Virtual Goods and the Metaverse: Legal Issues in Germany

What are virtual goods under German law?

Virtual goods are digital items that users acquire and use inside a game, platform or virtual world: weapons and skins in games, avatar clothing, virtual land, collectibles and tokens. Economically, they are traded like goods. Legally, German law starts from a different premise. Under § 90 BGB, only physical objects are "things" (Sachen), so there is no ownership in the property-law sense of a virtual sword or a digital handbag. What the user acquires is a bundle of contractual rights against the operator, usually a non-exclusive, revocable licence to use the item within the platform.

That premise shapes everything else. The user's position depends on the terms of service; the operator's freedom to change, delete or devalue items is limited by consumer law and the control of standard terms; and third parties' rights in brands and designs determine what may be shown in the virtual world. Where such items are represented as tokens on a blockchain, financial regulation may add another layer.

This article explains the main legal issues for game publishers, platform operators, brands and investors dealing with virtual goods and metaverse projects in Germany.

Virtual goods and consumer contract law

Since 2022, German law has had specific rules for consumer contracts on digital products in §§ 327 ff. BGB, implementing the Digital Content Directive. They apply where a trader provides digital content or digital services to a consumer in return for a price (§ 327(1) BGB). Importantly for virtual worlds, a "price" also includes a digital representation of value, such as in-game currency or tokens. The rules also apply where the consumer provides personal data instead of paying money, unless the data is only processed to perform the contract.

The key consequences for virtual goods are:

• Conformity: the item must meet the subjective requirements agreed and the objective requirements a consumer can reasonably expect;
• Updates: the trader must provide updates, including security updates, needed to keep the product in conformity during the relevant period (§ 327f BGB);
• Changes: unilateral changes to a digital product that is provided over a period are permitted only under strict conditions, including a valid reason and information, and the consumer may have a right to terminate if a change has more than a minor negative impact;
• Remedies: consumers can demand cure, terminate or reduce the price, and claim damages.

These rules limit a common practice in the industry: the operator's discretion to rebalance, remove or devalue items at will. Clauses that allow the operator to do so without reason or compensation are vulnerable both under § 327r BGB on changes and under the fairness test of § 307 BGB.

Withdrawal rights, pricing and in-game currencies

Consumers buying virtual goods online generally have a 14-day right of withdrawal. For digital content not supplied on a physical medium, the right expires early only if the trader has begun performance, the consumer has expressly agreed that performance may begin before the withdrawal period ends, the consumer has confirmed knowledge that the right is lost, and the trader has provided a confirmation of the contract (§ 356(5) BGB). Purchase flows that skip these steps leave the right of withdrawal intact, which can lead to repayment claims.

In-game currencies add complexity. Many games sell premium currency in bundles that do not match item prices, leaving residual balances. Price transparency rules, the prohibition on misleading omissions in unfair competition law, and the Price Indication Ordinance require that consumers can understand what they actually pay. Regulators and consumer organisations in the EU have increasingly focused on virtual currencies and the presentation of real-money prices in games.

Loot boxes, gambling law and youth protection

Loot boxes – paid random rewards – sit at the border of gambling law. Under the Interstate Treaty on Gambling, a game of chance requires a stake for a chance to win, and the outcome must depend wholly or mainly on chance. Whether loot boxes meet that definition depends on design, in particular whether items can be converted into money or traded on secondary markets. German authorities have so far not treated typical loot boxes as unlicensed gambling, but this is an area of active debate across Europe, and design choices such as tradability matter.

Youth protection law has already reacted. Under § 10b(3) of the Youth Protection Act (JuSchG), the assessment of whether media impair the development of minors may take into account significant risks to children's personal integrity, expressly including risks from purchase functions, gambling-like mechanisms and mechanisms promoting excessive use. Such features can therefore lead to a higher age rating. Publishers should consider precautionary measures, such as spending limits and parental controls, because these can be taken into account in the assessment.

Brands, designs and copyright in virtual worlds

Brands entering the metaverse face two questions: whether their existing rights cover digital items, and how to deal with unauthorised use by others. Trademark protection depends on the goods and services registered. A registration for clothing in Class 25 does not automatically cover downloadable virtual clothing; offices treat virtual goods as downloadable digital content, generally in Class 9, with related services in other classes. Brands with metaverse ambitions should check their portfolios and file where needed. Where a mark has a reputation, protection may extend to dissimilar goods, but relying on that is less certain than a targeted registration.

Copyright and design law also apply. Virtual items, avatars and environments are often protected works, and digital designs may be registered as designs. Platform operators that host user-generated content must deal with infringement notices under the Digital Services Act and, for certain content-sharing services, the German Copyright Service Providers Act. Licensing agreements for digital items should specify platforms, formats, territories, duration and revenue sharing, and should address what happens to items already sold when the licence ends.

NFTs, MiCA and payment regulation

Where in-game items are issued as tokens on a blockchain, the Markets in Crypto-Assets Regulation (MiCA, Regulation (EU) 2023/1114) may apply. MiCA does not apply to crypto-assets that are unique and not fungible with other crypto-assets, such as digital art and collectibles. However, the recitals make clear that issuing crypto-assets in large series or collections can indicate fungibility, and that fractional parts of a unique asset are not unique. Labelling a token "NFT" is therefore not decisive. If MiCA applies, issuers may need a white paper and service providers a licence from BaFin.

In-game currencies raise payment services questions. Under the Payment Services Supervision Act (ZAG), services based on payment instruments that can be used only within a limited network of service providers or for a very limited range of goods or services fall under an exception (§ 2(1) no. 10 ZAG). Closed-loop currencies that can only be spent inside the game typically benefit from that exception. Currencies that can be cashed out, transferred between users for value or used across platforms may require a licence as e-money or payment services, or may be crypto-assets. Anti-money laundering rules can apply where secondary markets allow value transfer.

Account bans, shutdowns and operator insolvency

Because users hold only contractual rights, the biggest practical risks are account suspensions, the shutdown of a game or world, and the operator's insolvency. Terms of service typically allow the operator to suspend or terminate accounts for breaches and to end the service on notice, with items forfeited. German courts review such clauses under the standard terms rules. A suspension right for serious breaches, such as cheating or fraud, is legitimate; a clause allowing the operator to delete accounts and paid items at will, without reason, hearing or compensation, is much harder to defend.

For paid digital products provided over a period, consumer law also requires that changes reducing access or usability be announced in advance on a durable medium and give the consumer a right to terminate, with refunds of prepaid amounts for the remaining period in certain cases (§ 327r BGB). Shutting down a service entirely is not a "change" in that sense, but operators should plan the wind-down: adequate notice, clear communication about currency balances and, where appropriate, refunds of unused premium currency.

In the operator's insolvency, users usually have only unsecured claims. Projects that promise users lasting value – virtual land, collectible series or tokenised items – should therefore be transparent about what happens if the platform ends, and investors should examine whether those promises create liabilities, regulatory exposure or reputational risk. Clear disclosures at the point of sale are also the best defence against later claims that users were misled about the permanence of what they bought.

Data protection, platform rules and taxes

Virtual worlds generate rich behavioural and, with VR hardware, potentially biometric data. The GDPR applies in full: legal bases, transparency, special category data, data minimisation and data protection impact assessments for high-risk processing. Platforms serving users in the EU are also subject to the Digital Services Act, including notice-and-action procedures, transparency on recommender systems, protection of minors and, for online marketplaces, trader traceability.

Tax questions are beyond this article, but businesses should note that sales of digital items to consumers are electronically supplied services for VAT purposes, generally taxed where the consumer is located, and that secondary market models raise further issues. Accounting treatment of in-game currency balances also needs attention.

How TRW & Co helps with virtual goods

We advise game publishers, platforms, brands and investors on virtual goods and metaverse projects. We draft and review terms of service and in-game purchase flows under German consumer law, assess youth protection and loot box designs, structure licensing and brand collaborations, review trademark portfolios for virtual goods, and analyse token and in-game currency models under MiCA and the ZAG. Our work connects with our digital platforms and DSA, trademarks and designs and fintech and crypto practices, and with our article on smart contracts. Please contact us. This article is general information and not legal advice.