Quicklinks: Taxes, Blogs, Patents, Lawsuits and More

Virtually Blind periodically runs “quicklinks” — items that are not long enough for a full story, but are worth a click. Here’s the current batch.

The Chartered Institute of Taxation will be conducting a seminar on virtual world tax issues at Second Life’s Depo Business Park on Tuesday, the 2nd of December at 3:30pm GMT / 07:35am PST. Here’s a SLURL. It’s a bit early for U.S. readers, but should be well worth attending.

I just ran across a fascinating discussion of Second Life’s “patent peace” policy from a 2006 listserv post. The post was written by Linden Lab’s Gene Yoon, and it sheds a lot of light on the thinking behind the rather non-standard patent clause in Second Life’s Terms of Service.

Interesting twist in the SLART trademark lawsuit (via Massively). It turns out that the avatar ‘Victor Vezina,’ who Richard Minsky named as a defendant (along with Linden Lab) is the avatar of technology writer Victor Keegan, who writes for guardian.co.uk. Keegan says he “was a pawn caught in the crossfire between Linden […] and Minsky.”

Last year VB covered a video by Second Life’s ‘Bernard Drax’ of a virtual Guantanamo Bay Detention Camp. The video of the installation is up for an “Every Human Has Rights” media award. Congratulations!

There’s a solid breakdown of the Blizzard v. MDY case (.pdf) from the North Carolina Journal of Law & Technology. The interesting thing about this article is that it sets out a potential argument for appeal based on what the Journal sees as the trial court’s somewhat vague restatement of a key test. Definitely worth a click if you’ve been following the case.

This one’s not directly related to virtual law, but I wanted to highlight Geri Kahn’s new California Immigration Lawyer Blog, because Geri is current VP of Finance of the SL Bar Association, and active in virtual worlds.

Also in SL Bar Association officer blog news, Stephen Wu, the SLBA’s President-Elect, recently posted on the possible impact of an Obama administration on virtual worlds. Interesting analysis.

Just came across a list of the top-50 internet and digital law blogs that includes VB. Lots of good sites on here, including a few I hadn’t heard of.

One more blog note: Sean Kane, one of my co-chairs of the Virtual Worlds and Multiuser Online Games committee of the ABA’s Section of Science & Technology Law, is periodically posting at his new site, Virtual Judgment.

Finally, in case stated-income home loans seemed insufficiently high-risk for your investment profile, some of the usual suspects in the always-entertaining Second Life financial markets are selling securities in Second Life in order “to raise the funds […] potentially to sue Linden Lab” for incresing the price of some types of virtual land last month; proceeds from the lawsuit supposedly go to investors.


Habbo introduces a dual currency virtual economy model (updated with pictures)

Bubbles, a "rental"Bubbles, a “rental”Sulka Haro, Lead Concept Designer of Habbo, informs us that Sulake is introducing a dual currency virtual economy model for Habbo:

As of today, Habbo is a dual currency economy. Credits are bought and used to purchase persistent value, and you can earn Pixels by doing Achievements and just hanging around online. We’re piloting the change in UK, and if it’s working fine, the other countries will get it at some point in the future (as usual).

More details and screenshots below.

Torch, a "special effect"Torch, a “special effect” Habbo Credits continue to be a “cash-money” obtainable with real money. Pixels are a new currency earned through participation and gameplay. True to the dual currency model, the set of items that can be purchased using Pixels is different from the set of items purchasable with Credits. Sulka notes that while Credits are exchangeable between users, Pixels are not yet so. It will be extremely interesting to see how the model works for Habbo and its 10 million monthy visitors.

Interestingly, the items that are purchasable with Pixels have a limited lifetime. Items currently available in the “Pixel shop” are titled “Rentals” and “Special effects”, and all expire in one hour. Cash items in Habbo continue to last indefinitely. This is the opposite of e.g. MapleStory, where cash items have a limited duration, usually 90 days, and items earned through gameplay often last indefinitely.

The Pixel shop also allows a very small selection of cash items to be purchased at a discount using a combination of Pixels and Credits.

Minibar, a Pixel discount itemMinibar, a Pixel discount item Last year, Sulake introduced Ecotron, a “recycling” machine that Habbo users can use to convert 20-60 old items to one new item, effectively siphoning otherwise indestructable cash items out of circulation.

For some discussion on the dual currency model in Korean games, see Oh, Gyuhwan and Ryu Taiyoung (2007): Game Design on Item-selling Based Payment Model in Korean Online Games.

It may also be interesting to compare the dual currency model with what appears to be a triple-currency model in Whirled.

Revenue data and other metrics of virtual asset sales market

The purpose of this forum thread is to compile a list of links where the mentioned numbers are being discussed.

Please share your links and I will maintain a list in this post.



Follow-up: 20% Tax Rate on Virtual Currency Brokering in China?

We reported earlier about the 20% tax rate legislation on virtual currency transactions in China. Shanghai Daily has now published an article concerning this legislation and about the fall-out that followed.



“ASSET prices in the Chinese cyber world rose in the past week and the debate on the tax collection of virtual property trade continued to be hot“

The first and foremost consequence was the increased prices of virtual assets (as I predicted in the earlier post). This, of course, is in no way surprising, but it is interesting to see how the taxation in the end distributes between the sellers and the buyers.

– “Sellers will transfer tax costs to players if the regulator starts tax collection, players complain.“

– “Trade volume is at normal levels but the average price rose slightly in the past two weeks “

If the sellers in fact are able to raise prices according to the full tax rate – 20%, and the amount of sold products did not change, then the whole tax burden would be on the buyers. Probably, though, the amount of bought products would decline and the sellers would, at least, be indirectly affected by declined revenues. On the other hand, if sellers are not able to raise prices at all, they will bear the whole tax burden. Probably, though, the tax burden will distribute with some rate between the seller and the buyer -side. More about these mechanics here.

“After individuals gain income through virtual currency transactions, they should go to the tax department to pay personal income tax within seven days of the day after the transactions. For those who can provide proof of the original value of the property, they will be charged 20 percent of their profits and for those who cannot, they will be charged at three percent of the total value of the transaction.“

According to Shanghai Daily game operators support the legislation. No wonder they support it as it drives secondary market brokers into a tighter spot and makes buying assets from the operators more favorable. In the case of operators who are willing to prohibit secondary market transactions, this comes as good news as well.

After the legislation there has been some discussion about what actually gets taxed. One interpretation is that all transactions, be it virtual-to-virtual or virtual-to-real money get taxed. The other interpretation is that only virtual-to-real money transactions are taxed. In my opinion, the original announcement nor the news articles do not explicitly express whether virtual-to-virtual transactions are being taxed, although some news sites have further gone stating this being the case (e.g. Massively). For example, Steven Davis at PlayNoEvil suspects otherwise.

(Shanghai Daily story via Virtual World News)

Well That Was Quick

Google Lively

So in 2009, Google Lively will be Google Dead-As-A-Doornaily.

We never got too excited about Lively’s current form around here.  I was always confused about how it aligned with Google’s core business. Still it’s too bad to see the big G moving out of this space and admitting defeat. More news via Google.  A brief post-mortem after the fold.

Hindsight is always 20/20, but just as Google’s entry into virtual world signified something more than it delivered, its exit from the marketplace is bound to strike those who don’t grok virtual worlds or Google as something equally symbolic.  As a student of Google and virtual worlds, here’s my quick analysis of what went wrong.

Virtual world businesses today are about three things (preferably integrated):

  • Make compelling content.  See Blizzard.  If you build a multi-million dollar virtual theme park with cool toys and flying animals that people can ride, people pay for tickets and you can be a virtual Disney.  (And Disney gets this.)
  • Sell trinkets.  See Maple story.  If you build something really nice and shiny and give away access for free, you can still make bucketloads of money by selling power-ups, blue hair dye, wedding quests, additional avatars, etc.  (Webkinz gets this.)
  • Let them build it and they will come.  The entertainment industry has always underestimated the interest of people in obtaining the tools to entertain themselves.  Web 2.0 is a tricky proposition for a variety of reasons, but it can be done in a virtual world.  (Second Life gets this.)

So how does Google line up against these strategies.

  • Making content? Google doesn’t actually make new content.  It depends upon other to make new content for it and then it sends out the Googlebots to index that content.  The content Google wants to index is free (from Google’s perspective).  It makes the vast majority of its profits by monetizing the Web.  The Web is free.
  • Selling trinkets? Google is free.  Its brand is about getting cool stuff (search, mail, maps, books, you name it) for free.  Do you want to pay Google for something (anything)?  Do you want to pay Google for avatar hair-dye?  Should Google actually want you to pay it for avatar hair dye?
  • UGC?  This is where Google should, in theory, be able to pull off something interesting.  They own YouTube, after all.  But here’s the tricky point: despite what popular pundits may think, virtual worlds and UGC don’t always blend well.  This isn’t peanut butter and chocolate, it’s caramel and fish.  Worse still, Lively launched without almost no tool-set for UGC, and despite that limitation, was immediately showing users popular rooms with sexually-oriented themes.  Flashback to the also-dead Sims Online: “UGC is coming any day, as soon as we can talk the lawyers into it.”

But the real problem here, I think, was that Google’s core business is contextual advertising based on datamining.  To maximize eyeballs, Google wants to control and monetize things that it does not own (like the Web, all books, your home video collection, your mail, the Earth).  It’s pretty darn good at that.

Lively, otoh, lets Google completely own something little that it can’t control or monetize. See a mismatch? You can’t monetize and datamine the eyeballs if you can’t attract the eyeballs.

Still, despite it all making sense from the outset, no schadenfreude here. More of a mild pathos.

[Links, pointing to the obvious targets, may soon be retroactively added.]

New peer-reviewed papers on commerce and consumption in virtual worlds

Journal of Virtual Worlds Research, an online journal that started this year, has just published its second number, titled Consumer Behavior in Virtual Worlds. Also, the Journal of Electronic Commerce Research, a more established online publication, has published a special issue on virtual worlds. Most of the articles from these two publications fall into the familiar group of Second Life -based qualitative studies and essays. There are also a couple of surveys. Below, I briefly introduce four of the papers that touch on VERN’s topic areas.

In Journal of Electronic Commerce Research, Reina Arakji and Karl Lang theorize about the value companies derive from virtual storefronts. Stuart Barnes and Jan Mattsson measure how Second Life users perceive major brands in a small pilot survey. An interesting result is that experienced users have a more negative perception of brands that have conducted marketing activities in SL compared to less experienced users.

In Journal of Virtual Worlds Research, So Ra Park et al. also discuss brands, pondering what aspects of virtual environments brand owners might use to enhance the value of their brands in customers’ eyes. Lastly, in a essay that is close to my own research interests, Jennifer Martin writes about the social uses of virtual goods on which the economic value of the goods is based.

RMT platforms and currency sellers post here

Unsanctioned RMT trading platforms and currency sellers: please post all your news in this thread instead of leaving comments elsewhere on the site.

I am allowing this thread because I believe news and announcements directly from RMT traders and gold sellers can be useful to VERN’s readers. Simple advertisements with no added information value may be deleted.