New loot box gambling regulations 2023

In 2019, loot boxes came under intense scrutiny, with governments around the world taking increasing note.

Since then, there have been significant updates across several jurisdictions, with a raft of new legislation, court cases and draft bills being introduced.

EU

As we wrote back in 2020, the EU Internal Market and Consumer Protection committee report (2020 Report) suggested that loot boxes should be tackled through existing consumer protection laws that focus on addressing “problematic game designs”.

The 2020 Report stated that focusing narrowly on whether or not loot boxes satisfy national gambling criteria may lead to a fragmented market for video games in the EU.

Since then, a number of EU markets have taken different positions, notably:

1. Loot boxes qualify as gambling (and therefore require a licence) or are outright illegal in certain states. For example, in Belgium, the Netherlands and Slovakia.
2. Loot boxes are not legally considered gambling in most EU member states, but there are members states that are looking to introduce bespoke legislation for loot boxes and to apply requirements which exist for traditional gambling.

On 18 January 2023, a report entitled Consumer protection in online video games: a European single market approach was adopted (2023 Report) and it emphasises the following:

1. there are strong, existing EU consumer laws that provide for consumer protection that are applicable to video games. Nevertheless, there is a need for member states to coordinate approaches to avoid fragmentation of the single market;
2. the need to consider the protection of minors and children who are particularly at risk; and
3. industry-led initiatives such as PEGI (Pan-European Game Information, a game content rating system used in 35 European countries) could be used to provide information on the recommended age for playing a game and provide parents with important information before purchasing a game.

(Note that in Germany, from 1 January 2023, the German video game age rating body, Unterhaltungssoftware Selbstkontrolle, will start considering the presence of loot boxes in a game as part of its age rating system.)

The 2023 Report echoes some of the earlier thoughts set out in the 2020 Report but does not propose any legislative proposals. For now, game developers and publishers will need to consider each member state’s separate loot box regulations.

UK

In a quick recap of the discussions in the UK on loot boxes:

• the House of Lords Select Committee (in its Summer 2020 report on Gambling Harm) recommended that loot boxes be brought within the remit of the UK’s Gambling Act;
• on 8 December 2020, the UK Government issued a call for evidence on loot boxes as part of its wider review of the UK’s Gambling Act; and
• the Government’s response to the above call for evidence was published on July 2022.

The July 2022 report stated that after careful consideration, the Government does not intend to amend gambling regulations to cover loot boxes.

This intention rested on the fact that, while loot boxes share similarities with traditional gambling, the ability to legitimately cash out rewards is different. Normally loot box rewards do not have real world monetary value outside the game and are primarily used to enhance the gaming experiennce.

Although it chose not to amend gambling regulations, the UK Government expressed interest in seeing continued improvements to self-regulation by the industry, by way of providing greater consumer protection measures.

Some of these proposed changes include parental supervision for loot box purchases and all players (not only young people, but adults too) should have access to spending controls and transparent information.

The Department for Digital, Culture, Media and Sport has said that it will convene, and indeed has already convened, a technical working group to provide input into solutions for mitigating loot box harm.

The Netherlands and Austria

Under Dutch law, there is a prohibition to offer a game of chance without the necessary permits. The Dutch Gaming Authority first banned loot boxes as violating gambling laws in 2018.

A game of chance requires that the participant have an opportunity to win prizes or premiums and the winner is determined by chance.

EA was initially fined up to a potential €5 million in the Netherlands for its in-game sale of FIFA Ultimate Team Packs, which is a loot box style item that has been found to violate local gambling laws.

EA appealed the decision on the grounds that, since the in-game packs have no real-world monetary value, they should not be considered to be gambling.

The highest administrative court in the Netherlands (The Administrative Jurisdiction Division of the Dutch State Council) decided the final appeal in EA’s favour determining that the packs did not contravene Dutch gambling laws. As the case had reached the highest administrative court, no further appeals could be lodged on behalf of the Dutch Gambling Authority.

This decision was made on the basis that the card packs do not qualify as a game of chance, as they form part of an inseparable part of a game of skill, as many would attest, to the FIFA Ultimate team mode.

The court noted that it is necessary to determine whether a loot box represented a separate and standalone game in and of itself. If that is not the case (the court acknowledged it would be in most cases), the next question to ask is whether the overall game is a game of chance or skill.

Based on this judgment, the analysis seems to be that most loot boxes in many games will not be caught by Dutch gambling laws. Most games require skill and loot boxes will be an inseparable part of that game.

Yet, it is interesting to see that this judgment has not discouraged platforms from removing services that include loot box elements from the Netherlands. For example, Roblox’s Adopt Me shut down its service in the Netherlands and Belgium in September 2022 after the judgment was rendered.

This may be due to a motion which was filed in the Netherlands in response to this case, by six political parties proposing that loot boxes be regulated and the legal measures that cover video games be considered.

In contrast to this, the district court of Hermagor in Austria deemed FIFA Ultimate Team packs as illegal gambling, which was a claim brought by PlayStation owners against Sony Interactive Entertainment Network Europe Ltd.

The claim was brought against Sony (as opposed to EA) as the loot boxes were purchased through the PlayStation store.

The court pointed to the ability of players to sell these cards on a secondary market, meaning a profit could be made, giving financial value to the loot box prizes.

It will be interesting to see whether the decision will be appealed by Sony and how this case develops in contrast to the Dutch courts.

Belgium

In contrast to the UK and the Netherlands, the Belgian Gaming Commission in 2018 declared that all loot boxes that players can buy with real currency (directly or indirectly), legally constitute gambling.

In order for a company to offer gambling services in Belgium, they must possess a gambling licence. However, within the current framework, video game loot boxes do not constitute a product which can be licenced, rendering all paid loot boxes illegal gambling products.

Despite this, the ban has not been strictly enforced. One report found that 82% of the 100 highest-grossing iPhone games in Belgium continued to generate revenue by selling loot box products. Major companies have complied and either removed loot boxes from their Belgian-published games or chosen not to publish games in Belgium altogether. However, that has not been enough to deter the most dedicated of players, with the report referencing the gamers’ use of VPNs (virtual private networks) to access games not readily available in Belgium.

The above figure, and the report as a whole, demonstrates that Belgium’s attempts at curbing the problem have not been entirely successful, with the Belgian Minister of Justice admitting that the gambling regulator does not have the resources to enforce the law. This begs the question, can an outright ban of loot boxes achieve its intended purpose?

Spain and Finland

Both countries have proposed legislation that regulates loot boxes.

On the 1st of July 2022, the Spanish Ministry of Consumer Affairs published a draft bill regulating loot boxes as part of a wider consultation. The draft bill highlights the protection of minors from addictive behaviours as an important aim.

The proposals include, amongst other things:

1. Prohibition of minors from accessing or using loot boxes
2. Players to be given rights to obtain information on costs and parent controls
3. Obligations on game developers to include a “self-exclusion mechanism”. These are similar to mechanisms in traditional gambling where users have an option to temporarily suspend themselves from activating loot boxes for a period of time (between 3 months and 5 years) during which this option cannot be revoked.

Members of the Finnish Parliament have also proposed a bill to regulate loot boxes as a form of gambling in Finland. Prior to this, Finland did not attempt to regulate loot boxes.

The new bill proposes to amend local gambling regulations to include “virtually utilisable profits” so that prizes with virtual (and not necessarily monetary value) will be caught by gambling laws.

This will be another interesting development to keep an eye on, in particular with large game developers such as Supercell (Clash of Clans, Brawl Stars) and Rovio (Angry Birds) based in Finland. Supercell has already removed loot box mechanics from Brawl Stars and is instead using a new progressive reward system to unlock content.

Please see our previous loot box articles:

• 24 May 2019: Prevalence of loot boxes and ways to mitigate regulation risk
• 18 December 2019: Status of loot box regulations in the UK, Japan, China and Italy
• 11 May 2020: Concerns around loot boxes in China and the UK
• 8 October 2020: EU and UK House of Lords view on loot boxes
• 23 December 2020: Loot box regulations in the Netherlands, Canada, USA and UK.