Modding for Fun and for Profit

•September 29, 2014 • Leave a Comment

No video game is perfect in the eyes of every one of its players.  While some players vent their frustrations by complaining on a video game forum, more enterprising players seek to improve upon the game.  These players engaging in “modding,” or modifying the source code of the video game, to improve it in some way.  These mods range from graphics updates, such as the Skyrim mod seen here, to creating entirely new game types, such as turning the single player game Half-Life into the wildly popular, multiplayer game Counterstrike


(Skyrim graphical mod; click to enhance)

However, most of these mods take place without the game developer’s permission.  Can the modder publish his mod without fearing retribution from a stingy developer?  What remedies do poor developers have against these enterprising players allegedly infringing the developer’s copyright?  This week’s blog post will discuss the legal approaches that developers have taken to deal with modders.  The first part will discuss the available legal remedies in the abstract (generally), while the second will discuss specific fights between video game developers and modders.

  1. Legal Remedies

Suppose Chris decides to create a website,, where he allows users to post any mod that they create.  These mods are freely available to the public.  Suppose Alan posts a mod for Super Smash Bros. on, which inserts into the game as a playable character his favorite Nintendo character, Dragoon from Super Metroid.  Super Smash Bros. is owned by Nintendo.   If Nintendo believes that its copyright on Super Smash Bros. is infringed, and wishes to remove Alan’s mod, it has two options.  First, it can issue a cease-and-desist letter to Alan.[1]  This letter orders Alan to remove his content, to stop infringing Nintendo’s copyright, and to cut a check for whatever amount Nintendo thinks that it can receive without going to litigation.[2]  Now Alan, a poor modder who just wanted to add his favorite Nintendo character to his favorite game, is faced with a choice: does he try to fight this in court just to have a more fun in a game, but at the risk of paying $30,000?  Not a chance.  He sadly removes his mod from

Nintendo notices, however, that has many infringements of its copyrights.  Chris, as the mere owner of the website, who does not actively post any content, probably cannot be held liable.  Indeed, the criminal provisions of the copyright infringement statute require “intent;” thus, mere willful blindness to the posted infringements would not trigger any criminal penalties.[3]  In theory, Nintendo could attempt to prove this, but the law provides an easier method to remove infringing content: the DMCA takedown notice.  Nintendo may send Chris a notice of the infringing content, with a demand for its immediate removal.  Under the safe harbor provisions of the DMCA, 17 U.S.C. § 512(c)(1), if Chris:

  • Does not know and should not know that material on his website is infringing,
  • Does not receive a financial benefit directly attributable to the infringing activity, and
  • Upon notification of infringement, promptly removes or disables access to the infringing content,

then Chris will not be subject to liability for the infringing content.[4]

The safe harbor provision makes sense as a matter of public policy.  If it did not exist, then websites like YouTube, a site where millions of users upload videos daily, would not last more than a day.  Surely one user, oblivious to copyright law, would post infringing material, and the infringed party could sue to take down YouTube.  Indeed, a content provider, Viacom, did try to sue YouTube in 2013.[5]  The court held that YouTube qualified for the safe harbor provision of the DMCA because although YouTube knew that users were posting infringing material, it had no way of knowing what was and was not infringing.[6]

  1. Specific Fights Between Developers and Modders

In this Part, we will examine some of the conflicts that IP holders have had with modders.  In particular, we will look at a case where a developer sued a modder for providing access to the developer’s pirated games (Nintendo), a case where a developer sued a modder for basing a mod for a different game on the developer’s IP (Warner Bros), and a case where a developer sued a modder for modding the developer’s game to provide new content within the game (Blizzard).  On the other hand, some IP holders are more willing to work with modders, as we will see in the Bukkit, Spigot, and Battlestar Galactica cases.

Our abstract case from Part I., supra, may be different from the YouTube case.  Arguably, Chris knew that nearly all of the content posted on would be infringing (see: its name).  If Nintendo believed this, then the safe harbor provisions of the DMCA would not be triggered, and Nintendo could sue.  Indeed, it did just this in 2013, when Nintendo sued a website called (“HYC”).[7]  HYC sold “flash carts.”  A flash cart permits a user to download pirated games from the internet and play them on the user’s 3DS gaming system.[8]  Nintendo alleged that these flash carts cost them a lot of money, because gamers no longer had an incentive to buy legitimate copies of the games.  HYC, on the other hand, had a notice on its webpage that the carts were “not illegal, however, the software you put on the [cart] may be.”[9]  Nintendo forced HYC into a settlement,[10] the website is shut down, and the URL now redirects to Nintendo’s anti-piracy webpage.  Thus, IP holders are not afraid to sue for direct copyright infringement like piracy.

2014-09-29 00_40_33-Nintendo Anti-Piracy

(glorious leader Mario dislikes piracy)

Another possible form of copyright infringement is a novel work based on a pre-existing IP.  In 2012, Warner Bros. (“WB”) sued a group who was making a Lord of the Rings mod for the PC game Skyrim.  This mod, the Middle-Earth Roleplaying Project (“MERP”) changed Skyrim into a game designed around Lord of the Rings – everything from the aesthetic, to some of the characters, to a recreation of the Lord of the Rings story (“Ringbearer quest”).  WB responded with a cease-and-desist letter to the development team of MERP.[11]  WB argued that this mod amounted to a Lord of the Rings video game.  WB was involved in the production of several Lord of the Rings games, so MERP represented a competitive threat to WB’s games.  Initially, the MERP team tried to bargain with WB, and WB seemed open.  The MERP team offered to remove the Ringbearer quest, as well as player access to some of the main characters from the books, such as Frodo and Gandalf.  Ultimately, WB stonewalled these negotiations and forced the MERP team to cease development on the mod.  The MERP team responded with a Facebook petition, imploring WB to revoke its cease-and-desist letter.[12]  That petition has garnered 32,493 signatures in its two years of life; however, the MERP team appears to have given into the cease-and-desist order.[13]

A more direct type of mod than a device that enables piracy, or one that transforms another game into the IP holder’s IP, is an actual mod of a developer’s game against that developer’s consent.  In May, 2014, Blizzard pounced when a group of StarCraft II modders created a hack called the ValiantChaos MapHack.[14]  These modders committed two sins in Blizzard’s eyes.  The first was that the hack cost money – $62.50.  The second, however, was that the hack provided a competitive edge to purchasers.  This made the game less fun for legitimate players, which resulted in Blizzard losing players from StarCraft II.  Because Blizzard released its own, paid mods and expansions for StarCraft II, this represented a loss of profit to Blizzard.  Moreover, because StarCraft II is one of the most popular e-Sports,[15] Blizzard stood to lose a lot of market power if its game even appeared to be less than legitimate.  Thus, Blizzard sued, alleging copyright infringement, trafficking in circumvention devices[16], and breach of contract.[17]  This case is still pending.

In the middle of the modder-developer antagonism spectrum are IP holders that initially send cease-and-desist orders, but who eventually revoke them.  The facts of this incident are similar to the Warner Bros./MERP conflict above.  Modders in the game Second Life created a roleplaying simulation modeled on Battlestar Galactica.[18]  Universal, the holder for the Battlestar IP, sent the modders a cease-and-desist order.  The modders complied, but then they lobbied for Universal to permit the content.  Unlike Warner Bros., Universal gave in.  They permitted the users of the Second Life sim to continue, provided that they earned no profit.  In particular, Universal wrote “Users may continue to create and interact with each other as BSG fans . . . you may re-create BSG items under the fair use act.  Owners of any re-created items sold and/or purchased will be approached by the company’s lawyers hand handled accordingly.[19]  Users were also not permitted to create or sell “unlicensed [] real-life or virtual items featuring our intellectual property.”[20]  This sensible solution is a win-win – Battlestar Galactica fans get to keep their simulation, and Universal gets free publicity and fosters a fan community.

At the far end of the developer-modder antagonism spectrum are developers that, from the beginning, try to peaceably coexist with the modding community, such as the developers of Minecraft (Mojang) with the Bukkit Project.  Players play Minecraft on servers that are set up through the program.  This permits the owners of the servers to configure settings of the game – to a certain degree.  Bukkit sought to give these owners greater freedom in configuring their servers. [21]  The Bukkit community accomplished this by modding the Minecraft Server software, and creating a mod called CraftBukkit.  This took a tremendous amount of work and relied on contributions from many members of the community, as most good mods do.  This can lead to creative differences among the Internet strangers.  During the development of CraftBukkit, one modder, Wesley, decided that he no longer wanted his contribution to the project included in CraftBukkit.  When Bukkit refused to cooperate, Wesley issued a DMCA takedown notice, citing support from Mojang.

That backfired when Mojang rushed to Bukkit’s aid.  Posting on Bukkit’s forums, the COO of Mojang asserted Mojang’s rights to Minecraft in order to block Wesley’s DMCA takedown attempt.[22]  He posted that Wesley submitted his contributions to the project under an open source license, so Wesley could not claim infringement.  Wesley had no rights, and Mojang bristled at the idea that modders could “assert[] rights which they do not have, against us or others.”[23]

Moreover, the COO expressed support for the Bukkit Project.  He wrote that he wanted to support it, while maintaining independence between Bukkit and Mojang, as well as refusing to compromise Mojang’s ownership of the Minecraft IP.  Ultimately, he established that the Minecraft Server software would not be open source, nor would Mojang authorize its inclusion in any mods – but only to ensure that no one else tried to claim a right to Minecraft.  Despite taking this apparent legal step back, the COO made it clear that Mojang fully supported Bukkit and that Wesley had no rights against Mojang or against Bukkit.

Unfortunately, the tactic Wesley chose for his fight with Bukkit – the DMCA takedown notice – is very difficult to fight.  The DMCA requires only a good faith standard to issue takedown notices.[24]  This good faith standard is not subject to a penalty for perjury, so it has little bite.  On the other hand, a counter-notification imposes a good faith standard under penalty of perjury.[25]  As a result, when Wesley tried to claim infringement against another modding project, Spigot, all he needed to do was issue a DMCA takedown notice and wait for Spigot to choose its course of action.  In spite of Mojang’s pronounced support for the modding community in the Bukkit incident, Spigot decided to acquiesce to the takedown notice.[26]  Spigot’s reasoning was that, although they thought they could prevail in an infringement suit, litigating one in a U.S. District Court would require time and money.  The Spigot community decided that removing the infringing content would give Spigot “the best chance of continuing to operate in the future.”[27]  Thus, Spigot gave into this legal bullying, and removed the infringing content.

III. Conclusion

In this post, we’ve seen developers taking a no-tolerance approach to any infringements of their IPs, to developers who appreciate that having these sub-communities actually helps to grow the IP.  Here are a few questions for thought, but I’d like to hear any of your other thoughts too.

  1. Did any of the actions taken by the developers seem unreasonable to you?
  2. How would you handle infringement like this? Is there a distinction between the Blizzard case, where the mod incontrovertibly harmed the IP, and the Battlestar Galactica case?
  3. Is the DMCA fundamentally fair with regards to its takedown provisions? In particular, do you think that there is enough statutory protection against abuse of DMCA takedown notices?  How might you change the DMCA?
  4. How could other provisions of Fair Use be applied to some of these examples?

[1] The helpfully named “” website provides a template:

[2] The template suggests $10,000.  If the copyright is registered, and the holder can prove infringement in court, then the holder can collect up to $30,000 per copyrighted work.  17 U.S.C. § 504(c)(1).

[3] United States v. Liu, 731 F.3d 982, 989–92 (9th Cir. 2013).

[4] The content provider is also required to have a designated agent to receive such takedown notices.  17 U.S.C. § 512(c)(2).

[5] Viacom Int’l, Inc. v. YouTube, Inc., 2010 WL 2532404 (S.D.N.Y. 2010).

[6] Id.


[8] Ordinarily, when a user downloads a pirated game off the Internet, that user is limited to playing the game on his computer.  Flash carts permit the transfer of that game from the computer to the system for which the flash cart was designed – in this case, the 3DS.

[9]  The link that this article provided, to HYC’s FAQ page, now links to a Nintendo anti-piracy page with a scary, authoritarian picture of Mario:






[15] According to, as of April 2014, StarCraft II was still the fourth most popular e-sport.

[16] 17 U.S.C. § 1201(a)(2)

[17] Complaint, Blizzard Entertainment, Inc. v. Does, 8:14-CV-00781 (C.D. Calif.)


[19] Id. (emphasis added)




[23] Id.

[24] 17 U.S.C. § 512(c)(3)(A)(v)

[25] 17 U.S.C § 512(g)(3)(C)


[27] Id.

Gold Farming: Challenges to ToS?

•September 14, 2014 • 5 Comments

This semester our first blog posting will be about the activity known as “gold farming.” The class has discussed the Terms of Service that regulates Second Life, the virtual platform that we use. In a world that is increasingly relying on technology and the software that runs our devices, legal documents known as either Terms of Service (ToS) or End User Licensing Agreements (EULA) are governing more and more of what we do. The user rarely knows or understands what rights he or she has given away by clicking the button that requires them to accept the regulations, mainly because the user rarely reads the agreements and at the point when the document is presented the user is commonly anxious to begin using the new software but cannot do so unless they accept the document. Later, much to the surprise of the user, the software developer will often change, without advance notice, or an opportunity for the user community to offer comments, changes which materially alter the conditions under which they can use the software. There are many examples of when these unilateral changes have created a backlash against the developer. A few examples would be Second Life‘s change in ownership rights of user created content or any of Facebook’s multiple changes to how it can sell user’s content. We started by contrating the current ToS for Second Life with the ToS that was at issue in the case Bragg v. Linden Labs, 487 F. Supp 2d 593 (E. D. Penn 2007) where a lawyer claimed the ToS was unconscionable.


The ToS and the EULAs operate to protect the intellectual property of the software developer, but offer few concrete protections for the user of the software. And the user is not in an “at arms length” position and is therefore never able to negotiate the terms of the ToS or EULA. In the game environment, as with other software, the developers protect the intellectual property (the coding and branding of the game) and usually prohibit the user from manipulating the game for the user’s benefit. The benefit may sometimes be to acquire more virtual goods than he or she would be entitled to or to actually use the game to make money for the user. In the minds of the developers and many gamers, gold farmers violate the ToS. Gold farmers are workers who play game accounts solely for the purpose of acquiring virtual goods or currency for sale. Gold farmers are mainly Chinese.


Gold farming activity takes place in games where players need to acquire the virtual currencies (gold) in order to acquire gear within the game. Activision/Blizzard‘s game World of Warcraft was plagued by gold farmers. This activity was clearly prohibited in WoW’s ToS. Yet the gold farmers catered to a community of players that needed the gold and either did not have the time to earn it in-game or didn’t want to use their time to grind activities to earn the gold in-game. The class watched two interviews: one with a gold broker, Jared Psigoda and one with the staff of a game, who discusses the phenomenon of gold farming. In addition, we read an investigative report in the New York Times about the realities of life for the gold farmer. The article was written by Julian Dibbell, a journalistic, who himself engaged in gold farming to see what the process was about and to learn what kind of money was passing hands through gold farming. Dibbell’s research was turned into a book called Play Money. Finally, we watched a documentary created by Ge Jin, a social scientist (at the time a PhD candidate) who studied gold farming in China and filmed the actual work, the working conditions (commenting on the “sweat shop” qualities of the work), and reactions to the farmers from gamers and from the farmers about gamers. Mr. Jin’s work looks at the commodification of play and work and draws some interesting conclusions.


There are so many questions raised by the attack on gold farming. These are just a few that come to my mind:

  1. If the developers create a system that requires currency, shouldn’t they anticipate players will seek easier ways to get the currency?
  2. Is there anything inherently wrong with gold farming?
  3. Many players see gold farmers as leeches on the system, but in fact the accounts gold farmers play on are paid subscriber accounts, so Activision/Blizzard gets money from the gold farmers as well. Isn’t Blizzard being somewhat hypocritical here?
  4. How is it that the farmers accounts get banned, but the accounts of the players who purchase the gold do not get banned? In the documentary Ge Jin inferred this has to do with racism: the farmers are Chinese but those who buy are predominately white males.
  5. Psigoda suggests the game companies should work with the gold farmers. What might be the pros and cons of that?
  6. If a player wants to buy gold, why should the ToS prevent him from being able to do so?

I am looking forward to hearing what the class thinks about gold farming, the issues that were raised in the film and the other assigned materials.

All’s Fair in Love and WoW: Virtual Theft May Elude Real Life Prosecution

•November 3, 2013 • 9 Comments


As we have consistently seen this semester, the real world is struggling to adapt and solve virtual issues. As virtual currency and virtual businesses thrive, so too has the occurrence of virtual theft, fraud and embezzlement. This post will examine not only how the global legal system has reacted to these virtual crimes, but will also look towards morality issues that exist solely in the context of MMO player on player theft.

batman virt theft

Phishing scams on the internet are nothing new; many of us have known someone whose credit card information or identities were stolen through these types of malicious websites or simply clicking on a sketchy e-mail. With the surge in popularity of gaming and social networking sites (including every parent’s worst nightmare Habbo Hotel) hackers were able to change up their routine.[1] By creating fake webpages that induced Habbo users to input their account information and passwords, the scammers were then able to access these accounts and separate users from their virtual property.[2] Finnish police launched an official investigation in 2010 when user’s reported over €1000 of property lost, specifically virtual furniture which had been purchased or created by Habbo Hotel users.

Unlike phishing scams of the days of yore, which targeted easily quantifiable data like bank accounts and credit cards, virtual property unleashes a rash of new issues. The problem lies in the nature of the property stolen and as to whether or not that virtual property had real world value which may demand traditional tort recourse. For other players globally, the law normally provides no avenue of recourse for these types of thefts. Illustrative of so many users’ stories is Final Fantasy player Geoff Luurs experience when over $4,000 of his virtual currency and gods were stolen overnight.[3] Even though the victim provided police with a probable lead as to who the perpetrator was, a friend who of Luurs, police refused to investigate the incident in any way. Instead investigators simply told the victim “[virtual items] are devoid of monetary value,” and therefore no crime had actually been committed against him.[4] Putting aside the valuation issue for a moment, some argue treating virtual thefts as real world thefts would cause unnecessary strain on police. However, this argument falls flat because either theft of virtual property is a crime or it is not.  The penile code doesn’t fluctuate based on how many law enforcement officers are available that weekend.

When faced with these kind of tacit dismissals of the wrongs which have been carried out against you, combined with the already devastating loss of an item which may have taken a player countless hours and days to obtain, it’s easy to see the frustration and fatalist mindset an individual in this position might have. Enter the Dragon Sword: a valuable ancient sword from the game Legends of Mir 3.[5] This sword was loaned by one player to his friend on a temporary basis, but instead of returning the sword the borrower sold it on e-bay for a real world profit of about $870. Enraged, the player who had originally obtained the sword through painstaking gameplay attempted to file a police report with the Shanghai police, at which time the police told the victim that “no crime had been committed as there was no concrete evidence that could be presented.”[6] Without any legitimate or lawful recourse available, the victim-turned-vigilante murdered his former friend over the virtual stolen sword.[7]

One of the only cases in which real world prosecution came from a virtual theft was in a 2012 case in the Netherlands, which was ultimately upheld by the Dutch Supreme Court.[8] However, before jumping to the conclusion that legitimate legal precedent has been set, it is important to look at the extremely sympathetic facts of the case and the paralleled real-world crime that was occurring during the virtual theft. The case involved a 13 year old boy who was beaten until he succumbed to the attackers demands: drop valuable items he had obtained in Rune Scape so that another player (one of the attackers) could pick them up. [9]  It’s this real-world conduct that parallel the attack which both causes alarm and provides distinguishable grounds upon which other courts may rely in continuing to dismiss virtual theft.

Nevertheless, the Dutch Supreme Court did note the “virtual objects had an intrinsic value to the 13-year-old gamer because of ‘the time and energy he invested’ in winning them while playing the game.”[10] Although imperfect at best, this tiny recognition by a high court does weigh in favor of those gamers who are without recourse in redressing the wrongs that have been done to them. This idea that virtual objects have value should not be a foreign or novel object. For instance, think about any type of collection or antiques; a painting doesn’t have true monetary value, no collection of goods does. Rather it has value because we give it value, because a collector values it based on its scarcity and would be willing to pay X amount for it. We impute intrinsic value into tangible real-world goods all the time. Should virtual goods be any different? Particularly when people are willing to lie, cheat, steal and even murder for them?[11]

Yet even if society at large were willing to recognize a quantifiable value of virtual objects obtained in video games, should the virtual “theft” be categorized as such? Obviously not all cases are as clear cut as the Dutch case, but when there is no real world violence that supports the contention a crime has committed, should these acts be more readily defined as simple game play? In baseball, players “steal” bases all the time. This idea becomes all the more powerful when considered in the context of an MMO, where the defining nature of the game is to envelop oneself in a character and fantasy world so unlike the real world that traditional limitations no longer exist.[12] Think no further than SWTOR; players have the option of playing as a Sith warrior, where evil choices are not only encouraged by required! If the MO of these games is to completely submerse oneself in an alternate reality, then how can developers or courts dictate proper online conduct that is in line with the character’s motivation?

The key issue is drawing the line between double crossing your enemy as part of the online game, and a real world crime. Should we hold the real world person reliable for something they did in the game under their gaming persona? Certainly the answer should be no. Consequently, Robert Carli of MIT’s Department of Electrical Engineering and Computer Science suggests that virtual property-based torts should take into account the world in which the player was playing in.[13] However, it is my opinion that given the court’s lack of knowledge base in the virtual context this would be an unworkable option in practice. This past week, a sitting federal judge asked me what a blog was during an oral argument and then proceeded to analogize it to a cow dressed as a bison? To say the courts are unprepared to do a case-by-case analysis on the morality of game play in an MMO is an understatement. Furthermore, taking this idea to its ultimate conclusion, how would a court determine that it is without moral culpability for a “good” character to kill another inside the game but that stealing a player’s sword has gone too far?

Carli also suggests putting the onus on developers to provide more stringent rules on what is acceptable and unacceptable behavior inside their own game.[14] Thinking back to the pornography discussion last week, particularly how some fields are able to be free of government regulation if they prove they are able to self-regulate, this idea may be better suited for the gaming community than giving free reign over to the courts decide what is and is not acceptable game play. As it stands, developers licensing agreements have only a broad ban on selling virtual objects obtained in the game for real world profit stating that in-game objects have no value.[15]

However, these arguments and justifications do not apply universally. The standards which apply to constructs like Second Life are wholly different than the mythical worlds of WoW and Eve Online. SL was based on the concept that players could make a real world profit since the virtual money could be freely exchanged for real world currency based on a “market-determined floating rate.”[16] As such Second Life is holding itself out as a sound business opportunity rather than a game whose sole purpose is entertainment and any money lost could be attributed as a cost of that entertainment. These fundamental differences, a focus on property trade rather than immersion in total fantasy, mean different player objectives and different standards regarding “socially” acceptable conduct. Thus, a theft in SL should be recognized as a virtual theft based on the standards with which the community imputes into the environment.

Similarly, a theft targeting Bitcoin—virtual currency with an exact, easily calculable real world exchange rate[17]—should also have real world consequences. When an attacker compromised a Bitcoin user’s account, liquidating half a million dollars’ worth of assets in a firesale, this conduct was not more gameplay but a real-world theft.[18] Bitcoin (BTC) began as a hacker-lead project to create an untraceable virtual currency that requires no central authority to keep up with auditing, or tracking, the money.[19] Due to the dollar to BTC ratio ($18 in 2011) and the anonymity which defines BTC, the opportunity for fraud was ripe. The user, who had amassed 25,000 BTC, simply woke up one morning to find his account wiped and that the stolen BTC had already been transferred into real world currency (via Mt. Gox).[20] Regardless of whether or not the BTC had been redeemed for cash, the anonymous user would have been unable to get the virtual currency back as BTC transactions are untraceable and irreversible.[21] Consequently, “technically-minded” criminals are seeing BTC as a safe alternative to traditional forms of robbery.[22] It’s tantamount to a bank vault with no live guards, no security cameras and no way to trace the cash.


But what about when these two avenues of thinking cross? When traditional ideas of embezzlement occur with virtual currency that was stolen by a user of an MMO? This was precisely the case when the CEO of Eve Online was caught essentially red-handed embezzling online credits (about $5100) from game depositors in order to pay his real world medical bills.[23] Although this incident occurred in the context of an MMO it was not in the process of actual game play. Instead, the offender ran an in-game bank which took deposits for interstellar credits. Thus, one would think this conduct should be considered traditional embezzlement. Nevertheless, no prosecution or any attempts at prosecution were made. Instead the company fell back on the “game-play” theory, stating simply, “[y]ou are able to lose the things you have created. That’s what makes the world interesting.”[24]

What’s concerning is the prevalence with which these virtual currencies are permeating our society and the lack of redress options available to those who have been cheated in the virtual world. Even non-gamers rely on virtual currency in the form of airline miles, credit card points, etc.[25] Meaning that the possibilities are endless when hackers compromise companies like Microsoft, whose points can be redeemed for almost anything the heart desires. In the future, developers and smart business owners who intend to use virtual currency should be encouraged to make use of programs which prevent chargebacks, virtual asset theft, gold farming, code hacking and account takeovers, by identifying devices and shares their reputation including alerting businesses to real-time risk.[26]


[1] Police Investigate Habbo Hotel Virtual Furniture Theft, BBC News: Technology, June 1, 2010, available at

[2] Id. The term “phishing” is a play on words, making use of the fact that the scammers go fishing for information by way of fake webpages and essentially just wait for a user to bite—giving up valuable account information.

[3] Earnest Cavalli, Police Refuse to Aide in Virtual Theft Case, WIRED, Feb. 4, 2008, available at

[4] Id.

[5] Roberto Carli, The Sword, the Thief and the EULA: a Virtual Property Crisis in Online Videogames, Massachusetts Institute of Technology (Dec. 1, 2007), available at

[6] Id. at 3.

[7] Id.

[8] Online Game Theft Earns Real-World Conviction, The Telegraph (Feb. 1, 2012), available at

[9] Id.

[10] Id.

[11] See Cavalli supra 3. If the real issue hinges on people’s definition of “monetary value,” then what explains the dichotomy between acceptance of imputing value to tangible goods based on scarcity and value and using that same schema to impute value to virtual goods? Rather it may be society’s hang ups with legitimizing virtual economies altogether despite their widespread popularity.

[12] See Carli supra note 5.”The ability to become a different person and explore a different world is the defining characteristic of role-playing games.”

[13] Id.

[14] Id.

[15] See World of Warcraft’s EULA: “All title, ownership rights and intellectual property rights in and to the Game and all copies thereof (including without limitation any titles, computer code, themes, objects, characters, character names, stories, dialog, catch phrases, locations, concepts, artwork, character inventories, structural or landscape designs, animations, sounds, musical compositions and recordings, audio-visual effects, storylines, character likenesses, methods of operation, moral rights, and any related documentation) are owned or licensed by Blizzard. The Game is protected by the copyright laws of the United States, international treaties and conventions, and other laws. The Game may contain materials licensed by third parties, and the licensors of those materials may enforce their rights in the event of any violation of this License Agreement.” Id.

[16] Id. A market-determined floating rate is one that is stable and easily quantifiable, which goes to the sound business nature rather than purely entertainment value.

[17] Computers participating in the project must solve complex math problems and in turn earn Bitcoins, limiting the amount of currency in the circulation to those earned by these computers. The number of coins rewards as a result halves every four years to reduce hyperinflation and will max out at 21,000,000. Bitcoin Virtual Currency Suffers $500,000 Theft, ITProPortal (June 15, 2011), available at

[18] Id.

[19] Id.

[20] Id.

[21] Timothy B. Lee, Hacker Steals $250K in Bitcoins from Onlice Exchange Floor, ArsTechnica (Sept. 4, 2012), available at

[22] Id.

[23] Paul Smalera, Bank Theft Highlights Downside of Virtual Currencies, Business Insider (July 2, 2009), available at

[24] Eyjolfur Gudmundsson, an economics adviser to CCP. Id.

[25] Robert Siciliano, Hackers Go After Points, Credits, and Virtual Currency, Infosec Island (April 25, 2011), available at

[26] Id.

A Proper Price to Pay for Privacy?

•October 27, 2013 • 9 Comments

We all hold our privacy in the highest regard when we interact with others in society and for very good reason. Information about ourselves that ends up in the hands of people we never intended has the potential to drain our bank accounts, compromise our security and ruin our reputation among myriad other adverse consequences. As Alessandro Acquisti of Carnegie Mellon University presented in a recent TED talk [], privacy matters even more as technology advances because each new application, network and innovation brings with it the prospect of not only simplifying our lives but compromising our most important assets. This digital double-edged sword has especially weighty implications for the children in our society since they are all the more prone to fall victim to entities which may employ loose terms, loopholes and underhanded tactics to wrest sensitive information under the guise of necessity. Users, developers and regulators are all at a crossroads to determine what the best course of action is to strike the appropriate balance between allowing freely accessible content and implementing safety measures for those most likely to be victimized.

Recent investigations have uncovered stark examples of the dark side of unregulated online interactions where children become prey for perverted predators. Skout, a social network app based around geolocation similar to FourSquare with around 5 million registrations, was used by adults to allegedly statutorily rape 3 children they contacted through the application; the company had to shut down their entire operations for around a month in June 2012 as a result. [] In July 2012, after implementing new security measures, it reopened its services for teenagers. []

The most notable case may be the Habbo Hotel debacle. The UK’s Channel 4 news ran an expose where a reporter posed as an 11 year old girl and interacted in the environment clearly catered towards young children with its neon lighting, merry tunes and plush teddy bears abounding. Within not long, she found herself being inundated with insistent prompts to engage in explicit sexual chats, virtual molestation by boy avatars, and resolute requests to strip naked via webcam. [] Habbo presented itself as the largest social community for teenagers and had 10 million+ visitors each month, however, in light of the damning piece, its CEO reacted by claiming to increase its filtering technology and imposing more moderators in addition to the 225 it had in place who purportedly monitored in aggregate 70 million lines of chat each day. The company was hit hardest, though, in its pockets when 2 of its primary investors holding a total of nearly 30% of its shares backed out. .  []

In 1998, Congress had enacted the Children’s Online Privacy Protection Act (COPPA) [] to tackle these types of issues head on and recently imposed new amendments effective July 2013 to further address growing concerns. Its provisions now require compliance in the following manners:

-posting of clear and comprehensive online privacy policies describing the practice for personal information collection from persons under 13 year of age

-making reasonable efforts to provide direct notice to parents of the company’s practices regarding the collection, use or disclosure of the information gained from persons under 13

-obtaining verifiable consent from parents prior to any such collection, use or disclosure of persons under 13

-providing parents with a reasonable means to review the personal information collected from their child and the right to refuse further use or maintenance of said information

-establishment and maintenance of reasonable procedures to protect the confidentiality, security, and integrity, of said collected personal information by releasing the information only to entities able to maintain that level of security

-retention of the personal information only as long as necessary to fulfill the purpose for which the information was collected and then deleting it using reasonable measures to avoid unauthorized use or access

-prohibition of conditioning a child’s participation in an online activity on the child divulging more information than is necessary to participate in said activity

The definition of “personal information” under this Rule includes:

-first and last name; or

-home address with street name and city; or

-online contact information; or

-user name that serves as contact information (e.g. email address, etc); or

-telephone number; or

-social security number; or

-a ‘persistent identifier’ that can be used to recognize a user over time (e.g. IP address, cookies, device serial number, etc); or

-photo, video, or audio files containing a child’s voice or image; or

-geolocation information which sufficiently identifies street name and city or uses coordinates; or

-information ‘concerning the child or the parents’ of that child that an operator collects from the child combined with any of the above information (e.g. a parent’s credit card coupled with other info about the child)


Though many parents and legislators herald these provisions as necessary and welcome to provide additional buffers for young children to explore the virtual world with relative security, many developers and operators of established and emerging online enterprises are loathe to comply with the regulations which they decry as overly burdensome and excessively costly. The FTC itself estimates that it will cost a total of $2.7 million for all existing operators and developers to comply with the new form of COPPA (About $9,420 for new ones and $3,000 for existing ones). []

One of the loudest criticisms implicates the age verification requirement of exchanging signed, printed forms, credit card verifications, or digital signatures via email as an unwieldy and inherently flawed measure since they may expose parents to the same privacy dangers that they are trying to secure their young children from. Additionally, these ponderous laws may draw developers away from creating space and services catered toward children and thus leave a void for that demographic which could undoubtedly benefit from the educational aspects of the technology. Children can and do easily add to the headache for businesses by lying on forms or providing false information about their age. The Federal Trade Commission has further bolstered condemnation against the regulations by inconsistently enforcing the COPPA measures themselves, although it has encouraged self-regulation within the tech industry with its Safe Harbor Program allowing operators to be held to the discipline of certain approved bodies instead of the FTC.  Currently there are only 5 such approved entities: the Children’s Advertising Review Unit (CARU), the Entertainment Software Rating Board (ESRB), TRUSTe, Privacy Vaults Online (Privo), and Aristotle International.  []

Ultimately, though these privacy laws do add layers of protection for minors who would largely benefit from them, the cost to most operators does seem to be a relatively hefty one. Some states endeavor to go above and beyond the federal rules by enacting further regulations for entities within their jurisdiction, notably California with its new SB568 ‘eraser button’ law allowing minors to “remove” postings from websites. []

Are the established federal laws and such newfangled state protocols a legitimately crucial measure in the fight for our children’s privacy online or are they largely futile attempts to appease a deep human yearning for security in this ever-evolving and complex digital age?


•October 20, 2013 • 9 Comments

What should and should not be legal pornography? Many countries and many people all have very different answers. While almost all agree that child pornography should be illegal in real life, what about child pornography between two consenting adults who make child-like avatars in virtual worlds? What about porn that simulates illegal rape? What is too obscene that we must stop the average internet user looking for a thrill?


The First Amendment protects your right to access legal adult content and distribute it to the public. However, our laws forbid distribution of obscene material and child pornography. In the United States, we have additional pornography regulations, currently being challenged in court, under 18 U.S.C. § 2257, that impose record keeping requirements on a broadly defined class of porn producers. When determining what is “too obscene” the US relies on the Miller Test. The Miller test was first given to us in Miller v. California, 413 U.S. 15 (1973), where US Supreme Court held that material is obscene if each of the following factors is satisfied:

  • Whether the average person, applying contemporary community standards, would find that the work, taken as a whole, appeals to the prurient interest;
  • Whether the work depicts/describes, in a patently offensive way, sexual conduct specifically defined by applicable law;
  • Whether the work, taken as a whole, lacks serious literary, artistic, political, or scientific value.

Therefore, most pornography portraying regular sexual acts or depicting genitalia would not be obscene under Miller, but community standards can greatly differ.[i]

How do you determine community standards? Under current law, the legal question of whether speech is free speech or too obscene is determined partly by looking at the local community standards.i Federal jurisdiction rules allow an obscenity case to be brought where the speech originated or where it was received.i Internet speech is received in every community of our nation. Therefore, “the ‘community standards’ question must be applied to a nationwide audience and can be judged by the standards of the community most likely to be offended by the message.” Reno v. ACLU, 521 U.S. 844 (1997).i


United Kingdom is certainly judging their whole internet’s censorship by those who would most easily be offended by the speech- children. The campaign to regulate porn, supported by the Daily Mail, Britain’s most powerful newspaper, is one of many new proposals to help censor the web. The government promised to make it easier for citizens to bring charges against web users who libel them behind the veil of anonymity. The government also offered legal immunity to publishers that cough up identifying information about people spreading defamation on their sites. Publishers have been in favor of this, but many free-speech defenders worry that hastily drafted regulations could make publishers far too eager to hand over private user information. Ian Brown, at the Oxford Cyber Security Centre, cautions that the rules could encourage sites to gather more private data from their users and distribute that personal information.[ii]

This summer, most homes in the United Kingdom had pornography blocked by their internet provider unless they opted to receive it, Prime Minister of England David Cameron announced. [iii] In addition, the PM said possessing online pornography simulating illegal rape would become illegal in England and Wales – as it is with their neighbor Scotland.iii

Cameron cautioned in his address that access to online pornography was “corroding childhood”.iii The new regulations will affect both existing and new customers of the service providers. Cameron also stated other measures will be taken – some “horrific” internet search terms will now be “blacklisted”, meaning they would automatically bring up “no results” on search engines such as Google or Bing. The UK’s biggest internet service providers have consented to the filters proposal, meaning that it should affect 95% of homes in England.iii

Other measures announced by the prime minister include:

  • New laws so videos streamed online in the UK will be subject to the same restrictions as those sold in shops
  • Search engines having until October to introduce further measures to block illegal content
  • Experts from the Child Exploitation and Online Protection Centre being given more powers to examine secretive file-sharing networks
  • A secure database of banned child pornography images gathered by police across the country will be used to trace illegal content and the pedophiles viewing it

Cameron also initiated a move to bring pop up pages to guide users to helpline numbers when people try to search for illegal content. He stated: “I want to talk about the internet, the impact it is having on the innocence of our children, how online pornography is corroding childhood.” And how, in the darkest corners of the internet, there are things going on that are a direct danger to our children, and that must be stamped out.iii


Child Pornography has become an issue all it’s own. Distributing child pornography is almost always illegal. But virtual worlds and smart technology have made this issue more gray than previously so. How has the US responded to  virtual issues child pornography can bring up? Many legilsatiors have aimed to close loopholes after the Netherlands failed to prosecute Second Life users that were simulating child pornography via their avatars.[iv] “There are possibilities to prosecute because it possibly incites child abuse,” the spokesman for public prosecutor Kitty Nooij, who is in charge of national vice cases, said. ii In Linden Labs home, the United States, the U.S. Supreme Court struck down a law in 2002 which would ban computer-generated images that depict minors engaged in sexual conduct.

Commenting on their failure to prosecute, spokesman E. Boersman of the prosecutor’s office says that they have been investigating a number of cases, but that prosecutor T. Nooij is sure that a judge will never convict their suspects. “[There is only a prosecutable case] if the virtual children are so realistic that you can’t tell whether they are real or not. You have to be thinking there is really a child involved. SL is too much a computer animation.”[v]Dutch forensic psychiatrist J. Bushman commented that “ageplay in SL is a perfect ‘school’ for a pedophile.”iiiHe stated that he is convinced that virtual child porn has real world dangerous for Dutch children.iii

What about recording someone that you are legally allowed to have consensual sex with? This peculiar predicament arose in South Carolina, where the age to have consensual sex is 16, yet recording a minor is illegal. Sidney Myers, a 20 year old from South Carolina, is facing 18 months in Federal Prison and a lifelong tag as a sex offender because he recorded smartphone videos of his girlfriend, who was 16 at the time. He was legally allowed to have consensual sex with her, and he did not distribute the photos, but once he made a bomb threat to her high school so they could cut class, his phone was subject to police scrutiny who pressed charges for the underage videos. His public defender claims that the “facts of this case have never been seen in our jurisdiction and likely will not be seen again,” but in the smartphone age, perhaps the facts no longer seem as unusual as they once would have been.[vi]

Confusion Over the Legal Status of Online Gambling? You Can Bet On It . . . Well Maybe?

•October 7, 2013 • 10 Comments

The legal status of online gambling is extremely uncertain, to the say the least. Any entity interested in establishing online gambling must contend with a gauntlet of confusing federal and state law, that is not even completely settled at this point. The Unlawful Internet Gaming Enforcement Act (UIGEA) is a federal statute which generally restricts gambling institutions from knowingly accepting money transfers that are the product of illegal online gambling. The statute was passed in 2006 as a response to growing number of gambling websites based overseas and the unregulated nature of internet gambling at the time. The statute only prohibits money transfers from what it refers to as “unlawful internet gambling” which the statute defines as:

“The term “unlawful Internet gambling” means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.”

31 USC § 5362(10)(A). However, the statute specifically excludes from this definition any wholly intrastate “bets or wagers”. [1] So essentially Congress decided to ban the interstate transfer of funds from internet gambling that is illegal under either federal law or any state law, but not to make actual online gambling illegal.

The UIGEA  further requires  that the Treasury and Federal Reserve Board adopt regulations for payment systems/financial institutions  that potentially could be involved in the prohibited transfers of money to adopt certain due diligence procedures. The procedures are meant to assure that payment systems are proactively preventing any improper transfers and allows these institutions to protect themselves from liability. “A joint rule has been issued by Treasury and the Federal Reserve Board that designates five payment systems as covered by the [UIGEA}. The designated payment systems are (i) automated clearing house (ACH) systems, (ii) card systems, (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer systems.” Id. However, the statute does exempt some participants from being required to maintain these policies and procedures, but it does not specifically define which participants are exempted.

The regulations specifically provide that there are no exemptions for card systems “because card systems usually have a transaction coding system that would permit potential restricted transactions to be segregated by participants during the authorization process.” Id. Furthermore, card systems are the only payment system that is expected to block infringing transactions while it is occurring. The regulations do provide a nonexclusive example of policies and procedures that will provide a “safe harbor” for each of the particular regulated institutions. Id. at 6-8.

As an example of the both the size of the online gambling industry and the confusion over what is legal, is the arrest of “Neteller’s” two founders. In January 2007, the federal government arrested the two founders of “Neteller”, Stephen Lawrence and John Lefebvre, charging them  “with conspiring to transfer funds with the intent to promote illegal gambling.”   Neteller was a company based on the Isle of Man and publicly traded in the United Kingdom. The complaint alleged that Mr. Lawrence and Mr. Lefebvre through Neteller enabled “gambling companies to transfer money collected from United States customers to bank accounts outside the United States. According to Neteller’s 2005 annual report, LAWRENCE and LEFEBVRE, through Neteller, provided payment services to more than 80% of worldwide gaming merchants.” In 2005 the company processed about 7.3 billion dollars 95% of which was from internet gambling. When Mr. Lawrence and Mr. Lefebvre took the company public they acknowledged  in offering documents that U.S. law prohibited certain forms of internet gambling and the transfer of funds related to it and that they faced a possible risk of prosecution. If convicted both face up to 20 years in prison.

The status of online gambling is further confused by the interaction between different federal laws which appear to conflict by outlawing a form of gambling or money transfer while another law specifically permits it. On September 10, 2011, the Department of Justice issued a memorandum finding that  “[i]nterstate transmissions of wire communications that do not relate to a “sporting event or  contest” fall outside the reach of the Wire Act.” The memorandum was issued in response to a possible conflict between the Wire Act and UIGEA because  “officials from the New York State Division of the Lottery and the Office of the Governor of the State of Illinois sought the Criminal Division’s views regarding their plans to use the Internet and out-of-state transaction processors to sell lottery tickets to adults within their states.” Both states planned to implement the online sale of lottery tickets only to people within their respective states. The states established procedures to ensure that the transactions would remain wholly intrastate. However, the states were concerned that these programs could violate the Wire Act because the transactions would be routed across state lines via the internet, even though these forms of transactions are specifically allowed under the UIGEA. The Criminal Division of the Department of Justice held the view  that the “Wire Act is not limited to sports wagering and can be applied to other forms of interstate gambling.” However, the Criminal division did acknowledge that its interpretation did appear to conflict with the UIGEA. Based on case law and the language of the statute the DOJ found that the “Criminal Division’s premise [was] incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.”

The DOJ’s reversal in its interpretation of the Wire Act has opened the door to intrastate online gambling, thus allowing states to establish their “own virtual casinos and card rooms.” Many states view this as opportunity to open a new stream of revenue.  However, there are several possible complications ranging from insufficient state populations to make online gambling profitable too overly complicated state law. Ron Dicker’s article points out that many less populated states that wish to cash in on gambling tax revenue simply lack the population size to financially justify the cost of  establishing and maintaining an online casino that is wholly intrastate, especially for games like poker. Some experts believe that that games involving betting against the house might still be financially feasible. Id. As of today Nevada, Delaware, the District of Columbia, and New Jersey have legalized intrastate online gambling. Furthermore, the establishment of online casinos would still need to comply with state laws, such as New Jersey that only allows gambling within Atlantic city.  New Jersey, for the time being, has decided that the if the game server is in Atlantic City and the gambler is outside the city the game will be considered to be taken place in Atlantic City. Finally, the reliability of DOJ’s memorandum is questionable at best: “ [t]his opinion could even be challenged or jettisoned, as Howard Stutz of the Las Vegas Review-Journal observed. Rose called the development a gift from the Obama administration to debt-ridden states. But it might not be a gift that starts giving as fast as many might hope.” Id.

One of the most recent developments in the continuing legal evolution of online gambling is a proposed bill in the House of Representatives by Congressman Peter King of New York. The bill is entitled the ‘‘Internet Gambling Regulation, Enforcement, and Consumer Protection Act of 2013.’’ The bill prohibits internet gambling itself and restricts States’ authority to independently regulate intrastate gambling. The new law would make it “unlawful for a person to operate an Internet gambling facility that offers services to persons in the United States, except as authorized under this Act.” The law exempts from this prohibition groups that are licensed operators, such as race tracks, casinos, qualified Indian facilities, etc.. The law would further create the Office of Internet Gambling Oversight (OIGO) established within the Treasury Department. The OGIO would be responsible for promulgating regulations to implement several aspects of the statute and review whether an existing state or Indian gaming regulatory body is in compliance with the requirements of the statue. Id. at Sec. 105(C). The bill specifically allows the OIGO to refuse licensing of a state and Indian regulatory authorities if they lack sufficient experience. Furthermore, in order for state and Indian agencies to be qualified they must opt in to Sec. 108 which states:  “Internet gambling provided by Internet gambling facilities licensed under this title shall be lawful in the United States only with respect to the acceptance of bets or wagers from individuals located in States and Indian lands that have opted-in under this section.” Finally the act would make it a crime to operate  an establishment in which the computer terminals are used principally for the purpose of online gambling.

Considering the constantly evolving and uncertain legal status of online gambling any person or entity considering the establishment of an online platform must do so very carefully. Even though a party may not be criminally liable if the law is subsequently changed, they could face millions of dollars in loses due to start up costs.


[1] “Bet or Wager” is defined as “the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.”

Gaming Companies Aim to Enter Online Gambling Market

•October 6, 2013 • 13 Comments

In 2012, the global gambling market was estimated to be worth $417 billion.  According to H2 Gambling Capital, only 8.1% of that $417b came from online or interactive gambling.[1]  In light of those numbers, the opportunity for enormous revenue growth by gaming companies via online gambling is obvious and has not gone unnoticed.  A prime example of a gaming company’s attempt and struggle to capture their share of the gambling market is Zynga.

Image Zynga is a social gaming company that was founded in 2007.  Some of Zynga’s most popular games are FarmVille, Words  with Friends, Mafia Wars, and Zynga Poker.  These games are  available for download as app’s on smart phones and through social media websites.  I used to play Words with Friends all the time and many of my friends and family members still do.  If you are a Facebook user, these games are probably familiar to you via annoying notifications inviting you to join a friend in their virtual mafia battle or crop cultivation.  (And if you were like me, you were wondering why your friend was spending so much time growing virtual crops.)  Zynga’s customer acquisition strategy, incentivizing users to send invitations on Facebook and thus creating viral loops, is responsible for these notifications and Zynga’s meteoric rise.

You might be wondering how Zynga is able to monetize customers playing their games when they are free to join on Facebook and the app’s are free to download on smart phones.  In games like FarmVille and Mafia Wars this is done through the sale of virtual currency.  Zynga sells FarmVille Bucks, a closed loop currency, in exchange for real world money.  FarmVille Bucks allow users to advance in the game faster (like crops growing faster).  Because of the addictive nature of these games and the competitive aspect of users wanting to have a larger and better farm than their neighbors (fellow Facebook friends that also have farms), this business model proved to be very lucrative.  In February of this year, Zynga announced that FarmVille had over 40 million users, with over 8 million daily active users, and just passed the $1 billion mark in total player bookings![2]

Despite the popularity of FarmVille and their other games, Zynga has failed to parlay this popularity into profitability.  In December 2011, Zynga launched an IPO at $10 a share.  A year after the IPO, Zynga’s stock price had fallen 75%.  After repeatedly failing to meet revenue and profit projections Zynga is currently trading at under $4/share.


Note the spike in late 2012 when Zynga announced their Nevade gambling license plans and the dip in June 2013 when Zynga abandoned their license application.

Zynga saw online gambling as an opportunity to drastically increase revenue and in late 2012 Zynga applied for a Nevada gaming license with plans to convert their popular play/fictional money game Zynga Poker (formerly Texas HoldEm Poker) into a real money version.[3]  But there were two main problems with Zynga’s plans.  The first is the lengthy and complicated application process Zynga needed to navigate in order to get approved in Nevada.[4]  The second is that even if Zynga was approved in Nevada, that would only allow the approximately 2.8 million residents of Nevada to play the game and gamble with real money.  And even if the Nevada model proved workable, there are only two other states in the United States (Delaware and New Jersey) that have legalized online gambling that Zynga could expand into.

In June 2013, Zynga abandoned their bid for a Nevada gaming license.  Zynga’s founder CEO Mark Pincus was replaced and the new CEO stated that Zynga would focus on free to play gaming.[5]  Despite Zynga’s struggle to introduce online gambling in the U.S., in April 2013 Zynga opened an online casino available to residents of the United Kingdom.[6]  But it remains to be seen how profitable their U.K. venture will be considering the U.K. online gambling market is highly competitive and over saturated.

paddy-power-launch-facebook-appsIn the United Kingdom, online gambling has been legal and regulated since 2005.  Starting in July of 2013, Facebook partnered with the online gambling company Paddy Power to allow sports gambling on their site via a Facebook app.  As a response to criticism lobbied at Facebook, a Facebook spokesman said: “Online betting is a popular and well-regulated pastime in the UK. Our carefully chosen partners work within stringent regulatory guidelines to ensure their products and services are used safely and responsibly by adults. These products will be invisible and inaccessible to people aged under 18 on Facebook.”[7]

chumba worldShifting gears, a look at the Kickstarter campaign of Chumba World combines the issues of crowdfunding, virtual currency, and online gambling.  Chumba World is a game in development that is a MMO where players can build their own virtual casinos that other users patronize with a form of closed loop currency, but the casino owners can earn real world money via revenue sharing with Chumba– if they generate enough traffic to their casino.  Chumba World is self described as “Second Life meets Farmville meets Las Vegas.”  After launching a Kickstarter campaign looking for $50,000, their campaign was shut down.  According to the CEO of the company behind Chumba World, Laurence Escalante, he does not know why Kickstarter shut down their campaign and Kickstarter’s Terms of Service state that they do not comment on specific reasons for a campaign’s cancellation.[8]

Chumba World does not have much recourse with Kickstarter considering their TOS give them the discretion to discontinue a campaign at any time for any reason.  The TOS state:

[Kickstarter] reserves the right to change, suspend, or discontinue the Service (including, but not limited to, the availability of any feature, database, or Content) at any time for any reason. [Kickstarter] may also impose limits on certain features and services or restrict your access to parts or all of the Service without notice or liability.[9]

One wonders why Kickstarter would shut down the Chumba World campaign.  It appears that Kickstarter’s general counsel decided that allowing the campaign to progress would be more hassle than it is worth considering the legal gray area of online gambling in the United States.  Another possible reason for the shutdown is that the TOS are governed by the laws of New York.  The TOS state:

These Terms of Service (and any further rules, policies, or guidelines incorporated by reference) shall be governed by and construed in accordance with the laws of the State of New York and the United States, without giving effect to any principles of conflicts of law, and without application of the Uniform Computer Information Transaction Act or the United Nations Convention of Controls for International Sale of Goods. You agree that the Company and its Services are deemed a passive website that does not give rise to personal jurisdiction over Kickstarter or its parents, subsidiaries, affiliates, successors, assigns, employees, agents, directors, officers or shareholders, either specific or general, in any jurisdiction other than the State of New York. You agree that any action at law or in equity arising out of or relating to these terms, or your use or non-use of the Services, shall be filed only in the state or federal courts located in New York County in the State of New York and you hereby consent and submit to the personal jurisdiction of such courts for the purposes of litigating any such action. You hereby irrevocably waive any right you may have to trial by jury in any dispute, action, or proceeding.[9]

Although New York does not expressly prohibit online gambling, New York courts have taken a strict stance in opposition of online gambling.  In United States v. Scheinberg [10], and on April 15, 2011– what became known as Poker Black Friday, the DOJ shut down three of the most prominent online poker companies (Poker Stars, Full Tilt Poker, and Absolute Bet/Ultimate Bet).  The indictment included UIGEA charges (for accepting payments) but was based on New York law that prohibits gambling because there are no Federal laws expressly prohibiting online gambling (except for sports betting).

Despite Chumba World’s Kickstarter setback, investors believe in the growth of online gambling through the MMO medium.  Month’s after Kickstarter shut down their Campaign, Chumba World announced it had raised just over $2.5 million in venture capitalism investment.[11]

There appears to be no stop in the rise of popularity of both gaming and gambling, while there is no doubt that gaming companies will continue efforts to capture a share of the vast gambling market.  The law has failed to keep up with the rapid progression of technology, legislation needs to be passed that legalizes online gambling in the United States and creates an oversight commission to tax and regulate the industry.



I witnessed the addictive nature of FarmVille and I think it can be illustrated through this anecdote.  Before attending law school, I worked at Regions Bank as a personal and business banker.  Several times a client came in and tried to get overdraft fees taken off his account.  Every time the overdraft was caused by a FarmVille purchase.  On one occasion the client’s FarmVille purchased ended up costing him well over $100.  The client initially overdrafted his account with a $9.99 FarmVille charge (I’m assuming for purchasing FarmVille Bucks) and was then charged a $30 overdraft fee.  The client then had 5 more $0.99 FarmVille charges and received a $30 fee for each charge.  I felt bad for the client and implored him to stop using his debit card for FarmVille purchases and to keep his register up to date.  I also wondered how sweet his virtual farm must be.








[10] 10 Cr. 336 (2011).  See also United States v. PokerStars, et al., 11 Civ. 2564 (2011).



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