By Stan Abrams
The rapid development of online gaming in China is challenging government regulators on a wide range of commercial and legal issues.

Until recently, oversight of web content in the PRC has centered on political speech posted on bulletin boards and web logs, but as the Internet has evolved and diversified from web sites, blogs and chat rooms to include incredibly complex online virtual environments, so too have the regulatory challenges. Government monitoring of blogs and chat rooms now seems to be a relatively simple exercise when compared to the complex issues spawned by online games like World of Warcraft (WoW) and Legend of Mir II (Legend2).

Too Big to Ignore
The online games market in China is huge and growing rapidly. Total users of massively multiplayer online role-playing games (MMORPGs), their non-role playing cousins MMOGs, sports games, and others number in the tens of millions. Revenue in 2006 has been estimated at CNY 6 billion, a 74% increase from 2005, and that figure is expected to increase to USD1.2 billion in 2007 and grow 10 – 20 percent annually in the next several years.

A typical MMORPG such as WoW brings together hundreds of thousands of concurrent online users who interact in a virtual world. Users participate either from home or from one of the estimated 225,000 Internet cafes, establishments that have quickly become centers of social interaction for a huge number of young people, particularly those in the 18-24 year old range. Indeed, one of the first signs that the Chinese government would be closely involved in this sector was the licensing and monitoring of Internet cafes.

The Kids Are Alright?
Typical activities in an online environment vary according to the genre of the game, but for theme-based games, personal combat and quests are the norm, and the nature of these actions and the amount of time spent by users in MMORPGs has given the government great concern. The nexus between computer games and violence is not a new issue and has been debated for many years, long before the U.S. game Grand Theft Auto was released in 1998, which was excoriated at the time for being ultra violent.

Announcing an Internet purification campaign in April 2007 designed primarily to rid the web of pornography and violent content, a China Ministry of Public Security spokesman stated that "nearly 80 percent of juvenile delinquents have been lured into crime by ‘evil content' on the Internet." Hundreds of web sites have been closed since, along with greater scrutiny of game content with regard to pornography and violence.

Combat and questing are arguably merely a means to an end for many users, and that end is the development of an online character via gains in experience and in-game wealth. In doing so, a player can acquire new items and points, allowing their character to proceed upward through successive levels in the game. This repeated loop of action, acquisition, and further action is often referred to as the level treadmill, which can require hundreds of hours of game play.

The phenomenon of treadmilling has been the result, whereby huge amounts of time are spent by users performing repetitive actions in the game to gain wealth and experience in order to progress. Extreme situations have arisen where players have spent tens of hours at a time grinding through levels, sometimes without even taking a break.

This unhealthy behavior amongst minors, also referred to colorfully in English as catassing and poopsocking, spurred the Chinese government into passing the so-called anti-addiction system. Under the rules that became effective in April 2007, players of online games are required to register with their ID card numbers. If the player is over 18 years of age, there is no time limit on gameplay, but if the player is a minor, then after three hours of play in a 24-hour period, some of the user's game credits would be taken away; after five hours, all the credits would be taken.

Thus far, Beijing has found that it is quite difficult keeping kids away from games. Successive crackdowns on unlicensed Internet cafes have done little to slow down gaming and web surfing among minors, and workarounds for the anti-addiction system are already available for players who wish to skirt the rules.

Web Culture with Chinese Characteristics
Online game content in China must be approved by the Ministry of Culture. Past problems that have tripped up game developers have included historical content that negatively portrays China, sensitive subjects like Taiwan, and the more straightforward prohibitions on pornography and lewd situations.

For local game developers who are already experienced with the rules, it is not difficult to adapt game content to national standards from the beginning of the production process. However, the China MMORPG game market is well represented by foreign licensors, such as U.S.-based Blizzard that licenses WoW; foreign game developers are restricted from operating games in China directly.

Games that are first developed in other jurisdictions and follow Western standards for violence and mature content must undergo rigorous review before introduction to the China market. This review and revision process, as a component of overall localization, has often been left in the hands of local licensees. As MMORPGs develop into worldwide franchises, however, licensors will have to work even more closely with local hosts to ensure that the integrity of the game content itself is not compromised due to localization concerns.

A similar issue concerns the introduction of advertisements into online games. Early adoption of such ads included static images that would remain in the game throughout its lifetime. As technology has moved forward, dynamic systems are now available whereby ads can be changed on a regular basis in a similar fashion to web-based banner advertisements.

Just as censorship is now one of the chief concerns of game hosts, vetting of dynamic in-game advertisements in the future will become an important responsibility of hosts, ad agencies and legal firms. If ads run afoul of China's advertising, unfair competition or intellectual property laws, damage to a game's reputation, both within China and globally, could be severely damaged.

Blurring the Lines
It is not readily apparent why games that allow players to run around in a virtual environment slaying dragons create so many new legal issues. After all, twenty-five years ago, kids all over the U.S. gathered on a regular basis playing a game, Dungeons & Dragons, which involved many of the same activities. The technological platform of online games, however, allows for the concurrent interaction of hundreds of thousands of players.

When that many players are operating in the same environment, identity is a key issue, and in the online gaming world, users are allowed to custom design and maintain their own characters, referred to as avatars. From the government's perspective, as long as an avatar wears enough clothes, there are no pressing regulatory concerns. However, there are property rights considerations, specifically potential disputes over ownership of an avatar's likeness.

Courts in China have not dealt with this specific copyright issue yet, but as the perceived value of avatars and in-game objects increases, so too will the likelihood of property disputes. China has already seen litigation over jointly-held online game accounts, theft of virtual objects such as swords, and hijacking of avatars. One can imagine the disappointment and outrage of a player who has spent hundreds of hours treadmilling to reach a certain point in a game only to have his user account or avatar suddenly taken away.

The Bottom Line
One of the most publicized regulatory issues in this area has been the use of virtual money. The celebrated case of QQ coins, issued since 2002 by Tencent, a Chinese company that offers instant messaging, games, and other online services, has resulted in the involvement of the highest level of Chinese financial regulatory authorities.

QQ coins were originally used to pay for Tencent services, including games. As circulation of QQ coins increased, holders began to use the virtual currency for other kinds of transactions, including purchases of online assets, gambling, and even as a substitute for wages.

It was the leakage from the virtual environment to the real world that made Chinese regulators take notice. Instances of gambling and other morally questionable activities using QQ coins raised some concerns, but when the currency began to be traded on a black market, the situation became intolerable.

The financial sector in China is undergoing profound change at all levels, and the debate over the value of the nation's currency is now a global issue. When Beijing decided that a virtual currency could begin to act as alternative to the CNY, the People's Bank of China announced that they would step in, which they did in 2007. In the future, use of virtual currency will be strictly limited to online uses, and any leakage into the real world will be scrutinized very closely.

A Virtual Future
Perhaps the only certainty for online gaming in China is that it will continue to gain in popularity, the number of games will multiply, and the complexity of some MMORPGs and MMOGs will grow. The regulatory challenges will no doubt increase as "real life" games like Second Life are introduced in China, bringing real world themes and social situations, virtual commercial transactions, and very real property disputes.

About the author:
Stan Abrams is a senior associate at DLA Piper's Beijing office, where his legal practice focuses on intellectual property, information technology and media.