Is "Gold Farming" illegal?

I'll note two things in response to Attorney Lawrence: First, doing X may be "illegal" even if no statute prohibits it. There is no statute, for example, that prohibits a person from interfering with the contractual rights of others or interfering with another's prospective business advantage and no statute lists all the things that are unfair when a person engages in unfair competition -- yet ALL of that conduct is "illegal." Second, if you read the TOS of the venues where folks buy and sell virtual world products those companies contractually obligate their customers to defend and indemnify the company from all claims brought against the company due to their customer's use of the company website and for any monetary liability that may be assessed against the company for such use. So when [not if] the company is sued it could bring into the lawsuit the folks that did the buying and/or selling. That is one heck of a risk for a gold farmer [or consumer].

"Illegal" as opposed to a violation of the terms of use? There are no statutes prohibiting making real world money from virtual game play, and in fact it's now a $6 billion per year industry. Apart from selling high-level characters to newbies (thanks to countless hours by some minimum wage worker somewhere offshore) and selling arcane weapons raided by coordinated teams of thieves (e.g., tomb-raiders), currency trading has been a hot commodity for years, and many currencies from virtual worlds trade above those of select South American regimes. If you want the full skinny on gold farming, read Julian Dibbell's article in the New York Times (attached).

I do not think the answer is as clear as my colleagues suggest. If we only focus on the intellectual property torts the unlicensed creation and sale of virtual world items may be: 1. copyright infringement [if you use any of the game's code to make your items interactive with the game or make your items look identical to items created by the game owner], 2. trademark infringement [if you advertise your items using the name, logo, and/or tagline of the game owner], 3. false advertising [if you represent that your items are authorized by the game owner or their use will not violate the owner's TOS or are identical or equivalent replacements for items sold by the owner], 4. unfair competition (note: ALL intellectual property torts fall under this general label) [if the game owner sells the same items that you offer]. There are quite a number of lawsuits that challenge the legality of third parties creating and selling already-branded products [you cannot create and sell Nike shoes, for example, in Second Life]. But the only case I know of that directly addresses the question of whether it's lawful to create and sell unlicensed, UNbranded virtual products is the Hernandez case. See http://goo.gl/1MPdl and http://goo.gl/10xfB . In Hernandez, a virtual game player sued a gold farming for interfering with ALL the players enjoyment of the game. The parties settled the case before the court could rule but it's instructive that the gold farmer agreed to stop selling its virtual products for five years -- it's attorneys quite likely concluding that its client would lose [and lose big]. Gold farmers risk, as my colleagues note, tax problems if they fail to report their income, they risk getting banned from the game, they risk a lawsuit from the game's players, they risk getting caught up in FBI investigations into money laundering via virtual world currency exchanges, and they risk being sued by the game's owner for the intellectual property torts listed above as well as other business torts such as interference with contract and with prospective business advantage. All in all gold farming is a really dumb thing to do.

Gold farming is not illegal, but just as Al Capone found out, one must report income from all sources. Theoretically, you have to report barter transactions as well, which would include the free market value of the Lich King's sword.

Not yet, but the IRS wants it to be. Since it seems that most gold farmers are from other countries not as rich as the U.S., it will difficult for U.S. laws to reach the foreign, supply side of gold farming. The U.S. based game companies may, in addition to making it a violation of the game, compensate for that by punishing the demand side.