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UK Government Decides Against Banning Video Game Loot Boxes

UK Government Decides Against Banning Video Game Loot Boxes
Trade & Regulatory Compliance Practice | Rishikaa

After a 22-month consultation, the UK Government has decided not to ban loot boxes in video games and has asked the stakeholders in the gaming industry to self-regulate loot box purchases. Further, the UK government has also urged companies to “do more to ensure safe and responsible gaming and take action on ‘loot boxes’ to protect young people.”

By way of brief background, loot boxes are features in video games, usually displayed in the form of chest or a crate that provides a random reward, which can be accessed by either spending time in completing certain challenges, or can be purchased with in-game items, virtual currencies, or with actual money. Use of actual money for purchasing loot boxes which contain rewards that are essentially unknown to the purchaser(s) is what, arguably, brings loot boxes within the ambit of gambling in the traditional sense.

Given the structural and psychological similarities between loot boxes and gambling, the UK Government, in the year 2020, launched a call for evidence into the impact of loot boxes on gambling-like behavior. The UK Government reviewed the Gambling Act, 2005 and published its response in which it stated that while there is a link between loot boxes and gambling, however, most loot boxes do not fall within the definition of gambling under the Gambling Act, 2005. This is because the reward/prize cannot be converted into real-world money and is, rather, confined for use within the game. However, the Department for Digital, Culture, Media, and Sport, in its Press Release, has stated that children and young people should not be able to make in-game purchases in video games without parental control.

Interestingly, the Gambling Commission, the body responsible for overseeing and enforcing the UK Gambling Act, 2005, had, in 2017, refrained from taking any action against loot boxes and stated that the deciding factor of whether purchase of loot boxes can be considered gambling is if the “in-game items acquired via a game of chance can be considered money or money’s worth.” As per the Gambling Commission, if these loot boxes cannot be cashed out then they are unlikely to fall within the ambit of the Gambling Act, 2005.

Unlike the UK, few countries have classified loot boxes as gambling while some others are actively regulating loot boxes. For instance, in 2018 the Belgian Gaming Commission released a report in which it stated that a “wager of any type is sufficient to qualify as betting for these games. Use of money is not necessary.” It was further mentioned in the report that “it must be possible to attribute a value to this wager, however. Value can be defined as the degree of usability. Specifically, items that the player finds useful or nice and for which he pays money.” Therefore, the Belgian interpretation of gambling is not restricted to monetary gains and includes anything which may be of value to a player. In the same year, the Netherlands Gaming Authority stated that loot boxes could be considered legal if the content was non-transferable. If the contents could be transferred, then such an act would be deemed illegal. As far as regulation is concerned, the Peoples’ Republic of China (“PRC”) requires companies to disclose the probabilities of obtaining randomized rewards from loot boxes. These disclosures can be made in-game or on the official website of the game. However, in order to avoid categorizing loot boxes as gambling, the PRC allows only limited forms of consideration, such as time spent in a game to get a loot box. Loot boxes cannot be purchased through real or virtual currency.

Our Take:

The question of legality of loot boxes has been raised in India as well. In 2021, a public interest litigation (“PIL”) was filed before the Gujarat High Court seeking to consider loot box purchases as a form of ‘Online Gambling’ and regulating these purchases. The High Court disposed off the PIL, directing the State of Gujarat to consider the PIL as a representation and to deal with the same appropriately as the Constitution of India entrusts State legislatures with the power to enact laws governing gambling within their respective State limits.

Generally, Indian gambling laws prohibit gaming activities that are not classified as games of mere skill. A game of skill is one in which the result predominantly depends on the “superior knowledge, training, attention, experience and adroitness of the player”. While there are no regulations or laws governing loot boxes in India, given the meaning attributed to loot boxes and gambling, loot boxes could potentially be considered illegal under the existing Indian laws on gambling. Having said this, since the loot box situation in India is at a nascent stage, the new UK framework may impact future regulation on loot box purchases. In light of these developments, we would expect the Government of India to actively monitor online gaming in order to ensure that loot boxes are not being misused to carry out illegal activities. Further, the Indian Government may also consider updating its regulatory framework to include online gaming within its ambit.

Links:
Link to the Press Release issued by the Department for Digital, Culture, Media & Sport regarding the UK Government’s response to their call for evidence on legality of loot boxes:https://www.gov.uk/government/news/companies-must-do-more-to-ensure-safe-and-responsible-gaming-and-take-action-on-loot-boxes-to-protect-young-people

Link to the Commons Library Research Briefing on Loot Boxes in Video Games:https://researchbriefings.files.parliament.uk/documents/CBP-8498/CBP-8498.pdf

Link to the UK Gambling Commission’s 2017 note on Loot boxes within video games:https://www.gamblingcommission.gov.uk/news/article/loot-boxes-within-video-games

Practice Contacts

Ameet Datta - Partner (Practice Lead) | ameet@saikrishnaassociates.com

Suvarna Mandal - Partner | suvarna@saikrishnaassociates.com

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