Virtual Goods, Gaming and the Trouble With Secondary Markets

Since the early days of online games, 'virtual goods' have been used to enhance game play and to provide revenue to game developers. These are earned by accomplishing tasks or bought from the developer, typically for use in the game in which acquired, but exceptions may exist. Secondary markets, online markets where players can sell virtual goods or currency to another player, have sprung up. In most cases, the secondary markets are not authorised by the game publisher and the sale of virtual goods or accounts is precluded by the games' terms of service. As with real goods, scarcity is one factor that drives the perceived 'value' of virtual goods.

The US market for virtual goods and currency is estimated to be over $3.5 billion annually. While virtual goods-based business models are flourishing, a number of legal issues have arisen with their use, particularly with secondary markets. The law in this area is still evolving and some important issues have yet to be addressed. For some industries, the resolution of these issues could have a significant impact. One such industry may be social gaming.

Social gaming

Social gaming is a rapidly growing field featuring 'gambling-like' games, but not for real money. So most social gaming activities do not run afoul of the gambling laws and are not subject to gambling regulation. One example is Zynga poker: users pay real money to buy virtual chips which are wagered in online games. The chips can only be accumulated, not cashed in for anything of value. In contrast, some other social gaming activities involving virtual goods, if not done properly,may cross the line. In other popular business models, users acquire virtual goods and/or currency and use them to enter 'contests' or sweepstakes or have a chance to win virtual goods or currency.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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