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.
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 Major players such as Nintendo, Electronic Arts and Square Enix have all withdrawn some of their games in these jurisdictions and fear similar actions in other countries.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.
‘Life is like a box of chocolates; you never know what you’re gonna
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.
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:
(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
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.
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?
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.
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.