitz, “Competing Lockean Claims to virtual Property” (2007) 20 Harv JL & Tech
443 at 445 [Horowitz].
4
Ibid at 445-446.
5
Peter Brown & Richard Raysman, “Property Rights in Cyberspace Games and Other Novel
Legal Issues in Virtual Property” (2006) 2 Indian JL & Tech 87 at 93 [Brown & Raysman].
6
Horowitz, supra note 3 at 448.
7
Joakim Baage, “Five Questions with Philip Rosedale, Founder and CEO of Linden Lab, Creator
of Second Life” (21 December 2006), online: digitalmediawire <http://www.dmwmedia.com>.
8
Second Life, Terms of Service, Part 6 (19 May 2011), online: Second Life
<http://secondlife.com/corporate/tos.php?lang=en-US#tos6>.
9
Evans v Linden Research, 2011 US Dist Lexis 11106 (QL) [Evans v Linden Research]; for further
discussion of this case, see text accompanying note 20.
 More Than Just Games 205

This widespread following has transformed MMO games into big business.
For example, “a real-life language teacher became a Second Life real estate
agent and made over $1 million [in 2006].”11 It is estimated that in 2007
“approximately $1.8 billion changed hands for virtual goods.” 12
Participation within MMO games has increased dramatically and includes
many “[r]eal world businesses such as Dell, Mazda, Adidas, Coca-Cola . . .
[which] have established a presence in Second Life.”13
This high level of value combined with increasing membership has led
to many consequences. First, the theft of virtual property has become
problematic. For example, South Korea had 22,000 claims of virtual theft
reported to the police in 2004.14 Second, tax authorities in the United
States and elsewhere are concerned that profits from the sales of virtual
property are going unreported. Consequently, in its 2008 Annual Report
to the United States Congress, the National Taxpayer Advocate
recommended that the Internal Revenue Service “proactively” address
issues arising from virtual worlds.15 The Australian Tax Office has already
acted and requires money earned from the sale of virtual property to be
reported and taxed like other types of income.16
A third problem is ‘gold farming’ or using workers to perform
repetitive actions in MMO games and then selling the virtual property
earned by these workers at a profit.17 In 2007, it was estimated that ‘gold
farming’ operations in China alone employed over 100,000 people.18 One
issue is the treatment of the foreign workers in these “point-and-click
10
David Barboza, “Ogre to Slay? Outsource It to China”, The New York Times (9 December 2005),
online: The New York Times <www.nytimes.com>.
11
Emma Boyes, “Second Life realtor makes $1 millon” Gamespot UK (27 November 2006), online:
Gamespot <http://www.gamespot.com>.
12
Julian Dibbell, “The Life of the Chinese Gold Farmer” The New York Times (17 June 2007),
online: The New York Times <www.nytimes.com>.
13
Second Life, “Brand Promotion” (10 March 2008), online: Second Life
<http://secondlifegrid.net/how/brand_promotion> (as cited in U.S., Department of the
Treasury: Internal Revenue Service, National Taxpayer Advocate: 2008 Annual Report to
Congress, (2008) at 217)[IRS] (the author necessarily relied on the description of the original
source in the secondary literature).
14
Mark Ward, “Does Virtual Crime Need Real Justice?”, BBC News (29 September 2003), online:
BBC News <http://news.bbc.co.uk >, cited in Brown & Raysman, supra note 5 at 89.
15
IRS, supra note 13 at 213-226.
16
Nick Miller, “Virtual world: tax man cometh” The Age (31 October 2006), online: The Age
<http://www.theage.com.au>.
17
Richard Scott, “The Business End of Playing Games” BBC News (25 April 2007), online: BBC
News <http://news.bbc.co.uk>.
18
Julian Dibbell, “The Life of the Chinese Gold Farmer” The New York Times (17 June 2007),
online: The New York Times <http://www.nytimes.com>.
 206 ASPER REVIEW XII

sweatshops.”19 Another concern is whether these actions violate the EULA

with the particular game and whether “property” earned from gold
farming can be seized by the game creator.
A recent lawsuit was directly concerned with the concept of virtual
property. Evans v. Linden Research Inc. was a class action lawsuit filed by
players of the MMO game Second Life on April 15, 2010 in Philadelphia,
Pennsylvania.20 The plaintiffs sought damages from the defendant as
compensation for “intentionally, without plaintiffs . . . consent and
without lawful justification” interfering with the plaintiffs’ property rights
in virtual land without paying consideration.21 This suit sought only $5
million but the statement of claim alleged that the defendants induced,
through false representations of ownership, over 50,000 land buyers to
spend upwards of $100 million (US) on virtual land.22 The case has been
transferred to a California court where it is pending.23
These issues underline the importance of determining the legal status
of virtual property in MMO games and its regulation. Further, the
combination of the popularity of MMO games and the large amount of
money related to virtual property creates a situation where a conflict is
inevitable.

II. CURRENT LEGAL STATUS OF VIRTUAL

PROPERTY
Property recognized within a virtual world is not necessarily
recognized in the real world. To date no cases concerning virtual property
have been heard in Canada.24 However, the findings of other legal regimes
could assist Canada in determining whether or not to recognize virtual
property as property in the ‘real world.’
The popularity of MMO games in Asia has led to countries in this
region being the most forward-thinking regarding virtual property law. In

19
“When Virtual Becomes Reality” (14 August 2004), online: EchoDitto
<http://www.echoditto.com/node/109>.
20
Evans, supra note 9.
21
Ibid (Statement of Claim at paras 255-257), online: Virtual Land Dispute Class Action
<virtuallanddispute.com>.
22
Ibid at paras 99 & 100.
23
Evans v Linden Research Inc, No 3:11CV01078 (ND Cal 2011).
24
A search for the term “virtual property” in the databases LexisNexis, Quicklaw and CanLII
returned no Canadian decisions on 19 June 2011.
 More Than Just Games 207

2001, the Taiwanese Ministry of Justice passed a regulation which stated:

“virtual objects are property, are alienable and transferable . . . and . . . the
theft of such property is fully punishable under criminal law.”25 The
rationale for this decision was that “virtual property qualifies as
electromagnetic records and should be considered moveable property in
cases of fraud and theft.”26 The regulation elaborates that “[a]lthough the
above accounts are virtual, they are valuable property in the real world. The players
can auction or transfer them online. The accounts and valuables are the same as
property in the real world.”27 “Critically, the regulation expressly allocates the
right to control the electromagnetic record of the virtual property to the
owner of the code object, not the owner of the server on which the code
happens to reside.”28
South Korea also took an early interest in virtual property regulation.
This is understandable because “[o]ver forty-one percent of South Korean
teenagers spend significant amounts of time in virtual worlds.”29 In 2001,
the Korean Government reached an executive determination that a clause
in software giant NCsoft’s EULA which banned ownership in virtual
property was found valid and in accordance with South Korea’s antitrust
laws.30 It should be pointed out that this was a determination to uphold a
contract term and not necessarily an underlying principle of law. However,
it is expected that other MMO game creators would write very similar
clauses into their MMO games’ EULAs, effectively preventing MMO
players from owning virtual property.
The ability to sell, and prosecute persons for the theft of virtual
property, remains in South Korea even if the ownership of the property is
“either ambiguous or located in the virtual environment creator.” 31
However, a consumer group has “filed a complaint against NCsoft with

25
Joshua A. T. Fairfield, “Virtual Property” (2005) 85 BUL Rev 1047 at 1086 [Fairfield, “Virtual
Property”] (the author necessarily relied on the description of the original source in the
secondary literature).
26
Brown & Raysman, supra note 5 at 98.
27
Fairfield, “Virtual Property,” supra note 25, citing Taiwan Ministry of Justice Official
Notification No. 039030(90) [emphasis in the original] (the author necessarily relied on the
description of the original source in the secondary literature).
28
Fairfield, ibid at 1087.
29
Chopin, The Way to Cage People in the Matrix, DDANZI-ILPO (1 February 2004) at 21, cited in
Fairfield, “Virtual Property”, ibid at 1088.
30
Fairfield, “Virtual Property”, ibid, citing Unggi Yoon, Research on Legal Policy of MMORPG-Item
Cash Trade (2004) [unpublished, on file with Joshua Fairfield] ] (the author necessarily relied on
the description of the original source in the secondary literature).
31
Ibid.
 208 ASPER REVIEW XII

South Korea’s antitrust regulatory agency to establish virtual rights.”32

Fairfield suggests that this is an attempt to prevent the MMO game
creators from abusing their monopoly position.33 This idea will be covered
more thoroughly below.
China’s recognition of virtual property rights was crystallised in Li
Hongchen v. Beijing Arctic Ice Technology Development Co.34 An individual
who played in the virtual world of Hongyue (Red Moon) had his account
hacked and all of his items stolen. The player sought help from both the
game creators and police but was refused assistance.35 Consequently, a
lawsuit was filed against the game designer and the Beijing Second
Intermediate Court ordered the restoration of property to the player. The
decision was affirmed by the Court of Appeal.36 Adrian wrote that this
case stood for the proposition that a “player has a property right in virtual
objects that could be recognized in a real-world court.”37
A few cases concerning virtual property in the United States of
America (US) have come up but have not been fully resolved. For
Example, BlackSnow Interactive v. Mythic Entertainment, Inc. is a case where
the plaintiff, BlackSnow, was gold farming through the employment of
Mexican labourers, in Mythic Entertainment’s (Mythic) game Dark Age of
Camelot.38 Mythic terminated the plaintiff’s account for violation of the
EULA and the plaintiff responded by suing Mythic for unfair business
practices.39 Lee Caldwell, a partner with BlackSnow stated in a press
release:

What it comes down to is, does a . . . player have rights to his time, or
does Mythic own that player’s time? It is unfair of Mythic to stop those

32
Fairfield, “Virtual Property”, ibid, citing Kim Tong-hyung, “Panel expands probe into game
makers” Korea Herald (6 April 2010), online: Korea Herald <http://www.koreaherald.com>.
33
Fairfield, “Virtual Property”, ibid at 1089.
34
As cited in Fairfield, “Virtual Property,” supra note 25 at 1084 (the author necessarily relied on
the description of the original source in the secondary literature).
35
Angela Adrian, Law and Order in Virtual Worlds: Exploring Avatars, Their Ownership and
Rights (New York: Information Science Reference, 2010) at 105 [Adrian].
36
Cited in Fairfield, “Virtual Property,” supra note 25 at 1084.
37
Adrian, supra note 35 at 105.
38
Ibid at 104.
39
Anders Ericksson & Kalle Grill, “Who owns my avatar? Rights in Virtual Property” (Paper
delivered at the DiGRA 2005 Conference: Changing Views-Worlds in Play, Vancouver, June
2005) at 2.
 More Than Just Games 209

who wish to sell their items, currency or even their own accounts, which
were created with their own time.40

However, the court was unable to address this question when the
plaintiff dropped the case due to other legal complications.41
The next case concerning virtual property rights in the US was Bragg v.
Linden Research, Inc.42 Linden Research, Inc., the creator of Second Life,
confiscated the plaintiff’s virtual property and froze his account to prevent
his access to the game because he purchased property at a below market
price through an auction loophole.43 “The plaintiff filed suit and Second
Life filed a motion to compel arbitration”44 pursuant to the EULA. In
regards to the arbitration motion Judge Robreno stated:

Taken together, the lack of mutuality, the costs of arbitration, the forum
selection clause, and the confidentiality provision that Linden
unilaterally imposes through the TOS [terms of service] demonstrate
that the arbitration clause is not designed to provide Second Life
participants an effective means of resolving disputes with Linden.
Rather, it is a one-sided means which tilts unfairly, in almost all
situations, in Linden's favor.45

This ruling meant that the plaintiff could proceed to court to argue
his position that users can assert virtual property claims against creators.
However, the parties settled privately. 46
The statement of claim for the Evans class-action case (discussed
above) was filed in April 2010.47 It is hoped that this case will be resolved
by the court and give a meaningful precedent to help determine the legal
status of virtual property. However, based on the cases mentioned above, I
expect that this case will also settle privately.

40
Julian Dibbell, “OWNED! Intellectual Property in the Age of eBayers, Gold Farmers, and Other
Enemies of the Virtual State” (Paper delivered at State of Play Conference, New York Law
School, New York, November 2003), citing an unavailable press release from Mythic.
41
BlackSnow Interactive v Mythic Entertainment Inc, No 8:2002-cv-00112 (CD Cal 2002).
42
487 F Supp 2d 593 [Bragg].
43
Ibid (Counterclaim and Answer to Complaint, Defendant at para 16).
44
Michael L. Rustad, Internet Law: In a Nutshell (St. Paul, Minnesota: Thomson Reuters, 2009) at
118 [Rustad].
45
Bragg, supra note 42 at para 51.
46
Marty Linden, “Resolution of Lawsuit” (4 October 2007) online: Second Life
<http://lindenlab.wordpress.com/2007/10/04/resolution-of-lawsuit/>.
47
Evans v Linden Research, supra note 9.
 210 ASPER REVIEW XII

The approach that the Canadian legal system takes to virtual property
will most likely be informed by the decisions of the other legal regimes.
Canada will likely follow the case law approach seen in both the US and
China rather the legislative path seen in Taiwan for two reasons. First, this
is a novel issue that will likely reach a courtroom before it reaches the
legislature. Second, MMO games are not as popular in Canada as in the
Asian countries discussed above.48 Consequently, there is no comparable
social pressure or need for the Canadian government to act in regards to
the regulation of virtual property.
The flexibility of the common law is another factor which favours the
adoption of the case law approach in Canada. Ancient personal property
torts have seamlessly adapted to the modern legal system despite being
inundated with technologies that were never anticipated.49 An example of
this includes the personal property tort of conversion which was originally
intended to protect tangible chattels but has been applied to intangible
property related to technology.50 For example, misappropriated source
code for an inventory system was found by a California court to be a
conversion of intangible data.51 Although an American case, this clearly
illustrates the adaptability of the common law.
From a practical perspective, one expects that when this issue arrives
before a Canadian court, virtual property will be treated like any other
asset and the court will apply existing laws that are not virtual property
specific. However, a critical approach to this issue could conclude that it
does not matter whether virtual property is legally recognized. Support for
this position can be made in the comparison of Taiwan and Korea. Both
countries have taken different approaches to virtual property. Whereas
Taiwan expressly states that virtual property belongs to MMO game
players, Korean law currently sees the status of virtual property as
ambiguous or belonging to the MMO game creator. Yet, both countries
have the ability to prosecute crimes involving virtual property and have
secondary marketplaces for virtual property.

48
David Spratley, “Virtual property—it’s not physical but it has value for video gamer”, The Lawyers
Weekly 25:47 (21 April 2006) 9 at 12, online: The Lawyers Weekly <
http://www.lawyersweekly.ca>.
49
Rustad, supra note 44 at 143.
50
Ibid at 159-162.
51
Ali v Fasteners for Retail, Inc., 544 F. Supp. 2d 1064 (E.D. Calif. 2008) as cited in Rustad, ibid at
161.
 More Than Just Games 211

One must ask whether the determination of the legal status of virtual
property will have a significant impact in Canada. I submit that
tremendous advantages would accrue from recognizing players’ virtual
property rights in MMO games against game creators. This argument is
explored in the next section.

III. BENEFITS OF THE RECOGNITION OF VIRTUAL PROPERTY

A. Consumers

1. Arbitration Clauses

There are gods, and they are capricious and [they] have way more than
ten commandments. Nobody knows how many because everyone clicked
past them.52

An important benefit of recognizing virtual property is protecting

individual players from the power imbalance enjoyed by the MMO game
companies. This inequality is largely based on the EULA and TOS
agreements. These agreements can include codes of conduct or other rules
that are intended to create an even playing-field for interactions between
players. However, I suggest that these agreements are tools wielded by
MMO game companies to benefit themselves to the detriment of the
players.
Evidence of this power imbalance can be found in the Bragg decision
on the motion to compel arbitration (discussed above).53 The decision was
critical of Second Life’s EULA and found the agreement unconscionable
for many reasons. First, the cost-sharing arrangement between the parties
was far more expensive to the plaintiff than it would have been if he had
filed his complaint with the court.54 Next, the forum selection clause was
inappropriate because it required players to travel to one location in the
United States for arbitration regarding a dispute over minimal funds. 55

52
Raph Koster, “What are the lessons of MMORPGs today?” (24 February 2006), online: Raph
Koster’s Website <http://www.raphkoster.com>, cited in Brian Sites, Curtis Peele & Joshua
Fairfield “End-User License Agreements: The Private Law in Video Games and Virtual Worlds”
in Ross Dannenberg et al, eds Virtual Law: Navigating the Legal Landscape of Virtual Worlds (USA:
American Bar Association, 2010) at 6.
53
Bragg, supra note 42.
54
Ibid at 609-610.
55
Ibid.
 212 ASPER REVIEW XII

Also, the confidentiality clause was unconscionable because the court was
concerned that this would place the company “in a far superior legal
posture by ensuring that none of its potential opponents have access to
precedent while, at the same time, the company accumulates a wealth of
knowledge on how to negotiate the terms of its own unilaterally crafted
contract.”56
By offering an expensive solution for problems that involve
comparatively small sums of money, Linden Labs, creator of Second Life,
seems to be purposely sabotaging a system designed to resolve problems
between the game creator and players. It appears that the main purpose
for this system is to discourage players from pursuing their complaints
against the game company while creating the illusion of a fair and effective
remedy. The idea of frustration and purposeful prevention is especially
evident when compared to the system of resolution in place in Second
Life for conflicts between players.
Second Life currently has a system in place for disputes between
players that is completely within the virtual world. This system adjudicates
harassment complaints between players that are in violation of community
standards and is completely handled by Linden Labs.57 The adjudicator
hears the complaint and provides an appropriate punishment, which
includes a warning, account suspension or termination.58 Finally, the
results of these disciplinary hearings are published and made available to
other players of Second Life.
This system of resolution is in sharp contrast to what is available to
players who have a dispute with Linden Labs. The in-world resolution of
disputes between players is easily accessible, affordable and decisions are
published for all players to see. The contrast between the simplicity of the
player versus player arbitration and the complexity of the player versus
creator arbitration supports the notion that the system for resolving
disputes between players and the creator was intentionally made complex
to discourage complaints against the creator, Linden Labs.
Linden Lab’s current dispute resolution system could be transformed
into an efficient system that is comparable to their current player dispute
model. The greatest hurdle for this would be that in order to maintain
neutrality and ensure the integrity of the process, arbitrators could not be

56
Ibid at 611.
57
Ibid at 45.
58
Ibid.
 More Than Just Games 213

Linden Labs employees. Independent arbitrators would be very expensive

for players, especially if Linden Labs were not to make a sizeable
contribution, and could make arbitration financially unreasonable unless
the virtual property in dispute is valuable. However, an appropriate cost-
sharing arrangement between the parties could resolve this. Also,
technologically savvy lawyers are available as arbitrators due to the
presence of law firms59 and a private law bar on Second Life.60 The lack of
such an accessible system is not due to lack of ability or finances, but
simply due to power imbalances. Ultimately, it seems that the goal of the
game company is to prevent disputes with players from coming forward.

2. Lock-in and High Switching Costs

Another problem due to inequality between the game creator and
player is lock-in and high switching costs. Lock-in is the act of preventing
players from removing or liquidating virtual property in an attempt to
maintain them as customers of a specific game. If a player decides to leave
to try another game and his property is locked-in, then this creates a high
switching cost because the time and possibly money invested in this virtual
property is lost. Lock-in ensures high switching costs, helping game
creators retain customers. Lock-in is most easily achieved by prohibiting
the sale of virtual property through an appropriately worded EULA, which
if followed would mean that all of the time and value invested in a
character would be lost upon switching games.
Support for this idea can be found in Blizzard Entertainment’s 2006
Investors Report filed with the Securities and Exchange Commission. The
maker of World of Warcraft states in the report that “[a]dvantages that
accrue to highly successful [MMO role-playing games . . . include] high
consumer switching costs—the player has to leave their characters and
friends!” 61 Game creators, such as Blizzard, the company behind World of

59
For example, Davis LLP has a location on Second Life. Davis LLP, News Release, “Davis LLP
Second Life Presence Featured in National Post Article” (12 March 2008), online: Davis LLP
<http://davis.ca>, citing Julius Melnitzer, “Virtual worlds ripe for real lawsuits”, National Post (12
March 2008) FP 9, online: National Post <http://www.nationalpost.com>.
60
See “About the SL Bar Association” (accessed 1 June 2011), online: SL Bar Association
<http://www.slba.info>.
61
Vivendi Games, “Introduction to Vivendi Games” (June 2006) at 15, online: Vivendi
<http://www.vivendi.com>, cited in Joshua A.T. Fairfield, “Anti-Social Contracts: The
Contractual Governance of Virtual Worlds” (2008) 53 McGill L.J. 469 at 470 [Fairfield, “Anti-
Social Contracts”].
 214 ASPER REVIEW XII

Warcraft, use restrictive EULAs that deny players property rights as a

method to retain customers and increase profits.
There is a solution to prevent players from suffering from high
switching costs: simply, do not allow gaming companies to lock-in virtual
property. The property cannot be transferred to other games because of
dissimilar platforms, but the property could be sold and the proceeds used
in one’s next virtual world adventure.62 Fairfield uses the analogy of a
home-owner in a neighbourhood he dislikes. The simplest solution is to
sell the property and move to another community.63 However, there is a
more contemporary example that better illustrates this problem.
If cell phone customers could not take their phone numbers with
them when they transferred to another company, then customers would
be locked-in to their existing providers by the high switching cost
associated with having to disseminate new telephone numbers to their
social networks. This would prevent some customers from changing
providers regardless of their experience with the company. However, if
phone numbers were recognized as belonging to customers, then
individuals would be free to transfer their numbers and business to
competitors. This would lead cell phone companies to offer better service
in an attempt to retain customers.
The argument put forward by Fairfield works well in regards to worlds
that are property-promoting. An example of this would be Second Life
which allows for the open sale of goods and has an exchange rate between
US currency and the in-world currency of Lindens.64 However, Fairfield
fails to acknowledge the difficulties with property-averse or closed worlds.
An example of a property-averse world is Blizzard’s World of Warcraft,
which is a role-playing game that prohibits the sale of virtual property.65 A
criticism of Fairfield’s approach in application to such a world is the
possibility of commodification, or the inflation of virtual property value
through its sale which injures innocent players. However, one possible
solution is offered below.
The game creator could establish an auction system that sells virtual
property. Commodification could be minimized by decreasing the
strengths of the player’s user account before it is sold to minimize the
62
Fairfield, “Anti-Social Contracts”, ibid at 471.
63
Ibid.
64
Benjamin Duranske, Virtual Law: Navigating the Legal Landscape of Virtual Worlds, (Chicago:
American Bar Association, 2008) at 4 [Duranske].
65
Horowitz, supra note 3 at 445-446.
 More Than Just Games 215

effect on innocent players. Further, the game creator could take a

percentage of the sale to operate the auction. A criticism with this
proposal is that the devaluation of the player’s account would disregard
property rights by only allowing the player to sell their virtual assets at a
decreased price.
Another criticism of Fairfield’s approach is that the selling of virtual
property in a property-averse world will always lead to commodification
and there is no true solution to avoid this outcome. If the black market
trade of virtual property was to continue without punishment, such as the
black market that exists for World of Warcraft,66 innocent players would
be injured. The possible repercussions for purchasing virtual property on
the black market acts as a deterrent that limits commodification. For
example, if a World of Warcraft player is found using a ‘black market
account’ the game creator could terminate the account and render it
valueless.67 Strong EULAs that prevent the sale and purchase of virtual
goods in property-averse worlds will limit commodification but do have
other negative consequences. Commodification will be fully addressed
below.
EULAs create a power imbalance between MMO game creators and
players by preventing virtual property rights to pass to players. This allows
for inappropriate resolution systems to be used and for players to be
locked-in and suffer high switching costs. Commentators have argued that
it is bad public policy to have EULAs that take property rights from
players.68 Fairfield is a strong advocate against such EULAs and argues:

To state that such EULAs presumptively knock out any emergent

property rights is to beg the question: why should we permit consensual
agreements that prevent formation of property rights in the first instance
any more than we tolerate other consensual restraints on alienation? The
function of property law is in large part to resist contractual limitations on
property use. If the restraint on alienation limits the property in question
to low-value uses, we term it an unreasonable restraint, and do not
enforce it. Thus, property law provides a rationale and a mechanism for

66
World of Warcraft virtual property can be sold and purchased at IGE.com
<http://www.ige.com/>.
67
See Blizzard Entertainment World of Warcraft“Terms of Use Agreement” (9 December 2010),
online: Blizzard Entertainment <http://us.blizzard.com> (the World of Warcraft Terms of Use
state that “[Y]ou may not sell in-game items or currency for “real” money, or exchange those
items or currency for value outside of the Game” and “[M]ost account suspensions, terminations
and/or deletions are the result of violations of this Terms of Use of EULA” ).
68
Allen Chein, “A Practical Look at Virtual Property” (2006) 80 St John’s L Rev 1059 at 1086.
 216 ASPER REVIEW XII

resisting the systematic expropriation of emergent online property forms by use of

contract.69

The recognition of virtual property would lead to many positive

changes. For example, it could lead to suitable resolution systems,
eliminate lock-in and mitigate high switching costs.
Presumably, the newfound freedom for a player to leave his current
MMO game due to the absence of lock-in, and lower switching costs,
would lead creators to make changes beneficial to players in an attempt to
retain them as customers. Such changes could include being more
responsive to customer complaints about property loss or damage caused
by the creator. For example, a group of plaintiffs filed a lawsuit in South
Korea against NCsoft, the maker of Lineage, when a piece of virtual
property was lost due to a program or server error.70 Increasing the
competitive pressure on MMO companies would likely lead to more
effective and prompt dispute resolution between those companies and
their customers.
Overall, the recognition of virtual property would benefit consumers.
Further, this property recognition would decrease the power imbalance
between MMO game parties and allow players to enjoy the property rights
that they deserve.

B. Economic Benefits
Recognizing virtual property would be beneficial to real world
economies centred around MMO games. China has taken this approach.
As mentioned above, China recognized virtual property in Arctic Ice.71
After this decision, government initiatives were taken to help the
prosecution of virtual theft.72 The purpose of this action was to make a
secure environment in which a “competitive virtual world industry” could
be developed.73
The logic behind this decision was based on the premise that online
subscriptions within China were expected to grow from $159.7 million in

69
Fairfield, “Virtual Property,” supra note 25 at 1083-1084 [emphasis added].
70
Brown & Raysman, supra note 5 at 103.
71
Fairfield, “Virtual Property” supra note 25 at n 188.
72
Ibid at 1085 (the author necessarily relied on the description of the original source in the
secondary literature).
73
Ibid.
 More Than Just Games 217
74
2003 to $822.9 million 2008. Further, it was estimated that in 2007,
‘gold farming’ operations in China alone employed over 100,000 people.75
The recognition of virtual property as property and its protection through
the prosecution of virtual theft creates a secure environment where an
industry can flourish. This creates an opportunity not only to profit from
the actions of MMO game players in China, but also throughout the
world.
The Chinese model can be contrasted against the situation in
South Korea. South Korea has been criticized for:

the lack of explicit property protection for virtual property [which] has
resulted in endless antitrust and consumer protection litigation against
environment creators on the one hand, and suits seeking injunctions
against the sale of virtual property by owners of virtual property on the
other.76

This litigation creates an uncertain and difficult environment for

establishing a strong industry based on virtual property in MMO games.
Consequently, Fairfield suggests that these different models illustrate that
the best path is to create “moderate protections for virtual property, in
order to remain competitive, protect valuable allocations of resources, and
limit the potential for abuse.”77 The recognition of virtual property should
lead to legal changes, whether legislative or at common law that would
protect against virtual theft and assist in creating a more secure
environment in which economic benefits of the MMO industry could
increase.

C. Criticisms of Recognizing Virtual Property Addressed

1. Commodification
As described above, commodification results in the inflation of virtual
property value through its sale, which injures innocent players. This injury
is particularly relevant in objective-oriented games or, as Bartle calls them,
74
Ibid at 1086, citing Lianfeng Wu & Jun-Fwu Chin, “China Online Gaming Market Sizing and
Forecast” (2004), online: Int'l Data Group <www.idc.com> (the author necessarily relied on the
description of the original source in the secondary literature).
75
Julian Dibbell, “The Life of the Chinese Gold Farmer”, The New York Times (17 June 2007)
online: N.Y. Times <www.nytimes.com/2007/06/17magazine/17lootfarmers-t.html> [cited in
Duranske, supra note 64 at 35].
76
Fairfield, “Virtual Property,” supra note 25 at 1088.
77
Ibid at 1089.
 218 ASPER REVIEW XII

the “hero’s journey.”78 This ‘heroic’ path involves starting a game where
the character is weak, unequipped and lacking knowledge of its
environment.79 Through perseverance and time a character can transform
from a ‘weakling’ to a ‘hero.’ However, the success of this journey can be
soured if another player can achieve the same result by purchasing virtual
property. Consequently, sales of virtual property lessen the value or
accomplishment achieved by the honest player.
A real world implication of this phenomenon was a class action
lawsuit between players of an MMO game and a third-party auction site
called Internet Gaming Entertainment (IGE). In Hernandez v. Internet
Gaming Entertainment and IGE80 the plaintiffs alleged that IGE was acting
in contravention of the EULA by selling virtual property and that this
injures innocent players by devaluing their own currency and efforts.81 In
addition, the plaintiffs claimed that the farming operations impacted on
actual game play in that it reduced the amount of goods available and put
their characters at a disadvantage unless they purchased items.82 This
dispute was settled out of court.83
The recognition of virtual property will have little impact on
commodification. At present, gaming companies are unable to control the
sale of virtual property on black markets, even with strong EULAs in
place. It is acknowledged that the risk of account termination may serve as
a strong deterrent to some players not to sell their virtual property and
consequently decrease commodification. However, black markets will
continue to operate whether or not virtual property is recognized. This is
particularly true with the organized effort put forward by Asian countries
like China as discussed above.
Also, I suggest that innocent players that achieve what Bartle calls the
‘hero’s journey’ should be satisfied with the playing experience and
accomplishment of reaching their goal. Although these players may not
receive the public prestige that they would ordinarily receive in these
virtual worlds, they should be satisfied with accomplishing their goal
without the assistance of purchased virtual property and the distinction of

78
Richard A. Bartle, “Virtual Worldliness: What the Imaginary Asls of the Real” (2005) 49 NYL
Sch L Rev 19 at 31 [Bartle].
79
Duranske, supra note 64 at 35.
80
Case No. 07-21403-Civ-Cohn/Snow ( S.D. Fla. Aug. 29, 2007) [Hernandez v Internet Gaming]
81
Ibid (Amended Complaint at 10).
82
Ibid at 12.
83
Fairfield, “Anti-Social Contracts” supra note 61 at 453.
 More Than Just Games 219

being a ‘purist’. Further, Fairfield simply suggests that “[c]ommodification

is not a threat because the virtual objects concerned are already
commodities.”84 Whether commodification is an ‘all or nothing’
proposition or a matter of degree it will continue to exist whether virtual
property rights are recognized or not.

2. Threat to Online Communities

An additional concern involving the recognition of virtual property is
the threat to online communities. This fear is based on the idea that
allowing players to exit MMO games would encourage them to become
disruptive and disregard the applicable codes of conduct.85 While this is a
valid concern, players should be in a virtual world of their free choosing. If
a player does not value the environment, culture and rules of a given
MMO, they should leave. Fairfield suggested that it would be best to allow
players to leave MMO games that are uncomfortable and allow them to
settle in communities that better suit them.86

3. Increased Corporate Liability

Another criticism is that the recognition of real property could
financially devastate game companies in the event of a catastrophic server
failure. First, such an event occurring is highly unlikely. Second, this risk
is a possibility for any technology-based company, including those outside
of the MMO world such as online dating or online gambling, and affects
MMO companies regardless of the state of virtual property rights. Third, it
is expected that a backup system would be in place to minimize any
damage. However, there is a related and likelier cause for concern.
What would happen if a gaming company wanted to close an
underperforming virtual world after virtual property rights had been
recognized? Even if property rights are recognized, creators will continue
to employ EULAs and TOS agreements. These agreements should inform
the player that investing either time or money into a game is a risky,
speculative endeavour. Also, the player could be warned that if the MMO
game does not maintain a certain population after a specified period of
time, the creator has the right to end the game. If a land speculator can

84
Fairfield, “Virtual Property,” supra note 25 at 1102.
85
Ibid at 1100.
86
Ibid at 1102.
 220 ASPER REVIEW XII

lose in the real world then he can also lose in the virtual world. Game
companies should warn players of this risk.
Companies can limit their liability with appropriately worded
exclusion clauses in their agreements. The idea of limiting one’s liability
for the loss or damage to another’s property is well known in law. This is
evident by looking at the warnings posted in parking lots87or the warnings
printed on the back of a coat check ticket.88
If a world were to close, the gaming company could choose from
several practical solutions. First, many games are run on different servers
throughout the world. Consequently, if one of the worlds were
underperforming then the two worlds could be combined. Even where
worlds cannot be merged due to a language barrier or lack of financial
viability, there are still other solutions available.
South Korean NCsoft, maker of Lineage, closed its North American
servers on June 29, 2011 because it intended to focus on its customers in
South Korea, China, Taiwan and Japan.89 The closure was due to the lack
of financial viability in the North American market. NCsoft intends to
compensate its North American customers through the refund of unused
playing-time, an appreciation program which allows for two months of free
play and the use of special items.90
Another solution available to a closing MMO world is that the
company could give a specified deadline and allow the players to sell their
property; any losses could be seen as a risk of property speculation. A
market solution would be to create an inter-game property exchange that
would monetize the value of the property held in the soon-to-be-defunct
game. This would not be a direct transfer of property from one game to
another but rather another game creator could offer virtual world currency
from their game as an incentive to the player to try this new world. This
process is better than a basic coupon or free sign-up because the new game
creator is sure that their incentives are going to true MMO game
enthusiasts based on the existing virtual property they own from the prior
game. This step could be taken by the original game company or a
competitor that wishes to gain a whole world of new customers.

87
See Thornton v Shoe Lane Parking, [1971] 1 All ER 686 (CA).
88
See Parker v South Eastern Rly Co (1877), 2 CPD 416 (CA).
89
Lineage, News Release, “NA servers closing 6/29” (22 May 2010) online: Lineage
<http://www.lineage.com/news/na_servers_closing_6/29.html>.
90
Lineage, News Release, “Rewards and Refunds” (22 May 2010) online: Lineage
<http://www.lineage.com/news/lineage_refund_policy.html>.
 More Than Just Games 221

IV. CONCLUSION
This paper explored the approaches of different legal regimes to the
recognition of virtual property rights and argued that the recognition of
virtual property rights is good public policy. As the combination of
increasing popularity and wealth found in MMO games makes a legal
conflict over virtual property rights inevitable, Canada can, and should,
learn from these other legal regimes. Additionally, common criticisms
about the recognition of MMO virtual property were addressed; and
concerns of commodification, destruction of online groups and increased
corporate liability were rebutted.
The recognition of virtual property rights would benefit game players
as consumers by decreasing the power imbalance between MMO game
players and creators. This recognition would include the creation of an
effective resolution system and the loss of lock-in restrictions that cause
high switching costs. Also, allowing customers to switch between MMO
worlds by removing lock-in restrictions would encourage MMO game
companies to improve their offerings in order to retain customers.
Granting virtual property rights to players, as well as creating basic rules to
protect these rights, would stimulate the growth of economies both virtual
and real while simultaneously providing consumer protection. Overall, I
hope that this paper has effectively made the case for virtual property
recognition and shown that MMO games are more than just games.