LOOT BOX LOTTERY: HOW THE BACKLASH AGAINST VIDEO GAME LOOT BOXES IS AFFECTING GAME DEVELOPERS, RETAILERS, AND CONSUMERS IN THE LEGAL SPHERE

LOOT BOX LOTTERY: HOW THE BACKLASH AGAINST VIDEO GAME LOOT BOXES IS AFFECTING GAME DEVELOPERS, RETAILERS, AND CONSUMERS IN THE LEGAL SPHERE

By: Thomas Hansfield, Vol. 103 Staff Member

Confetti! Bright colors! Candy! Little Billy’s eyes are fixed on the screen. He just broke open a Llama Piñata in his favorite video game, Fortnite, with hopes of receiving a rare in-game item he has long desired. Alas, he sees the results and sighs in disappointment. Nothing. Just some useless items he won the day before. He sees his electronic currency, V-Bucks, running low, so he navigates to the in-game store to purchase more. His father’s credit card information is already saved. He clicks the option to purchase 2500 V-Bucks for $24.99, and his currency is instantly replenished. He navigates back to the “Loot” screen, excited to again try his luck, and awaits the next confetti explosion.

Video game lottery systems such as this have become increasingly prevalent in the last several years. Players may use in-game currency, purchased with real money, to play games of chance in hopes of earning items which might improve the player’s gaming experience.[1]These are commonly known as “loot boxes” and come in a variety of forms, such as llama-shaped piñatas in Fortnite described above.[2]The player often does not know what each loot box contains prior to playing, nor does she know the odds of receiving a desired item.[3]It is a game of chance to receive a prize, which to play, one must pay a sum of money. To most players, this is just part of the game. To critics, and some lawmakers, this is gambling and consumer fraud. This Post will first explore loot boxes’ relation to gambling. It will then discuss the issue of standing that plaintiffs are likely to encounter in consumer fraud lawsuits. Finally, it will broadly predict the future of loot boxes in the legal landscape.

I. ARE LOOT BOXES GAMBLING?
THE DOMESTIC AND INTERNATIONAL DEBATE

In most states, to be considered illegal gambling, a game must encompass three essential elements: (1) success is based on chance, not skill, (2) there is a reward to be won, and (3) there is consideration to play the game.[4]Loot box critics argue that loot boxes satisfy these three elements.[5]The player pays real money to initiate the loot box game (consideration), which produces randomized rewards (prizes) without any indication of how likely the player is to win them (chance).[6]Though no U.S. statute appears to mention loot boxes,[7]there has been a flurry of activity internationally in response to gambling concerns. Recently, both the Belgian Gaming Commission (BGC) and the Netherlands government classified some loot boxes as gambling, threatening publishers with large fines and criminal prosecution for violations.[8]Similarly, China outlawed virtual lottery tickets in 2017, the prohibition of which includes certain loot boxes and requires game developers to disclose odds of winning each item.[9]

The primary purpose for the determination by the BGC, and one shared by many legislators, is the lack of protection for underage players against the dangers of gambling.[10]This is one of the primary concerns held by the plaintiff in a lawsuit against Epic Games, the creator of the vastly popular video game Fortnite.[11]The suit was brought by the father of an underage, avid Fortnite player who purchased in-game currency called V-Bucks to open loot boxes.[12]While the suit was brought under multiple California consumer protection laws, as opposed to gambling laws, the Complaint expressed the doctor-backed concern that loot boxes may result in addictive tendencies in children similar to that of addictive gambling.[13]

Others disagree, arguing that loot boxes are not gambling. Dan Hewitt, Vice President of Media Relations for the Entertainment Software Association, has argued that “loot boxes are not gambling because they provide something to use in the game. They offer an alternate experience and players are not required to buy them . . . .”[14]Similarly, the Entertainment Software Rating Board (ESRB), a self-regulatory organization responsible for flagging games for mature content and providing content descriptors, refuses to classify loot boxes as gambling.[15]An ESRB spokesperson recently stated, “While there’s an element of chance in these mechanics, the player is alwaysguaranteed to receive in-game content (even if the player unfortunately receives something they don’t want).”[16]This argument differentiates loot boxes from slot machines and lotteries where the participant is not always guaranteed a prize. Additionally, some foreign governments, such as the United Kingdom and New Zealand, have declared that loot boxes are in fact not gambling.[17]

Regardless of which side of the gambling debate one falls on, some state legislatures are attempting to do away with speculation by proposing statutes specifically prohibiting certain types of loot boxes. Though most have failed, these bills have sought provisions requiring such things as warning labels, minimum age limits for playing games with loot boxes, and disclosure of odds.[18]A bill in the Minnesota legislature, on the other hand, is still alive. It would outlaw the sale of video games with loot box systems to individuals under eighteen years old absent a warning label provided by the retailer.[19]Even if enacted, however, the statute does not appear to provide consumers a private right of action, an omission similar to most, if not all, gambling statutes.[20]Therefore, consumers allegedly injured by loot boxes appear to have two other options: (1) sue under the Racketeer Influenced and Corrupt Organizations Act (RICO); or (2) sue under state consumer protection laws.

RICO provides a private right of action to individuals allegedly injured by racketeering activity, of which gambling is included.[21]At least one case in the early 2000s had potential to resolve the issue of whether activity similar to loot boxes is considered gambling, but it was dismissed due to lack of standing. In Chaset v. Fleer/Skybox Int’l, LP, 300 F.3d 1083 (9th Cir. 2002), purchasers of baseball cards and Pokémon trading cards brought a RICO suit against, inter alia, the manufacturers and distributors of the trading cards.[22]The trading cards came in packs, with certain valuable cards inserted more rarely into these packs.[23]Consumers, usually children, bought the packs of cards without knowing which cards were inside, but hoped to get lucky and stumble upon a rare collectible.[24]They could then play with the cards, particularly the Pokémon cards, competing with other consumers in strategy games. The rarer cards often gave players unique advantages in these games. Thus, the system was comparable to modern-day loot boxes. Both systems involve children blindly purchasing game items with hopes of obtaining valuable ones, the chances of which are often not disclosed and seemingly random. The Ninth Circuit in Chaset, however, did not even get to the issue of whether the trading card packs constituted gambling. It explained that one of the elements required to succeed on a civil RICO claim is proving “the defendant caused injury to plaintiff’s . . . property.”[25]The Court dismissed the suit for lack of standing based solely on plaintiff’s failure to satisfy this element.[26]It held that “at the time plaintiffs purchased the cards, . . . they received value . . . for what they paid,” and “[t]heir disappointment upon not finding [a rare] card in the package is not an injury to property.”[27]

II. PLAINTIFFS LACK STANDING IN CONSUMER FRAUD SUITS
INVOLVING LOOT BOXES

 

Lack of standing for failure to prove actual injury will likely also be an issue in consumer fraud claims involving loot boxes. In the class action against Epic Games described above, the defendant will likely file a motion to dismiss, arguing that because plaintiffs received something of value (usable in-game items) for the money paid to initiate the loot boxes, they suffered no financial loss.[28]On the other hand, plaintiffs argue in their Complaint that they would not have purchased the electronic currency to initiate the loot boxes had they known the low odds of winning the most valuable items.[29]

A similar battle has been fought in the context of false advertisements. The Seventh Circuit has ruled that consumers who purchased items as a result of fraudulent advertisements have not suffered economic injury, despite their claim that they would not have purchased the items absent the advertisement.[30]Conversely, the Ninth Circuit has ruled just the opposite.[31]While not a perfect comparison, one can impute the same debate to loot boxes. On one side, some would argue that if a developer had disclosed the impossibly low odds of winning coveted loot box items, players would not have paid to initiate the loot box system in the first place. Therefore, those players suffered an economic injury in the amount they paid to do so. On the other side, opponents would counter that players consciously chose to make the purchase and still received something of material value, thereby suffering no economic injury.

III. THE LIKELY OUTCOME OF THE LOOT BOX LEGAL DEBATE

The likely outcome of the Epic Games lawsuit and subsequent lawsuits of the same nature will be dismissal for lack of standing given the failure to establish an economic injury. First, the ruling in Chaset will be persuasive given the similarities between trading cards in that case and loot boxes. Additionally, given the widespread criticism of loot boxes and resulting lawsuits, developers will likely begin disclosing the odds of winning loot box items to avoid legal trouble. In fact, in response to the recent criticism (and likely the FTC’s promise to investigate loot box systems),[32]Epic Games has done away with blind loot boxes in Fortnite altogether.[33]Now, players are able to see the prize in each loot box before paying to open them.[34]This would seem to resolve much of the controversy surrounding loot boxes. First, proving economic injury in consumer fraud suits would be even more difficult, as it voids the argument that consumers would not have purchased loot boxes had they known the low odds. Further, these loot boxes probably would not be considered gambling given that they eliminate the chance feature. Other developers have done away with loot boxes completely.[35]Still, because microtransactions in video games is a multibillion-dollar industry, the temptation to include loot boxes is ever-present.[36]Many gamers may dislike them, parents may eschew them, and legislators may severely limit them, but some developers are likely to continue supporting them, openly accepting the risk inherent in the heavy cash flow. The legal battle against loot boxes has likely only just begun.

[1]See Liz Lanier, Lawsuit Targets Epic’s ‘Predatory’ Loot Boxes in ‘Fortnite’, Variety(Mar. 1, 2019), https://variety.com/2019/gaming/news/lawsuit-loot-boxes-fortnite-1203152894/.

[2]See id.

[3]See Jason M. Bailey, A Video Game ‘Loot Box’ Offers Coveted Rewards, But Is It Gambling?, N.Y. Times(Apr. 24, 2018), https://www.nytimes.com/2018/04/24/business/loot-boxes-video-games.html(“Critics say that . . . loot boxes are predatory, seducing people with murky odds and dazzling presentations.”); Nate Lanxon, How ‘Loot Boxes’ Unlock Video Game Gambling Worries, Bloomberg Businessweek(Feb. 15, 2019) https://www.bloomberg.com/news/articles/2019-02-15/how-loot-boxes-unlock-video-game-gambling-worries-quicktake(“[Loot boxes are] seen as inherently troublesome because the specific “loot” available is rarely enumerated, and it’s a gamble whether a purchase even gives a player what he or she wants.”).

[4]See, e.g., Cal. Penal Code§ 319; Minn. Stat. § 609.75.

[5]See Avoiding Classification as an Illegal Lottery, 3 E-Com. & Internet L. 28.16-6 (2019).

[6]See Lanxon, supranote 3.

[7]Nonetheless, there have been several proposed bills, many of which have failed, that have sought to provide limitations on loot boxes. See id.(summarizing proposed legislation in several states including California, Hawaii, Indiana, Minnesota, and Washington).

[8]Lanxon, supra note 3; FPS Justice Gaming Commission, Research Report on Loot Boxes16–17 (Apr. 2018), https://www.gamingcommission.be/opencms/export/sites/default/jhksweb_nl/documents/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf(“The paid loot boxes in the examined games . . . fit the description of a game of chance because all of the constitutive elements of gambling are present . . . . Because paid loot boxes in the examined video games are illegal, criminal prosecution should be undertaken if these loot boxes continue to be offered.”).

[9]T.J. Hafer, The Legal Status of Loot Boxes Around the World, and What’s Next in the Debate, PC Gamer(Oct. 26, 2018) https://www.pcgamer.com/the-legal-status-of-loot-boxes-around-the-world-and-whats-next/.

[10]Press Release, Minister of Justice Koen Geens, Loot Boxes in Three Video Games in Violation of Gambling Legislation (Apr. 25, 2018), https://translate.google.com/translate?hl=en&sl=nl&u=https://www.koengeens.be/news/2018/04/25/loot-boxen-in-drie-videogames-in-strijd-met-kansspelwetgeving&prev=search

(“The hidden nature of gambling is extra problematic in the case of children. If this is not appropriately intervened, games of chance in video games will cause great damage to people, family and society.”).

[11]Complaint, Steve Altes ex rel. R.A., a minor v. Epic Games, Inc., No. 19-1488 (Cent. Dist. Cal. Feb. 28, 2019).

[12]Id.at 5.

[13]Id. at 7.

[14]Bailey, supra note 3.

[15]Jason Schreier, ESRB Says It Doesn’t See ‘Loot Boxes’ as Gambling, Kotaku(Oct. 11, 2017), https://kotaku.com/esrb-says-it-doesnt-see-loot-boxes-as-gambling-1819363091.

[16]Id.

[17]See Kyle Orland, EA Defies Belgian Loot Box Decision, Setting Up Potential “Gambling Lawsuit”, ARS Technica(Sept. 11, 2018), https://arstechnica.com/gaming/2018/09/ea-defies-belgian-loot-box-decision-setting-up-potential-gambling-lawsuit/.

[18]Bailey, supranote 3.

[19]H.F. 4460, 90th Leg. (Minn. 2018) (alerting players to the “gambling-like mechanism that may promote the development of a gaming disorder that increases the risk of harmful mental or physical health effects, and may expose the user to significant financial risk”).

[20]See id.

[21]Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–68 (2012).

[22]See Chaset v. Fleer/Skybox Int’l, LP, 300 F.3d 1083, 1085–86 (9th Cir. 2002).

[23]Id. at 1086.

[24]Id.

[25]Id. (defining such injury as “concrete financial loss”).

[26]Id. at 1087.

[27]Id.

[28]Cf.id.

[29]Complaint at 4, Steve Altes ex rel. R.A., a minor v. Epic Games, Inc., No. 19-1488 (Cent. Dist. Cal. Feb. 28, 2019).

[30]See Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 739–40 (7th Cir. 2014).

[31]See Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1107 (9th Cir. 2013).

[32]Lanier, supranote 1.

[33]The Fortnite Team, Loot Unboxing(Jan. 25, 2019), https://www.epicgames.com/fortnite/en-US/news/loot-unboxing.

[34]Id.

[35]Orland, supra note 17(“In the months since the Belgian Gaming Commission determined that certain video game loot boxes constituted illegal gambling, publishers like Blizzard, Valve, and Take-Two have removed loot boxes from their games in the country.”).

[36]Juniper Research, Loot Boxes & Skins Gambling to Generate a $50 Billion Industry by 2022(Apr. 17, 2018), https://www.juniperresearch.com/press/press-releases/loot-boxes-and-skins-gambling(summarizing a study by Juniper Research which found that loot boxes and skins gambling “will reach a total spend of [fifty billion dollars] by 2022, up from under [thirty billion dollars in 2017–2018].”); see e.g., Bailey, supranote 3(“Activision Blizzard . . . generated [four billion dollars] in 2017 from in-game transactions, more than half of its total revenue.”).