Video Game Loot Boxes

Introduction

Recently, a trend has developed in the video game industry of selling virtual “loot boxes” to consumers. This concept evolved from conventional trading card games such as Magic: The Gathering or Pokémon and developed in the virtual sphere through mobile games and virtual card games such as Activision Blizzard’s Hearthstone. However, as this fledgling concept moved beyond free-to-play mobile games and into fully-priced $60 video games, consumers have responded with significant backlash against what was perceived to be, at best, another greedy, anti-consumer cash grab and at worst, a nebulously legal virtual gambling marketplace designed to take advantage of psychological addictions.

Background

Loot boxes are a mechanic by which players can acquire in-game items for either real money or in-game currency. Instead of traditional micro-transaction methods in which the player directly purchased the virtual item they want, loot boxes instead may be “opened” to reveal a random assortment of items. Loot boxes may be free, purchased for in-game currency (earned via gameplay) or purchased with real money, and have been emerging as a very attractive form of secondary revenue for developers and publishers. Because these loot boxes are chance-based, they provide the player with a psychological trigger similar to that of more real gambling, and incentivizes the player to continue purchasing additional boxes in the hopes of acquiring the desired results. This, combined with common monetization schemes in which virtual currencies may only be purchased in set quantities, continuously incentivizes the player to continue spending money.

The idea of loot boxes can be traced back to collectible trading card games such as Magic: The Gathering. Specifically, they draw much inspiration from the booster packs from these games, in which players would pay a certain set amount for a random assortment of cards, often of varying rarities or values. Many video game loot boxes follow a similar scheme – items are often sorted by rarity and value, and loot boxes will always result in at least some common items. Perhaps the most direct example is Hearthstone, which is a direct analogue to traditional trading card games. More recently, these loot boxes have appeared in other games, with two examples being Warner Brothers’ Lord of the Rings game, Shadow of War, and Electronic Arts’ Star Wars Battlefront II. Both games tie in-game progression to items acquirable through loot boxes. In Shadow of War’s case, certain characters may be acquired either through loot boxes or through extensive gameplay, and in Battlefront’s case character upgrades may only be acquired via loot boxes.

Potential Policy Concerns

The prevalence of loot boxes in full cost video games has given rise to a consumer backlash and a number of potential legal concerns. Consumers, as well as some experts, have expressed concerns that these mechanisms are effectively gambling and so run into many of the same risks and potential harms. In a recent interview with PC Gamer, Dr. Luke Clark of the Center of Gambling Research at the University of British Columbia described how loot box mechanics target the dopamine system by utilizing variable and unpredictable rewards. He stated that “[m]odern video games amplify this idea by having many overlapping variable ratio schedules… There is a regular trickle of some kind of reinforcement.” This aspect, combined with the real money nature of many loot boxes, leads to an insidious combination effect in which the player is “[kept] on a knife-edge between feeling hungry and feeling rewarded.” While this sort of “near miss effect” is common in many video game mechanics, its use in loot boxes purchasable with real money may be particularly problematic. Some commentators have noted the potential negative effects this could have on young children, who may be especially susceptible to the psychological issues here.

Current Legal Interpretation

ESRB (Electronic Software Rating Board) – the organization responsible for age and content-related ratings for video games in North America – recently stated that video game loot boxes are not “Real Gambling” and therefore do not require more stringent restrictions/ratings. More recently, PEGI (Pan European Game Information) took a similar position, agreeing with the ESRB’s logic and conclusion. ESRB has two categories for gambling: Real Gambling and Simulated Gambling. Games that involve Real Gambling are required to receive an Adults-Only rating, something that significantly harms the marketability of any product. Publishers are generally hesitant to produce games that risk such limitations, and in many cases distributors will be hesitant to stock these games. According to the ESRB, Real Gambling involves “betting or wagering real cash or currency” whereas Simulated Gambling involves “gamb[ling] without betting or wagering real cash or currency’. At first glance, such a definition would seem to support rating loot boxes as Real Gambling; however, in a statement to various gaming media sites, the ESRB stated that

“While there’s an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don’t want). We think of it as a similar principle to collectible card games: Sometimes you’ll open a pack and get a brand new holographic card you’ve had your eye on for a while. But other times you’ll end up with a pack of cards you already have.”

U.S. Courts seem to support this view. In Major League Baseball v. Price, 105 F. Supp. 2d 46 (E.D.N.Y. 2000), the United States District Court for the Eastern District of New York stated that the purchase of a booster pack of baseball cards was not illegal gambling because the purchaser always received something of value.

“A card purchaser buying a pack of cards enters into a bargain with the licensors and manufacturers whereby in return for payment the purchaser will receive a random assortment of regular cards and a chance to receive an insert card. This bargain delivers actual value to each party because the chance itself is of value regardless of whether or not the card purchaser later suffers a “loss.” . . . The bargain is not for a phantom chance. Just as a card purchaser may realize a gambling loss, so a card purchaser may also find an insert card and sell it or keep it for value. The chance is real, and having paid for it and received it, the card purchaser has not suffered any financial loss or RICO property injury.”

Id., at 51. See also Price v. Pinnacle Brands, Inc., 138 F.3d 602, 607 (5th Cir. 1998); Chaseset v. Fleer/Skybox Intern., Lp, 300 F.3d 1083 (9th Cir. 2002).

In McLeod v. Valve Corp., the Western District of Washington explicitly applied the holding in Chaseset to virtual video game lotteries, stating that “[a]lthough Chaseset does not deal with the competitive video gaming matters involved in this case, the holding is clear: a disappointing gambling loss after receiving what was paid for is not an injury to property sufficient for RICO standing.” Mcleod v. Valve Corp., No. C16-1227-JCC, 2016 WL 5792695, at *4 (W.D. Wash. Oct. 4, 2016).

However, many find this explanation faulty or insufficient. Drawing a comparison to real-life trading card games may seem intuitively appealing, but a few important distinctions exist here. In a real-life trade card game, receiving unwanted content is not valueless as players may still trade or sell off those cards to other players. In contrast, virtual loot packs offer no such option, as these ecosystems are entirely controlled by the video game’s publishers and developers. As a result, ESRB’s logic that loot boxes provide some minimal value may be inappropriate, as there is a real question as to whether this value is illusory. Perhaps here legislative action may be appropriate; in the United Kingdom, the UK Gambling Commission has been considering regulating secondary markets for virtual video game items and currencies. It has recently issued a statement, in which it has stated that “[w]here in-game items can be traded or exchanged for money or money’s worth outside the video game, they acquire monetary value and … where facilities for gambling with tradeable in-game items are offered to British consumers a license is required.” More recently, a U.K. Member of Parliament has broached the question of whether legal steps could be taken to better protect consumers from in-game, with the result seeming to support the Gambling Commission’s statement.

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