10 • MAY 31, 2013 THE LAWYERS WEEKLY

Focus iNFORMATION TECHNOLOGY

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The legal status of virtual goods

Digital items like bitcoins are now worth billions, but where is the law?

card. In some online games, items actions can be very real: a space terms of use agreement, which can be manufactured by the char- station in an online universe probably lays out far less protec- acters and sold, and the virtual called Entropia sold for more tion than the users would like to money that is generated converted than $330,000 in 2009. believe they have. to real dollars. While these items The lack of legal direction raises However, as the commodifica- can be bought, sold and traded serious questions. For example, tion and value of virtual property Jonathan online, their real world legal status are in-game transfers taxable? grows, it is increasingly likely is in limbo. Most countries don’t The Canada Revenue Agency that users will push for broad Mesiano-Crookston have any laws to specifically gov- clarified recently that “bitcoins,” a property interests over virtual ern them. virtual currency, are taxable but goods and their online accounts. ould a global, multibil- These virtual goods aren’t small no comment was made about The courts may be receptive. At lion-dollar economy exist change, either. According to Tech earnings in virtual worlds. In the least one U.S. case showed that C without a single law to Crunch, a technology news site, United States, the government virtual property claims could eas- govern it? While it sounds incred- the virtual goods industry was has struck committees to investi- ily lead to a “real-world” court ible, such a situation is currently worth $2.9 billion (U.S.) last year, gate taxing income generated in claim. playing out with respect to the and is growing. Second Life is a online worlds, and the U.S. Inter- Mythic Entertainment Inc. had explosive growth of virtual goods virtual world that allows users to nal Revenue Service has issued developed a video game called on the Internet. do anything they wish, including an interpretation bulletin about Dark Age of Camelot where play- Virtual goods are intangible making and selling in-game the matter. ers interact in a virtual world. things that exist only in comput- items for profit. In 2010, the Aside from tax consequences, Blacksnow Interactive made ers. They include weapons used by Washington Post reported that users may not have rights in this money hiring Mexican labourers characters in online games (e.g., the year before, Second Life users “property” in the way that they to play online computer games, Warcraft), or items used by online had transferred $567 million think. While they may invest time including Dark Age of Camelot. communities (e.g., Second Life). among themselves and that more and effort to make virtual items, Blacksnow sold the characters These items can often be bought than 50 businesses made more users of virtual worlds may only that these labourers created on with real money, usually by credit than $100,000 each. The trans- get rights laid out in the game’s Property, Page 11 THE LAWYERS WEEKLY MAY 31, 2013 • 11

Focus iNFORMATiON TECHNOLOGY

Property: Catching up to the ‘real’ world

Continued from page 10 and legislative initiatives to gov- eBay for real money. Mythic sus- ern peoples’ rights, but the virtual pended Blacksnow’s accounts, world does not. And while such alleging that the sales infringed countries as China and Taiwan on its intellectual property rights; Ontario courts are have enacted laws designed to Blacksnow then cried unfair slowly coming to recognize how to deal with the business practices and hauled commodification and monetiza- Mythic into a U.S. district court. appreciate that virtual tion of virtual property, most The court would have had to items can be ‘property’ countries have not done so. decide who owns the products of in the traditional sense. All this leaves many basic legal virtual game economies. This questions. What are the tax rami- particular case settled before fications of online sales? Is theft of going to trial, but there are Jonathan Mesiano-Crookston online objects or bitcoins a crime? others, and they will only increase goldman hine Is it a civil offence? Do users have in frequency as the value of in- property rights in their online cre- game economies grows. ations, and what recourse does a Ontario courts are slowly com- user have if a game shuts down or ing to appreciate that virtual otherwise expropriates a user’s items can be “property” in the virtual goods? traditional sense. There is no clear legal road map In Tucows.Com Co. v Lojas Ren- to guide us. But given the eco- ner S.A. [2011] O.J. No. 3576, the nomic growth in this area, sooner NEXT WEEK IN FOCUS: Ontario Court of Appeal recognized or later, the law is going to have that virtual items — in this case, to catch up. Internet domain names — attracted  Insurance “property rights” and were “prop- Jonathan Mesiano-Crookston is a erty” in Ontario for the purpose of patent and trademark agent and  Municipal Law determining where a lawsuit about lawyer specializing in dispute resolu- a domain name ought to occur. tion, franchising, technology, and The “real” world has hundreds intellectual property with Goldman of years of legal jurisprudence Hine in Toronto.