Since Pokémon GO was released, the legal and finance community is at its guard. What is this new emerging asset class which will undoubtedly soon attract the attention of the leading investment banks and asset managers? In five years from now, can any investment portfolio be considered balanced and complete without a collection of Pokémon, alongside the more traditional asset classes such as commodities, real estate, equities and bonds?
In anticipation of a mature market in Pokébonds and securitised Poképortfolios, we wish to contribute to a better understanding of vesting security over your Pokémon. For this analysis, we have considered the possibility of vesting security over a Pokémon via a Belgian law pledge. The following questions are addressed in our analysis:
- What is the legal qualification of your Pokémon?
- Which laws would apply to your Pokémon?
- Do you own the Pokémon you capture?
- Can you pledge your Pokémon?
1. Legal qualification of a Pokémon
We assess a ‘Pokémon’ to qualify as an intangible right of use to a specific virtual creature which is captured and stored in your personal collection, which right can only be exercised via the Pokémon GO app and by accepting the license of Niantic, Inc., (the Service Provider) governed by the Pokémon GO terms of service.
Given the intangible nature of a Pokémon, it encapsulates the contractual Pokémon GO terms of service. Such terms of service grant the user a limited, non-exclusive, non-transferable, non-sublicensable license to the Pokémon and solely for one’s own personal and non-commercial purposes. It is therefore hard to untangle the contractual terms of the Pokémon from its (virtual) existence, even in interaction with third parties.
Going forward we therefore consider both the contractual relationship – governed by the terms of service with the Service Provider – and the rights in rem (ownership & possession) over the Pokémon itself.
2. Can we Pika-choice-of-law?
Before addressing the question whether one can pledge its Pokémon, we should first determine which laws will be relevant.
2.1 Contractual relationship
According to article 14, §2 of the Rome I regulation, the law governing an assigned claim shall determine its assignability and the relationship between the assignee and the debtor. Accordingly, Californian law, being the governing law of the Pokémon GO terms of service, will be relevant.
We note however that, pursuant to article 6 of the Rome I regulation, consumers may not be deprived from the protection afforded to them by Belgian law provisions that cannot be derogated from by agreement. Such protection would however not entail a right to pledge your Pokémon.
2.2 Rights in rem
Pursuant to Belgian conflict of law rules, the law governing the rights in rem in respect of an asset (including its existence) are governed by the law of the state on the territory of which the asset is located when they are invoked (lex rei sitae). Unfortunately, even in 2016, there remains very little guidance in local law or international law for intangible items such as software and licenses. Where is the Pokémon located? Do we look at the location of the Service Provider to link with the contractual terms of the license (lex domicilii debtoris), in which case Californian law would again be appropriate. Or do we look beyond the contractual aspects, in which case the nexus will probably be the location of the server, as an analogy with the PRIMA convention for intermediate securities, or the local account storing the Pokémon data (which can be any place in the world).
It is clear that a full analysis of the applicable law regime exceeds the scope of this text. We therefore assume for our further analysis that Belgian law would apply to a Pokémon. In any event, in order to help fellow Pokémasters from all over the world, we welcome further analysis under Californian law.
3. Can you pledge a Pokémon?
Ownership is a requirement for a valid pledge. By playing Pokémon GO, you agree to its terms of service, pursuant to which you acknowledge that you do not acquire any ownership rights in or to Trading Items (including, a Pokémon)and that Trading Items do not have monetary value. Trading Items may be traded with other Account holders for other Trading Items, but Trading Items can never be sold, transferred, or exchanged for Virtual Money, Virtual Goods, “real” goods, “real” money, or “real” services, or any other compensation or consideration from us or anyone else.
Clearly, the Pokémon GO terms of service exclude any ownership rights, which will in our opinion be detrimental to vesting and enforcing a pledge over your Pokémon. The Service Provider will have the right to refuse any non-permitted trades and will have no obligation to transfer any Pokémon to an acclaimed owner or pledgee.
We note however that, notwithstanding a similar provision in the “Runescape” terms of service, the Dutch Supreme Court earlier decided that the items in the game were the actual property of the player, since these items were under the actual and exclusive control of the owner (and represented a certain value to the players). This analysis was made in relation to a forced theft of virtual items in the game and the property analysis was made in the framework of the Dutch Criminal Code. It therefore remains questionable whether the same analysis would be upheld in a civil law case.
Therefore, unless the Dutch Runescape case law would override the Pokémon GO terms of service, it will remain hard to claim ownership over a Pokémon.
3.2 Gotta pledge ‘em all!
Let us assume for our further analysis that the Pokémon you acquire are your property: would you be able to pledge your Pokémon?
Pursuant to Belgian law, “dispossession” of the pledged asset is the traditional requirement for creating and perfecting a valid and enforceable pledge over movable property.
One could consider achieving the necessary dispossession by handing over some (or all) Pokémon to the pledgee in the Pokémon world. Handing over Pokémon is however currently not possible (trading Pokémon is also not (yet) possible). Furthermore, it is unclear whether such virtual dispossession will suffice. Your Pokémon account is confidential and not public, therefore arguably insufficient for the purposes of creating a valid pledge.
Based on a new law on security over movable assets (entry into force is currently scheduled for 1 January 2018), you will be able to pledge ‘any movable asset’ by registering the pledge in an online register. However, given the current terms of service, both under a dispossessory pledge and a registered pledge, an actual enforcement against the Service Provider will remain very difficult.
4. A world without security over Pokémon?
Belgian civil law does not (yet) contain any specific provisions on security over virtual property. Furthermore, almost no case law and doctrine exist concerning virtual property in general. Evidently virtual property will gain importance in the future and lawmakers should consider the legal framework surrounding these online goods.
Finally, there is of course an alternative: Niantic could consider amending its terms of service to delete the relevant ‘ownership clause’ so that all Pokémasters are finally recognised as the true owners of the Pokémon they capture. We therefore ask you to support our cause for Poké-ownership by sharing and liking this BankBit.
Niantic, please consider to amend your terms of service so that we can finally… pledge ‘em all!