Pillsbury Winthrop Shaw Pittman LLP Social Currency and Virtual Currency: What You Need to Know Prepared for The Mobile Payment Conference September 9, 2011 By Sean F. Kane Social Media, Entertainment & Technology Team

1 Overview  Where are we now?  Are there really legal issues with Virtual & Social Currency?  Questions?

2 Where are We Now?  The world has experienced a societal shift of epic proportions!  The internet, mobile apps, location-based services and social networks are shifting the balance of power from traditional/big business to new/small businesses.  Video games, social networks & apps are leveraging these phenomena and are increasingly being used for both entertainment and business applications.  These trends are driving new business models, including “freemium,” virtual goods, virtual & social currencies.  These and other factors result in unique and emerging legal issues.

3 Social & Virtual Currency... how and why? How currency is obtained  Purchased with real money  Earned by in-world actions  Sweepstakes/Contests  “Gambling”  Release of user information  Survey participation  Acceptance of exposure to advertising  Gifted How currency can be used  Only in-game  Cashed out for real money  Used to buy real world goods  Traded for other currency How virtual currency is implemented  Real-time payment  Pre-purchase currency/use later  Gift currency to others Parties to Transactions  Solely with virtual world (direct)  With third parties (indirect)  Hybrid

4 Virtual & Social Currency Models  Single Currency Model  Dual Currency Models – use more than one currency model within a game, app, etc.  Some items can be bought with a social or virtual currency that a user can purchase  others can only be earned  Protects integrity of games or apps where skill or other factors are part of the experience

5 Virtual & Social Currency... but real laws Allowing users to buy, use and potentially sell, virtual or social currency raises a number of legal issues  Many currencies will be viewed as “stored value” or “gift card” accounts by relevant state and federal regulators  No requirement that there be an actual certificate or plastic card under most laws  If offering falls under these laws, must comply with disparate state laws (fees, forfeiture, escheat, etc.)

6 Other Virtual & Social Currency Concerns  Banking / Money Transfer / Anti-Money Laundering  Gambling Laws (e.g., if risk something of value to earn)  Sweepstakes / Contest Law  Property Rights (some currency only right to use not own; lose if account is terminated)  Data Privacy and Security (opt-out/opt-in)  Tax (withholding, reporting, recognition)  Much more

7 Terms of Service Agreements  TOS critically important for all websites … but there are some unique issues for Virtual & Social Currency  One size does not fit all – need careful consideration and customization  Virtual & Social Currency  Ownership v. license  Right language to facilitate shutting down secondary markets.  Example: Bragg v. Linden Lab  Dispute over right to virtual property upon account termination  Court informally acknowledged a right to virtual property

8 TOS Balance is Key Player InterestPublisher Interest

9 Who are your customers?  Provides real owner with some protection from disclosure

10 Although They’re Probably…

11 The End Questions? Sean F. Kane Social Media, Entertainment & Technology Team Pillsbury Winthrop Shaw Pittman