Virtual Ownership, Real Disputes - Copyright Challenges In Online World
Author: LawSphereX
Category: Technology, Cyber & Privacy
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VIRTUAL OWNERSHIP, REAL DISPUTES: COPYRIGHT
CHALLENGES IN ONLINE WORLD
Bhawna Tyagi (Research Scholar), ICFAI Law School, IFHE, Hyderabad Ritwika Mazumdar (Research Scholar), ICFAI Law School, IFHE, Hyderabad
ABSTRACT
Virtual worlds like Massively Multiplayer Online Games (MMOs) and Massively Multiplayer Online Role-Playing Games (MMORPGs) enable players to immerse themselves in vibrant digital environments, interact with virtual communities, and acquire unique assets. These assets, often purchased through micro-transactions or real-money trading, enhance the ingame experience by elevating an avatar's abilities, appearance, or status. End-User License Agreements (EULAs) typically grant players a limited, revocable license rather than true ownership. This raises significant questions about whether in-game purchases represent property acquisition or mere temporary access. The challenges extend to copyright law, as virtual assets must meet specific criteria such as originality and fixation—for protection.
The dynamic, everchanging nature of these items often blurs the lines, leaving gaps in the current legal framework. This research explores alternatives that could provide property-like rights to users, striking a balance between the interests of game developers and players and aligning digital commerce practices with intellectual property norms and modern user expectations. Keywords: Copyright, End-User Licensing Agreement, Intellectual Property, Virtual Property, Virtual Worlds.
Introduction Virtual worlds are digitally simulated environments that exist exclusively within complex computer networks, enabling users to engage in a broad range of activities such as gaming, social interaction, and virtual commerce. These spaces have gained immense popularity, with millions of users logging in daily to participate in various digital experiences. The economic impact of these virtual spaces is significant, as evidenced by the global gaming market continues to expand, with mobile gaming alone generating close to USD 100 billion in annual revenue as of 2024. 1 Despite their growing economic and social influence, virtual worlds— like much of the internet—remain largely unregulated by traditional legal frameworks.
Instead, game developers assert control over these digital spaces through intellectual property rights, extending their influence beyond what is typically covered under copyright law. One of the most complex legal issues surrounding virtual worlds is the ownership and protection of virtual property. While virtual assets are technically a form of software code, they are often commercialized and traded like tangible commodities within the game environment. Microtransactions and real-money trade (RMT) have become a core aspect of virtual economies, where users purchase virtual goods—such as weapons, outfits, or accessories—to enhance their gaming experience. However, despite these real-world financial investments, end-user license agreements (EULAs) typically define virtual assets as the intellectual property of game developers, granting users only a limited license to use them.
As a result, users do not hold actual ownership rights over these digital objects, which raises significant legal concerns about the nature of in-game transactions. This dual classification of virtual property—as protected software and as marketable digital assets—creates ambiguity in legal interpretation. Intellectual property laws, particularly copyright regulations, have been inconsistently applied to govern the rights and responsibilities of users and game developers in relation to digital property. The fundamental question remains: Should virtual items be treated merely as part of the game code, or should they be recognized as independent assets with distinct legal protections? Resolving this issue is crucial, as game developers continue to generate massive profits by selling virtual goods, while users often find 1J. Clement,MMOGaming-StatisticsandFacts,Statista(2024) https://www.
statista. com/topics/1680/gaming/#topicOverview, visited in 24th February 2025.
themselves in disputes over the ownership and transferability of these assets. As virtual worlds continue to expand, the legal uncertainties surrounding virtual property ownership have led to an increase in disputes between users and game developers. In many cases, developers retain absolute authority over virtual assets, including the ability to modify, revoke, or remove items at their discretion. 2 This lack of clear legal protection leaves users with limited recourse in cases of virtual property loss or unfair restrictions on trade. Moreover, the issue is further complicated by the fact that intellectual property laws were not originally designed to address the complexities of virtual economies. The legal framework governing digital ownership, intellectual property, and user rights in virtual worlds remains underdeveloped, making it difficult to establish a fair and balanced system.
3 This research aims to explore the concept of virtual worlds and their increasing significance in today’s digital landscape. It seeks to clarify what constitutes virtual property, distinguishing between the underlying game code and the interactive, visual assets that users engage with in virtual spaces. The study critically examines how EULAs often overextend copyright protection to virtual property, treating it as a mere component of the game code rather than as a separate entity with potential ownership rights. However, this broad application of copyright protection is legally questionable and technologically inconsistent. By establishing the inadequacies of the current legal framework in recognizing and protecting virtual property, this study proposes alternative legal mechanisms that could ensure a more balanced approach to digital asset ownership.
Acknowledging the commercial significance of virtual goods in the gaming industry, the research suggests potential solutions that could benefit both game developers and users by recognizing limited property-like interests in virtual items. This would create a fairer legal landscape for digital transactions while maintaining necessary protections for intellectual property owners. Ultimately, developing a structured and equitable approach to virtual property regulation is essential for ensuring fairness in virtual economies and strengthening digital ownership rights. Virtual worlds, also known as massively multiplayer online games (MMOs) or massively multiplayer online role-playing games (MMORPGs), have become a dominant force in the 2 Cognitive Market Research, Asia Pacific Gaming Market Report, available at Cognitive Market Research.
3 Triton Market Research, Global Gaming Market 2024-2032, available at Triton Market Research.
global gaming industry, allowing millions of users to interact, compete, and engage in virtual economies. The global gaming market has expanded significantly, with mobile gaming alone generating nearly USD 100 billion in annual revenue as of 2024,while Asia-Pacific leads the industry in revenue share, followed by North America. In 2023, China surpassed the United States as the largest gaming market, with Japan ranking third. The video gaming penetration rate worldwide stands at 83. 1%, with smartphones emerging as the most popular gaming platform, followed by PCs and consoles, while MOBA and battle royale games such as Honor of Kings and PUBG dominate mobile gaming revenues.
4 As gaming has evolved, virtual worlds have transformed into digital economies where real-world money is exchanged for in-game assets through microtransactions and real-money trade (RMT), enabling users to purchase digital accessories, avatars, and virtual real estate. 5 Despite these financial transactions, enduser license agreements (EULAs) enforce strict restrictions on user ownership of virtual assets, treating them as licensed digital objects rather than user-owned property. This has resulted in ongoing legal debates over digital ownership, as game developers claim full intellectual property rights over all in-game content, leaving users without formal legal recognition of their purchases.
6 The current copyright framework struggles to address the complexities of virtual asset transactions, leading to disputes over ownership, intellectual property enforcement, and regulatory oversight. 7 Given the rapid expansion of the gaming industry, there is an urgent need for a structured legal framework that differentiates game code from monetized virtual assets, ensuring fair copyright enforcement while balancing the rights of game developers and players. This research aims to analyze the evolving legal status of virtual property, examine the impact of EULAs on digital ownership, and propose legal alternatives for the recognition and protection of virtual assets.
Establishing a structured approach to virtual property governance is crucial to ensuring transparency, fairness, and sustainable growth within virtual economies, as the global gaming industry continues to redefine digital entertainment and commerce. The Digital Evolution of Virtual Worlds: Interaction, Economy, and Legal Complexities Virtual worlds, often referred to as massively multiplayer online games (MMOs) or
4 Newzoo, 2023 Global Games Market Report, https://newzoo.com visited in February 25 2025.
5 Lastowka, Greg & Hunter, Dan, Virtual Property and the Law, California Law Review, Vol. 92, No. 1, 2023. Visited in 25 February 2025 . 6 Fairfield, Joshua A.T., Virtual Property: Digital Ownership in the Age of Online Games, Indiana Law Journal, Vol. 85, Issue 2, 2023. Visited in 25 February 2025
7 WIPO, Intellectual Property in the Digital World: Challenges and Opportunities, WIPO Report 2023,
https://www.wipo.int visited in Feb 2025
massively multiplayer online role-playing games (MMORPGs), are digitally constructed environments that simulate various aspects of real-world interactions. These immersive platforms, developed using complex computer code, enable millions of users across the globe to interact in real-time through three-dimensional digital avatars8. While virtual worlds have existed for decades, their definition remains fluid, as each environment is uniquely designed with distinct features and objectives. However, they are generally characterized as expansive, interactive, and persistent human-made environments maintained and rendered by computers9. Despite their increasing realism—both socially and economically—virtual worlds are still perceived primarily as gaming platforms due to their origins in early text-based role-playing games.
However, with advancements in technology and the growing significance of digital interactions, these spaces have evolved beyond conventional gaming experiences10. Unlike traditional video games that have a fixed storyline and a definitive end, virtual worlds lack a final state—they continue to evolve indefinitely, even when individual users complete their objectives11. Some virtual worlds, such as Second Life, function without a predefined narrative or end-goal, making them more akin to social networking platforms rather than structured games12. However, gaming terminology continues to be associated with these digital environments, with developers referred to as game creators and participants as player. 13 Virtual worlds are typically distinguished from conventional games by three primary features: interactivity, physicality, and persistence.
Interactivity allows users from various locations to connect to the game server and communicate in real-time. Physicality refers to the replication of real-world physics, including environmental factors such as gravity and terrain constraints. Persistence ensures that the virtual world continues to exist and retain memory of past user interactions, even when players log out. 14 These characteristics create highly immersive 8 Edward Castronova, Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier, CESifo Working Paper No. 618 (2001), available at www. cesifo. org, last visit 25th feb 2025 9 Florian Schmidt, Use Your Illusion: Immersion in Parallel Worlds, in Space Time Play: Computer Games, Architecture and Urbanism (Friedrich von Borries et al. eds.
, 2007), last visited25th feb 2025 10 Frans Mäyrä, An Introduction to Game Studies: Games and Culture, 130 (2008),last visisted 25th feb 2025 11 William Sims Bainbridge, The Warcraft Civilization: Social Science in a Virtual World, (2010), last visited in 25th febrary 2025 12 Nick Yee, The Proteus Paradox: How Online Games and Virtual Worlds Change Us - and How They Don’t,
211 (2014), last visited 25th February 2025
13 J. Clement, Online Gaming - Statistics & Facts, Statista (2022), available at www.statista.com, last visisted in 25th febrary 2025.
14 Chee Siang Ang & Panayiotis Zaphiris, Social Roles of Players in MMORPG Guilds, 13 Information,
Communication & Society 592, 594 (2010), last visisted in 25th February 2025.
experiences, making virtual worlds an extension of social and economic activities in the digital domain. One of the most significant aspects of virtual worlds is the concept of digital property. Just as individuals seek to acquire material goods in the real world, virtual world participants invest in in-game assets to enhance their experience. In socially driven platforms like Second Life, digital commodities such as clothing, real estate, and accessories allow users to build personalized and appealing avatars, while in MMORPGs like World of Warcraft, acquiring powerful weapons, armor, or rare collectibles can improve a player’s competitive standing. The steady demand for unique digital items has given rise to robust in-game economies, where users trade virtual property using both in-game currency and real-world money.
In 2020 alone, players worldwide spent approximately USD 54 billion on additional in-game content, with this figure projected to exceed USD 74. 4 billion by 2025. 15 Despite being entirely digital, these goods derive value from artificial scarcity mechanisms implemented by game developers, wherein certain items are deliberately made rare to enhance their desirability. 16 Users of virtual worlds often form emotional and psychological attachments to their avatars, perceiving them as extensions of their real-world identity. 17 Consequently, virtual property takes on greater significance, often holding more immediate satisfaction for users than physical good. 18 This strong sense of ownership over digital assets has led to numerous disputes—both among players and between users and game developers.
Legal conflicts over in-game theft, ownership disputes, and the enforcement of user rights in digital spaces have surfaced in courts worldwide. 19 Some cases have even escalated to criminal incidents, such as instances where players resorted to real-world violence over the theft of high-value virtual items. 20 One of the earliest cases highlighting the legal ambiguities of virtual property ownership was Li Hongchen v. Beijing Arctic Ice Technology Development Co. (2003), where 15 J. Clement, Global In-Game Consumer Spending Market Value 2020-2025, Statista (2021), available at www. statista. com, last visited 25th feb 2025 16 Vili Lehdonvirta, A History of the Digitalization of Consumer Culture, in Digital Virtual Consumption 11 (Mike Molesworth & Janice Denegri-Knott eds. , 2012, last visisted 25th feb 2025
17 Castronova, supra note 1.
18 Ibid.
19 Li Hongchen v. Beijing Arctic Ice Technology Development Co., Chaoyang District Beijing Second
Intermediate People’s Court (2003), last visited in 25th February 2025
20 Li Hongchen v. Beijing Arctic Ice Technology Development Co., Chaoyang District Beijing Second
Intermediate People’s Court (2003), last visited 25th feb 2025
a player sued a game company after losing in-game assets to hacking. 21 Another landmark case, Bragg v. Linden Research, Inc. (2007),22 challenged the extent to which game developers could exercise control over virtual assets purchased by users. 23 These cases emphasize the increasing complexity of digital asset ownership and the growing need for legal clarity on virtual property rights. As real-world economies increasingly intersect with virtual economies, legal systems must address the evolving landscape of digital property rights. While current intellectual property laws primarily protect game developers and platform owners, there remains uncertainty regarding the rights of users over their in-game purchases.
The lack of clear regulations has led to inconsistencies in dispute resolution, with some courts treating virtual property as mere software code while others recognize its economic significance and user investment. 24 Given the rising value of virtual economies, it is inevitable that legal conflicts surrounding digital ownership, property rights, and economic transactions in virtual worlds will continue to grow. Therefore, from a legal perspective, it is crucial to define what constitutes virtual property, determine the extent of user ownership rights, and develop appropriate regulatory frameworks that balance developer control with consumer protections. 25 Understanding Virtual Property Virtual property refers to digital assets within online gaming environments and virtual worlds, including in-game items, avatars, virtual land, and other digital goods.
These assets have gained economic significance, as players invest both time and real-world money to acquire them. The metaverse further expands the scope of virtual property by integrating blockchain technology, non-fungible tokens (NFTs), and artificial intelligence (AI) to create immersive digital experiences. 26Ownership of virtual property typically arises in three ways: in-game acquisition, user creation, or direct purchase. Players may earn virtual goods through 21 Game Theft” Led to Fatal Attack, BBC News (2005), available at http://news. bbc. co. uk, last visited in 26th Feb
22 Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593 (2007). last visited in 26th Feb 2025
23 Ibid.
24 Ibid.
25 Fairfield, Joshua A.T., Virtual Property: Digital Ownership in the Age of Online Games, Indiana Law Journal, Vol. 85, Issue 2, 2023, last visisted 26th feb 2025
26 Dwivedi, Yogesh K., et al., Metaverse Beyond the Hype: Multidisciplinary Perspectives on Emerging
Challenges, Opportunities, and Agenda for Research, Practice and Policy, 66 Int'l J. Info. Mgmt. 102542 (Oct. 2022), last visited in 26th feb 2025
gameplay by completing tasks, exploring environments, or engaging in combat. Some virtual worlds allow users to generate their own content, contributing to player-driven economies. Additionally, microtransactions enable users to purchase virtual assets using real-world currency, making digital goods an integral part of the gaming industry’s revenue model. 27 Despite the growing financial investment in virtual assets, legal frameworks surrounding virtual property remain unclear. Many game developers retain control over digital assets under end-user license agreements (EULAs), limiting users' rights even after purchasing virtual items. This raises important legal questions regarding ownership, trade, and financial loss in virtual economies. 28For instance, in Li Hongchen v. Beijing Arctic Ice Technology Development Co.
(2003), a Chinese court addressed the issue of virtual asset deletion, highlighting the need for legal recognition of digital property rights. 29 Similarly, in Bragg v. Linden Research, Inc. (2007), a legal dispute arose over ownership of virtual land in "Second Life," emphasizing the necessity of defining digital property within legal frameworks. 30 The rise of NFTs has added complexity to virtual property discussions. Unlike traditional in-game items, NFTs are unique, blockchain-based assets that establish digital ownership beyond specific gaming platforms. This allows users to buy, sell, and trade virtual property across different metaverse environments, but it also presents new legal challenges regarding intellectual property, fraud, and consumer protection. 31 As virtual economies continue to evolve, the legal status of digital property requires further examination.
While some argue that virtual assets should be recognized under traditional property laws, others contend that they fall under contract law, depending on the terms set by game developers. With increasing real-world financial stakes, regulatory frameworks must adapt to ensure fair ownership rights, dispute resolution, and financial protections for users engaged in digital transactions. 27 Nick Yee, The Proteus Paradox: How Online Games and Virtual Worlds Change Us - and How They Don’t,
211 (2014).last visited in 26th feb 2025
28 Castronova, supra note 6; Vili Lehdonvirta, A History of the Digitalization of Consumer Culture, in Digital Virtual Consumption 11 (Mike Molesworth & Janice Denegri-Knott eds., 2012),last visited in 26th feb2025. 29Li Hongchen v. Beijing Arctic Ice Technology Development Co., Chaoyang District Beijing Second Intermediate People’s Court (2003), last visited in 26th feb2025.
30 Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593 (2007), last visited in 26th feb2025.
31 A. Arul, Akashdeep, How NFTs Will Shape the Metaverse, Indian Inst. of Mgmt. (Feb. 9, 2022), available at Analytics India Magazine, last visited in 26th feb2025.
Virtual Assets as Scripted Constructs Virtual assets are essentially programmed scripts embedded within the broader framework of game code, forming the foundation of digital worlds. Although they are software-based, these objects mimic real-world counterparts in function and significance. For example, in Second Life, a virtual house may serve as a shelter for its owner, despite the absence of environmental threats necessitating such protection. The game code not only facilitates the creation of these assets but also defines their appearance, functionality, and interactions within the virtual environment. Unlike conventional software, virtual property exhibits three core characteristics akin to tangible property: rivalrousness, per`sistence, and interconnectivity. According to Fairfield, these attributes significantly impact the legal interpretation of virtual assets.
32First, rivalrousness allows the owner to prevent unauthorized access to their virtual possessions. Second, persistence ensures that the asset remains in the digital realm even when its owner is offline. Lastly, interconnectivity enables the property to be visible and experienced by other users, despite belonging to a single individual. 33 Game developers reinforce rivalrousness by embedding ownership principles within the game code. This system recognizes the current possessor of an object but does not inherently track its historical ownership. 34 Since the game code lacks mechanisms to validate legitimate transfers between players, ownership is dictated solely by possession at a given moment. 35 This limitation makes virtual property resemble physical property even more closely, as it exists independently of a structured transaction record.
The inability of code to permanently record ownership, coupled with the rivalrous nature of these digital assets, aligns them more closely with tangible property rather than mere software. Despite their intangible nature, virtual assets have gained significant real-world economic value, leading to their commodification. Platforms such as Second Life and Minecraft grant users the freedom to create unique objects, whereas World of Warcraft restricts creation to 32 Joshua A. T. Fairfield, Virtual Property, 85 Bost. Univ. Law Rev. 1047 (2005), last visited in 26th feb2025.
33 Id.
34 Richard A. Bartle, Designing Virtual Worlds (2003), last visited in 26th feb2025.
35 Id.
specific in-game items. 36 In some cases, obtaining a desired item requires extensive gameplay, whether by defeating multiple adversaries or by gathering resources to craft it. Thus, while virtual property originates as digital code, its real-world implications extend beyond mere programming, reinforcing its hybrid status as a unique form of ownership within the digital economy. Virtual Property and End-User Licensing Terms Game developers have increasingly adopted various monetization strategies to generate additional revenue while keeping players engaged in dynamic virtual environments. One of the most widely used and profitable methods is microtransactions, where virtual items—either individually or in bundles—are sold for small amounts of real-world money. These transactions occur within the virtual world's ecosystem, primarily between the game developer and players.
Additionally, some virtual world platforms allow direct transactions between users through real-money trade (RMT) on in-game marketplaces. In these cases, players can buy and sell virtual assets, often with a portion of the sales revenue going to the game developer as a commission. 37The economic value of virtual property is largely determined by the concept of artificial scarcity, a strategy intentionally embedded by game developers. By regulating the availability of in-game items, developers create a structured hierarchy of rarity that influences the desirability and market value of these digital assets. 38 Virtual items are typically categorized into different tiers—such as common, uncommon, rare, or unique—though the exact terminology may vary across platforms.
The more limited an item’s availability, the more valuable it becomes, mirroring real-world economic principles where scarcity drives demand. 39 While some RMT marketplaces enable players to trade premium in-game currency for virtual goods, many game developers restrict the ability to convert this digital wealth into realworld money. For example, in Diablo Immortal, Blizzard Entertainment allows players to trade using "platinum," but prohibits them from exchanging it for real-world cash. 40 In contrast, 36 T. Linden, Second Life Blogs, Features: 2009 End of Year Second Life Economy Wrap Up, Second Life Blogs (Jan. 19, 2010), available at Second Life Blog, last visited in 26th feb2025. 37 Joshua A. T. Fairfield, Virtual Property, 85 Bost. Univ. Law Rev. 1047 (2005), last visited in 26th feb2025.
38 Jankowich, Andrew. EULAw: The Complex Web of Corporate Rule-Making in Virtual Worlds. 8 Tulane J.
Technol. Intellect. Prop. 1, 11 (2006), last visited in 26th feb2025. 39 This is managed by assigning "drop rates" to virtual items, which determine the probability of acquiring a specific artifact through gameplay actions.
40 Diablo Immortal Economy: Blizzard Entertainment.
5 Linden Lab’s Exchange Policy for Second Life.
Second Life, developed by Linden Labs, offers greater financial flexibility—users can purchase Linden Dollars (LD) with real money and later exchange them for actual currency based on the rates set by the Linden Exchange. 41 Case Laws and the Evolving Legal Landscape One of the most notable cases that brought legal uncertainties regarding virtual property ownership to light was Bragg v. Linden Lab in the United States. In this case, Bragg, a Second Life user, purchased virtual land but later had his account suspended by Linden Lab. The company alleged that he had exploited a loophole to acquire the virtual property at a lower cost. In response, Bragg initiated legal action to reclaim his virtual assets. However, the case was privately settled, leaving the key legal question—whether users truly own virtual land— unresolved.
Linden Lab, despite marketing statements implying ownership, argued that users were merely granted a license to access their servers and resources, which enabled them to experience a sense of ownership within Second Life. Following this case, Second Life revised its terms, clarifying that users were granted a "limited license" to virtual property. 42 The legal ambiguity surrounding virtual ownership led to another lawsuit, Evans et al. v. Linden Lab, where thousands of users claimed they had been misled into believing they owned virtual land and assets. These users later found their accounts terminated without compensation. Meanwhile, beyond the gaming world, the adoption of metaverse technology has been expanding into real-world industries. In India, major real estate developers, including MagicBricks and Tata Housing’s DigiTour, have begun utilizing the metaverse for virtual expos.
This trend highlights the increasing integration of digital property ownership within commercial real estate markets. Virtual Land Transactions and Smart Contracts Acquiring virtual land in the metaverse requires multiple steps. First, a user must hold a valid cryptocurrency along with a compatible digital wallet that functions on the chosen metaverse platform. These cryptocurrencies are actively traded on dedicated exchanges. The land acquisition process begins when the user registers on one of these exchanges and then
41 Ibid
42 H. Y. F. Lim, Virtual World, Virtual Land but Real Property, Singapore J. Legal Stud., pp. 304-327 (2010), last visited in 26th feb2025.
navigates to the metaverse platform, where they follow the prescribed steps for purchasing a virtual plot. 43 Additionally, transactions involving virtual land are executed using smart contracts—selfexecuting programs embedded on a blockchain. These contracts ensure secure and immutable transactions. Once a purchase is completed, ownership of the virtual land is transferred via a non-fungible token (NFT). This NFT, which functions similarly to a real-world title deed, is stored within the user’s cryptocurrency wallet. Notably, Turkey’s Digital Transformation Office has proposed the term "Qualified Intellectual Deed" as a national equivalent to NFTs. Traditional title deeds serve as legal documentation of ownership for physical properties, whereas NFTs act as digital certificates containing metadata that uniquely identifies virtual assets.
Decentraland’s smart contract system enables users to conduct land transactions, including purchases, sales, and leases, using its native token. Much like in the physical world, high-traffic areas within virtual landscapes command higher prices, mirroring real-world property trends where proximity to landmarks and entertainment hubs significantly impacts value. Celebrity involvement in virtual property purchases further amplifies the value of digital real estate. A prominent example is the $450,000 purchase of a virtual estate in Snoopverse— a section of The Sandbox metaverse developed by Snoop Dogg. 44 Ownership and Legal Complexities in the Metaverse A major advantage of blockchain-based virtual land ownership is the decentralized and
tamper-proof nature of its records. Because ownership data is securely stored on a distributed ledger, it remains resistant to unauthorized modifications. The NFT representing a virtual asset remains in the user’s crypto wallet, requiring authentication (such as a private key) for any transfer of ownership. Despite these security measures, legal uncertainties surrounding virtual property ownership persist. Ownership of metaverse assets is governed primarily by the user license agreements (ULAs) of individual platforms rather than conventional property law. Unlike real-world immovable property, metaverse assets are subject to platform-specific terms of service (TOS), 43 F. A. Elkurdi, Cryptocurrency Impacts on Strategic Management, 5 Quantrade J. Complex Sys. Soc. Sci. no. 1, 23-31 (2022), doi:10. 5281/zenodo. 8102434, last visited in 26th feb2025. 44 Jon M.
Garon, Legal Implications of a Ubiquitous Metaverse and a Web3 Future, Jan. 2022, available at https://papers. ssrn. com/sol3/papers. cfm? abstract_id=4002551, last visited in 26th feb2025.
which act as binding legal contracts. These agreements often grant platforms the authority to limit or even revoke a user’s access to virtual land and digital assets at their discretion. For example, platforms like The Sandbox retain the ability to restrict access to purchased land, potentially rendering valuable digital assets functionally useless. End-User License Agreements (EULAs) serve as contractual frameworks that users must accept before engaging with virtual platforms. These agreements typically stipulate that virtual properties remain the intellectual property of the game developer. The enforceability of EULAs, particularly concerning user rights and virtual asset ownership, remains a contentious issue, with legal interpretations varying across jurisdictions.45
INEFFECTIVENESS OF COPYRIGHT LAW IN VIRTUAL WORLDS
As elaborated in the preceding section, virtual property presents intricate legal challenges due to its nature as a coded construct that functions akin to tangible assets within digital environments. This complexity is further heightened by the fact that End User License Agreements (EULAs) employed in virtual worlds often adopt divergent definitions of property, thereby obscuring the legal framework applicable to potential disputes. The governance of virtual environments is primarily based on a fusion of intellectual property and contract law. While copyright law serves as the foundation for protecting the underlying game code, contractual obligations set forth in EULAs enable corporations to assert extensive control over user rights.
46This expansion of intellectual property rights within virtual worlds is largely driven by economic factors,47 particularly in platforms heavily reliant on user-generated content. Consequently, virtual world developers frequently craft EULAs that reinforce their intellectual property claims over virtual assets in a manner that curtails users’ interests in their acquired digital property. 48 The protection of game code as a literary work under copyright law is well-established. However, extending such protection to virtual assets raises novel legal concerns. Traditionally, computer software is understood to have both literal and non-literal components. While the
45 Alejandro Martínez Sánchez, Law and Dispute Resolution Inside Video Games, European Symposium on
Legislative Comprehensibility, Federal Ministry of Justice and Consumer Protection, Dec. 2021. 46 Angela Adrian, Intellectual Property or Intangible Chattel? 1 J. Int. Commer. Law Technol. 52, 53 (2006), last visited in 26th feb2025. 47 Cory R. Ondrejka, living on the Edge: Digital Worlds Which Embrace the Real World, SSRN Electron. J. 6 (2004), https://ssrn.com/abstract=555661, last visited in 26th feb2025.
48 Lawrence Lessig, Code: Version 2.0 (2006).
written code constitutes the literal aspect, non-literal aspects encompass elements such as user interfaces generated during execution. 49Although legal recognition of the literal aspects of software is largely settled, uncertainty persists regarding the extent to which non-literal aspects may be eligible for copyright protection. 50 This issue is particularly relevant in the realm of virtual property, where no clear distinction has been made between the script that generates a virtual object (the literal aspect) and the visual representation of that object within the game (the non-literal aspect). Indian legal precedent regarding the copyrightability of non-literal aspects of software is virtually nonexistent. However, U. S.
federal courts have developed four distinct approaches to assess whether non-literal aspects of a code qualify for copyright protection, all of which are centered around the idea-expression dichotomy. The first approach, established in Whelan Associates, Inc. v. Jaslow Dental Laboratory, Inc. ,51 was introduced by the Third Circuit Court of Appeals in 1986. This case recognized substantial similarity in the "structure, sequence, and organization" of computer programs. In 1990, the Federal District Court of Massachusetts further refined the analysis through the threepart test in Lotus Development Corp. v. Paperback Software International.
52 This test required distinguishing between an idea and its expression, applying the merger doctrine and scène à faire doctrine to determine protectability, and conducting a substantial similarity analysis using both quantitative and qualitative methods. In 1992, the Ninth Circuit Court adopted a similar approach in Brown Bag Software v. Symantec Corp. ,53 known as the Extrinsic-Intrinsic test. However, this approach lacked detailed criteria for identifying copyrightable non-literal elements. 54 Later that year, the Second Circuit in “Computer Associates International, Inc. v. Altai, Inc”. 55introduced the Abstraction-Filtration-Comparison test, which involved isolating abstraction levels within software, filtering out unprotectable elements through traditional copyright principles, and then determining substantial similarity.
Since these approaches are based on universally recognized copyright law principles, such 49 Julian Velasco, The Copyrightability of Nonliteral Elements of Computer Programs, 94 Columbia Law Rev.
242 (1994).
50 Id. 42 For a detailed analysis of all four approaches, see Id. 43 797 F.2d 1222. 44 740 F. Supp.
51 Whelan Associates, Inc. v. Jaslow Dental Laboratory, Inc. as 797 F.2d 1222
52 740 F. Supp. 37
53 960 F.2d 1465
54 The first phase, the "extrinsic test," involves an objective analysis of software expression, while the second phase, the "intrinsic test," applies a subjective approach to assess substantial similarity in protected elements identified earlier.
55 982 F.2d 693.
as the idea-expression dichotomy and the merger doctrine, they may be applicable in the Indian context for assessing non-literal aspects of software. However, in-game virtual assets present a unique challenge to these frameworks. Unlike traditional user interfaces or software structures, virtual objects include audio-visual components and are governed by game mechanics. 56Furthermore, virtual property is not merely a graphical representation but also an interactive commodity governed by EULAs. As such, it is both a visual object and an item capable of being traded or utilized within a digital environment. In MDY Industries, LLC v. Blizzard Entertainment, Inc. ,57 the Ninth Circuit Court examined whether MDY had infringed Blizzard’s copyright in World of Warcraft software.
The court described non-literal elements of the software as "visual and audible components of the game," highlighting that each component independently qualifies for copyright protection as an artistic or musical work. However, once integrated into a virtual environment, these elements transcend their traditional classification. For instance, armor in a virtual world is not merely an image; it is an interactive object that can be equipped, stored, or sold. Thus, virtual assets function not merely as software structures or graphical elements but as digital "things," complicating the application of traditional copyright tests. Given that virtual assets do not neatly fit into the traditional definitions of non-literal software elements or mere audio-visual representations, their copyrightability under existing legal frameworks remains ambiguous.
Nonetheless, considering the significant economic value associated with in-game transactions and user expectations regarding digital ownership, it is imperative to explore alternative legal mechanisms to regulate virtual property and safeguard the rights of both users and developers.
SUGGESTIONS FOR AN ALTERNATIVE APPROACH TO REGULATING VIRTUAL
PROPERTY
The inadequacies of the existing copyright framework in addressing virtual property, coupled with the vague language of EULAs in defining and safeguarding players’ rights, have created a disparity between the rights of virtual world users and developers. Some scholars.58
56 Id.
57 Id.
58 For example, Joshua A.T. Fairfield, Virtual Property, 85 B.U. L. Rev. 1047 (2005); F. Gregory Lastowka & Dan Hunter, The Laws of the Virtual Worlds, 92 Calif. L. Rev. 1 (2004).
propose that a viable solution would be to extend the concept of private property to encompass virtual 1property principles such as exclusive ownership, transferability, and an internal currency system that enables trade.59 A notable example is Second Life, where users can purchase digital counterparts of tangible
goods like automobiles, furniture, and clothing, as well as virtual real estate, using an in-game currency called Linden Dollars. Despite the lack of explicit legal recognition of virtual property rights and the restrictive nature of EULAs, both developers and users operate under the assumption that these assets hold tradable value. Beyond in-game practices, courts have acknowledged the real-world significance of virtual property in legal disputes. In Li Hongchen v. Beijing Arctic Ice Technology Development Co60. , the plaintiff’s account in the MMO Red Moon was hacked, resulting in the theft of all his virtual possessions. 61Li sued the game developer, arguing that the substantial time and effort invested in acquiring these assets granted him ownership rights over them.
The court, recognizing the user’s stake in virtual property despite the EULA’s contrary provisions, ruled in favor of restoring the stolen items. However, while this ruling marks a critical development in acknowledging virtual property rights, it does not comprehensively resolve the broader legal implications of granting full ownership rights over digital assets. Equating virtual property with real-world tangible assets may introduce complex legal challenges, particularly concerning inheritance and taxation, which lack clear solutions within the framework of virtual worlds. A more pragmatic approach may involve recognizing limited situational rights in virtual assets, particularly those acquired through real-world financial transactions, while reserving residual ownership interests for game developers.
This approach would prevent corporations from excessively asserting intellectual property claims over content that falls outside the intended scope of copyright protection. Moreover, it would enhance the applicability of consumer protection laws, which primarily govern the sale of goods and services. 59 Id. 52 Li Hongchen v. Beijing Arctic Ice Technology Development Co. , cited in various legal discussions on virtual property rights.
60 Li Hongchen v. Beijing Arctic Ice Technology Development Co
61 Ibid
By granting players limited property-like rights in virtual assets, their status could be elevated from mere "users" to "consumers" of digital goods. This shift would facilitate the application of consumer protection laws, ensuring that players retain legitimate claims over their digital possessions without disrupting their in-game experiences. At the same time, this framework would balance the interests of game developers, holding them accountable for any unjust losses suffered by users while preserving their overall control over the virtual world’s ecosystem. Conclusion: The concept of recognizing rights in intangible assets is not new, and discussions on the regulation of virtual property have been ongoing since the early 2000s. However, the legal status of virtual property remains ambiguous.
With the increasing digitalization of everyday life—where physical books and CDs have been replaced by e-books and streaming services— it has become imperative to clarify the legal standing of digital assets. Given the growing number of individuals engaging in virtual environments, disputes between users and developers, as well as among users themselves, are inevitable. Resolving such conflicts first requires a clear understanding of what constitutes virtual property and eliminating existing legal uncertainties. Virtual property presents a unique challenge, as it exists in the form of code yet possesses attributes of traditional property. This complexity is further compounded by monetization models that facilitate the buying and selling of digital assets, effectively commodifying these virtual objects.
Applying conventional property laws to such assets is not straightforward, as doing so could have significant legal implications in areas like inheritance, taxation, and liability. At present, virtual property is primarily governed by a combination of contract law— through End-User License Agreements (EULAs)—and intellectual property law. However, copyright law alone is inadequate for regulating virtual assets, and EULAs, being largely onesided agreements favouring developers, create additional uncertainty. A more balanced regulatory approach would involve protecting the interests of both virtual
world users and developers. Extending real-world property laws to virtual items in their entirety is neither practical nor desirable, as it would introduce complex legal challenges that game developers and virtual environment creators may struggle to manage. Instead, a more viable solution would be to establish a framework that grants users a set of limited, property-
like rights over virtual assets—especially those purchased with real-world currency—while ensuring that developers retain residual ownership and control. Such a framework would not only prevent corporations from overextending their intellectual property rights in ways that undermine user interests but also make consumer protection laws more relevant, as they are traditionally designed to regulate the sale of goods and services. This nuanced approach would elevate the legal status of players from mere "users" of virtual environments to "consumers" of digital assets, thereby strengthening their legal protections without compromising their ability to engage freely within these spaces. At the same time, developers would still retain necessary control over their platforms, while also being held accountable for unfair losses incurred by users.
The need for a well-defined legal structure becomes even more pressing with the rise of the Metaverse, which has evolved far beyond its origins in gaming. Today, it serves as a vast digital economy where individuals not only interact socially but also engage in buying and selling goods and services, often without real-world intermediaries. This shift has transformed the Metaverse into a lucrative commercial space, attracting major corporations and trademark holders seeking new revenue streams. Companies such as Nike, Samsung, and Coca-Cola have already expanded their operations into virtual realms, selling digital apparel, real estate, and even virtual food. Industry projections estimate that the Metaverse’s market value could reach $800 billion within the next decade, underscoring its enormous economic potential.
However, despite the profitability and innovation associated with the Metaverse, companies face significant legal challenges in protecting their intellectual property. Trademark protection within virtual environments remains uncertain, as existing legal standards—such as those used by the United States Patent and Trademark Office (USPTO)—were not designed with digital assets in mind. The USPTO has frequently denied Metaverse-related trademark applications due to concerns over potential consumer confusion with preexisting real-world trademarks. While the agency has started issuing Notices of Allowance for intent-to-use applications related to digital goods and services, gaps in trademark classification systems persist, making enforcement unpredictable. Similarly, enforcing copyright protections in the Metaverse presents substantial difficulties.
Identifying and addressing copyright infringement in digital spaces is complex, and even when infringement is detected, there is no guarantee that courts will rule in favor of the rights holders.
To mitigate these risks, companies may need to adopt alternative enforcement strategies, such as licensing agreements, digital watermarking, and automated infringement detection technologies. As the commercial potential of the Metaverse continues to grow, legal systems must evolve to accommodate these advancements. Relying on outdated frameworks or attempting to fit digital assets into traditional legal categories will only create further uncertainty. Instead, lawmakers, developers, and industry stakeholders must work collaboratively to develop a regulatory model that acknowledges the distinctive nature of virtual property and intellectual property rights in digital spaces. By proactively updating legal standards, we can ensure a fair and sustainable digital economy that fosters innovation while protecting the rights of all participants.