Loot box regulation is a hot topic in a variety of regions. The attention over loot boxes began when a number of video games started to incorporate gaming micro-transactions for chance-based items within the game.
Previously, video games were sold as a stand-alone product and the interaction between players and the developers of the game existed only and to the extent players would have bought a sequel or an expansion pack of the video game.
But, with the rise of online gaming, players are no more interested in time-consuming games that contain just one milestone, mission or storyline. As a result, developers:
- create formats of video games where players are constantly engaged also through a real-time competition between players; and
- enable players to purchase randomly assigned items (the so called “loot boxes“) in video games through in-game currency that can often be either purchased with real money or earned through game-play.
What are loot boxes?
Loot boxes are not a homogeneous category and there are several different iterations of the mechanic. A range of stakeholders, including regulatory agencies and academics, noticed that loot boxes should be assessed on a case-by-case analysis.
Based on our experience, regulators refer to loot boxes as
“in-game items that can be purchased by users with the purpose of randomly obtaining particular gaming contents or other utilities“.
Indeed, the main feature of loot boxes is that players do not exactly know the item that they are buying, but the purchased item is determined by a random number generator, according to criteria that publishers often make available before the purchase.
Loot boxes may be categorized on the basis of the method of acquisition as follows:
- Game-play where items are randomly awarded to players as a result of game-play for achievements, milestones and challenges completed;
- Game-play with purchasable items where items are randomly assigned to players during game-play, but players must purchase/obtain an item to open the loot box;
- Purchasable for which players have to buy a loot box and open it to obtain a randomly assigned item.
Can loot boxes be deemed gambling?
A special focus on loot boxes has arisen after some regulators around Europe (such as the Belgian and the Dutch gaming authorities) began to investigate whether loot boxes may be qualified as gambling since, according to their view, they evoke the so called “near miss” feeling and because they encourage players to keep trying, similar to what players feel when they play slots machines.
A slightly different position on this subject has been taken by the French regulator that qualified loot boxes as gambling only to the extent that the winning has a real-world monetary value. This led to the conclusion that when the awarded items cannot be cashed out or the winning is not in cash, loot boxes cannot be qualified as gambling.
In a recent declaration by more than a dozen of gambling authorities, they highlighted the risks being posed by the “blurring” of lines between gambling and other forms of digital entertainment, such as loot boxes.
As a result, much of the legal battle surrounding loot boxes involves the concepts of: (i) performance of a purchase with real money and (ii) the transferability of awarded items. Indeed,
- Regulations in some territories prohibit any sort of lottery in which money can be spent to increase the chance to win prizes with real-world monetary value. But, video game developers argue that the items in these boxes do not have any real-world value, as they exist only as “strings” of a computer code. In support of this, virtual items contained within loot boxes cannot be – nearly always – exchanged with real money outside of the game and items are valuable only within the video game and
- Transferability refers to whether or not the awarded items can be transferred from one person to another, which could allow them to become a commodity in real money transactions. This draws a line between loot boxes in which it is not permitted to trade items outside of the video game and loot boxes in which items trading is a huge part of the video game ecosystem.
A common argument against the categorization of loot boxes as gambling is the fact that empty loot boxes are not available within a video game. Therefore, while a slot machine or even a lottery can take the money giving nothing in return if a player loses, loot boxes always give something in return that – however – may have no worth for a player (such as non- tradable, or duplicate item). In this respect the idea of “losing” for a loot box does not lay down in the sense of walking away completely empty-handed.
Are loot boxes misleading?
Another issue raised by regulators is the need to provide consumers with transparent information as to the mechanic of loot boxes.
Advertising authorities are investigating on whether the offering of loot boxes might be deemed to be misleading and, as such, amount to an unfair commercial practice under EU Directive 2005/29.
It is quite unusual that regulators are investigating on the transparency of the mechanic of loot boxes only with reference to the video gaming sector. The same practice has been common in other areas for decades and we are not aware of similar challenges. It will be interesting to understand why authorities believe that that stricter regulations are required for the video game, while other surprise reward products can be exempted.
In any case, the video gaming industry has already made considerable improvements on the matter, but the standard of transparency required by regulators is still not clear.
The outcome of loot boxes’ peculiarities is that regulators have not taken yet a clear position on them. Precedents are being set and operate as valid guidelines for operators to minimize the risk of potential challenges, lots still has to be done. And as often happened in the video gaming industry, it is likely that self-regulations will indicate the path towards compliance.
If you wish to discuss, feel free to contact me at vincenzo.giuffre@dlapiper.com