Virtual Currency: A Primer on Pitfalls

With the upswing in mainstream recognition of virtual currencies, more people are becoming aware of its application in the real world. However, games have been offering in-app purchases for virtual currency (or other items) for ages.

[one_half][/one_half]

[one_half_last][/one_half_last]

Licensing vs Ownership Rights

There are several potential pitfalls that can occur with the use of virtual currency being provided for purchase, as well as digital content such as vanity items like clothing, pets, and other types of content. In 2010, Linden Labs, of Second Life, ran straight into this issue, due to a mishap with the phrasing in their terms of use (see my article on the benefits of having solid online policies, and perhaps this can be avoided). In Linden Labs, the game company essentially had it in their terms of use that the players owned the rights to their digital content acquired in the game, and this was of import because they spent real-world money to obtain quite a bit of that in-game property.

When their Second Life accounts were suspended, they were effectively blocked off from all of their virtual property, which the game attempted to keep from them. This is a rough summary, but it’s almost unbelievable that a game company would ever assign rights of their game’s content to their users, rather than provide a LICENSE for the use, right? It was a very hard lesson for Second Life to learn, but it was also a cautionary tale for everyone else in the business.

This lesson isn’t just for in-game currency or tokens, it also applies to anything players can purchase, i.e. vanity/cosmetic pets or clothes.

[one_half][/one_half]

[one_half_last][/one_half_last]

Gift Card Laws

Another issue with allowing the purchase of virtual currency in a game is dealing with pre-paid tokens or the like. If, instead of buying directly exchangeable items for currency, and the player instead pre-purchases credit to be used in the game, there are quite a few financial banking regulations and laws which could come into play, depending on how you treat the player’s purchase.

If “consideration” is paid for card, even if under a loyalty program, many states will treat as subject to unclaimed property provisions. If the “owner” of the property has not used the property for an “abandonment period”, the “holder” of the property (i.e. game developer) must pay the property to one of the States. Since virtual currency, for instance, could be pre-paid tokens for future use, paid with actual money, that would generally make those pre-purchases fall under gift card laws. In California, gift card laws strongly favor the purchaser, rather than the vendor. Other states might not be as protective of consumers, but that will depend on your state, and the state(s) in which you conduct business (i.e. where your purchasers are located).

Because of this protective bent to consumers, as well as the issues with Linden Labs, most games grant “licenses” for virtual currency. That way, the developer retains the right to the intellectual property being provided in exchange for real money, and so (depending on your terms of use regarding returns/refunds) the developer has a higher chance of avoiding issues, should the purchaser’s account be suspended or cancelled without using up all of the pre-paid virtual currency.

In 2015, the ESA provided great commentary to lawmakers requesting the laws clarify the restrictions and use for digital currency in the then-updating laws regarding the Revised Uniform Unclaimed Property Act (i.e. what happens to paid-for virtual currency or items which were not fully used). Not all states have implemented these changes yet, but it’s a work in progress which helps both developers and consumers alike, so it’s clear who owns what, and who retains rights to what.

(10) “Game-related digital content” means digital content that exists only in an electronic game or electronic-game platform. The term:

(A) includes:

(i) game-play currency such as a virtual wallet, even if denominated in United States currency; and

(ii) the following if for use or redemption only within that game or platform or another electronic game or electronic-game platform:

(I) points sometimes referred to as gems, tokens, gold, and similar names; and

(II) digital codes; and

(B) does not include an item that the issuer:

(i) permits to be redeemed for use outside of a game or platform for:

(I) money; or

(II) goods or services that have more than minimal value; or (ii) otherwise monetizes for use outside of a game or platform.

(24) “Property” (C) does not include: (i) game-related digital content; (Yay!)

***

(30) “Stored-value card”: (C) does not include a loyalty card[, gift card,] or game-related digital content.

***

(32) “Virtual currency” means a digital representation of value used as a medium of exchange, unit of account, or a store of value, but does not have legal tender status as recognized by the United States. The term does not include:

(A) the software or protocols governing the transfer of the digital representation of value;

(B) game-related digital content; or

Conclusion:

When designing your game, if you’re going to be using purchasable content within your game, either by way of digital content or virtual currency, you should really talk with a lawyer to hammer out the details in your online policies regarding the rights of both your company and the user for those purchases. You’ll want to discuss (1) licensing the virtual currency, (2) whether the virtual currency’s value can/can’t be traded to others, and (3) whether the user has any property rights (or likely clarify that they have none) in the virtual property/currency. This should just be a starting point for a discussion with a lawyer regarding your online policies, but it’s definitely one to bring up if your game will be offering these kinds of options.