Stop converting my skins! What does the Law Commission Final Report on Digital Assets tell us about in-game items?

 

Introduction

The ubiquity of in-game items is well-known, as are the potential legal and regulatory challenges relating to gambling, advertising, age-appropriate design, data privacy and consumer rights.¹ The paradigm shift in the video game market towards the “free to play” revenue model has placed additional emphasis on the sale of in-game items to generate returns on investment. Whilst a highly lucrative market, certain legal issues and risks can arise when players are prevented from accessing/using their purchased in-game items.

Following the recent publication of the Law Commission of England and Wales (Law Commission) Final Report on Digital Assets, we look at a potential future development in the law which may become increasingly relevant to video game companies who monetise their games through the sale of non-consumable in-game items (and consumable items awaiting use). ²

Whilst presently uncertain, there may be potential for such in-game items to be recognised as a type of personal property in England & Wales in the future. We explore this below, together with some options for preparing for such a development now through appropriate EULA terms.

 

Restricting access to in-game items

Usually, a player will be granted the right to use their items in-game together with the rest of the video game IP, rather than acquiring any title to those items. This is typically set out and governed by the relevant End-User Licence Agreement (EULA).

At a surface level, this legal distinction may not matter much to individual players. However, the increasing relevance and value of the items to individual players means there is potential for complaints and/or disputes if customers feel their rights have been impacted.

There have been several examples in recent years of players complaining that they have been unable to access their in-game purchases. Discontent can arise where a game is discontinued, a player’s access is terminated or suspended, or a subsequent version is released, leaving players concerned about ongoing access to their weapons/character skins.

For instance, were a player to acquire an in-game asset, which was, at the point of purchase, deemed to be their personal property, game companies could face litigation risks in the event they decide to:

• delete/vary the in-game item;
• restrict a user's access to the item, e.g., through banning a player; and/or
• shut down the game, or otherwise cease to support the game, due to a declining player count, revenues or insolvency etc.

 

The Law Commission's Final Report into Digital Assets

On 28 June 2023, the Law Commission published its Final Report on Digital Assets (the Report). Our analysis of the Law Commission’s recommendations for the development of the law relating to digital assets can be found here.

Two particular issues arise in the Report which are pertinent to the issue of player ownership of in-game items.

A Third Category of Personal Property

The Report recognised that English common law allows for the recognition of a distinct, third category of personal property (in addition to the traditional two categories of “things in possession” (i.e., tangible property such as real estate) and “things in action” (i.e., rights capable of enforcement, such as debts)) that can better recognise, accommodate and protect the unique features of certain novel digital assets. The Law Commission labels this third category of personal property, “Digital Objects”.

In the Law Commission’s Digital Asset Consultation paper of July 2022 (Consultation), the Law Commission proposed that a thing should be recognised as a Digital Object if:

• it is comprised of data represented in an electronic medium, including in the form of computer code, electronic, digital or analogue signals;
• it exists independently of persons and exists independently of the legal system; and
• it is rivalrous.³

However, following consultee responses, the Law Commission confirmed in the Report that it does not seek to delineate hard boundaries of Digital Objects to which personal property rights can relate, and as a result, proposes to use the above criteria as indicia only to describe a certain “core” type of Digital Objects (for instance, cryptocurrency).

Whereas the Consultation provisionally concluded that in-game assets would not satisfy the criteria set out above, in the Report – following certain consultees expressing concern with this conclusion – the Law Commission have now left it up to the English Courts to determine whether in-game items constitute Digital Objects:

• “it is important that the law of England can be technology responsive and interrogate the idiosyncratic features of the asset in question when considering its proprietary status. That is as true of novel and evolving in-game digital assets as it is of crypto-tokens.”⁴

As discussed further below, there is potential for litigation down the road over coming years. The courts will need an opportunity to consider these issues and resolve how best to protect in-game assets (including whether change is needed).

Extension of the tort of conversion

In the Consultation, the Law Commission also considered the extent to which the law that protects personal property rights (in respect of choses in possession and choses in action) can neatly be applied to novel Digital Objects.

While the current law does not seek to distinguish between causes of action and/or remedies that apply to things in possession or things in action, the exception to this general position is the tort of conversion, which is material to the issue of in-game items.

The tort of conversion allows a claimant to sue in circumstances where their property is interfered with by another (i.e., access to property is restricted and/or prohibited). Conversion is a strict liability tort and requires a claimant to establish:

• that the claimant has a superior possessory right to the property;
• a deprivation of the claimant's full benefit of that right; and
• an assumption by the defendant of that right.

Available remedies for conversion include an order for delivery of the goods, and for payment of any consequential damages, or damages.

It is presently not possible to pursue a claim for conversion with respect to Digital Objects, including in-game items (assuming they do satisfy the above indicia). The settled position in England is that conversion lies in respect of dealings with tangible objects of personal property rights only. It has been determined that incorporeal property and/or other intangible rights cannot be the subject matter of this tort.⁵

The Law Commission had concerns that this position caused several difficulties with respect to Digital Objects, such as NFTs (i.e., digital art), when compared to similar choses in possession (i.e., physical art). The Law Commission has therefore explored the possible extension of the tort of conversion to Digital Objects and other forms of “intangible" property, the basis for which would be to ensure that legal protection is afforded to Digital Objects in the same way as for tangible property, where the same interests are at stake.

The courts have, however, been reluctant to extend the remit of the tort of conversion to intangible property. Many commentators raise concerns that such an extension of the tort of conversion is likely to give rise to difficult legal questions, including how to determine the equivalent of possession in the digital context, and what the necessary level of “interference” is for a claim in conversion to succeed in relation to a Digital Object. Moreover, questions arise as to whether suitable defences would also be needed in this context to provide parties with sufficient confidence to continue to utilise and transact with Digital Objects.

Notwithstanding these arguments, the Report concludes that while an outright extension of the tort of conversion through statutory reform is not presently recommended, a better approach “would be for the law to develop specific and discrete principles of tortious liability by analogy with, or which draw on some elements of, the tort of conversion to deal with wrongful interferences with third category things such as digital objects, rather than applying conversion in its current form to those things”.⁶

The Commission considers that it should be possible to establish a suitable analogous interest in Digital Objects for the purposes of conversion by reference to the concept of control.⁷ The Report did not expand on this discussion in the context of in-game items.

 

The future legal treatment of in-game items?

It seems clear for now that legislation to change the status of players' rights to in-game items is not forthcoming. It is also clear that, even if the door could be open for change through case law, there are some difficult issues to resolve. We expect this to be a topic of interest in coming years, but we would expect that court decisions at appellate level will be needed before there is any certainty.

The upshot here is that as the English courts begin to grapple with these issues, video game companies that wish to, for instance, close down the servers of a game or otherwise prevent a player from accessing their purchased in-game items, could face claims from players/groups of players who claim they can no longer access the items they have purchased.

If a suitable case arises, it is conceivable that claims could be pursed on behalf of players that have lost access to in-game items. In light of the approach taken by the Law Commission, they may ask the English courts to consider:

• whether non-consumable in-game items, such as cosmetics/skins, fall within the remit of the Law Commission’s third category of property, namely Digital Objects; and
• if they do, whether a specific and discrete regime of tortious liability should apply to deal with circumstances of wrongful interferences with in-game items.

 

Practical Steps to Minimise Risk

Publishers should continue to take steps to protect their position through suitable EULA terms. The agreement should set out clearly the basis upon which players are acquiring the in-game item (i.e., that they are only acquiring a licence to use the item, rather than the asset itself). It may also be prudent to remind players of the title and the terms pursuant to which they are acquiring the in-game item at the point of purchase, rather than directing the player to the EULA, or solely relying on the terms of the EULA when purchasing the game. Taking these steps now may help to defend claims in the future that players have acquired personal property in their items.

It would also be sensible to consider whether proactive steps are feasible to reduce the risk of negative publicity, complaints and/or disputes arising from the player community when taking steps such as the release of a new version. For example, it might be possible to:

• continue to support the former iteration of the game (where viable), so that players have ongoing access/use of the items that they have purchased;
• where support for the former iteration of the game is not feasible, offer players the opportunity to port their in-game items from the former iteration of the game to the new version; and/or
• provide for some form of account credit, in-game reward or refund to a player account to “compensate” for the loss of access to the old items.

As a final consideration, video game companies should seek to also take the necessary steps to minimise the ability for players to sell in-game items on second hand markets, which could allow for a monetary value in “real world” money (i.e., USD) to be placed upon them. For example, in Denmark, in-game items (acquired from loot boxes or otherwise) that can be sold on different websites and converted into fiat money are subject to the Danish Gambling Act. Our global guide for video game companies to navigate the jurisdictional landscape surrounding loot boxes can be found here.

 

Conclusion

Video game companies should be aware of the potential issues associated with the Law Commission Report. Having now left it up to the English Courts to determine whether in-game items could constitute a type of personal property in the future, amongst other things, we would generally recommend a EULA review to consider any changes needed to existing terms, so that publishers are best protected against possible future developments in the law around in-game items. For advice on how to best manage the risks associated with this article, please contact our Sam Gokarn-Millington, Aaron Trebble and Atacan Aydinli.

---

¹ We do not consider the position under the Consumer Rights Act 2015 in this article.
² “Consumable items” consist of items which are deleted from the player's inventory upon use. For instance, they can be purchased and utilised multiple times throughout the lifetime of a game and include in-game currency and “power-ups” which invoke a temporary effect. In contrast, a “non-consumable" item can only be purchased once and will permanently be associated with the user's account. Examples include cosmetics, weapons and access to additional levels.
³ A thing is rivalrous if the use or consumption of the thing by one person (or a specific group of persons) necessarily prejudices the use or consumption of that thing by one or more other persons.
⁴ See document here page 81/82
⁵ OBG v Allan [2007] UKHL 21, [2008] 1 AC 1
⁶ See document here page 259
⁷ See document here page 483