Articles Posted in Virtual Goods

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There has been much buzz about Zynga’s attempt to patent virtual currency. As is often the case with patents, there is much hype, many misconceptions and little focus on the actual facts. Here are the facts.

1. Zynga does not have a patent on virtual currency. It has applied for a patent, the application has been published but has not yet been examined. It will be some time, if ever, before a patent will issue. The published application is 2010-0227675. Here is a copy of the Zynga Application.

2. Zynga is seeking protection for various aspects of virtual currency, particularly in the context of “gambling” games. The following is an example of one of the claims:

A method, comprising:receiving, at a server, a purchase order for virtual currency from a player, wherein the purchase order was made with legal currency, and wherein the virtual currency is usable within the context of a computer-implemented game;crediting an account of the player with virtual currency, wherein the virtual currency is not redeemable for legal currency;receiving a second purchase order for a virtual object within the context of the computer-implemented game from the player,
wherein the second purchase order was made with virtual currency;
and debiting the account of the player based on the second purchase order.

3. This claim appears to be seeking protection using real money to buy virtual currency, precluding redemption of the virtual currency for real money but enabling it to be used to buy virtual objects in the game.

4. The patent application was filed

03-03-2010 and claims priority to a provisional application 61/158,246 filed March 6, 2009.

5. We will monitor the status of this application as it is examined and any rejections are made.

While many believe that this patent application will be rejected due to prior art, the most important take always are these:

  • MANY ASPECTS OF SOCIAL GAMES ARE POTENTIALLY PATENTABLE
  • ZYNGA (AND OTHERS) ARE PURSUING MORE PATENTS IN THIS SPACE
  • IT IS WELL KNOWN THAT THERE IS A LOT OF “BORROWING” OF IDEAS FROM COMPETITORS IN THE SOCIAL GAME SPACE
  • THIS HAS BEEN FACILITATED BY LACK OF ATTENTION TO IP PROTECTION
  • IT IS CRITICAL FOR ANYONE OPERATING IN THE SOCIAL GAMING SPACE TO DEVELOP A COMPREHENSIVE IP PROTECTION STRATEGY,  INCLUDING PATENTS, COPYRIGHTS AND TRADEMARKS

E-mail us for a free guide on patent and other IP strategies in the social game space.

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In a very significant decision, the 9th circuit Court of Appeals ruled that software developers can legally prevent customers from owning the copies of software that they pay for. Instead, if the software license agreement is properly drafted, the software developer retains ownership in the copies they distribute and the customers merely have a license to use the software.

This is significant for many reasons. The first is that this means the “first sale doctrine” does not apply. Under this doctrine a copyright owners rights are extinguished in a particular copy of the software after an authorized first sale. As a result, the customer can rightfully sell the software if they no longer need/want it. In contrast, with a license that restricts transfer this is not permissible.

This ruling by analogy may be applicable to virtual goods as well. Many terms of service specify that virtual goods are merely licensed and not owned by customers.

Vernor 

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Target’s recent launch of a program to sell gift cards redeemable for Facebook Credits or in the virtual world Poptropica towards either membership fees or the purchase of virtual currency further blurs the line (to the extent there still was one) between in-worldfacebookx-large.jpgcurrency and real-world currency. Facebook and Zynga agreed earlier this year that players of Zynga games (such as Farmville) can use Facebook Credits to buy virtual goods, but there is no reason why real-world retailers looking to attract Facebook users and create online buzz couldn’t set up exclusive deals for Facebook Credits. Steve Richards has an interesting post at ecoconsultancy.com on just that topic – he even questions how long it will be before sites that enable you to buy, sell and trade virtual currencies become regulated exchanges.

As the line between virtual and real-world currencies disappears, there are a host of legal issues that virtual world operators will need to deal with. As we noted in this post, because of laws like the CARD Act and various state, local and even international laws and regulations related to the use of stored value cards and accounts, it is important to ensure that if you are offering virtual currency as part of your business model, you verify that you are in compliance with federal, state and international laws.

For more information on legal issues with virtual currencies see our

Overview of Legal Issues with Virtual Currencies.

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Venture Beat recently reported on the results of a virtual goods study that showed about 75% of online games users have bought virtual goods and that many users surveyed plan to spend more in the next 12 months.

This survey is one more confirmation of the rapid growth of virtual goods. There are a number of conferences this fall that will focus on the virtual goods industry. Members of our team will be speaking at Virtual Goods World Europe 2010 in London and the Virtual Goods Conference ’10 in Santa Clara.

We hope to see you at one or more of these conferences.

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Social gaming powerhouse Zynga has joined forces with 7-Eleven to begin selling items branded with its popular gaming titles in 7-Eleven stores throughout the US and Canada. The six week promotion will include more than 30 products, including Slurpees and Big Gulp drinks, all with redemption codes that will allow users to purchase virtual goods, including limited edition and uber gifts, in FarmVille, Mafia Wars or YoVille. The virtual goods range from a virtual coffee cart in FarmVille redeemed from the purchase of an iced coffee, to a bullet proof vest redeemed from the purchase of pizza, chicken wings, Big Bite products, chicken tenders or breakfast quesadillas. 7-Eleven expects to promote the new campaign, which begins June 1, through several different media outlets, including radio, print, online and on MTV.
FarmvilleIceCream.jpg

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Nickelodeon has announced a virtual good platform for its Addicting Games site. According to Dave Williams, a Senior VP and GM, he sees virtual goods as a huge opportunity and by developing its own virtual goods platform, Nickelodeon minimizes the burden on developers to create their own platforms. This launch is another example of the perceived potential of virtual goods to monetize online games.

Additional details on the launch were reported by GamesBeat

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Linden Research Inc. and its CE Philip Rosedale have been named as defendants in a class action lawsuit relating to the ownership status of virtual property in Second Life, the popular virtual world in which users can realize significant gains from buying and selling virtual real estate (land and buildings), virtual clothing, and other virtual goods. In Second Life, transactions are implemented using virtual currency provided by Linden called Linden Dollars. These dollars can be earned and bought and sold, including via the LindeX, the official Second Life Linden Dollar exchange.

A significant issue in this case is the status of ownership of virtual goods and virtual currency and the conditions, if any, upon which a user may be denied access to them for violations of the terms of service agreement.

The class members allege that Linden and Rosedale duped users into spending vast sums of money to acquire virtual real estate and other goods, by representing that they would own all rights in the virtual items that they acquired, alleging that users could make real money and that the virtual items would have real value. The complaint alleges that Linden has modified its statements over time and at some point terminated the class members accounts, taking virtual items and currency (both virtual and real) in their accounts without compensation to the members and denying them access thereto.

The complaint goes beyond just alleging property rights violations. It alleges the members were falsely induced into investing in virtual items by defendants. And it alleges that these actions were part of a “continuing and systematic plan and scheme using the national wires and mail intended to, and in fact causing to, defraud Plaintiffs… out of thousands of dollars…”

Of course, one significant issue here will be the Terms of Service (TOS) to which the complaint acknowledges users must click “I Agree” to use Second Life. The Complaint recognizes the TOS, which Defendants will likely fall back on, but alleges that it is “nothing more than a contract of adhesion” that is not read by consumers and that Linden can change the terms at will, even after a user has invested thousands of dollars.

A recent version of the Second Life TOS includes the following non-exhaustive list of provisions, at least some of which may come into play here:

You agree that Linden Lab has and may exercise the right in its sole discretion to pre-screen, refuse, or delete any Content or services from the Service or disable any user’s access to the Service without notice or liability to you or any other party, including upon our belief that such user’s conduct, Content, services, or use of the Service is potentially illegal, threatening, or otherwise harmful to any user or other person or in violation of our Terms of Service, Community Standards, or other policies.

The Service includes a component of virtual tokens (“Linden dollars” or “L$”), each of which constitutes a limited license permission to use features of our Service as set forth below.

When you acquire a Linden dollar, Linden Lab hereby grants you a limited license (“Linden Dollar License”) to use the Linden dollar as a virtual token to be held, bartered, traded and/or transferred in Second Life with other users (and/or Linden Lab), in exchange for permission to access and use Content, applications, services, and various user-created features, in accordance with these Terms of Service. The Linden Dollar License is transferable by the holder to any other user, provided that both users comply with these Terms of Service, maintain their Accounts in good standing, and are not delinquent on any Account payment requirements.

Linden Lab may revoke the Linden Dollar License at any time without notice, refund or compensation in the event that: (i) the Linden dollar program is suspended or discontinued; (ii) Linden Lab determines that fraud or other illegal conduct is associated with the holder’s Account; (iii) Linden Lab imposes an expiration date on usage of Linden dollars in compliance with applicable laws and regulations; (iv) the holder’s Account is terminated for violation of these Terms of Service; or (v) the holder becomes delinquent on any of that user’s Account payment requirements, ceases to maintain an active Account or terminates this Agreement.

You acknowledge that Linden dollars are not real currency or any type of financial instrument and are not redeemable for any sum of money from Linden Lab at any time. You agree that Linden Lab has the right to manage, regulate, control, and/or modify the license rights underlying such Linden dollars as it sees fit and that Linden Lab will have no liability to you based on its exercise of this right. Linden Lab makes no guarantee as to the nature, quality or value of the features of the Service that will be accessible through the use of Linden dollars, or the availability or supply of Linden dollars.

The complaint makes numerous references to a prior suit by Marc Bragg against Linden, over termination of his account for allegedly using an exploit to acquire land more cheaply in violation of the TOS.

If this case does not settle, it could provide some legal guidance on numerous issues relating to the scope and enforceability of Terms and Service and ownership of virtual goods and property.

A copy of the complaint can be found here Evans v Linden Research.pdf

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On April 8, 2010, Zynga sued Playerauctions.com for operating a website that provides an unauthorized “Secondary Market” for enabling Zynga game users to post and sell “Virtual Currency” and “Virtual Goods” allegedly in violation of Zynga’s Terms of Service. According to Zynga, its Terms of Service prohibits users from selling “Virtual Currency” or “Virtual Goods” for real-world money or anything of value outside of its games.

A recent version of the Zynga Terms of Service states:

The Service may include a virtual, in-game currency (“Virtual Currency”) including, but not limited to coins, cash, or points, that may be purchased from Zynga for “real world” money if you are a legal adult in your country of residence. The Service may also include virtual, in-game digital items (“Virtual Goods”) that may be purchased from Zynga for “real world” money or for Virtual Currency. Regardless of the terminology used, Virtual Currency and Virtual Goods may never be redeemed for “real world” money, goods or other items of monetary value from Zynga or any other party.

It further states:

Transfers of Virtual Currencies and Virtual Goods are strictly prohibited except where explicitly authorized within the Service. Outside of the game, you may not buy or sell any Virtual Currency or Virtual Goods for “real world” money or otherwise exchange items for value. Any attempt to do so is in violation of these Terms and may result in a lifetime ban from Zynga Service and possible legal action.

Zynga alleges that the Playerauctions.com has committed copyright and trademark infringement (along with false designation of origin, unfair competition and other claims) by displaying and/reproducing images and code from the games and using various Zynga trademarks with authorization.

The Complaint identifies unlawful sales in connection with Zynga’s Poker, Mafia Wars and FarmVille games. A recent review of the Playerauctions.com site showed over 750 Mafia Wars related items alone available for sale ranging in unit price from 25 cents to $900 and 84 entire “accounts” for sale ranging in asking price from $30 to $5,000 with one listed at a whopping $492,000!

Interestingly, Zynga does not specifically allege impropriety with or seek to prevent the outright sale of accounts.

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This article from Slate.com provides an interesting discussion regarding the applicability of virtual worlds and MMORPGs to economics research. One of the things the article points out is that research in the real world must handle inevitable data loss – making calculations like GDP the result of estimates and approximations – while every transaction in a virtual world is tracked without error. Although some researchers are skeptical about the ability of virtual world economies to mirror the real world, the point of the article is that research tools like rat mazes and petri dishes don’t model the real world, either. What those tools provide are environments where basic principles of a given activity can be examined, so those general principles can be extrapolated and applied to the real world. Virtual worlds have an additional advantage for researchers and policymakers – the “laws” in the form of the terms of service and the general rules of the world, are both more simplistic than the real world and more malleable – making them a research tool for the intersection of law and economics, as well.

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Last Monday’s Washington Post article talking about making money by coding and selling Second Life products doesn’t provide any surprises for anyone familiar with virtual worlds. The most interesting thing about it was its placement – the front page. When articles about virtual worlds and gaming have historically been relegated to the Style section or some other back page, this article, which talked about a guy who sells virtual rain and “markets snow, clocks, University of Maryland basketball T-shirts, Duke basketball T-shirts (grudgingly), two-story Tudor-style homes, pinup posters from the 1930s and the sounds of barking dogs” in his spare time, made headlines. Although the article glosses over the learning curve associated with producing virtual goods, articles like this can lead to an upsurge in public attention to and adoption of virtual worlds.