I. Introduction

The digital age has ushered in innovative forms of entertainment and commerce, including through the development of in-game economies. In recent years, the digital landscape of gaming has expanded beyond mere entertainment, evolving into a vast ecosystem of virtual goods. There are numerous entities that develop, publish, or otherwise operationalize video games (“Game Developers”) that are incorporating virtual marketplaces into gaming platforms (“Platforms”) where individuals who play on or otherwise use the Platforms (“Users”) can buy, sell, or trade items, making them a significant aspect of the gaming industry. Virtual marketplaces offer Users a multitude of in-game items, enhancements, and currencies, each of which can play a pivotal role in the gaming experience. However, as these in‑game economies grow in complexity and value, they also present legal challenges. Mitigating legal risks in these environments is crucial for Game Developers, Users, and regulators to ensure fair play, protect intellectual property (IP) rights, and prevent financial crimes.

In this multi-part series, we will explore significant financial regulatory, IP, consumer protection, and other issues that impact the development and implementation of in-game economies.

Part I of this series discusses IP and financial regulatory issues related to the nature of virtual goods and currencies available through Platforms.

II. What’s Being Sold?

In-game economies revolve around the exchange of virtual goods, which can range from in-game currency to in-game items like weapons, armor, skins, and unique abilities that can enhance Users’ game experiences. Such virtual goods occupy a unique space in both the digital and legal realms and raise significant legal questions regarding the nature of what is being sold and the corresponding rights of purchasers and responsibilities of sellers.

a. In-Game Items

While Users may feel that they own the virtual goods that they acquire, similar to how they own items of personal property in the real world, in legal terms, virtual goods are better thought of as “licensed digital content” rather than as traditional personal property. This characterization hinges on the fact that users are typically granted limited rights under a license to use these goods within the confines of the game environment, as outlined in a game’s terms of service (ToS) or end-user license agreement (EULA). This licensing model ensures that the IP rights to the digital content remain with the Game Developers, limiting the purchasers’ (usually this is the Users’) rights to use, transfer, or modify the virtual goods.

It is worth noting that, while this licensing model is a very common way of handling the IP issues around virtual goods, it is not the only model. For example, virtual goods in the form of non-fungible tokens (NFTs) often include some degree of “ownership” for the purchaser as well as broader rights (including, in some cases, rights to commercialize) in the underlying content. In addition, the allocation of ownership between the Game Developer and the User may be more nuanced in Platforms where the User contributes to the creation of the virtual goods or where the virtual goods embody content uploaded by the User, such as in various types of building games and virtual worlds. For the purposes of this article, we will focus on the more traditional licensing model in which the Game Developer retains sole ownership of the IP in the virtual goods and grants a limited license to the Users to use the virtual goods within the game.

The ToS or EULA serve as the legal backbone of the in-game economy, detailing the nature of the transaction and the rights conferred upon the purchaser. The legal characterization of virtual goods and the provisions outlined in the ToS or EULA play crucial roles in defining the rights and responsibilities of all parties involved in in-game transactions.

Key provisions related to the sale of virtual goods and services often include:

• License Grant. The license grant in the ToS or EULA is fundamental and typically provides that a User who purchases virtual goods receives a limited license to use the virtual goods within the game. Typically, the license is non-exclusive, non-transferable, and revocable. It is essential to specify the scope of the license, including any restrictions on the use of virtual goods, such as limitations on using the virtual goods for commercial purposes, copying or distributing the virtual goods outside of the game, or modifying or creating derivative works of the virtual goods.
• Ownership and Intellectual Property. The ToS or EULA should also include a clause stating that all virtual goods, including the IP rights associated with the virtual goods, remain the property of the Game Developer. This retention of rights provision clarifies that Users do not “own” virtual goods in the traditional sense; instead, they are granted permission to use these virtual goods within the game’s ecosystem.
• Rules and Standards. The ToS or EULA should include rules and standards governing the purchase, use, and resale of virtual goods. For example, the Game Developer may wish to expressly prohibit the use of virtual goods for gambling or other disfavored purposes. The ToS or EULA may also establish restrictions on the resale or exchange of virtual items for real-world currency and rules relating to transferring or gifting items to other Users. The aim of such terms is to prevent exploitation of the game’s systems and to maintain a fair and balanced gaming environment.
• Termination and Revocation. The ToS or EULA should also include provisions that allow the Game Developer to terminate or suspend the license or revoke access to virtual goods under certain conditions, such as the User’s violation of the ToS, cheating, or engaging in fraudulent activity. In addition, the ToS or EULA should address the disposition of a User’s virtual goods upon expiration or termination of a User’s account. Typically, a User would forfeit any further right to use or access virtual goods upon expiration or termination and would not receive any compensation for virtual goods that they had obtained prior to expiration or termination.
• Limitation of Liability. Finally, the ToS or EULA often includes provisions that limit the Game Developer’s liability, such as by capping potential damages and excluding liability for incidental or consequential damages. These provisions would typically cover any liability relating to the Platform and would not be specific to liability arising from virtual goods. But such limitations of liability can be particularly important in the context of virtual goods due to the specific risks associated with virtual goods that may extend outside the Platform, such as unauthorized trading or hacking. For example, if a User’s virtual item is stolen and sold on a third-party website, the ToS or EULA should clarify the extent of the Game Developer’s liability, if any, in such scenarios.

By including these provisions in the ToS or EULA, a Game Developer can create a comprehensive legal framework that protects its contractual interests, respects the rights of Users, and ensures the long‑term viability of the in-game economy. It is essential for these provisions to be drafted clearly and precisely to avoid ambiguity and to ensure that they are enforceable across different jurisdictions.

b. In-Game Currencies

In-game currencies are digital content in a virtual economy within the Platform that enable Users to make purchases such as avatars, skins, and other virtual items often through an in-game marketplace. Popular labels include “gold,” “points,” and “gems.” Depending on the features enabled for an in-game currency, Game Developers could subject themselves to significant regulatory requirements, including U.S. money transmission laws.

Non-bank companies providing payment-related services in the United States may be regulated under both federal and state laws. The Financial Crimes Enforcement Network (FinCEN) is a division of the Treasury Department tasked with interpreting and enforcing the Bank Secrecy Act (BSA) and implementing its anti-money laundering (AML) requirements. Among other BSA-regulated entities, FinCEN defines a money transmitter to include a person who accepts currency, funds, or “other value that substitutes for currency” from one person and then transmits such currency, funds, or other value that substitutes for currency to another location or person by any means. Money transmitters must develop a comprehensive AML program that meets certain statutory requirements, including policies and procedures to prevent money laundering, an AML compliance officer, a training program, and independent audits.

At the state level, 49 states, the District of Columbia, and Puerto Rico regulate money transmission activities and require money transmitters to obtain a license from their state financial regulatory agency. Although state laws vary, “money transmission” is typically defined consistently with the BSA. Certain states, including California, Louisiana, and New York, have licenses and regulations specific to virtual currency activities.

Since as early as 2013, FinCEN has defined a convertible virtual currency (CVC) to mean a virtual currency that either has an equivalent value in fiat currency or acts as a substitute for fiat currency. A company that receives and transmits fiat currency or CVC is potentially a money transmitter subject to the BSA, including a Game Developer that issues and redeems a CVC or exchanges a CVC for fiat currency or another CVC as part of its in-game economy. Many states take a similar position by requiring licensing for activities related to virtual currencies that can be converted to fiat currency. For example, New York regulations define a “virtual currency” as any type of digital unit that is used as a medium of exchange or a form of digitally stored value.

Based on these broad definitions, a regulatory authority could assert jurisdiction over an in-game currency. For example, if a Game Developer administers a structure under which User A can purchase “coins” for fiat currency and transfer the coins to User B (whether in exchange for virtual items or otherwise) and allows User B to cash out the coins for fiat currency, the Game Developer has facilitated the movement of value from User A to User B and is potentially engaged in money transmission.

As a result, Game Developers that incorporate in-game currencies and do not want to be regulated as money transmitters should take certain steps, including:

• No Real-World Value: The ToS or EULA should clearly disclose that in-game currency does not represent legal tender or currency, is not redeemable or exchangeable for any sum of money or monetary value, has no equivalent value in fiat currency, does not act as a substitute for fiat currency, and does not constitute or confer any personal property right.
• Usage Restrictions: While disclaimers in the ToS or EULA help manage Users’ expectations, the effectiveness of these disclaimers will also depend on the in-game currency features that the Game Developer has enabled. To mitigate the risk of an in-game currency being considered a CVC, a Game Developer should generally prohibit features such as enabling (i) in-game currency to be converted back to fiat, whether through redemptions or supported exchange; (ii) transferability among Users; and (iii) the use of in-game currency to purchase real-world goods and services from third parties, among others.
• Third-Party Markets: In addition to their own Platforms, Game Developers will also need to prohibit the use of third-party markets to exchange in-game currency to fiat currency and take commercially reasonable steps to discourage such activities. In a recent Consumer Financial Protection Bureau report on financial services in the gaming industry, the Bureau noted the existence of third-party markets and how they may weaken a Game Developer’s argument that its in-game currency has no value in fiat currency.

In addition, a Game Developer may meet the definition of a money transmitter, even without incorporating its own in-game currency, if its Platform facilitates the movement of fiat currency or cryptocurrencies that meet the definition of a CVC (e.g., bitcoin) between Users.

Stay tuned for the next issue in this series, which will further explore issues of ownership of user‑generated content and approaches to sales and payment structures.

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