Regulation of Virtual Currencies in China and Korea, Asian Gaming Giants Eye the US Market

Gold farming is a concept by which players repeatedly purchase or gain online goods or currencies in a virtual world and exchange them for virtual currency or real world currency.  Most players hate it because it allows players with money to spend to gain a leg up on the competition without having to put in the necessary hours (sometimes days) of playing time to gain special armor, weapons, items, stats, etc.  However, gold farming and the ensuing trading of such goods is immensely profitable.

The Chinese government estimated that in 2008 about 1 billion yen or about $146 million was spent on virtual world currency transactions with that number anticipated to grow by about 20% each year.  Overall, according to a study from the research firm In-Stat, virtual goods revenue from online social games and social networking exceeded US $7 billion in 2010 and will more than double by 2014.  With respect to that figure, Asia accounted for about 70% of the 2010 revenue, or about US $4.9 billion.

However, in order for gold farming to be profitable it requires that virtual goods be allowed to be traded for real world goods or services (i.e. Ebay, Internet Game Exchange).  However, it seems that government regulation, an already connected and tapped consumer market in Korea, economic trends, or perhaps a combination of such factors have pushed Asian game developers and publishers to eye the U.S. market.

Asia accounts for 70% of 2010 revenue

China

In 2009, China outright banned gold farming out of fear that virtual currency could affect its real world currency.  As a result, virtual currencies cannot be traded for real goods or services in the country.  On paper, gaming giant Tencent has supported this measure.  Of course, virtual goods continue to be laundered or used to make payments under the table.

Ministry of Commerce People's Republic of China
China Bans Gold Farming
Virtual Money Prohibited for Trading in Real Goods

Korea

In 2010, the Korea Supreme Court made a landmark ruling allowing virtual money used in online games to be exchanged for cash.  The court acquitted two individuals were indicted on the grounds of illegally making nearly 20 million won by selling 234 million won worth of virtual money in the online game Lineage.  The virtual money in Lineage, "Aden," was traded at a ratio of one million Aden for 8,000 won.

The provincial court initially brought down fines on the two individuals for four and two million won, but an appeals court overturned the decision.  Justice Min Il-young noted that trading virtual money for cash should only be punished where it is obtained by online gambling (e.g. poker).

Korea Times

With regard to increased regulation in China, it seems as though Korea took up some of the slack with the growth of cyber crime in Korea from 2008-2011.  In or around 2009, the Korean police arrested the leaders of a $38 million dollar money laundering scheme.  The ring leaders purchased game money in China, cashed the money through domestic game item brokerages, and then illegally wired it from Korea to China.

UNAFEI report
Only in the Virtual World

In June of this year (as noted in an earlier post), the Korean government shifted gears and moved to ultimately ban the trading of online goods (effective later this year).  For now, the penalty for engaging in online bot farming and item trading is 5 years in jail and a maximum fine of 50 million won (about $43,000).

Korea Prohibits Trade of Online Game Items

Targeting the U.S. Market

As a result of the rising growth of virtual goods in Asian gaming markets and quite possibly because of so much existing and anticipated regulation in their respective nations, many such Asian game developers and publishers have set their sights on the U.S. market.  I've already commented on the rising profiles of such Asian gaming giants in the U.S. market in earlier posts (e.g. Riot, Epic).

Asian game developers and publishers seeking to grow in U.S. market

Primer on Trademark Protection in Japan

Lexology has recently disseminated an introduction on trademark principles in Japan by Satoko Kubo.  According to the article, in Japan one can file for trademark protection without establishing use of the mark in connection with goods and services.  One need not establish proof of use when renewing the mark as well.  An individual or company's registered mark can only be cancelled if another party requests the cancellation based on non-use.  A registered mark may be cancelled when it has fallen into disuse for three consecutive years.  As a result, companies regularly stockpile marks in Japan. 

Additionally, the Japanese Patent Office allows for marks to be registered across a wider range of goods because it accepts broad descriptions (e.g. "clothing," "computer games").  In contrast, the U.S. trademark system requires a specific listing of goods leading to a limited set of rights. 

If a video game developer were to have on its hands the next big IP money maker with the potential to be profitable across a wide range of goods (e.g. toys, clothes, think "Skylanders"), then at least with respect to the Japanese market that developer should register directly in Japan.  Although registering in the U.S. would still allow for corresponding protection in Japan under the Madrid Protocol, the international registration in Japan would be tied to the limited U.S. registration.  Additionally, the differences between the Japanese and U.S. trademark guidelines with respect to broad and specific designations usually requires further action by a party registering in the US first because it must explain its specific designation to the Japanese Patent Office.

Lexology

Take-Two Packaging New "Civilization" Game for South Korea

The Wall Street Journal reports that U.S. based Take-Two, the developer of the hit franchise "Grand Theft Auto," is seeking to make inroads in the Asian game market by repackaging its titles to suit local tastes and partnering with local game publishers.  Take-Two Interactive has partnered with the South Korean company XLGAMES, Inc. to bring the "Civilization" franchise (a turn based strategy game) to the South Korean gaming market.  There is plenty of opportunity in the Asian gaming market; the South Korean market reached $5 billion last year while the Chinese market reached $6 billion.
 
Certain turn-based computer strategy games are a hit in South Korea.  "Starcraft," an immensely popular turn-based strategy game, is so popular in South Korea that it is equated with sport, or more appropriately, e-sport.  The Korean e-sports Association (KeSPA) serves to manage the broadcasting and promotion of e-sports throughout the nation.

Take-Two to Asia

KeSPA