Social Media & Games Law Blog

A new Manhattan bar has become one of the few brick and mortar operations to accept Bitcoins as a method of payment. For more information, see New York City bar Accepting Bitcoins as Payment.

What are Bitcoins? They are essentially a form of digital cash or virtual currency. They are unique in that there is no central issuing or regulatory authority (such as a corporation or government), rather they are issued through the use of downloadable software which in effect searches for Bitcoins over the Internet. A successful search, which takes varying and increasing amounts of computer processing power, results in the issuance of a block of Bitcoins. The more people searching, the more difficult it is, but also the more valuable the Bitcoins are worth. One of the key features of Bitcoins is anonymity. Just like with a cash payment, there are no records as to the individual engaging in the transaction, as the transactions can occur through anonymous Bitcoin addresses. Bitcoins, however, are regulated, at least on the administrator side in the US, by the Department of the Treasury's Financial Crimes Enforcement Network (FINCEN). For more on their virtual currency regulations see FINCEN Issues Virtual Currency Regulations.

The bar accepts Bitcoin payments through a virtual wallet app, which is similar to most app-based payment systems. The app converts bar tabs from US dollars into Bitcoins, which are then transferred to the bar's bank. Notably, some of the press for the bar may be due to the owner's close friendship with the chairman of Bitcoin.

The Bank of China Hong Kong announced recently that it plans to launch its first credit card that is compatible with Near Field Communication ("NFC) technology this year. NFC is a set of standards for smartphones and similar devices to communicate with each other by either by touching or bringing them into close proximity. One of the products that will be offered will serve as an electronic wallet for clients containing all their credit cards issued by the bank and will enable them to turn their iPhones into payment devices. To read more, see BOC's new-tech credit cards on way.

FINCEN has recently issued what is perhaps the most specific piece of regulatory Guidance on the financial regulatory issues with virtual currencies. This guidance clarifies the applicability of the Bank Secrecy Act ("BSA") to entities creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. These guidelines relate to a wide variety of virtual currencies.

There are a few aspects of this guidance that are surprising to some people. If you are dealing with virtual currency, you must be aware of what these guidelines mean for you.

Jim Gatto recently wrote an article for the World Online Gambling Law Report. Check out the beginning of the article below and click through at the bottom for the full PDF.

Many creative business models enable users to acquire virtual goods or virtual currency and then use those virtual items to participate in an activity that may give them a chance to win something or acquire virtual items through some element of chance. James G. Gatto, a Partner at Pillsbury Law, discusses the legal issues presented by virtual goods and the secondary market, which by its very nature implies that virtual items are far from valueless.

Since the early days of online games, 'virtual goods' have been used to enhance game play and to provide revenue to game developers. These are earned by accomplishing tasks or bought from the developer, typically for use in the game in which acquired, but exceptions may exist. Secondary markets, online markets where players can sell virtual goods or currency to another player, have sprung up. In most cases, the secondary markets are not authorised by the game publisher and the sale of virtual goods or accounts is precluded by the games' terms of service. As with real goods, scarcity is one factor that drives the perceived 'value' of virtual goods.

The US market for virtual goods and currency is estimated to be over $3.5 billion annually. While virtual goods-based business models are flourishing, a number of legal issues have arisen with their use, particularly with secondary markets. The law in this area is still evolving and some important issues have yet to be addressed. For some industries, the resolution of these issues could have a significant impact. One such industry may be social gaming.

Social gaming
Social gaming is a rapidly growing field featuring 'gambling-like' games, but not for real money. So most social gaming activities do not run afoul of the gambling laws and are not subject to gambling regulation. One example is Zynga poker: users pay real money to buy virtual chips which are wagered in online games. The chips can only be accumulated, not cashed in for anything of value. In contrast, some other social gaming activities involving virtual goods, if not done properly,may cross the line. In other popular business models, users acquire virtual goods and/or currency and use them to enter 'contests' or sweepstakes or have a chance to win virtual goods or currency.

Secondary markets can be a turn off for some gamers: when certain virtual items can only be acquired through skillful game play, it is a badge of honour to possess those virtual goods. However, if the same item can be bought, it devalues that honour. For players who are not skillful enough or lack time to earn certain virtual goods, secondary markets enable them to buy these items.

One legal issue is whether the user actually owns virtual goods. Most terms of service make clear that users only have a licence to the virtual goods and the licence is terminated if they breach those terms. Thus, if a user sells a virtual good on the secondary market, the licence terminates and the good becomes worthless. Additionally, if a user's violation of the terms of service is severe enough, their account may be terminated. By having a licence provision, the game operator need not reimburse the user for any virtual good in the terminated account.

A number of companies have taken action against secondary market operators. On 8 April 2010 Zynga sued Playerauctions.com for operating a website that provides an unauthorised secondary market for enabling Zynga game users to post and sell virtual currency and virtual goods allegedly in violation of Zynga's Terms of Service. According to Zynga, its Terms of Service prohibits users from selling virtual currency or virtual goods for real-world money or anything of value outside of its games. No decision has yet been rendered.

Please check out the full article here.

As the online gaming market slowly evolves, many companies are preparing to capitalize on it once the legislative process moves forward. In one of the latest announcements, Zynga has applied to get licensed in Nevada. According to a recent statement from Zynga:

Zynga has filed its Application for a Preliminary Finding of Suitability from the Nevada Gaming Control Board. This filing continues our strategic effort to enter regulated RMG markets in a prudent way. We anticipate that the process will take approximately 12 to 18 months to complete. As we've said previously, the broader U.S. market is an opportunity that's further out on the horizon based on legislative developments, but we are preparing for a regulated market. We've also recently partnered with bwin.party to bring the highest quality real money gaming experiences to our UK players in the first half of 2013.

Social gaming has been an active field in 2012 and from what we are seeing 2013 will likely see even more activity.The legal issues and regulatory enforcements will continue to increase.

While many companies are focusing on real money gambling, many other companies are focusing on various forms of gamblification - the use of gambling mechanics for non-real money gambling purposes.  The use of virtual goods and virtual currency in gamblification models, though prevalent, further complicates the legal issues. Our team has advised numerous companies on the legal issues with gamblification, including the use of virtual goods and virtual currency. If you would like more information on thees issues please contact us.
Or come to the G Summit to hear Jim Gatto speak on legal issues with Gamblification.

Due to "legal and regulatory pressure" Dublin-based Intrade will no longer accept bets from US customers and all existing US customers must exit their trades and close their accounts. Intrade operates a real-money based prediction market. This announcement from Intrade came just hours after U.S. regulators filed a civil complaint against it.  

This action is another example of how gambling and gambling related activities are being subject to regulatory scrutiny. This trend is important for companies to note, particularly as a broader range of companies get involved in on line gambling. This is also important for companies involved in "gamblification." Gamblification is the use of gambling mechanics for non-gambling purposes, i.e, leveraging the fun of gambling without real money at stake. Gamblification raises a whole host of legal issues, of which companies leveraging this phenomena must be aware.

The lawsuit was filed by the Commodity Futures Trading Commission, which accused Intrade and its parent company of violating its ban on off-exchange options trading, by enabling users to bet on predictions relating to commodities prices. But commodity trading is just one aspect of Intrade's business. Intrade's prediction market also enables users to bet on "predictions," ranging from who will win presidential elections or Academy Awards or whether a dictator will be toppled by a certain date.

"It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called "prediction" contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt," Enforcement Director David Meister said in a statement. However, the CFTC has previously rejected exchange applications from companies that wanted to sell options on political outcomes, because they involve gaming and are contrary to the public interest.

A number of US-based companies operate prediction market platforms that enable users to make predictions on a range of activities, but sports-related predictions are among the most popular.  However, most of these platforms do not enable users to wager and/or win real-money. Some use virtual currency that users "wager" in connection with a prediction, but usually the virtual currency cannot be cashed out. The "win" that keeps users coming back is the bragging rights for those who are most accurate in their predictions.

While many of these models steer clear of the gambling laws, they must be done right to avoid crossing the line. Getting it right is especially tricky when virtual goods and/or currency are involved. Pillsbury's social media team has prepared a client advisory on gamblification and the use of virtual goods/currency in these gamblification models. For a copy email us.

James Gatto, the leader of Pillsbury's SET Team, recently wrote about the increased trend of using contests, sweepstakes and gambling-like activities in social games and onling media, as creative models in Paybefore Magazine.

A few highlights:
Generating user excitement similar to the feeling of gambling, these strategies aim for balance to avoid crossing the line into illegal activity. While this is often avoided by not allowing a "cash-out" of the virtual currency, the legal issues with virtual currencies and virtual goods are complex, and lead to misunderstandings of what can and cannot be permitted. As these business opportunities continue to become popular, many social game, mobile app developers and companies in the gambling industry, are looking to utilizing them.

An example of a gambling company taking advantage of this new trend is with gambling equipment maker IGT. The company bought Facebook casino games developer, Double-Down for $500 million in January 2012. Many other companies are following in IGT's steps, as the $25 billion online gambling and social media worlds collide.

A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

Epic Games to make government training games

Of all the companies you'd expect to announce a big government partnership, a major video game studio is probably not at the top of your list. Nevertheless, Epic Games announced Tuesday that it has entered into a "long-term, multi-platform" deal with a division of Applied Research Associates to license the Unreal game engine for government use.

Royal Canadian Mint unveils MintChip virtual currency

Having revealed plans to ditch the Canadian penny last week, the Mint is continuing its assault on physical cash with MintChip, which it describes as the "evolution" of currency. The system brings all the benefits of cash into the digital age, claims a dedicated Web site, providing users with instant, private and secure access to their money.

Social Gaming Key for Advertisers in 2012

Did you know Internet marketers will spend upward of $271 million on social gaming ads in 2012? In-game advertising is the next big trend in the industry, with analysts expecting ad spend on social games to reach $900 million annually in less than three years. The stakes are higher than ever for brands as they budget ad spend on laptops, mobile devices, and consoles.

Gamification Platform BigDoor Raises $5 Million From Foundry Group

White label gamification platform BigDoor has raised $5 million in new funding led by existing investor Foundry Group, bringing BigDoor's total funding to $13 million. BigDoor's gamification platform essentially allows online publishers to add game mechanics to web interactions and engagements. BigDoor helps companies build game-like mechanics and loyalty programs into their sites or apps by enabling points, badges, levels, leaderboards, virtual currency and virtual goods.

Facebook, NRDC, Opower, & 16 Utilities Team Up to Create Social Gaming App

"With an initial reach of 20 million households, the effort is one of the most significant to date, enabling people to take action and become more energy efficient," NRDC said in a statement today. "Leveraging the Facebook platform, the app allows people to quickly and easily start benchmarking their home's energy usage against similar homes, compare energy use with friends, enter energy-saving competitions, and share tips on how to become more energy efficient."

Google Glasses Face Serious Hurdles, Augmented-Reality Experts Say

The Virtual Military

While much of the international system remains mired in the economic doldrums, many global military powers continue to increase defense budgets focused upon the research and development of simulation technologies. As part of our week-long focus on the importance of games to international relations and security, today we consider how Russia, China and the United States are using virtual simulators to train its armed forces.

Social game Idle Worship takes Facebook gaming to new level

Idle Games is launching a next-generation social game today dubbed Idle Worship. The title opens up a new genre on Facebook -- the once popular "god game" -- and it has an interesting and witty approach to social gameplay. Founded by former ad executive Jeffrey Hyman, San Francisco-based Idle Games is in a "holy war against games that suck or aren't actually social."

TrialPay and TubeMogul Introduce Real-Time Bidding for Virtual Currency and Social Video

TrialPay, a leader in transactional advertising, and TubeMogul, a media buying platform for brand advertising, announced a partnership that brings real-time media buying to social video advertising for the first time today.

Illinois legislation to ban employers from asking for social network passwords hits snag

Legislation that would prohibit employers from seeking job applicants' social network passwords is on hold in the Illinois House. Democratic Rep. La Shawn Ford's measure would allow job-seekers to file lawsuits if asked for access to sites like Facebook. Bosses could still ask for usernames that would allow them to view public information on the sites.

 Smithsonian Art Of Video Games Exhibit Opens With Gaming Festival

The exhibit is curated by Chris Melissinos of Past Pixels, a group charged with the preservation of video game history. Over the past year, Melissinos -- aided by a board of advisors that includes Double Fine's Tim Schafer, text adventure veteran Steve Meretzky, and Penny Arcade team Jerry Holkins and Mike Krahulik -- designed an exhibit that encourages visitors to make what Melissinos calls "a deeply personal decision" of whether video games are art. The exhibit offers five eras of video games with both playable demos and self-playing videos, showcasing everything from the Atari 2600 to the PlayStation 3, from the traditional platforming of Super Mario Bros. to the more experimental play of Flower.

Navy Pursues a Better Attack Submarine Virtually

Technical advances in the field of virtual reality, also known as virtual worlds (VWs), are making it possible for the U.S Navy to tap into the collective expertise of its best submariners to design and build the next generation of attack submarines. At the Naval Undersea Warfare Center (NUWC) in Newport, Rhode Island, designers are able to create collaborative environments for submarine development using a fully immersive virtual reality application similar to the popular Second Life environment, which enables them to interact with one another both audibly and visually. Numerous participants at remote sites worldwide are linked to one another through the Defense Department's secure computer network.

Gaming is a top priority for mobile-tech makers

"Gaming is now a 'need to have' category, not a 'nice to have' category for mobile devices, whether they be tablets or phones," said PJ McNealy, videogame analyst at Digital World Research. "The days of a single-function mobile device are long gone."

PixyKids raises $3M for a social media platform just for kids

PixyKids has raised $3 million to develop its social platform for kids ages six to 12. It is built on the idea that kids want to socialize, even though they're too young for Facebook. Kids can join PixyKids under their parents' supervision and can share experiences and pictures the way that adults do on Facebook. The company is betting that social networks, not virtual worlds or education sites, will resonate most with kids.

FanCake Debuts as First Live Social Gaming Experience for Sports Watching

Kwarter, a mobile application factory building apps that lie at the intersection of the social, mobile and TV spaces, announced today the launch of its first app, FanCake. FanCake turns live televised sporting events into interactive and social games, connecting millions of sports fans, teams, broadcasters, brands and athletes to enhance the game watching experience.

LVFH Launches Real Vegas Casino on Facebook

Las Vegas From Home.com Entertainment Inc. is pleased to announce the launch of its social casino product, Real Vegas Casino, on Facebook to the general public. It is expected LVFH will launch more games under the Real Vegas Casino brand shortly, coinciding with a specialized marketing campaign.

 French City Implements Virtual Currency to Avoid Financial Ruin

The French city of Nantes has plans to introduce its own virtual currency as a complement to the euro. By 2013, participating local businesses will be able to pay, or be paid in virtual currency units called "Nanto."

Olympic stars brought to life in world's first 'augmented reality hotel'

From today, guests at the Holiday Inn London Kensington Forum will be able to use their smartphones or tablets to see athletes in virtual action in the reception, corridors and bedrooms. When the devices are pointed at specific sites in the hotel, the athletes will appear on the screen. BMX World Champion Shanaze Reade can be seen performing tricks on her bike in the lobby, while Paralympic table tennis world number one Will Bayley hits table tennis balls behind reception.  Meanwhile, UK long-jump record holder Chris Tomlinson can be seen to jump in a corridor. And leading windsurfer Dempsey will - somewhat bizarrely - do his thing in the hotel's bedrooms using a bed sheet.