Guest Post: Treasure or Trouble? Legal and Ethical Concerns Involving Loot Boxes in Video Games
One of the many joys of working in web3 is the enthusiasm of young professionals, looking to learn what they need to learn to dive into this exciting and developing space. In that vein, I have the opportunity this semester to work with Christian Caprari (a current LLM candidate at the University of Cincinnati College of Law), as an extern with BSL Group, where he is working to support our clients by, among other things, researching emerging regulatory regimes, including the subject of this post - MiCA.
So, without further ado, I give you an article Christian and I worked on together:
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Treasure or Trouble? Legal and Ethical Concerns Involving Loot Boxes in Video Games
Introduction
As the gaming industry continues to expand and evolve globally, it is constantly seeking ways to increase player engagement and retention. However, the introduction of new game features sometimes raises not only excitement but also the risk of legal disputes and ethical concerns. One such controversial feature is the inclusion of purchasable loot boxes in video games. While they can generate excitement and revenue for game developers, they have also been associated with gambling and targeting vulnerable players, particularly minors. This article will explore the legal and ethical concerns surrounding loot boxes, examining their classification as gambling, the implications of their use, and potential consumer protection measures in the industry.
Loot Boxes Explained
Loot boxes are virtual items that players can purchase using real money or in-game currency. They typically contain a randomized selection of virtual items, ranging from cosmetic enhancements like skins and emotes to gameplay-affecting elements such as weapons and power-ups. While some loot boxes are earned through gameplay or as rewards for completing objectives, others can only be purchased with real money, potentially leading to issues surrounding gambling and predatory practices.
Defining Gambling and Loot Boxes
To determine whether loot boxes constitute gambling, it is necessary to examine the elements of gambling as defined by federal and state laws. Generally, gambling involves risking something of value on a chance event for a potentially valuable prize. Each of these elements is arguably satisfied by purchasable loot box systems. The value at risk is the currency used to purchase the loot box, the probability of obtaining a desired item is determined by the developers' algorithms, and the prize can be transferred to other players in digital marketplaces, making it valuable.
If a state court finds that opening a loot box constitutes gambling where gambling is prohibited, the game developer could face enforcement actions. If gambling is permitted, the developer would still need a gambling license and would be unable to offer the game to minors, increasing licensing costs and limiting the target audience.
Ethical Concerns and the Demographics of Gaming
The demographics of the gaming industry must also be considered, as the majority of players are young minors who often use their parents' credit cards for online purchases. The ethical concerns surrounding the normalization of gambling behavior among minors must be closely examined, as exposure to gambling at a young age could lead to addiction. Allowing gambling games to be distributed with a gambling license could encourage developers to incorporate more gambling mechanics into their games, potentially exploiting vulnerable players for profit.
Legislative Attempts to Address Loot Boxes
In 2019, a bill was introduced to the U.S. Senate to regulate the sales of loot boxes and pay-to-win microtransactions in video games. The bill aimed to prohibit the implementation of loot boxes in games targeted at minors. The criteria for determining whether a game is minor-oriented include subject matter, visual content, language, the presence of animated characters or activities appealing to individuals under 18, and the age of the characters or models. The bill did not specifically address whether loot boxes constituted gambling but defined them in a way that would have effectively banned their use in all games deemed inappropriate for minors. However, the bill did not pass the Senate, leaving the legal status of loot boxes uncertain.
Consumer Protection and Advertising
Compliance with marketing laws is crucial in the gaming industry to ensure fair and ethical practices in advertising, disclosure of sponsored content, and protection of consumers from deceptive or misleading promotions. The Consumer Protection Act (CPA) in the United States aims to protect consumers from unfair or deceptive business practices. If a court finds that a business has engaged in misleading promotion, it may be subject to penalties and fines and required to provide restitution to affected consumers. While the CPA does not specifically address loot boxes, it does provide a framework for addressing issues related to them and other in-game purchases.
In the context of loot boxes, if a court determines that a video game publisher has misled consumers about the odds of obtaining certain items or if the loot box system is found to be rigged in a way that harms consumers, the publisher can expect fines up to millions of dollars.
For example, a video game publisher could be found in violation of the CPA if:
It fails to provide or falsely provides the odds of obtaining certain items from the loot (for example, FIFA Ultimate Team mode tells you what your chances are of finding a rare or special player).
It designs a game that encourages players to spend money on loot boxes to progress or win the game.
It creates deceptive patterns to trick users into making unintended in-game purchases (such as Fortnite being charged for confusing players through button configurations that led to unauthorized purchases by mostly minor players).
Conclusion
In conclusion, the use of loot boxes in the gaming industry has been a subject of controversy due to ethical concerns and legal implications. While they can increase player excitement and generate revenue for game developers, they can also be considered a form of gambling that targets vulnerable players, especially minors. Some countries, such as the Netherlands, Belgium, and China, have banned certain loot boxes, while others have called for greater transparency and consumer protection measures in the industry.
In the absence of specific regulation, it is important for game developers to consider the potential legal and ethical implications of using loot boxes and take measures to protect vulnerable players and avoid deceptive or unfair business practices. This may involve providing clear information about the odds of obtaining items, designing games that do not rely on loot boxes for progression or winning, and ensuring that advertising and promotions are transparent and compliant with relevant regulations and guidelines. By addressing these concerns, the gaming industry can continue to innovate and provide engaging experiences for players while minimizing the risk of legal disputes and ethical dilemmas.
What kind of lawyer would I be without a disclaimer?
Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email (dlopezkurtz@crokefairchild.com or david@bsl.group), telegram (@davidlopezkurtz), twitter (@lopezkurtz), and on LinkedIn here.
