The regulation of loot boxes has long been a contentious issue and the subject of increased scrutiny in the context of problem gambling, leading to diverse approaches emerging worldwide.
However, a Report of the European Parliament on Consumer Protection in Online Video Games: a European Single Market Approach (“Report”) was adopted on 18 January and brings some clarity on the possible direction of travel for the regulation of loot boxes in the EU.
Loot boxes have been the subject of multiple discussions in recent years as to whether they should be regulated as a gambling product. These arguments have emerged in the light of concerns that loot boxes may act as a gateway to gambling harms for children and vulnerable people.
In its July 2020 Study on Loot Boxes in Online Games and Their Effect on Consumers (“Study”), the European Parliament acknowledged that loot boxes do have features akin to gambling products, in particular the presence of an element of chance and the ability to obtain winnings with monetary value. However, following this Study we have continued to see fragmented approaches taken worldwide, including on an EU level, with regulators reviewing whether existing gambling laws are sufficient to regulate loot boxes:
The position in the UK remains (for now) that loot boxes will not be regulated under the Gambling Act 2005, however this has not been without discussion. In 2019 the Digital, Culture, Media and Sport Committee (DCMS) published its Report on Immersive and Addictive Technologies in which it concluded that the sale and purchase of loot boxes should be considered gambling and therefore regulated under the Gambling Act 2005 – see a summary in our LawNow article here. In its Response, the Government reinforced this view and launched a call for evidence on loot boxes to examine the effectiveness of the current statutory and voluntary regulation, backed up by a July 2020 House of Lords Committee report on gambling harm. Following a 22-month Consultation (which formed part of the Government’s wider review of the Gambling Act), the UK government announced in August 2022 that loot boxes in video games would not be banned under the Gambling Act 2005 or regulated through other means at this stage. The Government’s response to the call for evidence highlighted a range of potential harms associated with the purchase of loot boxes, from mental health, financial and gambling-related harms, however in light of academic evidence failing to identify a causative link between loot boxes and gambling harms, the Government adopted an industry-led approach. In our LawNow article here we summarised the key reasons why the Government took this position.
The current position aligns with the Gambling Commission’s view that the Gambling Act 2005 does not cover loot boxes and it therefore cannot use any of its regulatory powers to take action, but this raises questions as to whether this will change once the long awaited White Paper has been published that will indicate the next steps for the Gambling Act review. Tim Miller, Executive Director of the Gambling Commission, noted in a speech earlier this year that “the boundaries between products which can be defined and regulated as gambling are becoming increasingly blurred”, referencing previous warnings made across Europe and North America in respect of skins gambling and loot boxes in video games. However, in its Response to the call for evidence, the Government noted that “as the evidence base on loot boxes is still emerging, and direct government intervention may risk unintended consequences, our view is that it would be premature to take legislative action without first pursuing enhanced industry-led measures to deliver protections for children and young people and all players”. The Government expressly stated that it “does not intend to make changes to the Gambling Act or to other statutory consumer protections with regards to loot boxes at this time.” For the time being, it seems other existing statutory consumer protection obligations will remain the primary control placed on loot boxes, however it cannot be ruled out that new evidence or a change in Government approach could lead to loot boxes being directly regulated in the future.
An Austrian court recently determined that loot boxes are a form of gambling on the basis that they are a game of chance and can be sold on the secondary market for virtual assets. The District Court of Hermagor ordered Sony to refund Austrian gamers, following a 2020 lawsuit in which several players spent more than €400 on loot boxes, and made clear that the FIFA Ultimate Team model packs are gambling games that require a licence. It remains to be seen what action EA will take to bring the FUT packs into compliance, or whether it will appeal the decision.
The Belgian Gaming Commission concluded in 2018 that paid-for loot boxes purchased through real money or in-game currency meet the requirements set out in the Belgian Gambling Act to be regulated as games of chance. However, a 2022 study indicated that 82% of the 100 highest-grossing iPhone games still contained illegal, paid loot boxes, suggesting that enforcing the law in practice has been difficult.
Since 2017, China has required companies to disclose the possible rewards for loot boxes and the probability of obtaining randomised items from loot boxes.
The French regulator (the ANJ) has previously noted that loot boxes are not subject to the rules on games of chance, unless the items from the loot boxes have a real world monetary value.
The Dutch Gambling Regulator’s (the KSA) approach to loot boxes was previously aligned with the position in Belgium but has shifted recently due to similar issues seen in Austria. The KSA’s focus on loot boxes, in particular in game packs within FIFA video games, emerged following research revealing a link between loot-box games and gambling addiction. In 2019, the KSA imposed a penalty payment on the publisher of FIFA, Electronic Arts Inc. and Electronic Arts Swiss SARL (EA), after it found that the virtual players featured in the FIFA football game loot boxes were determined by chance. After EA initiated proceedings, the District Court of The Hague initially ruled in favour of the KSA, finding that the regulator had correctly identified loot boxes as “games of chance”, but Netherlands’ highest administrative court subsequently overturned this decision. The Administrative Jurisdiction Division of the Council of State ruled that under the Betting and Gaming Act the concept of a game of chance must be interpreted broadly but does not apply to the acquisition and opening of virtual player packs in FUT (an online mode where FIFA players can create their own team and play virtual matches) as an independent game. As noted in our summary of the case here, the question of whether loot boxes will be regulated in the Netherlands now revolves on whether loot boxes are part of game play or should be seen as a separate game element, in which case it would be considered an illegal game of chance.
The new Singaporean Gambling Regulatory Authority is set to revise the rules on online games with virtual prizes and in-game spending, with a view to implementing controls on loot boxes. Possible changes include implementing price caps on loot boxes and ensuring rewards are reserved for gameplay and entertainment.
A draft law published in July 2022 seeks to establish a separate regulatory framework for loot boxes. The bill sets out proposed measures for extensive identity verification for players purchasing loot boxes, disclosing the probability of winning and the ability to set spending limits.
Recommendations for a harmonised EU framework
The summary above highlights the lack of harmonisation worldwide in the regulation of loot boxes, but this is potentially set to change on an EU level. In its Report, the European Parliament acknowledges the “unique creative value” of video games and the industry, which is largely made up of SMEs and start-ups, however makes clear that the video game sector has been largely “neglected” by policymakers compared to other media industries, particularly in respect of consumer protection. With that in mind, the European Parliament makes the following recommendations to the European Commission and the industry in its Report:
- The European Parliament emphasises that consumer protection is “essential to ensure a safe and trustworthy online environment for video games and gamers and that building confidence among consumers can boost the economic growth of the video game industry”. However, it notes that consumer protection could be further improved, alongside the introduction of the Digital Content and Digital Services Directive (Directive (EU) 2019/770);
- The European Parliament calls on the European Commission to analyse the way in which loot boxes are sold, and to take the necessary steps to bring about a common European approach on loot boxes “to ensure adequate protection of consumers, in particular minors and young children”;
- It emphasised that consumers should have all the necessary information about an online video game, including on the presence of in-game purchases such as loot boxes, before and during the game, to help control spending and understand the value of loot boxes in real world currency. The European Parliament recommends that such information should be clearly displayed and easily understandable for all consumers and prominently indicated before each game; and
- The Report highlights the lack of EU-wide disaggregated data on average time spent playing games, average in-game spending, general gaming experience and the related socio-psychological effects. The European Parliament recommends that such data is collected on a yearly basis and reported to the European Parliament.
At this stage, it’s not certain whether the European Commission will take on board the recommendations of the European Parliament and present a legislative proposal, but the Report clearly indicates an appetite for a harmonised EU framework on loot boxes. Whilst it’s not expected that Brussels will introduce a total ban, any new regulation is likely to have a consumer protection focus, in particular for any online games targeting minors. This approach is particularly interesting given the EU’s approach to date to allow Member States to regulate gambling on a national level but perhaps not surprising given the emergence of wider EU consumer protection reforms.
With that in mind, stakeholders in the gambling sector which target consumers in the EU should keep abreast of developments emerging on the EU level and consider whether they want to be involved in shaping the direction of travel in discussion with the European Commission.