Pandora’s Box: Litigation and Regulation of Videogame Loot Boxes

I. OPENING PANDORA’S BOX

In September of 2020, two Canadian plaintiffs filed a claim seeking certification to proceed with a class action lawsuit against videogame publisher Electronic Arts Inc. (“EA”) over the use of “loot boxes” in their products.¹ Loot boxes are randomized packages of in-game items, upgrades, or content that are purchased with virtual currency or real currency (or virtual currency purchased with real currency).² The content of loot boxes can then be used in the same game, traded with other players, or, in some circumstances, sold to third parties.³  Like packs of hockey cards in the less-digital days of yore, players acquire an unknown quantity whose true value for gaming use and collectors’ purposes is only revealed upon opening—when the chance to return for a refund has long since passed.

The element of chance inherent to loot boxes is the subject of the plaintiffs’ concern. The suit claims that EA is acting in violation of the gambling provisions within Part VII of the Criminal Code,⁴ in spirit if not in fact, giving rise to an unjust enrichment.⁵ Further, the suit alleges EA’s lack of disclosure regarding the odds of winning certain in-game content violates provincial consumer protection statutes, and so should be subject to their statutory remedies.⁶ In short, one form of relief sought by the plaintiffs is a mandate that EA must refund to their customers all of their ill-gotten loot box gains since they were first implemented in 2008.⁷

II. INSERT COIN TO PLAY

Despite the playfulness of the subject matter, a potential award would by no means be trivial if the suit were successful. While loot boxes are a relatively new innovation in the industry, their use has exploded in recent years. A study from the University of York conducted in 2019 found that loot boxes were present in 71 per cent of games available from the PC gaming storefront Steam, compared to just 4 per cent in 2010.⁸ Another study found that 78 per cent of players had purchased at least one loot box, generating an estimated worldwide revenue of US$30 billion in 2018 from loot boxes alone.⁹ In comparison, the Canadian videogame industry as a whole earned around CAN$3.6 billion in revenue in 2019 from nearly seven hundred different developers,¹⁰ eighty-six of which are located here in the Prairie provinces.¹¹

Moreover, there may be psychological—if perhaps not yet legal—merit to the gambling aspect of the plaintiffs’ claim. A recent investigation from the Center for Gambling Studies found that gamers who purchased loot boxes were more likely to “report significantly higher online gambling frequency...and higher rates of problem gambling.”¹² Indeed, the researchers discovered that the mental distress experienced by loot box purchasers was similar to that experienced by more traditional gamblers,¹³ and theorized that they may prime gamers to seek out similar experiences through gambling.¹⁴ Related research led the mental health director of the U.K.’s National Health Service, in January 2020, to call for a ban on marketing and selling games to children that incorporate loot boxes.¹⁵

III. IT’S DANGEROUS TO GO ALONE

Other countries have already taken such regulatory steps. In 2018 the Belgian Minister of Justice, Koen Geens, announced the results of their investigation into EA’s use of loot boxes.¹⁶ Geens stated that because “[m]ixing games and gambling, especially at a young age, is dangerous for mental health,”¹⁷ in the future certain loot boxes would be considered as violating the country’s existing gambling legislation and thus expose game developers who employ them to a potential €800,000 fine.¹⁸ Similarly, in 2019 the Netherlands Gambling Authority (Kansspelautoriteit (“Ksa”)) imposed an administrative fine under their gambling legislation against EA’s Swiss division.¹⁹ When appealed, the District Court of The Hague (Rechtbank Den Haag) found in favour of the Ksa, subjecting EA to a penalty of up to €5 million depending on how quickly and thoroughly it implemented the necessary modifications.²⁰

Other countries have been slower to implement such forceful policies. In February of 2020 the Spanish Minister of Consumer Affairs announced new regulations targeting loot boxes, including restrictions on their advertising, but has yet to effect such plans.²¹ A public consultation campaign has been undertaken to gather views on the regulations, but details have yet to be announced.²² Meanwhile, the U.K.’s House of Commons Digital, Culture, Media and Sport Committee recommended that loot boxes should not be permitted in games sold to children until more research can be conducted.²³ Despite the Committee’s calls, however, the country has yet to implement any such restrictions at the time of writing.

However, in the U.K.’s defence, neither have their former colonies in North America. Despite legislative attempts at regulation,²⁴ courts in the United States have expressed doubt over whether loot boxes can legally constitute gambling since they function within games of skill, even if they themselves are games of chance.²⁵ Further, industry regulators hold the position that, although players may use real currency, a player can never lose real currency since they always obtain in-game items in return.²⁶

IV. GONE HOME

In Canada, there are currently no provincial or federal regulations regarding loot boxes.²⁷ This absence of regulation is what makes the recent lawsuit against EA so interesting: it has the potential to create Canadian precedent for an issue that lawmakers and psychologists around the world have agreed is a significant concern for the mental health of children and adult gamers alike. Indeed, it also has the potential to disrupt a substantial revenue stream for a major Canadian industry which has, so far, been experiencing substantial year-on-year growth while generating thousands of jobs.²⁸

However, even a ruling against EA may not be an entirely negative outcome for Canadian game developers. Unlike broadly interpreted gambling legislation, which could, as in Europe, ban the practice altogether, a judicial finding that loot boxes constitute unjust enrichment by their similarities to traditional gambling could be incorporated within the industry’s existing systems. These systems include the Electronic Software Ratings Board²⁹ or the Pan-European Game Information,³⁰ which already perform most self-regulatory functions for the industry, such as content ratings and age restrictions. While these agencies may require developers to advertise odds, restrict third-party resales, or even ban direct, real currency transactions, this would be a far less stringent and less costly result for EA than the Belgian and Dutch responses have been. Whatever the results of this particular lawsuit, the Canadian videogame industry will likely have to change its use of loot boxes in the near future, whether in the face of judicial activism, regulations, or pure public concern.

---

^* B.A., M.Th., M.Phil., JD Candidate (Saskatchewan).

¹ Sutherland v Electronic Arts Inc. (30 September 2020), Vancouver S-209803 (BCSC) (Plaintiff’s Notice of Civil Claim), online (pdf): The Patch Notes <thepatchnotes.com> [perma.cc/73TX-T4QP] [Sutherland].

² Matthew McCaffrey, “The Macro Problem of Microtransactions: The Self-Regulatory Challenges of Video Game Loot Boxes” (2019) 62:4 Bus Horizons 483 at 485.

³ Ibid.

⁴ RSC 1985, c C-46.

⁵ Sutherland, supra note 1 at paras 72–89.

⁶ Ibid at paras 90–105.

⁷ Ibid at paras 36, 56, 61–71.

⁸ David Zendle, Rachel Meyer & Nick Ballou, “The Changing Face of Desktop Video Game Monetisation: An Exploration of Exposure to Loot Boxes, Pay to Win, and Cosmetic Microtransactions in the Most-Played Steam Games of 2010-2019” (2020) 15:5 PLoS ONE 1 at 7.

⁹ Wen Li, Devin Mills & Lia Nower, “The Relationship of Loot Box Purchases to Problem Video Gaming and Problem Gambling” (2019) 97 Addictive Behaviors 27 at 27.

¹⁰ Entertainment Software Association of Canada, “The Canadian Video Game Industry 2019” (2019) at 3, 29, online (pdf): <www.theesa.ca> [perma.cc/23CY-7BQW].

¹¹ Ibid at 11. For a look at the expansion of videogame development in Saskatchewan in particular, see Mark Melnychuk, “Digital Dreams: Meet Regina’s Independent Video Game Developers”, Regina Leader-Post (31 January 2020), online: <leaderpost.com> [perma.cc/4NJM-7CRJ].

¹² Li, Mills & Nower, supra note 9 at 30.

¹³ Ibid.

¹⁴ Ibid at 31.

¹⁵ NHS, “Country’s Top Mental Health Nurse Warns Video Games Pushing Young People into ‘Under the Radar’ Gambling” (18 January 2020), online: NHS England <www.england.nhs.uk> [perma.cc/C6ZW-8SHY].

¹⁶ Koen Geens, “Loot Boxen in Drie Videogames in Strijd met Kansspelwetgeving” (25 April 2018), online: Koen Geens Federaal Volksvertegenwoordiger <www.koengeens.be> [perma.cc/JKT3-Y7U5]. For an English commentary, see Keza MacDonald, “Belgium is Right to Class Video Game Loot Boxes as Child Gambling”, The Guardian (26 April 2018), online: <www.theguardian.com> [perma.cc/D8EU-3CNA].

¹⁷ MacDonald, supra note 16.

¹⁸ Geens, supra note 16.

¹⁹ Rechtbank Den Haag [Court of the Hague], 15 October 2020, Electronic Arts Inc. v Kansspelautoriteit, [2020] SGR 20/3905 at para 2 (Netherlands), online: <uitspraken.rechtspraak.nl> [perma.cc/RAA3-ZEXL].

²⁰ Ibid at paras 2, 11.

²¹ Ryan Pearson, “Spanish Minister of Consumer Affairs Announces New Regulation against Advertising Lootbox Games” (3 March 2020), online: Niche Gamer <www.nichegamer.com> [perma.cc/643Z-CYRU].

²² See Ted Menmuir, “Spain Launches Public Consultation on Tricky Loot Box Judgement”, SBC News (18 March 2021), online: <sbcnews.co.uk/esports-fantasy/2021/03/18/spain-launches-public-consultation-on-tricky-loot-box-judgement>.

²³ U.K., House of Commons, Digital, Culture, Media and Sport Committee, Report on Immersive and Addictive Technologies: Fifteenth Report of Session 2017–2019 (12 September 2019) (Chair: Damian Collins MP) at 29, online (pdf): <www.publications.parliament.uk/pa/cm201719/cmselect/cmcumeds/1846/1846.pdf> [perma.cc/79G8-V6MS].

²⁴ See e.g. US, Bill S 1629, A Bill to Regulate Certain Pay-to-Win Microtransactions and Sales of Loot Boxes in Interactive Digital Entertainment Products, and for Other Purposes, 116th Cong, 2019.

²⁵ Mason v Machine Zone, Inc., 140 F Supp (3d) 457 at 463–64 (Dist Ct Md 2015), aff’d 851 F (3d) 315 (4th Cir Ct Md 2017).

²⁶ Alexandra M Prati, “Video Games in the Twenty-First Century: Parallels between Loot Boxes and Gambling Create an Urgent Need for Regulatory Action” (2019) 22:1 Vanderbilt J Entertainment & Technology L 215 at 242.

²⁷ Andrija Maksic, “Gambling in Video Games - Loot Boxes” (16 September 2019), online: Peter A. Allard School of Law <www.videogamelaw.allard.ubc.ca> [perma.cc/JPP7-LJGK].

²⁸ Entertainment Software Association of Canada, supra note 10 at 3.

²⁹ Entertainment Software Ratings Board, “About ESRB” (last visited 15 October 2021), online: <www.esrb.org/about> [perma.cc/82W8-572L].

³⁰ Pan-European Game Information, “The PEGI Organisation” (last visited 15 October 2021), online: <pegi.info/page/pegi-organisation> [perma.cc/Q6SK-G4QF].