Why social game maker Zynga wants a patent on virtual currencies

Zynga, the creator of social networking games like FarmVille and Mafia Wars, has filed a patent on purchased in-game currency.

Online games have long offered virtual currencies, usually earned by performing actions within a game. The currency can then be traded for in-game objects which help players progress within the game. But they have not traditionally been something one can purchase legally. As a result, booming bootleg economies have sprung up around these games, leading to illicit operations in China and other countries known as “gold farms,” which pay third-world workers to play games hours on end and then trade in-game objects for real money.

Zynga’s twist on this business model has been to embrace and profit from gold-farming behavior. Rather than force players to go on the black market to buy in-game objects, Zynga freely sells its game currencies, like FarmVille Cash and FrontierVille Horseshoes.

For some of its games, like Zynga Poker, the use of virtual currency might fall under state gambling guidelines. Online gambling is highly regulated in some states, illegal in others. But Zynga’s patent application stresses that one of its virtual-currency innovations is that the currency exchange is one-way: Players can send cash into the system, but they can’t take cash out, arguably avoiding the risk of regulation as gambling.

The patent filing, on which Zynga CEO Mark Pincus’s name is listed as one of the inventors, is arguably defensive, potentially orestalling intellectual-property claims against Zynga. But it could also give Zynga leverage in its negotiations with Facebook, the social network which connects most of Zynga’s players with each other.

Facebook has sought to push Facebook Credits as the medium of exchange for virtual currencies in games played on Facebook. It reportedly takes a 30 percent cut of Facebook Credits transactions, an additional cost which Zynga and other app makers have bristled at paying. Facebook and Zynga have signed a five-year agreement committing Zynga to the use of Facebook Credits. But the patent, if granted, could give Zynga leverage in ongoing negotiations on other commercial issues between the companies. (Zynga is believed to be one of the largest advertisers on Facebook.)

A patent on how virtual currencies operate would also secure Zynga’s position as the dominant player in social games. Zynga is already the largest developer of games on social networks like Facebook. But there is a good bit of competition from other social networking game companies like Playdom and Playfish. Disney recently acquired Playdom for about $760 million, while gaming giant Electronic Arts picked up Playfish for around $400 million.

San Francisco-based Zynga is one of the fastest-growing gaming companies in history, with more than 1,200 employees now across studios in 12 cities. The company recently took a seven-year lease on a new headquarters in San Francisco’s South of Market district. That office can accommodate as many as 2,000 people. It’s been on a bit of an expansion kick as well, opening up offices in Dallas and Seattle.