Connect with us

Gambling

Loot Box Mechanics in the Legal and Islamic Perspective

Loot box mechanics in video games have sparked debates across legal and religious spheres. This analysis explores the fundamental concerns surrounding loot boxes and their potential impact on players. It examines the evolving regulatory landscape across multiple jurisdictions, highlighting diverse approaches from outright bans to mandated transparency. Additionally, it delves into the Islamic perspective, analysing loot boxes through the lens of concepts like “Maisir” (gambling) and “Gharar” (excessive uncertainty).

Published

on

Loot Box
Loot Box Mechanics in the Legal and Islamic Perspective

1. WHAT ARE LOOT BOX MECHANICS?

The video game industry has witnessed a significant rise in the utilization of loot box mechanics as a primary monetization strategy.  These mechanics have become a subject of intense debate, prompting discussions regarding fairness, ethical considerations, and even their compatibility with religious principles.  Prior to navigating these complexities, we must establish a foundational understanding of loot boxes and their core functionalities. At their core, loot boxes function as virtual containers within a video game that dispense randomized in-game rewards to players. 

These rewards can be likened to a concealed treasure chest, where the contents remain unknown until the moment of acquisition. The spectrum of potential rewards encompasses purely cosmetic enhancements for a player’s character to strategically advantageous elements, such as powerful weapons or upgrades that demonstrably influence gameplay.

Two fundamental aspects define loot box mechanics:

  • Randomized Rewards: The cornerstone of loot boxes lies in the element of chance. Players are entirely unaware of the specific reward they will receive upon opening a loot box, fostering a sense of anticipation that can be both stimulating and potentially frustrating.
  • Acquisition Methods: While some video games incorporate loot boxes as earnable rewards through in-game progression, the more prevalent method involves purchasing them using either in-game currency (which can often be acquired with real-world money) or directly with real-world currency.
Loot Box Mechanics in the Legal and Islamic Perspective

2. CONCERNS SURROUNDING LOOT BOX MECHANICS

Loot box mechanics have sparked concerns due to their perceived similarities with gambling activities and their potential to foster addictive behaviours, particularly among vulnerable populations. The randomized nature of loot box rewards, combined with the monetary investment required to obtain them, has drawn parallels to the mechanics of gambling, raising ethical questions about exploitation and potential harm. Furthermore, the unpredictable and compulsive pursuit of rare in-game items through loot box purchases mirrors the patterns of addictive gambling, prompting concerns about the normalization of such behaviours, especially in younger audiences. These two key issues have placed loot box mechanics under intense scrutiny from regulators, policymakers, and consumer advocacy groups worldwide.

a. Similarity to gambling

Loot box mechanics, while seemingly innocuous, have ignited significant concerns regarding their potential negative impacts on players, particularly those vulnerable to addictive behaviours. The inherent randomization and promise of valuable rewards embedded within loot boxes create a system that critics argue mirrors gambling mechanics. Players invest real-world money to participate in a randomized process where the rewards hold varying values. This system creates a situation akin to winning or losing, depending on whether they acquire a desirable or undesirable item.

The fundamental similarity lies in the element of chance combined with a monetary investment for a randomized outcome with variable rewards. This association with gambling raises significant ethical questions, especially in jurisdictions where gambling is prohibited due to its potential to cause social and financial harm.

Several high-profile cases have emerged where video games featuring loot box mechanics have been challenged in court.  For instance, the case of an Austrian Counter-Strike: Global Offensive (CS:GO) player who successfully sued developer Valve to recover EUR 14,096.58 (around USD 15,3k) spent on in-game weapon cases serves as a prime illustration of the ongoing legal debate surrounding loot boxes and their potential classification as a form of gambling.[1] 

Advertisement

In that case, the court in Austria ruled that Valve, the developer of Counter-Strike: Global Offensive (CS:GO), must refund the aforementioned amount to a player who spent that amount on in-game weapon cases. The court found that these weapon cases constitute loot boxes and thus violate Austria’s gambling laws.  Weapon cases are a type of loot box that contain weapon skins, gloves, and knives.

Players can acquire them through random drops while playing the game, through trading with other players, or by purchasing them on various online marketplaces. The crux of the lawsuit centered around the random nature of the rewards in weapon cases. The plaintiff argued that since the contents of each case are determined by chance, opening them essentially constitutes gambling. The Austrian court agreed with this argument and ultimately ruled that Valve should reimburse the plaintiff for their in-game purchases. This case is significant because it highlights the growing legal scrutiny surrounding loot boxes and their potential classification as a form of gambling.

b. Potential for Addictive Behaviours

The unpredictable nature of loot box rewards raises significant concerns about the potential for players, particularly younger audiences, to develop problematic addictive behaviours akin to gambling addiction. Gaming Disorder (GD) was officially included in the ICD-11 as a group of disorders due to addictive behaviours.[1]  The cardinal symptoms of GD are impaired control over gaming behaviour, increased priority given to the behaviour, and its persistence or escalation despite negative consequences to the patient.[2] 

There is a strong resemblance between obtaining rare items in loot boxes and taking a gamble. As players randomly obtain items from loot boxes, they become compelled to purchase more loot boxes in the expectation that they will eventually obtain a desired item, which is known as the variable ratio reinforcement schedule, a key factor in fostering addictive behaviours.[3]  Loot boxes are commonly purchased by many young people, and the less experience they have with such mechanism, the more challenging it can be for them to manage their impulsivity.[4]

3. DIFFERENT APPROACHES TO REGULATION IN SEVERAL JURISDICTIONS

The concerns surrounding loot box mechanics have spurred governments around the world to take action. This section will delve into the types of approaches taken by different countries in addressing loot boxes. Some have classified loot boxes as a form of gambling, others have mandated age restrictions and established transparency requirements through disclosure practices. Some have also addressed loot boxes indirectly through advertising regulations. Notably, these regulatory approaches are not necessarily mutually exclusive, and jurisdictions that require probability disclosure could also have age restrictions on games with loot boxes, and so on.

Advertisement

a. Considered Gambling (Belgium and Austria)

Loot boxes have faced particularly strict regulations in Belgium and Austria, where they have been classified as a form of gambling. In Belgium, the Gaming Commission released a report in 2018 dedicated to loot boxes.[5]  Following an examination of loot boxes in four video games, the Commission concluded that three of them constituted games of chance subject to the country’s Gambling Act. 

These games fulfilled the criteria of a game of chance, defined as involving a combination of being a game, involving a wager, involving chance, and resulting in a gain or loss.[1]  Since gambling activities in Belgium are restricted with exceptions outlined in the Gambling Act, the Commission deemed these loot boxes to be in violation.  The report also emphasized that even free loot boxes could be problematic if they incentivize players towards purchasing paid loot boxes.

To comply with the Gambling Act, the Commission mandated the removal of paid loot boxes from the offending video games.  Failure to comply could result in significant penalties for operators, including prison sentences of up to five years and hefty fines reaching EUR 800,000 for a first offense.  These penalties could be doubled for violations involving minors.  The Commission further clarified that prosecutions would primarily target game operators, with the possibility of extending them to those involved in running the illegal games.

Austria has also taken a firm stance against loot boxes.  In February 2023, a landmark court case saw an Austrian player successfully sue Sony for a refund on the money spent acquiring loot boxes in the FIFA video game series.[2]  The Hermagor District Court ruled in favour of the plaintiff, determining that the “Ultimate Team Player Packs” constituted illegal gambling.  This decision hinged on three key factors:

  • Real-World Money: Players used real money to purchase the loot boxes.
  • Randomized Content: The contents of the loot boxes were not predetermined.
  • Financial Benefit: The acquired loot box items held a “financial benefit” because they could be traded between players on a secondary market, falling under the purview of Austrian gambling law.

While Sony had the right to appeal the judgment, they opted not to do so, solidifying the court’s decision.  This case was followed by another in August 2023, where both Electronic Arts and Sony were ordered to refund EUR 10,800 to a player after losing a separate loot box case in Austria. The actions taken by Belgium and Austria serve as a strong precedent for how loot boxes can be regulated as a form of gambling, with all the regulations that come with it.

b. Probability Disclosure (China and South Korea)

In contrast to countries that classify loot boxes as gambling, China and South Korea have adopted a different regulatory approach, focusing on probability disclosure. China was the pioneer in this area, implementing regulations in December 2016 that came into effect in May 2017.[1]  These regulations, which are still used in practice despite its abolishment, mandated that game developers disclose the probability of acquiring specific rewards through loot boxes.  These disclosures must encompass:

Advertisement
  • The name and functionality of each item obtainable through loot boxes.
  • The quantity and probability of obtaining each item.
  • A prominent display of this information on the game’s official website or within the random selection interface itself.
  • Transparency and accuracy in the published probability information.
  • Retention of user participation data in random selection events for a minimum of 90 days to facilitate potential inquiries by relevant authorities.

Loot boxes that fail to comply with these regulations risk being deemed violations or even classified as gambling games, potentially leading to penalties and removal from online platforms.

Following China’s lead, South Korea also implemented its own loot box regulations in March 2023.[2]  Effective March 2024, these amendments require developers to disclose the probabilities of obtaining individual loot box items, as opposed to just categories of items.  This ensures a more granular level of transparency for players.  Technical requirements for displaying this information, along with other game product details like age ratings, are outlined in the corresponding presidential decree.

South Korea’s regulatory framework also incorporates an industry self-regulatory body, the Game Self-Governance Organization of Korea (GSOK).  Since February 2017, the GSOK has been actively advocating for and enforcing probability disclosures among game developers. The amended Act further empowers the relevant Minister to directly mandate companies to make disclosures or rectify misleading information.  Non-compliance with these regulations can result in penalties for failing to disclose loot box probabilities or disregarding corrective orders issued by the Minister.

By focusing on probability disclosure, China and South Korea aim to empower players with greater knowledge about loot box mechanics, effectively asking the players to acknowledge the risks and possibilities of the randomized reward system.

c. Minimum Age Rating (Germany and Australia)

Another approach to regulating loot boxes focuses on establishing minimum age ratings for games that incorporate them.  Germany has implemented regulations that utilize this strategy. In April 2021, amendments were made to the German Protection of Young Persons Act (JuSchG). These amendments came into effect in January 2023 and mandated the German age rating organization, the USK (Unterhaltungssoftware Selbstkontrolle), to consider the presence of “gambling-like mechanisms” when assigning age ratings to video games.[3] 

Loot boxes fall under the purview of these “gambling-like mechanisms.”  In response, the USK also revised its internal policies in January 2023 to reflect this change.  As a result, games containing loot boxes now receive an age rating warning that translates to “In-Game Purchases + Random Items.”  This serves as a clear indicator to parents and guardians about the presence of loot box mechanics within the game.

Advertisement

Australia has taken a stricter stance on loot boxes through its amended Guidelines for the Classification of Computer Games 2023, which took effect in September 2024.  These guidelines mandate that video games featuring loot boxes must be classified at a minimum of M (not recommended for persons under 15 years of age).[1]  Furthermore, games that incorporate simulated gambling mechanics must be classified R 18+ (legally restricted to adults only). 

The guidelines define “loot box” as a feature within a computer game where players can acquire digital containers containing randomized virtual items through some form of payment. Although this definition is somewhat limitative, it is a step in the right direction in regulation.  This age-rating approach in Germany and Australia aims to shield younger audiences from potential risks associated with loot boxes, particularly those related to addictive behaviours and the potential for irresponsible spending. 

By implementing these minimum age ratings, these countries ensure that parents and guardians are informed about the presence of loot boxes before allowing younger players to access such games. This will open avenues for their involvement in the decision-making process regarding the suitability of the game content for their children. Not only that, these age ratings are intended to prevent misuse of in-game transactions that tend to occur in the younger audience.

d. Advertising Regulations (Indonesia and United Kingdom)

While some countries take a hard line on loot boxes themselves, others like Indonesia and the United Kingdom (UK) have taken a different approach by focusing on regulating the way loot boxes are advertised to consumers. Rather than directly regulating the games or loot box mechanics, these jurisdictions address loot boxes within the broader scope of consumer protection laws and advertising regulations.  This strategy aims to ensure transparency in the marketing and/or promotion of loot boxes while still allowing their inclusion in games. By regulating the advertising aspect, Indonesia and the UK seek to empower buyers with accurate information which will enable them to make fully-informed decisions when choosing to purchase loot boxes.

Indonesia’s Consumer Protection Law (Law No.8 of 1999) prohibits promoting products that “contain uncertain promises.”[1] Loot boxes, which are intangible objects utilized by consumers, are considered “goods” under  the Consumer Protection Law and as such are subject to its provisions.[2] The law prohibits business actors from offering, promoting, or advertising goods and/or services incorrectly, or as if offering something that contains uncertain promises.[3] Consequently, loot boxes may only be advertised as potentially containing certain items, but cannot be advertised as directly selling the contents themselves, as their acquisition is not guaranteed upon purchase of the loot box. 

Advertisement

The law does not allow companies to promote loot boxes as offering a guaranteed outcome or mislead players about the random nature of the rewards. However, offering the loot box itself as a product as opposed to the contents of the loot box can still be done. Indonesia’s advertising regulations for loot boxes align with the UK’s approach overseen by the Committee of Advertising Practice (CAP).

In September 2021, the CAP issued specific guidance on advertising in-game purchases, which includes loot boxes.[4]  These guidelines aim to prevent misleading advertising practices.  For instance, companies are prohibited from creating the impression that players have a much higher chance of acquiring rare items than is actually the case.  This includes practices like highlighting “near misses” where players seem to have narrowly missed obtaining a valuable item.  Additionally, the CAP discourages companies from falsely portraying limited-time offers for loot boxes, particularly if they intend to re-introduce those same offers later.  These regulations ensure that consumers are presented with accurate information about loot box mechanics and the associated element of chance.

4. CONCERNS REGARDING LOOT BOX MECHANICS IN ISLAMIC/SHARIA LAW

From the perspective of Islamic jurisprudence, the permissibility of loot box mechanics is a complex issue that requires a nuanced examination. This section delves into the Islamic legal concepts and principles that shape the discourse surrounding loot boxes. It analyses the concept of “Maisir” (gambling) and how loot boxes potentially align with the Quranic prohibitions on such activities. Additionally, it explores the notion of “Gharar” (excessive uncertainty) and its implications for the uncertain nature of loot box rewards. By unpacking these foundational concepts, this section aims to provide a comprehensive understanding of the Islamic legal viewpoints on loot boxes and their potential classification as impermissible practices.

a. On Gambling (Maisir)

The permissibility of loot boxes under Islamic law (Sharia) remains an open question.  While there is no express conclusion as of yet, many Islamic scholars view loot boxes with a critical lens due to their inherent similarities to gambling, a practice explicitly prohibited in the Quran. The term “Maisir” in Islamic law refers to speculation or gambling. 

This prohibition stems from the Quran’s edict that it brings more harm than good:

Advertisement

They ask you about wine and gambling. Say: ‘In them both lies grave sin, though some benefit, to mankind. But their sin is more grave than their benefit.’[1] 

Sharia, however, recognizes the distinction between calculated business risks and pure gambling. The former is considered an acceptable part of commercial activities, while the latter is strictly forbidden.

The Quran serves as the foundational source of Islamic law, and its pronouncements are considered authoritative and indisputable.  One specific verse explicitly prohibits gambling:

O you who believe! Intoxicants, gambling, idols, and (divination by) arrows are all evil of Satan’s handiwork. Eschew such (evil), that you may prosper.”[2]

This verse emphasizes the inherently detrimental nature of gambling and its association with negative consequences.

Applying these Islamic principles to video games, the inclusion of loot boxes raises ethical concerns.  Since loot boxes involve spending real money on a random chance of acquiring desirable in-game items as elaborated widely above, they share characteristics with gambling.  This element of chance and the potential for financial loss resonate with the Quranic prohibition on Maisir. Consequently, it could be argued that loot boxes could be classified as haram (forbidden) under Islamic law. While the Quran’s stance on gambling is clear, its application to the modern phenomenon of loot boxes is a complex issue.

There is no single, universally accepted interpretation among Islamic scholars.  Some may differentiate between loot box systems based on the level of chance involved and the potential for players to eventually acquire all items without relying solely on random purchases. The evolving nature of technology necessitates ongoing discussions within Islamic jurisprudence to address these contemporary situations. The uncertainty surrounding the permissibility of loot boxes under Islamic law presents a challenge for Muslim players and developers.  Understanding these religious perspectives can inform the design and consumption of video games within Islamic communities.

Advertisement

b. On Excessive Uncertainty (Gharar)

The concept of “Gharar,” literally meaning “risk” in Islamic law, plays a central role in the debate surrounding loot boxes. Gharar refers to situations where the characteristics, quantity, or even the very existence of what is being exchanged are unknown or highly uncertain. [1] This uncertainty can lead to unfair outcomes and a lack of informed consent, which consequently means transactions containing Gharar are forbidden.[2] By introducing elements of ambiguity, loot boxes challenge the principles of fairness and transparency in transactions emphasized in Islamic law.

Classic examples of Gharar from the Hadith (authoritative saying attributed to the Prophet Muhammad) include the prohibition of selling “fish in the water or birds in the sky” before they are caught, the amount or quality of which cannot be ascertained at the time of sale.[3] Loot boxes in video games introduce significant ambiguity and risk, as players spend money without knowing if they will receive a specific desired item. This scenario creates uncertainty, as the contents of loot boxes can vary widely in value; creating a disparity similar to the risks highlighted in traditional examples of Gharar.

Moreover, Gharar extends to situations where the outcome depends heavily on chance, with an unequal distribution of risk.[4] Similarly, loot boxes involve an element of speculation, as players spend money on the chance of acquiring a desirable item, but the risk of receiving something unwanted is substantial. This lack of control and the potential for wasted expenditure resonate with the prohibition of Gharar.

The lack of transparency in loot box mechanics further exacerbates the issue. Players often do not know the odds of obtaining specific items, and the true value of the virtual items is subjective and unclear. This opacity aligns with the principles of Gharar, as it involves a lack of information or misunderstanding between contracting parties. The high level of uncertainty in what a player is purchasing—spending money without knowing if they will receive a valuable item or something worthless—falls under the excessive uncertainty described by Gharar. This excessive uncertainty can lead to unfair outcomes and exploitation, where players may spend significant amounts of money without receiving commensurate value.

As things stand, it seems much more likely that loot boxes would be prohibited based on Gharar. Several factors contribute to this higher likelihood: the potential for addictive spending and financial loss on virtual items of unknown value raises concerns about exploitation, a core principle antithetical to Islamic commerce. Furthermore, the lack of transparency regarding loot box mechanics and item odds furthers the Gharar argument. Ultimately, the inherent uncertainty associated with loot boxes aligns with the classic examples of Gharar outlined in the Hadith, where one does not know what one is purchasing, resulting in excessive uncertainty.

Advertisement

5. CONCLUSION

The rise of loot box mechanics in video games has prompted a diverse array of regulatory responses across jurisdictions. Each lawmaker respectively addresses loot boxes through methods they deem most effective. Different approaches such as classifying loot boxes as a form of gambling, mandating the disclosure of loot box probabilities, implementing minimum age ratings for games featuring loot boxes, and regulating how loot boxes can be marketed have been implemented by different jurisdictions.

These varied approaches highlight the multifaceted challenges posed by loot box mechanics and the differing philosophical underpinnings guiding each jurisdiction’s response to this phenomenon. From an Islamic law perspective, loot boxes face scrutiny under the concepts of Maisir (gambling) and Gharar (excessive uncertainty).

The Quran explicitly prohibits gambling, and many scholars view loot boxes as potentially aligning with this prohibition due to their reliance on chance and monetary expenditure for randomized rewards. The principle of Gharar emphasizes transparency and fairness in transactions, which loot box mechanics may violate through their lack of clarity and uneven distribution of rewards. While no universal consensus exists, Islamic jurisprudence seems to lean towards prohibiting loot boxes based on their exploitative potential and intrinsic uncertainty antithetical to Islamic commercial ethics.


[1] Book 31, Hadith 1304,  Muwatta Malik

[2] Vol. 3, Book 12, Hadith 2195, Sunan Ibn Majah

Advertisement

[3] Vol. 3, Book 12, Hadith 1230,  Jami` at-Tirmidhi

[4] Book 11, Hadith 2854, Mishkat al-Masabih

[1] Quran 2:219

[2] Quran 5:90

[1] Article 9(1)(k), Law No.8 of 1999 on Consumer Protection

Advertisement

[2] Article (1) (4), Ibid

[3] Article (9)(1), Ibid

[4] Committee of Advertising Practice (CAP) and Broadcast Committee of Advertising Practice (BCAP), ‘Guidance on Advertising In-Game Purchases’ (20 September 2021) <https://www.asa.org.uk/resource/guidance-on-advertising-in-game-purchases.html> accessed 15 May 2024

[1]Guidelines for the Classification of Computer Games 2023, p.15

[1] 2016 Ministry of Culture Notice on Regulating Online Game Operations and Strengthening Interim and Post-event Supervision Work

Advertisement

[2] 게임산업진흥에 관한 법률 [Games Industry Promotion Act] (as enacted as Law No. 7941 on 28 April 2006, effective 29 October 2006) and as later amended

[3] § 10b(3),German Protection of Young Persons Act (JuSchG)

[1] Article 2 (1), Federal Act of 7 May 1999 regarding games of chance, wagers and protection of the players

[2] Xiao, Leon Y. 2023. Loot Box State of Play 2023: Law, Regulation, Policy, and Enforcement Around the World, p. 15

[1] World Health Organization. Inclusion of “gaming disorder” in ICD‐11. 2018, https://www.who.int/news/item/14-09-2018-inclusion-of-gaming-disorder-in-icd-11, accessed 10 May 2024

Advertisement

[2] World Health Organization. 6C51 in ICD‐11. 2018, https://icd.who.int/browse/2024-01/mms/en#1448597234, accessed 10 May 2024

[3] Ferster CB, Skinner BF. Schedules of reinforcement. East Norwalk, CT: Appleton‐Century‐Crofts; 1957. p. vii 744–vii

[4] Inaguma T, Misumi S, Funatogawa T, Nemoto T, Harima H, Mizuno M. Does the loot box open the door to addiction? A case report of gaming disorder with high charges for loot box purchases. Psychiatry Clin Neurosci Rep. 2024;3:e167. https://doi.org/10.1002/pcn5.167

[5] Belgische Kansspelcommissie (Belgian Gaming Commission), ‘Onderzoeksrapport loot boxen’ https://web.archive.org/web/20200414184710/https://www.gamingcommission.be/opencms/export/sites/default/jhksweb_nl/documents/onderzoeksrapport-loot-boxen-final-publicatie.pdf, accessed 12 May 2024

[1] Austria Press Agency. Press Release, https://www.ots.at/presseaussendung/OTS_20231218_OTS0033/counter-strike-lootboxen-erstmalig-fuer-illegal-erklaert-valve-corporation-verliert-spektakulaeren-gerichtsprozess, accessed 12 May 2024

Advertisement

Authors

  • Yudistira Adipratama

    Yudistira Adipratama is the Managing Partner of K-CASE Lawyer, the first esports dedicated law firm in Indonesia. K-CASE Lawyer has worked with and provided legal consultation to various esports stakeholders in Indonesia, including game publishers, esports clubs, event organizers, streamers, game associations, government, and universities. Yudistira holds a key position in the policy-making process of the esports parent organization in Indonesia. He was involved in the drafting of Law No. 11 of 2022 on Sports, which recognizes esports as a competitive sport for the first time in Indonesian history. Yudistira is also the drafter of PBESI Regulation No. 034/PB-ESI/B/VI/2021 on the Implementation of Esports Activities in Indonesia, a policy that regulates the implementation of the esports industry ecosystem in Indonesia. His expertise in law and the esports industry also led him to be involved in the drafting of Presidential Regulation No. 19 of 2024 on the Acceleration of the Development of the National Game Industry. In addition to esports, Yudistira also has a deep understanding of sports law and actively serves as a speaker representing Indonesia at various high-level international conferences attended by representatives of the International Olympic Committee. Under his leadership, K-CASE Lawyer has supported Indonesia’s participation in various international multi-sports events, such as the 19th Asian Games in 2022, the 2023 SEA Games, and the 14th IESF World Esports Championships. View all posts

  • Mohamad Rafi Andiansyah S.H.
Continue Reading
Advertisement

Gambling

Legal Regulation of eSports in Chile

eSports presents novel legal challenges for regulators globally, with Chile experiencing its unique set of complications due to existing legislative frameworks. This analysis explores the intersection of Chilean gambling laws and eSports, emphasizing the legislative gaps and ambiguities that currently govern this rapidly growing industry. The paper aims to dissect the pertinent legal provisions and propose avenues for legislative reform, ensuring that eSports can thrive within a clearly defined legal environment in Chile.

Published

on

Esports in Chile | ELN

Introduction

In Chile, the rise of eSports has highlighted significant gaps in the existing legal framework, particularly concerning the classification and regulation of these activities. Unlike traditional sports, eSports involve virtual competitions that can include elements typically associated with gambling, such as entry fees and monetary rewards. This article examines Chile’s gambling laws, their applicability to eSports, and the legal challenges that arise from the current regulatory landscape.

Chile’s legal approach to gambling is primarily governed by the Ley N° 19.995, which establishes the bases for the authorization, functioning, and supervision of casino games. The regulatory body, Superintendencia de Casinos de Juego (SCJ), oversees these activities. However, eSports fall outside the explicit regulatory scope of this law, as they are not conducted in physical venues like casinos and are not solely dependent on chance.

  1. Article 3 of Ley N° 19.995: This article defines games of chance as those where the outcomes are predominantly subject to chance rather than player skill. eSports, where outcomes predominantly depend on players’ skills, strategies, and decision-making, challenge this definition. However, the lack of explicit recognition and differentiation in the law creates a gray area regarding their regulation.
  2. Decree No. 2385 on Municipal Revenues: This law grants municipalities the authority to regulate and license certain types of local games. While designed for traditional games, its broad language could theoretically extend to eSports events, adding another layer of complexity for organizers who must navigate local regulations that are not tailored to the digital nature of eSports.
  3. Consumer Protection Law (Ley N° 21.081): While not directly regulating gambling or eSports, this law protects consumers against misleading practices. It becomes relevant when considering how eSports are marketed and the clarity provided to participants regarding the nature of their participation and the use of their entry fees.

Challenges Arising from Current Legislation

The primary challenge in the current legal framework is the lack of specific provisions addressing the digital and virtual nature of eSports. This omission leads to several practical issues:

  • Uncertainty and Inconsistency: Event organizers and participants face uncertainty about the legality of their activities, potential liabilities, and the applicability of gambling laws.
  • Inadequate Consumer Protection: Without clear regulations, consumers may not be adequately informed about their rights or the nature of the events in which they are participating, potentially leading to disputes and dissatisfaction.
  • Inhibiting Industry Growth: The legal uncertainty can deter investment and hinder the development of a structured eSports market in Chile, which is crucial for the professionalization and global competitiveness of this sector.

Proposed Solutions for Legislative Reform

To foster a conducive environment for the growth of eSports in Chile, the following legislative reforms could help eSports:

  1. Explicit Recognition and Definition: Introduce specific legislation that clearly defines eSports, distinguishing them from gambling activities based on their skill-based nature.
  2. Regulatory Framework Development: Develop a tailored regulatory framework that addresses both the digital nature of eSports and the physical venues where events might be held.
  3. Stakeholder Engagement: Involve key stakeholders, including gamers, event organizers, legal experts, and consumer protection agencies, in the legislative process to ensure that the regulations are comprehensive and practical.

Conclusion

The legal challenges currently facing the eSports industry in Chile require thoughtful consideration and action from lawmakers. By addressing the gaps in the existing legal framework and introducing clear, tailored legislation, Chile can better support the growth and sustainability of eSports while protecting the interests of all parties involved. Establishing such a legal foundation is essential for Chile to remain competitive and innovative in the global eSports arena.

With material from: La Voz de Chile

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

Continue Reading

Gambling

Alleged Video Games Addiction Leads to Lawsuit (Updated)

In a developing legal battle reminiscent of the Colvin et al v. Roblox Corporation et al case that challenged Roblox’s alleged facilitation of illegal gambling with minors, a new lawsuit has been filed in Missouri against major players in the video game industry alleging video games addiction.

Published

on

Video Games Addiction

This lawsuit, just like Casey Dunn et al. v. Activision Blizzard et al., on which ELN reported before, accuses companies, including Epic Games, Mojang Studios, and Roblox, of designing games that create an excessive video games addiction in children, leading to serious detrimental effects on their physical, social, and mental health.

Context and Background of the Case

In a legal filing that marks a significant escalation in the scrutiny of video game companies’ practices, a lawsuit has been filed in the U.S. District Court for the Western District of Missouri, Central Division. The case, bearing the number 2:24-cv-4055, has been initiated by Carey Courtwright, representing her minor child K.C. This legal action addresses serious concerns about the design and operation of video games that allegedly lead to addiction among young players. K.C., who began engaging with video games at the tender age of six, is presented as a victim of these manipulative gaming practices.

Defendants in the Lawsuit

The defendants listed in this lawsuit are some of the most prominent names in the gaming industry:

  • Epic Games, known for Fortnite
  • Mojang Studios, the creators of Minecraft
  • Meta Platforms, the conglomerate formerly known as Facebook
  • Roblox Corporation

These companies are accused of creating and maintaining gaming environments that exploit psychological vulnerabilities in children.

Detailed Allegations of Video Games Addiction Triggers

The lawsuit articulates specific tactics employed by the defendants which are purportedly designed to foster addiction:

  • Reward Systems and Feedback Loops: Games are structured to release dopamine in response to achievements within the game, perpetuating a cycle of engagement that can lead to excessive and unhealthy gaming habits.
  • Limited Transparency and Predatory Monetization: The true costs of in-game transactions are often concealed or minimized, exploiting cognitive biases and leading players, particularly young ones, to spend money without a full appreciation of the cumulative costs.
  • Fear of Missing Out (FOMO): By introducing time-limited events and exclusive in-game items, the games tap into a player’s fear of missing out, which can compel continuous or increased expenditure to remain competitive or included in gaming communities.
  • Targeting of ‘Whales’: These companies strategically identify and exploit major spenders within their games — often referred to as “whales” — by encouraging them to spend large amounts of money through tailored incentives.
  • Lack of Parental Controls: The complaint criticizes the insufficient mechanisms provided to parents to monitor and control their children’s gaming activity effectively, which exacerbates the problem of unregulated access and expenditure.

Human Costs and Plaintiff’s Burden

The complaint vividly describes the adverse effects on K.C.’s life due to the alleged gaming addiction. These include a noticeable decline in academic performance, social withdrawal from peers and activities, and the development of physical symptoms such as pain in the hands, eyes, and back, as well as disrupted eating patterns. Moreover, K.C. has reportedly suffered from mental health issues, including depression and anxiety, which were intensified by the inability to disengage from gaming. The plaintiff, Carey Courtwright, shares the emotional and financial burden inflicted by this ordeal, emphasizing the considerable expenses accrued through medical treatments and in-game spending by K.C.

This lawsuit is part of an emerging trend where legal actions are increasingly highlighting the potential negative impacts of video games on minors. Similar to the issues raised in Colvin et al v. Roblox Corporation et al, this case underscores the urgent need for the industry to adopt more ethical practices in game design and marketing. The outcome of such lawsuits could potentially lead to stricter regulations and standards governing game development and marketing, particularly regarding the mechanisms that promote prolonged engagement and spending in games.

Entertainment Software Association’s Statement (Update)

Having read our article, the Entertainment Software Association (ESA) has provided a statement that offers a broader industry perspective. The ESA, a trade association that represents the U.S. video game industry and includes several of the defendants in the lawsuit as its members, has articulated its stance on the issues central to the lawsuit.

Advertisement

The ESA emphasized its commitment to player safety and digital wellness, stating:

“Video games are among the most dynamic, widely enjoyed forms of entertainment in the world. We prioritize creating positive experiences for the entire player community and provide easy-to-use tools for players, parents, and caregivers to manage numerous aspects of gameplay.”

Moreover, the ESA addressed the claims made in the lawsuit directly, noting:

“Claims that say otherwise are not rooted in fact and ignore the reality that billions of people globally, of all ages and backgrounds, play video games in a healthy, balanced way.”

This statement underscores the ESA’s viewpoint that while the lawsuit raises important concerns about player safety and addiction, the claims do not necessarily reflect the broader reality of gaming as an activity enjoyed healthily by a vast global audience.

Conclusion

This lawsuit could set important precedents regarding the accountability of video game developers and platforms in safeguarding the well-being of their youngest and most vulnerable users. The broader implications for the industry could include a reevaluation of game design ethics, the introduction of more stringent parental controls, and a more transparent communication regarding the costs associated with in-game content. The video game industry may need to balance commercial interests with a heightened responsibility towards its user base, especially children, in light of growing legal scrutiny.

Image source: DallE3

Advertisement

Carey Courtwright, individually and on behalf of K.C., a Minor v. Epic Games et al

Court: United States District Court for the Western District of Missouri, Central Division
Case No.: 2:24-cv-4055

Defendants

  1. Epic Games
    • Counsel not listed
  2. Mojang Studios
    • Counsel not listed
  3. Meta Platforms
    • Counsel not listed
  4. Roblox Corporation
    • Counsel not listed

Plaintiff

  1. Carey Courtwright (Individually and on behalf of her minor child, K.C.)
    • Counsel to Carey Courtwright:
      • Tyler W. Hudson, Eric D. Barton, and Melody R. Dickson of Wagstaff & Cartmell LLP
      • Breean “BW” Walas, Tina Bullock, and Danielle Ward Mason of Bullock Ward Mason LLC
      • Charles M. Stam of Thompson Stam PLLC

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

Continue Reading

Gambling

Another Roblox Litigation – An Illegal Gambling Ring for Kids?

In an era where digital platforms intertwine with daily activities, the lawsuit against Roblox Corporation has sparked significant legal and ethical debates. This case, officially cited as Colvin et al v. Roblox Corporation et al, No. 3:23-cv-04146, filed in the Northern District of California, brings to the fore critical issues surrounding gambling in video games and the responsibilities of platform providers.

Published

on

Roblox Litigation

Case Background of the Roblox Litigation

Roblox, a platform that combines gaming with social networking, has been accused of facilitating illegal gambling activities targeted at minors through its virtual currency, Robux. Plaintiffs Rachelle Colvin and Danielle Sass allege that Roblox’s system enabled minors to engage in gambling via third-party sites that were intricately linked to the Roblox platform, thus breaching the Racketeer Influenced and Corrupt Organizations Act (RICO) and other pertinent statutes​​. This is just one of many cases against Roblox.

Specific Allegations Against Roblox

  1. Misleading Representations: Roblox’s terms of service claim that it does not allow activities involving simulated gambling using Robux. However, the lawsuit asserts that Roblox has misled consumers, particularly parents, about the safety and appropriateness of its platform for children​​.
  2. Facilitation of Gambling: Despite these terms, Roblox is accused of actively facilitating and profiting from gambling activities by tracking and recording the flow of Robux used for gambling on third-party sites, thereby enabling this ecosystem​​.
  3. Profit from Illegal Activities: It is alleged that Roblox profits significantly from these transactions by charging a transaction fee, including when Robux are converted back into real currency by these gambling entities, effectively receiving a cut from the illegal use of its platform​​.

Claims Made in the Roblox Litigation

The lawsuit brings multiple claims under both federal and state laws, including violations of the RICO, the California Unfair Competition Act (UCL)1, and for negligence, among others. These claims focus on the creation and maintenance of an illegal gambling operation, misleading business practices, and the unjust enrichment of Roblox at the expense of its users​​.

Relief Sought

The plaintiffs seek monetary damages, restitution for the losses incurred by the minor users and their guardians, and injunctive relief to prevent further illegal gambling operations. They also demand a jury trial to adjudicate these claims​​.

The Motion to Dismiss

On 26 and 28 March 2024, the court partially granted Roblox’s motion to dismiss. The court dismissed the RICO claims which was significant. The court held that the plaintiffs failed to demonstrate that Roblox was engaged in a “qualifying enterprise” under RICO, as they could not show a common purpose or concerted action beyond regular business operations. The court’s findings demonstrate a challenge plaintiffs usually face when applying traditional legal frameworks like RICO to the fluid, expansive, and often nebulous operations of digital platforms, which are designed to maximize user engagement and revenue through complex, layered interactions that may not neatly fit into existing legal categories.

Claims Advancement

However, the advancement of claims under the UCL and for negligence opens substantial grounds for legal debate and analysis. The UCL’s broad scope, aimed at combating unlawful, unfair, or fraudulent business acts or practices, provides a robust framework for addressing alleged misconduct in digital settings. The court’s decision to let these claims proceed suggests a recognition of potential oversight and management failures by Roblox in preventing the use of its platform for gambling activities, especially those involving minors.

The negligence claims hinge on whether Roblox failed to exercise reasonable care to avoid foreseeable harm to its users, particularly children, who might be drawn into gambling with real-world economic consequences.

Unjust Enrichment

The court also allowed the unjust enrichment claim to proceed. By allowing this claim to proceed, the judge recognized that the compensation sought by the plaintiffs might not be covered fully by direct monetary damages. This decision emphasizes the need to consider a broader economic context of transactions on platforms like Roblox, where the company’s revenue model directly benefits from the engagement and expenditures of its users, including those activities that skirt or cross legal boundaries.

Advertisement

Implications for Digital Currency and Platform Liability

This litigation spotlights the need for stricter regulatory scrutiny of digital currencies like Robux or gambling aspects in video games in general. As these currencies blur the lines between virtual assets and real-world value, the potential for misuse increases, necessitating clearer regulations and standards. This case could prompt lawmakers and regulators to examine more closely how digital currencies are managed on platforms, especially those accessible to minors.

The case also raises critical questions about the duty of platforms to protect users from harm. The allegations suggest that Roblox could and should have done more to prevent its platform from being used for gambling.

Conclusion

Colvin et al v. Roblox Corporation et al is an interesting case at the intersection of technology, law, and ethics, offering a crucial legal precedent for digital platform governance. As the case progresses, it will provide valuable insights into how digital platforms can be held accountable for the activities they enable and profit from.

This case will likely have far-reaching implications for legal practices, platform operations, and the legislative landscape governing digital interactions and economies, making it a critical watchpoint for legal professionals and platform operators alike.

Colvin et al v. Roblox Corporation et al

Advertisement

Court: United States District Court, Northern District of California
Case No.: 3:23-cv-04146

Defendant Roblox Corporation

  • Counsel to Roblox Corporation: Cooley LLP
    • Kyle Wong
    • Robby Lee Ray Saldana, Washington, DC
    • Tiana A. Demas, Chicago, IL

Defendant RBLXWild Entertainment LLC

  • Counsel not listed

Defendant Satozuki Limited B.V.

  • Counsel not listed

Defendant Studs Entertainment Ltd.

  • Counsel not listed

Plaintiffs Rachelle Colvin and Danielle Sass

  • Counsel to Plaintiffs: Weitz & Luxenberg, P.C.
    • Aaron Freedman, New York, NY
    • Devin Lynn Bolton, Los Angeles, CA
    • James J. Bilsborrow, New York, NY

Minor Plaintiffs G.D. and L.C.

  • Represented by the same counsel as Rachelle Colvin and Danielle Sass.
  1. Cal. Bus. & Prof. Code § 17200 et seq. ↩︎

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

Continue Reading

Trending