Insights

19/08/14

In-game currencies: in the line of fire?

There has been a stratospheric rise in online and app-based social gaming due to the ubiquity of internet and smartphone use.  As these games grow in popularity, consumers of all ages are increasingly willing to exchange “real” money for virtual currency within the game environment.  This raises regulatory issues relevant to consumer protection, gambling, anti-money laundering and banking and financial services.

Generalised comments can be difficult to make, given the particular architecture of individual games. However, from our previous work in this area, we can identify a number of common issues which we consider to be the key current regulatory issues relating to in-game currencies and the game developer environment.  We discuss these issues below.

The in-game currency landscape

We have used the term “in-game currency” broadly to refer to any game-based token or means of exchange.1 Some better-known examples of in-game currency include the following.

  •  Linden Dollars are the virtual currency of the Massively Multiplayer Online Role-Playing Game (MMORPG) Second Life, visited by more than one million players monthly. Linden Dollars may be purchased with, and cashed out into, real money.  Since the game’s launch in 2003, more than US$3.6 billion has been spent on virtual assets in Second Life.  In 2006, a player using the avatar name Anshe Chung became the first “virtual millionaire” through (real) profits earned entirely inside a virtual world.
  •  Project Entropia Dollars (PEDs) are the virtual currency of MMORPG Entropia Universe. PEDs can be purchased with real money, or cashed out into US dollars at a fixed exchange rate of 10:1.  Entropia Universe has repeatedly set the world record for the most expensive virtual world items ever sold, including the 2009 sale of a virtual space station for US$330,000, and the 2010 sale of asteroid space resort “Planet Calypso” in portions for a total price of US$635,000.
  •  WoW gold is the virtual currency of World of Warcraft.  With over seven million subscribers, World of Warcraft is the most popular MMORPG (by number of subscribers). Players pay a subscription fee to join, and, in order to progress through the game, must earn WoW gold, for example by completing quests.  Although the operator of World of Warcraft prohibits the sale of WoW gold for real money, there are online auction sites functioning as a secondary “black market” through which WoW gold can be bought and sold for real money.
  •  In addition, there are also a wide variety of in-game “credits” or currencies in gaming apps, such as smurfberries in Capcom’s “Smurf’s Village” game.  Players can potentially accrue significant real world costs purchasing these currencies – for example in 2011, an eight-year-old girl racked up a $1,400 bill purchasing smurfberries on her mother’s iPad, via the mother’s linked account.  (The parent received a one-time refund.)

Regulatory issues

As interactive games grow in popularity, regulators are becoming increasingly interested in whether concerns arise under existing regulation.  The range of regulatory issues that potentially arise is extensive, particularly given the variety of creative techniques used by interactive games operators and developers.  We have set out the key current regulatory issues below.

Consumer protection concerns

Games that fail to distinguish clearly between the spending of real and virtual money, or fail to disclose that in-game purchases are required to continue, run the risk of breaching the Australian Consumer Law (ACL).

Consistent with its stated position on protecting consumer rights in an online environment, the ACCC has stated that it had received numerous complaints from parents about the issue and called on apps to have clearer disclosure of terms and prices, for example by making clear minimum and maximum in-game purchase prices.  The ACCC also stated that it had joined with other agencies to engage with Google and Apple regarding clearer disclosure of in-app purchase costs.2

This regulatory trend can also be seen overseas – for example, the UK Office of Fair Trading is developing a set of online gaming industry principles as part of an investigation into the ways in which online and app-based games encourage children to make purchases.3  In October 2013, the European Union also announced that it was reviewing the specific issue of in-game purchasing to secure greater transparency for consumers, including in relation to in-game purchases by children.4

In our experience, it is also common for games operators to reserve a right to vary the terms of the game unilaterally, which may extend to changing the rules for the accumulation and use of in-game currency.  In this respect, it is important to recall that the ACL provides that a term of a standard form consumer contract is void if the term is “unfair”.  Operators should therefore be careful that the right to vary terms is not used in an “unfair” way.  For example, operators should give players sufficient notice of any changes in the rules for spending or accumulating in-game currency so that they have the opportunity to take appropriate steps in advance of planned changes.

Gambling-related concerns – where to draw the line?

From a gambling perspective, the key question is whether the game is being played for money or anything else of value, as distinct from the style of gameplay (eg, casino-style or otherwise).  Specifically, under the Interactive Gambling Act 2001 (Cth), it is an offence to either provide or advertise an interactive gambling service to customers in Australia, which is defined to include the conduct of a game where:

  •  the game is played for money or anything else of value;
  •  the game is a game of chance or mixed chance and skill; and
  •  the player gives consideration to play or enter.

The law applies to all interactive gambling operators, whether or not they are based in Australia.  However, a reasonable diligence defence is available if the operator could not reasonably have ascertained that the gambling service had an Australian-customer link (for example, where the operator informed prospective customers that Australian law prohibits the provision of the service to customers in Australia).

Relevantly, the Interactive Gambling Act has a formal complaints process, which is administered by the Australian Communication and Media Authority (ACMA).  Under this complaints process, ACMA is not to investigate if the alleged internet gambling content is hosted in Australia.  Rather, if ACMA considers that further action is warranted, ACMA must refer the complaint to the Australian Federal Police.  If ACMA identifies prohibited content that is hosted overseas, ACMA must notify the URL to industry-accredited internet filter providers and may also notify the content to the Australian Federal Police.5

Notwithstanding these provisions, from a practical perspective, it is necessary to consider where to draw the line.  Relevantly:

  •  in September 2011, the NSW Law Reform Commission stated that winning virtual currency in a game did not constitute winning money or anything else of value, even if it unlocked extended play or other in-game advantages, so long as it cannot be cashed out.6 Rather, it was akin to “winning” free balls in a pinball game allowing for extended play;7 and
  •  in November 2011, in response to a complaint submitted by Senator Nick Xenophon, the ACMA concluded that a “free” online Facebook game which offered games such as blackjack and roulette did not breach the Interactive Gambling Act, since it was not played for anything of value.8

Based on the above, in circumstances where players must purchase virtual currency or credits with real money, so long as those credits cannot be cashed out, the game is unlikely to constitute “gambling”.  This can be contrasted with games which allow players to win virtual currency and then “cash out” virtual currency for real money, which are likely to constitute “gambling” under the Interactive Gambling Act.

Potentially, even MMORPGs which do not allow “cash outs” may risk breaching gambling restrictions where there is a secondary black market for transferring virtual items or currency (ie, where players procure the transfer of items or currency from other players by payment of real money via unofficial, out-of-game channels) because the existence of such a market may be enough to render the virtual currency or prizes won in the game objectively items “of value” (noting that the reasonable diligence defence discussed above relates only to whether the prohibited service had an Australian-customer link, and not generally to the nature of the service provided).  However, because no offences have yet been prosecuted under the Interactive Gambling Act,9  there is at present relatively limited guidance as to what types of conduct would be likely to be caught.

Money laundering concerns

The anonymity of virtual worlds, particularly MMORPGs, combined with the existence of significant secondary markets for virtual currency, has also led to concerns about money laundering.

In most cases within the Australian context, in-game currencies are not likely to be regulated under theAnti-Money Laundering and Counter-Terrorism Act 2006 (Cth).  This is because:

  •  most in-game currencies are not likely to be considered a device for storing monetary value, or accessing monetary value (for example, because the game does not offer a “cash out” option), which is regulated under the Anti-Money Laundering and Counter-Terrorism Act 2006 (Cth); and
  •  even if the in-game currency allows “cash-outs” or involves the use of stored value devices, a carve-out applies where the maximum monetary value able to be stored is less than $5,000.

However, MMORPGs are likely to be higher risk if they involve accounts of $5,000 or more and allow in-game currency to be cashed and transferred between players.  Since gambling services are also regulated under the Anti-Money Laundering and Counter-Terrorism Act 2006 (Cth), games operators and developers should consider carefully whether they are likely to be caught by the definition of “gambling services” on the basis that the game is played for money or anything of value.

Potential regulation under banking and financial services legislation

In-game currencies may be regulated under banking and financial services legislation if they do not fall within a recognised carve-out.  The regulatory analysis in each case will depend on the specific characteristics of the particular in-game currency.  However, the following points are relevant to note:

  •  although the Corporations Act 2001 (Cth) regulates the provision of non-cash payment facilities, an exemption applies where the non-cash payment facility enables payments to be made to one payee only, or only to the issuer of the facility and a related body corporate;
  •  the Payment Systems (Regulation) Act 1998 (Cth) regulates the provision of purchased payment facilities, but expressly exempts those payment facilities where the number of people to whom payments can be made does not exceed 50; and
  •  under the Banking Act 1959 (Cth), it will be relevant to consider whether the in-game currency constitutes a widely available purchased payment facility for which the purchaser may demand payment of any remaining balance.

Where to now?

Future developments in online and app-based social gaming are likely to include a greater interdependence between social media and the gaming industry (see for example the increased use of Facebook credits to pay for online “gifts” or to upgrade gaming apps played on the Facebook platform).

As in-game currencies are put to greater use both within and outside of the relevant gaming universe, it is likely that regulators will become more conversant in relation to in-game currencies and will more closely scrutinise the application (and relevance) of existing legislation to those games.  In light of this, gaming developers/operators should carefully consider the implications of their games from a regulatory perspective, and ensure that they do not inadvertently come into the crosshairs of regulators.

 

Footnotes

1  Although Bitcoin is a widely recognised virtual currency which can be used as an alternative means of payment, Bitcoin operates outside any single gaming framework and thus falls outside the scope of this article.
2  ACCC, “ACCC joins international sweep for apps targeting children”, 10 September 2013, http://www.accc.gov.au/media-release/accc-joins-international-sweep-for-...
3  UK Office of Fair Trading, “Children’s online games”, http://www.oft.gov.uk/OFTwork/consumer-enforcement/consumer-enforcement-...
4  European Commission, “Better protection for EUConsumers downloading games, e-books, videos and music”, 14 October2013,http://europa.eu/rapid/press-release_IP-13-937_en.htm.
5  Interactive Gambling Act 2001 (Cth), s 20.
6  NSW Law Reform Commission, Cheating at Gambling, Report 130, September 2011, at para 3.52.
7  Ibid.
8  ACMA, “Complaint No 2011005047”, 25 November 2011.
9  Indeed, a review of the Interactive Gambling Actpublished by the Australian Government in 2013 indicated that offencesunder the Act appeared to be a low enforcement priority for theAustralian Federal Police:  Department of Broadband, Communications andthe Digital Economy, “Final Report 2012: Review of the  Interactive Gambling Act 2001”, 12 March 2013,http://www.communications.gov.au/__data/assets/pdf_file/0007/162277/Fina....

 

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