Friday, January 20, 2012

A Virtual Fortune: Property Rights in Virtual Economies

Press Release
The Public Interest Advocacy Centre
Wednesday, January 11, 2012

The Public Interest Advocacy Centre (PIAC) today released a report entitled “A Virtual Fortune: Consumer Protection for Banking and Consumer Fraud in Virtual Worlds”. The report studies virtual worlds, which are sometimes described as “massively multiplayer online role-playing games” (MMORPGs) that provide an immersive virtual experience for many players that many players consider to be “real”. Many virtual worlds have developed virtual economies based on a virtual currency that may be exchanged for real-world currency. Players will play the role of consumer and entrepreneur within virtual worlds.

As virtual economies grow, there have been instances of fraud in these virtual worlds. PIAC’s report studies examples of economic fraud conducted in virtual worlds such as Second Life, Entropia Universe, EVE Online, and World of Warcraft. For example, there have been cases of bank runs, securities fraud, and theft of virtual property. These situations have resulted in a financial loss to consumers in virtual worlds. Notably, virtual world operators in most cases stated that these fraudulent schemes are “part of the game” while denying responsibility and liability and refusing to compensate players who have lost money to fraud in virtual worlds. Efforts to set up in-world justice systems have not been successful.

“Where a consumer falls victim to fraudulent activity within a virtual world, they are not likely to be successful in seeking redress or compensation for their losses,” said Janet Lo, Legal Counsel at the Public Interest Advocacy Centre and author of the report. “Virtual world consumers must be aware of potential risks to their in-world assets and property, such as in-world fraudulent schemes or unilateral actions by virtual world operators dealing with user accounts.”

Given that individuals view their virtual world avatar as an extension of themselves, the report explored whether real-world rights should extend to the avatar and whether traditional notions of property rights and consumer protection should apply to virtual avatars participating in virtual economies. The report noted the use of End-User License Agreements (EULA) or Terms of Service by virtual world operators to limit their liability and stipulate certain mandatory forms of dispute resolution. The enforceability of these terms in real world courts have been questioned but real world case law has not yet clarified the legal status and rights of virtual world users.

The report notes that real-world regulators around the world continue to examine virtual world economies and contemplate whether real-world regulation should be applied to financial transactions conducted in-world. For example, securities and payment regulations could be applied with a view to providing greater consumer protection to virtual world users.

“As virtual world experiences blend into social networking websites and other areas of commerce, regulators will need to consider how consumer protection will operate and whether the application of real-world regulations will be sufficient to protect consumers,” said Lo.

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