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All of the latest Mists of Pandaria newsThe Lawbringer: Legal gold sales? Not a Blizzard's chance in Hell
by Amy Schley 
Mar 16th 2010 at 4:00PM
As an introduction to our promised discussion on gold farming, I wanted to address an idea that's been circulating in the WoW blogosphere. There has been some talk that Blizzard could solve the problem of gold farming and hacked accounts in one fell swoop by simply selling the gold themselves. It's an attractive idea on its face, as some feel as though Blizzard's current ban on Real Money Transaction for gold ("RMT") is nothing but an ill advised Prohibition. Permit people to buy gold through Blizzard, the argument goes, and the keyloggers, site spoofers, hackers, and spammers will go back to the rock from under which they came, just like the Mafia disappeared after alcohol sales were permitted in 1933. Oh wait...
The obvious problems have been pointed out before, including: rich brats will have more advantages over folks with jobs and bills; inflation will cause Azeroth to resemble Zimbabwe, the Weimar Republic, or -- God forbid -- Norrath; players will be forced to pay up to stay competitive; WoW-clone MMOs will follow Blizzard's lead, leaving players with few refuges from RMT markets; Blizzard devs will be "encouraged" to design the game around acquiring and spending more gold; players who can't remember website names will still think "www.l3g!t-w0rlduvw0wcr@ft-g0ld.c0m" is Blizzard's website and download keyloggers, etc. Some don't believe this parade of horribles is enough to discourage Blizzard from creating this quixotic market. To the doubters, let me add some legal issues that would affect Blizzard and players, namely: property rights, taxation, and investment advice.
Any of that sound like improvements to you?
The Current Situation
Let's begin by first examining the current legal situation. We, as players, are in a contractual relationship with Blizzard. This contract is composed of two documents, the End User License Agreement and the Terms of Use, that define the rights, responsibilities, and privileges of each party. So let's see what the documents have to say.
The End User License Agreement states:
And just in case you missed it, the Terms of Use state:2. . . . You agree that you will not, under any circumstances: . . . C. exploit the Game or any of its parts, including without limitation the Game Client, for any commercial purpose, including without limitation ... (b) for gathering in-game currency, items or resources for sale outside the Game;
So, Blizzard is quite clear about this--you are not allowed to sell gold. Why not? Well, let's start with the fact that you don't actually own "your" gold.2. . . . You agree that you will not, under any circumstances: . . . B. exploit the Game or any of its parts, including without limitation the Service, for any commercial purpose, including without limitation ... (b) for gathering in-game currency, items or resources for sale outside the Game;
Missed it? Here it is again:4. Ownership.
A. All title, ownership rights and intellectual property rights in and to the Game and all copies thereof (including without limitation any . . . objects, . . . character inventories, . . .) are owned or licensed by Blizzard.
So right now, gold sellers are selling to you what belongs to Blizzard, not the poor sap they "stole" it from. If Blizzard was to sell gold, you would pay money to buy something that would still belong to Blizzard. Now, as a premium service, it doesn't cause any legal issues per se, but it edges Blizzard closer to the line that Linden Labs is walking with Second Life.Ownership.
All rights and title in and to the Service (including without limitation any user accounts, . . . objects, characters, . . character profile information, . . . ) are owned by Blizzard or its licensors.
Linden Lab's Market
Now, as we've already covered, Linden Lab has the LindeX®, a market to exchange dollars for Linden Dollars ("$L") (Get the impression that Linden likes the look of his name?) As a result, all the business tycoons of Second Life are playing with currency only one exchange away from "real" money. However, Linden has this clause in their Terms of Service:
If Blizzard were to set up a BlizzX, they would likely have similar provisions in its terms of use. Here's the thing -- we don't know if this clause could be enforced. This provision was challenged by Marc Bragg, a Second Life user who had his account banned for allegedly using an exploit to buy land. As discussed a few weeks ago, the case never made it to trial; after losing a pretrial motion to have the case moved to arbitration, Linden Labs settled the case. In his opinions, however, the judge did suggest that Linden Lab's advertisement that "you own your stuff in Second Life!" contrasted sharply with the above provision. It is entirely possible that a judge may find such provisions are improper -- that if the gold is bought like real money and is spent like real money, it can't just be appropriated like Monopoly® money. He may find that gold is a virtual property to which we, as players, have ownership rights. In which case, our relationship with Blizzard and our gold will radically change.1.4 Second Life "currency" is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab.
You acknowledge that the Service presently includes a component of in-world fictional currency ("Currency" or "Linden Dollars" or "L$"), which constitutes a limited license right to use a feature of our product when, as, and if allowed by Linden Lab. Linden Lab may charge fees for the right to use Linden Dollars, or may distribute Linden Dollars without charge, in its sole discretion. Regardless of terminology used, Linden Dollars represent a limited license right governed solely under the terms of this Agreement, and are not redeemable for any sum of money or monetary value from Linden Lab at any time. You agree that Linden Lab has the absolute right to manage, regulate, control, modify and/or eliminate such Currency as it sees fit in its sole discretion, in any general or specific case, and that Linden Lab will have no liability to you based on its exercise of such right.
Problems with Owning Gold
So what happens in a world where we own our gold? First, obviously, Blizzard's lawyers will be busy rewriting our EULAs and TOUs. Who wants Blizzard redirecting money for game development to the lawyers? (And I see the lawyers in the crowd are the only ones with raised hands.) Next problem: the kind of crazy judge who says that players deserve property rights in their gold is the same kind of crazy judge who would still make Blizzard responsible for safeguarding it. So now, when some moron visits www.ub@r-ch33p-w0w-g01d.c0m and downloads a keylogger, Blizzard would have to convince a jury pool that the little innocent mama's boy in the witness chair was not a helpless victim of the evil foreign gold farming company taking advantage of big bad Blizzard not investing in account security. Who thinks this is a good use of Blizzard's resources? (I see the lawyers are again raising their hands.) So us owning our gold means less money for Blizzard to make new toys. Sound like an improvement?
Taxation
Next problem deals with our relationship to our government. (I'm speaking to the Americans here, but this isn't only an American issue.) The idea of taxing MMO generated revenue has been tossed around for a while. For the record, the IRS says that when one sells gold, an account, or power leveling services, one does owe taxes on that income. Whether non "cashed out" gold is subject to taxes has been a gray area, with the IRS declining to step in yet. It's certainly with the purview of the government to tax such an "income" source. Here's what the IRS says on the matter:
The report then goes on to explain the reasons why IRS may choose not to subject our phat loot to taxation, including the difficulty in valuing the property we have accumulated in game. This issue goes away in the presence of a Blizzard sponsored exchange. If we assume an exchange rate of $5/1000 gold, I have "earned" a grand total of $50 in the last year. Now this may seem like couch money, but for some people, that total comes up to be a substantial amount of money. Furthermore, perhaps you have seen this graph:[A] person is generally subject to tax upon finding or earning money or treasure, winning a lottery, prize or award, stealing property, or trading one piece of property for another, potentially leading some to conclude that transactions involving virtual property are or should be subject to tax.
As you can see, the people in charge of government spending have the fiscal discipline
Investment
Finally, if gold is treated as players' property, then Auction House PVP become a real life investment, just like playing the penny stocks. Which means that gold selling guides become investment advice. Which means the Securities and Exchange Commission now can get involved. Which means that people who give AH PVP advice, like our very own Basil Berntsen, would have to file a Investment Advisory Registration, including full disclosures on their own investments on the AH Commodities Market. Is this a path we really want to go down?
Let me explain again -- No, there is too much. Let me sum up: gold selling could radically change our relationship to Blizzard, forcing them to spend more money on non-game development. It would likely prompt a government desperate for cash in taxing our now easy to value virtual wealth, and it would subject the people who help us increase that wealth to ridiculous SEC rules. And this is on top of the complaints that everyone has already mentioned about the idea. This is why I predict that the odds of Blizzard setting up a gold exchange are less than a Blizzard's chance in Hell.
Stay tuned next week, when we look at a novel theory for attacking gold farmers -- tortious interference in contract.
The Lawbringer is provided for your entertainment and is not legal advice. If you have a real legal problem, contact a real lawyer. If you have general questions about law or law school, shoot me an email at lawbringerjd@aol.com or tweet me @wowlawbringer.
Filed under: The Lawbringer
Reader Comments (Page 2 of 7)
Kolenka Mar 16th 2010 4:33PM
Because selling things like pets, character slots, and so on is /not/ linking two economies together. Once you link a virtual economy to a real one, then suddenly regulations come into play, because it is no longer purely virtual. The article already does a good job explaining what happens when an economy becomes 'real' and enters the realm of regulation.
Once you can readily convert Azeroth gold into USD and vice versa, it is no longer an isolated economy, but one that has a value in USD, and thus, 'real money' is flowing through it.
There aren't many legal precedents here either, so I can understand Blizzard not wanting to be the guy who winds up turning a game into a tax nightmare.
Irem Mar 16th 2010 4:31PM
Because Blizzard is a) a very well-known company, and b) based in the US. Blizzard entering the RMT business would be such massive news (and probably result in such massive cash flow) that the people who've been watching to see whether virtual property is worth government intervention would be out of the gate like hounds after a fox.
Alan Falcon Mar 16th 2010 4:40PM
Is there any micro-transaction currently in game that provides your character with something that can be then traded off your account? No? There's your answer.
Darkleeroy Mar 16th 2010 4:45PM
@EBGreen
Gold is different from the other transactions because unlike the in-game pets; Gold can be traded to other players.
Jafari Mar 17th 2010 9:40AM
Here's the thing -- It wouldn't be different. The author uses the example of Second Life to argue that Blizzard would experience the same potential lawsuits as Linden Labs. The problem with her assertion is that Linden Labs advertizes, and provides, a means for users to convert their Second Life money into real money, i.e., you can freely sell your Second Life "income" for dollars. That is the fundamental premise that, once debunked, makes the author's analysis go completely astray. Assuming (and I think rightfully so) that Blizzard does NOT go further than sales of gold to customers, like the sales of vanity pets today, then there is no taxable "income" in Warcraft gold from other sources like quests.
Now, lets look at the author's argument that Blizzard would somehow be more responsible for "safekeeping" user account "assets" if they merely sold gold. That argument likewise fails. In the current situation, Blizzard already safekeeps assets sold to players, such as the vanity pets and mounts, and the account itself. A market in user accounts already exists on third party websites. Any user can find out the market value of their account, and if Blizzard is at fault for the loss of that account, that user could sue. Today. Even without gold sales. The comedic scenario that the author uses to suggest that gold sales would result in a lawsuit by some kid and his grandmother is already possible. As unlikely as it is today, it is equally as unlikely in a world where Blizzard sells gold.
Turning to taxes on *users* virtual income from normal activites in the game, which the author suggests is a major reason why selling gold would not happen, we see that it is equally unlikely to occur if Blizzard merely sells gold, and in fact is already possible under the author's logic. Keeping in mind that the premise is that Blizzard merely sells gold to users, the user would experience no taxable income event (excepting sales tax on the purchase itself). Blizzard, however, would have to pay taxes on the income from the sale, just like any other sale. The user will realize absolutely no taxable income from in-game activities because it is a one-way street. Now, the author suggests that having a dollar amount associated with an amount of gold would naturally lead to the potential for taxation on in-game gold even without any conversion (sale) into dollars. This is sensationalism at its best, "oh no! I will have to declare the gold I made from the icecrown dailies!" Not true. Think about it, if the author were correct, then we could *already* be taxed on the virtual profits we make. A market already exists for both Warcraft gold and Warcraft accounts. When you grind out dailys, you are creating something (gold) that has the potential to be sold. In fact, it already is sold. As the author rightly notes, sales of anything, whether in violation of a third-party contract or not, are taxable. The problem with the author's logic is that creating something of value is not a taxable event -- selling it is. You do not pay taxes on the vegetables you grow in your backyard and eat at your own table, even though a dollar amount can be attributed to the vegetables. You only pay taxes if you sell the vegetables. Likewise, if you were to sell your Icecrown daily profits to a gold farmer today, you would be responsible to report that as income (assuming it meets the threshhold, and after deducting the costs of your account). However, the potential to tax a sale of an item, like your vegatables, does not lead to a tax on the creation of that item.
Now, if Blizzard were to both sell and purchase gold from users, then yes, the situation could change and become more like the Second Life situation where Warcraft gold would become more like a virtual currency. However, merely selling gold would not bring about the radical legal consequences that the author suggests.
Brodi Mar 16th 2010 4:19PM
Amy, you're quickly becoming the writer of my most anticipated column on WoW Insider. I cannot agree more with what you've said today. I hope that everyone who even has the idea of Blizzard selling gold cross their mind stops to read this and find out exactly why it'd be such a bad idea. Thank you so much for writing this.
Irem Mar 16th 2010 4:25PM
Thank you for this. Although I have a feeling that there are still people who are going to argue that it's paranoid to think that a case involving virtual goods would make it to court (although some already have), or that the government would attempt to tax virtual property (chances are they would, since goldselling is a multi-million dollar industry).
Jimmy Mar 16th 2010 4:28PM
Great article, I love this new segment "The Lawbringer" being interested in Law myself. Keep it up!
Hangk Mar 16th 2010 4:28PM
Linden Labs is trying to have it both ways here. The clause you quote from their ToS seems worded to tap-dance around the issue of whether or not "Linden Dollars" actually exist and, if so, to whom they belong.
The whole thing seems vaguely fraudulent at its core because actually neither the "Linden Dollars" nor the Second Life crap you can buy with it have any existence beyond some numbers in some database tables. Unlike making a deposit in a bank, in which by depositing you're basically investing in the bank's operations, and where the numbers in the bank's computer system are backed by actual assets and obligations owned by the bank, when you buy Linden Dollars you are basically exchanging something for nothing.
Blizzard's ToS makes it WoW and everything within it is theirs, and you have no property rights in your toons or their stuff because neither has any separate existence from WoW, which 100% belongs to Blizzard. Linden Labs, on the other hand, is trying to make it sound like you're buying "virtual property" that you then "own", when your "virtual property" doesn't really exist and can and will go away the instant Linden turns off the servers.
I am not a lawyer, but I forsee a big class action lawsuit in Linden Labs' future.
David Mar 17th 2010 11:03PM
You don't seem to understand how banks work, so I suggest you don't try to make the comparison. Your bank deposits are backed up only by the bank's reputation, stability and legal responsibility. Should the bank fail you will lose everything (baring what you might get back from the FDIC or other national agencies).
To me it sounds like the author has taken the position that gold selling is bad and is looking for as many arguments as possible to back that up, regardless as to how ridiculous they might be (financial advice for the auction house? Really!!?)
I like the idea of this series of articles, but I wish they were written by someone with a more objective point of view than this Blizzard fanboy (girl).
Tzivya Mar 19th 2010 2:43AM
@doofman:
Not entirely true if you look at it in a less simplistic scenario. We run into this in a few ways as a family. The place where it can affect you is, especially, in situations where any aid benefits you might have are effected. Right now, if my spouse were to go up a tax bracket (And she hovers near it), we would lose other things that would result in a net loss for us as a family, because I am disabled. Likewise, while I could technically handle light work, there is none that I can do that wouldn't result in us losing both my benefits, and the childcare benefits we get, plus we would have to pay for childcare in the times I was out, which in and of itself is unlikely to be less than I could bring in.
I know it's not a 'normal' case, but just saying 'going up a tax bracket won't cost you more' isn't accurate.
SlavedHeart Mar 16th 2010 4:32PM
As an advocate of chaos and stupidity in general, I'd love to see the implementation of income tax for gold 'earnings'. I wonder how many people would be pushed into a higher tax bracket, being required to pay higher tax's, and there for have to stop playing wow because of it's cost to them AFTER their 15$ a month. I'd think we'd see a LOT less fiscally responsible adults playing, and I'm sure that what we all would want.
Selling gold is a ridiculous idea, but unfortunately, so many other games have done it, that people often fail to see how blatantly it affects a "persistent game economy". If we were only able to purchase items from Blizzard itself, then I don't think there would be as big an issue, but it's the auction house that changes a lot of that as you so masterfully stated (I'm just trying to dumb it down for my own sake).
Or maybe it's just the lack of motivation to go collect their 500g or so from dailies that makes gold sales so attractive... who knows.
Irem Mar 16th 2010 4:39PM
I know way too many people above level 60 who have maybe 30g to their name at any given time. The biggest market for RMT is probably those same people. Gold is extremely easy to get, but I still see at least one person a week screaming about how it's too hard to make enough gold to get by and they don't understand how other people do it.
Darkleeroy Mar 16th 2010 4:56PM
Even @ $5 = 1000g, the gold cap on one character (214,748g) would hardly be enough to put you over a tax bracket unless you were already sitting borderline to begin with.
doofman Mar 16th 2010 5:52PM
Once again, someone completely misunderstands the meaning of MARGINAL income tax rates (how US Federal Income Tax rates work). The tax rates for the different brackets are the rates that are charged for every dollar of income you make ABOVE (but not up to) that amount. So imagine a very simple world where there are two tax brackets:
10% - all income up to $10
25% - all MARGINAL income above $10
If you earn $9, you'll pay 90 cents in taxes (leaving you with $8.10) . If you earn $11, you pay $1 for the first $10 and 25 cents for the $1 above $10 (leaving you with $9.75)
There's NO WAY to end up with less money after taxes by moving up in tax brackets. Any information you've seen to the contrary is mistaken.
nowAFK.com Mar 16th 2010 4:32PM
I know it's a serious article. But I could not help but find this doomsday scenario amusing. Extra taxes I could see happening eventually, but the SEC isn't exactly as competent as you suggest. Just look at the mortgage situation they got us into. Nonetheless a very good read.
wpoitras Mar 16th 2010 4:33PM
Why not sell time cards like EVE Online? Players with lots of gold can buy game time, those without lots of gold can spend $15 and sell an "item" in the AH. The result is gold neutral. Gold goes from one player who probably doesn't need the money, to another who will more likely to spend it on in game items, or the Auction House.
Ylei Mar 16th 2010 5:14PM
because it wouldn't work like it does in EVE Online. EVE has only 1 server for all 300,000+ players, where as WoW has several hundred just for North America. Each players market for selling the time code would be much smaller than in EVE, and on quite a few servers would likely be non-existent.
Brian Mar 17th 2010 5:19PM
Log into WoW's account management console, have an interface similar to character copy or transfer.
You Select your server, and type in the name of a character, along with the amount agreed upon in game for the time card. Blizzard puts a flag on their account management page. When they accept, your credit card is charged $30. They get two months of game time and blizzard makes $30. The money is instantly mailed to your character and deducted from theirs.
Due to the Micro-transaction being tied to a semi-tangible item, then you have a base value for it, and since gold isn't "created out of thin air", then the base level of gold on the server won't fluctuate wildly causing out of control inflation.
Do not allow this to be done in game. But only on the WoW account management Page.
Tooay Mar 16th 2010 4:35PM
Blizzard selling gold basically takes the "game" out of "game currency". Even if a few, loud voices advertise it as the solution, I know the biggest part of the player base knows better.