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Gaming loot boxes: Understanding their legality and impact on the online gaming industry

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Are loot boxes legal in India?

This is a guest post by Sarthak Doshi, an Associate working at Ikigai Law, a Delhi-based legal and policy firm.

Digital gaming in the 21st century has been all about interactivity and in-game experience. Gone are the days when a schoolkid would buy a copy of GTA Vice-City and complete the entire game in a week. Today, due to constant updates and downloadable content, a digital game can never be completely consumed or finished despite the number of hours’ you put into it. In the past ten years, add-on content known as downloadable content (“DLC”) has become a key part of the digital gaming industry. DLC allows game publishers to constantly update the game; add new features; and increase complexities in gameplay to keep the users engaged.

-Scoring11 Fantasy Sport Games

Apart from the interactivity and game experience it provides, DLC has also significantly changed the way gaming companies approach their revenue streams. Studies state that in recent times much of the publisher’s profits have started coming-in from DLC (as opposed to selling the game itself) and it accounts for around 25-50% of a publisher’s total revenue.

There could be a variety of DLCs available in online gaming. Ranging from a minor glitch update to downloading new weapons, accessories, avatars, skins and seasons altogether; one can literally overhaul the entire game. Amongst these, loot boxes are one kind of DLC that has attracted significant attention of regulators around the world. The ban on gaming loot boxes in Belgium and Netherlands, and the recent bill introduced in the US Senate, has sent chills to the entire gaming community. Major players such as Nintendo, Electronic Arts and Square Enix have all withdrawn some of their games in these jurisdictions and fear similar actions in other countries. The United Kingdom, on the other hand, does not consider loot boxes to be illegal and has interpreted the law in favour of gaming companies.

It is in this context that this article will explain gaming loot boxes, analyze their legality, and understand the implications of foreign laws in India which is yet to have legal clarity on the subject.

Understanding gaming loot boxes

Life is like a box of chocolates; you never know what you’re gonna get

This memorable quote from the movie Forest Gump aptly captures the nature of gaming loot boxes. A loot box is a virtual package, chest or crate that provides a randomized reward to the player that could be used during gameplay. These virtual items can be used in the game to improve the aesthetics of the character or something more functional like in-game performance. For example, a loot box could contain a more powerful shield to use in-game, or some lesser reward like a new costume for your avatar.

Loot boxes can either be acquired by the player by spending time in completing in-game challenges, or by spending real money and making in-app purchases. The problem arises with the latter. For example, if a player purchases a loot box for Rs. 500, the player may receive randomized rewards which otherwise may be purchased for Rs. 10. Whether you are rewarded with a low-value reward or a high-value reward is your luck. Hence, loot boxes could sometimes be games of chance within a game of skill.

How are loot boxes akin to gambling?

Gambling is generally understood to be “staking or risking something of value with an expectation of reward” and most jurisdictions define it in such fashion. Putting this into context, a player risks real currency while she makes an in-app purchase for a loot box. The expectation of the player from a loot box is to receive a unique/rare virtual item (reward) which enhances her ability to perform in the game. The nature of loot boxes hence satisfies, at least, the literal interpretation of the term “gambling.” The discord is whether the reward from the loot box has ‘value’ or not, and this is where the opinion is divided. We take Belgium and United Kingdom as an example.

Belgium

In 2018, the Belgian Gaming Commission released a report (“Loot Box Report”) which classified gaming loot boxes as gambling. While discussing whether gaming loot boxes qualify as games of chance, the Belgium Gaming Commission stated that:

a wager (bet) of any type is sufficient to qualify as betting for these games. Use of money is not necessary. Just because virtual currency is used in a game does not mean that there is no wager. 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.”

The manner in which Belgian laws define gambling is quite unique. The interpretation of value is not limited to monetary gain in terms of currency, but also includes what is valuable to the player during gameplay. As in-game currency and game coins give an advantage to the player in the game and hence create value for her, wagering/betting in such currency also constitutes gambling.

United Kingdom

The UK Gambling Commission has taken the position that loot boxes are not gambling. The Gambling Commission questioned whether virtual items obtained via. loot boxes can be considered to have money’s worth. The Commission concluded that virtual items obtained through loot boxes are confined for use within the game and cannot be cashed out and hence do not qualify as gambling. In a statement, the Commission said that:

Loot boxes are one way that players can enhance the experience that video games offer. Contrary to assertions, loot boxes are not gambling. They have no real-world value, players always receive something that enhances their experience, and they are entirely optional to purchase. They can enhance the experience for those who choose to use them, but have no impact on those who do not.

Therefore, in the United Kingdom, it is not illegal to offer loot boxes. The act does not constitute as gambling because the in-game items have no real-life value outside of the virtual game.

Would loot boxes qualify as gambling under Indian laws?

Gambling and betting under the Constitution of India is a state subject, and hence each state has its own legislation on the subject. While state legislations differ from each other to some degree, the definition of gambling across most states is characterized by the basic principles of “risk” and “reward”. Gambling is constituted if the player receives a reward, whether in the form of money or something of value. Hence, the definition in India could be subject to a similar interpretation as under Belgian laws.

Conclusion

The issue on the legality of gaming loot boxes creates understandable concerns for the gaming industry that is yet to reach its full potential. The jurisprudence around gaming loot boxes is still developing and it is only a matter of time when India is faced with a similar concern.

I agree with the UK Gaming Commission that in-game items have no real-life value outside of the game and should not constitute gambling. Of course, this logic turns when games permit a secondary market for these in-game experiences, features and rewards, something that may increasingly become possible with the advent of blockchain and ERC-721 (collectible token) based games. Keeping that exception aside, I believe that the Belgian approach to loot boxes is a bit of a stretch and takes the fun out of gaming! Any enactment of gaming law or policy on loot boxes needs to give careful consideration to the impact it could have on a growing industry, especially the repercussion it could have on smaller publishers.

The views expressed in this article are that of the author alone and are not necessarily endorsed by this website.

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