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.

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] 

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.

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:

• 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.

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. 

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:

“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.

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.

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

[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

[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

[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

[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