My Ph.D. Thesis - Qualification of the legal nature of virtual gaming property

Hooray! Yesterday I defended a postgraduate scientific report on my Ph.D. thesis: Qualification of the legal nature of virtual gaming property.

Here I want to give you a small summary on my legal topic.

Situation 1 - football game, Jason takes a tackle on Kyle and Kyle gets a sprained ankle. Will we hold Jason civilly, criminally, administratively liable? No, he will suffer his punishment, but within the framework of the game and the socio-legal construct in which they exist. He will most likely be given a yellow or red card.

Situation 2 - Jason virtually kills Kyle during the gameplay. It is clear to everyone that the "killer" is more likely to receive a point or a loot instead of punishment.

Situation 3 - Jason invests $10,000 of real money in an online game and buys himself many of the strongest in-game artifacts and items. Kyle tells him, «give me a password to your gaming account, I know how to upgrade those items». Jason enthusiastically volunteers the password. An hour later he checks his gaming account and the artifacts are gone. Now Kyle possesses them. The third type of situations is the focus of my research.

From these three incidents, three main theses need to be put forward:

1) The concept of the "magic circle" - relationships that do not go beyond the "magic circle" (virtual relationships according to the in-game rules) should not affect real legal relationships.

2) How should we understand "virtual in-game objects" in legal terms?

3) How should we protect our "real rights" suffered in the "virtual reality"?

Did I just suffer in an on-online game?!

Once we understand how the magic circle works, we can unveil how should we understand "virtual in-game objects" and what should we protect in legal terms.

1) Gaming Infrastructure Objects - gaming objects expressed digitally, and made up of computer code.

Objects are negotiable, often investment-attractive objects of trade, and consequently of legal relations.

They may be expressed in the form of weapons, lootboxes, potions, armour, etc., and not only in the form of intellectual creations. This is manifested in the original graphic representation, expression in an objective form, and, accordingly, the possibility to be recognized as the result of an intellectual activity.

However, virtual currency - does not possess the attributes that may identify it as a result of intellectual activity since virtual currency is expressed in a quantitative equivalent. It is a unit of measurement for a particular parameter. For example, a hundred units of Gold or 10 health potions.

2) Gaming Profile (Account) - is a user account through which the user can log in to the game's virtual platform. It should also be considered as a protectable asset.

EXTREMELY INTERESTING FACT!

There is a practice where debtors in bankruptcy proceedings buy up expensive gaming items, thereby hiding (laundering) real assets.

The knowledgeable debtor is well aware that these virtual items are negotiable and at the end of the bankruptcy estate distribution, the virtual gaming assets can be sold for real cash. Accordingly, they will be returned to the debtor.

Courts are often either unaware of the possibility of such actions on the part of the debtor, or they cannot foreclose on the bought-up virtual objects, due to the lack of reliable confirmation that the account belonged to the debtor. The difficulty lies in the technical impossibility of withdrawing funds from these objects into the real world.

The debtor may simply argue that:

A) The account in question does not belong to him, but was simply registered to his post by someone else;

B) the debtor does not remember the username and password of the account;

C) The identity of the owner cannot be proven due to the lack of information about the owner's passport details and residence address

And courts mostly accept it!

How do qualify the virtual objects?!

To answer this question, let us consider the main concepts and approaches to qualify the nature of virtual objects:

1. Extending the right of ownership to virtual objects, presenting them as an analogy of an in rem thing.

2. Applying gambling legislation to such relationships, whereby this type of relationship is not subject to judicial review. By doing so, the courts fence themselves off from interference and the development of virtual property protection practices. Unfortunately, this approach was previously the most prevalent in Russian Federation jurisprudence and is still used today.

3. Qualification of gaming relations as relations with the results of intellectual activity regulated by licensing agreements.

4. Extension to such relations of the norms on paid services.

5. Qualification of virtual objects as "other property", in accordance with the civil legislation, singling out other property as a separate object of civil legal relations.

The American researcher R. Bartle, brought up for discussion theses-risks which describe possible obstacles in qualification of virtual objects through the prism of real world law.

A) If the recognition of virtual objects as real property takes place, the civil circulation of game objects will be triggered. More precisely, there is a high probability that legally significant processes prohibited by the user agreement will take place.

B) The definition of the game objects as real property, causes many difficulties in the area of intellectual property rights for objects of the game structure.

Such disputes would arise between the developer and the user.

C) Developer will be liable to the user for depreciation of the game infrastructure objects, or, for example, for causing property damage to the so-called 'owner-user' of the game inventory.

D) The nature of the game process will be substituted by the introduction of many legal and economic restrictions. The nature of play will be replaced by pure formalism and bureaucracy.

E) Virtual property, in and of itself, has no independent meaningful concept. It exists in and of itself within the virtual world, even when we do not use or exploit it in any way.

How do I qualify the legal nature of a virtual gaming objects to protect myself from 'virtual' threat in the 'real' world?

To get fully into the entertaining series of articles, read past articles, links are at the bottom of the post.

So, let's consider the first concept: the concept of extending to the virtual gaming object the right of ownership and the rules of property law (in rem thing).

Virtual property is now considered legal property and can be bought, sold, and stolen just like real-world objects, according to a ruling by Taiwan's Ministry of Justice.

China is also prosecuting cases involving virtual property, such as the theft of game objects, accounts, and currency. Courts may order game developers to return stolen game infrastructure to the original owner.

Belarusian gamers have asked police to help find stolen items, mostly tanks in "World of Tanks," and the police have successfully returned the stolen items to their owners.

United States scholars agree that virtual objects are intangible objects of a special kind that are in an intermediate position between intellectual property objects and objects of property rights in the broadly understood context. However, American legal scholars suggest a mixed qualification by applying the rules of property rights by analogy.

The Bragg vs Linden Research, Inc. shows that American courts are willing to defend the position of a "weak" user in disputes over virtual gaming infrastructure.

I identify two reasons why virtual gaming objects cannot be fully classified as objects governed by property law:

1) They are not individually ascertained and

2) Are constantly maintained and controlled by the developer.

Questions arise over who is responsible for compensating users for losses, such as a drop in item value or game shutdown? Will the developers have to reduce the prices of various in-game items due to the depreciation of the dollar? If the developer goes bankrupt and decides to shut down the virtual world, will the users have to be reimbursed for their investment?

Ultimately, game developers hold power over virtual objects, which is problematic within a reasonable legal framework.

Can I use gambling laws to protect my rights? - NO

Let's look at this concept in terms of enforcement in Russia while courts apply gambling legislation to such relationships, whereby this type of relationship is NOT subject to judicial review.

By doing so, the courts fence themselves off from interference and the development of virtual property protection practices. Unfortunately, this approach was previously the most prevalent in Russian Federation court practice and is still often used today.

The Russian Civil Code has Article 1062, which states that "Claims by citizens and legal entities relating to the organisation or participation in games and betting shall not be subject to judicial protection".

However, the Russian Civil Code does not provide a definition of games and betting, but the definition can be found in Federal Law No. 244.

According to this Federal Law (No. 244):

1) Gambling is a risk-based "agreement to win", concluded by two or more participants in such an agreement between themselves or with the organiser of the gambling game under the rules established by the organiser of the gambling game;

2) Betting is a gambling in which the outcome of a risk-based betting "agreement", concluded between two or more participants of such agreement between themselves or with the organizer of this type of gambling, depends on an event, in relation to which it is unknown whether it will happen or not.

The main feature — there is NO «agreement to win» in online games. Winning in an online game can move the user to a new level of gaming experience, give them some virtual benefits, and provide gaming privileges.

The user cannot win at the developer's game, or another user's game. In an absolute context, this is simply not possible, because it contradicts the nature of online gaming.

Correct understanding of one's nature - is a core idea of protecting the rights.

What if my real-world rights are breached in a virtual world?

How do we qualify the nature of gaming virtual objects? What if we give gaming objects the nature of intellectual property through the signing of a license agreement?

The doctrine acknowledges such a concept, but accompanies it with multiple BUTs.

In the context of virtual gaming, in-game purchases are akin to paying a license fee. The user agreement, accepted through "click-wrap", governs the rights and obligations between developers and users. Typically, intellectual property, including software code, game design, and copyright, resides with the developer.

Virtual gaming objects are usually grouped into three categories:

1) Fully created by the developer,

2) Created by the user based on the developer's patterns,

3) Entirely user-created within the game or through third-party programs.

While the first two categories clearly fall under the developer's intellectual property rights, the third poses a challenge. Ideally, users should have copyright over their creations, like "skins" in games such as Dota 2 or CS:GO. However, courts usually recognize these items as the developer's property, citing user agreements.

The gaming world can be classified into open (allowing user creations using software code) and closed worlds. Open-world users may have exclusive rights to their virtual objects, yet these can't be transferred across platforms and are dependent on server reliability. In closed worlds, the developer retains rights over user-created objects.

Several complexities arise when viewing these relationships as licensing agreements. User agreements act as binding law, with developers wielding absolute power. Also, tracking every microtransaction in the virtual world for user rights protection is practically impossible. Resale of virtual items could be considered sub-licensing, but most game user agreements prohibit rights transfer. Developers can also block a user's account for violating in-game rules, terminating the use of the intellectual output.

That's why we have to be careful with this concept.

How do we qualify the nature of gaming virtual objects? What if we qualify it as mixed service agreement?

Virtual gaming objects and services can be understood through a contractual lens, primarily the fee-for-service model. In this agreement, users pay for access to a game's virtual world and its features, and developers provide the service, which includes the creation and maintenance of the game infrastructure.

A key case in Russia between Mail.RU Games Ltd. and IRS No 14 of Moscow highlighted the additional gaming functionalities provided to users as independent gaming services subject to VAT. This resulted in viewing virtual gaming infrastructure objects as subjects of a mixed contract, a blend of a license agreement and a fee-for-service contract.

Investments in these games go beyond monetary contributions, including time, emotions, and brand loyalty from users. Despite developers' efforts, not every game transaction can be controlled or regulated, potentially leading to compensation obligations for any damages or losses incurred.

The discussion emphasizes that:

1) Developers provide technical maintenance and control services;

2) Licensors grant users the right to use the intellectual property;

3) Developers allow the use of the virtual game infrastructure objects and provide a range of services for its regulation and control;

This approach seems to be one of the most developed method for understanding the nature of virtual game objects in the online gaming area.

Let's talk about loot boxes and EU court cases determining the nature of gaming relations.

One specific area of focus is the practices of European Union countries regarding "Loot Boxes." EU countries prioritize identifying gambling elements in games to protect users from fraudulent programs that falsely promise high chances of winning.

Often German companies sell loot boxes through third-party services. Most of these companies do not cooperate with official platforms and claim to bypass German regulations by legally establishing their companies in the Russian Federation.

Belgium and the Netherlands have already classified loot boxes as gambling and banned their use. Belgium's decision was influenced by US states like Washington and Hawaii.

💫 Now let's consider my favorite legal case from gaming industry:

31 January 2012. The Supreme Court of the Netherlands did not overturn a lower court's decision to impose mandatory community service for forcing a thirteen-year-old boy to transfer game infrastructure objects and virtual currency to their virtual gaming platform, RuneScape, in 2007.

In my opinion, the lower court of the Netherlands gave the most reasonable and correct wording for the nature of virtual gaming objects in the field of online games. It read as follows:

- "things do not have to be tangible for the law to recognise them as stolen"

- "magic objects have in-game value and are obtained by players through the application of effort and time"

- "The Court considers that the digitalisation of society has created a virtual reality which cannot be treated in all respects as a mere illusion against which the commission of an offence is impossible."

Courts hold the key to understanding virtual realities. 🎮✨ Key takeaways:

1. Actions outside game rules and EULA, causing real-world consequences, lie beyond the "magic circle."
2. Intangible items can still be recognized as stolen under the law.
3. "Magic items" hold game value, earned through players' effort and time.
4. Embrace the significance of virtual reality in the digitalized society.

🔍 How can we regulate this area effectively?

1. Clearly define the subject scope.
2. Put the intriguing "magic circle" test into action.
3. Examine consequences for fair judgment.
4. Analyze user agreements thoughtfully.
5. Qualify object nature based on the situation.

Final summary on virtual object legal nature concepts! 🎮✨

1. Analogy in rem: Imbalance in user favor, unpredictable consequences on service termination.
2. Concept of Non-interference: Not practical for virtual relations.
3. Result of Intellectual Activity: Acceptable for artistic expression, not for currency and bonuses.
4. Gaming Services: Ideal balance of legality and relationship preservation.
5. Other Property: A viable option with special regulation, resolving cases through unjust enrichment.