In-game purchases

Authors

Oz Watson

Senior Associate

London

Loot boxes

UK approach

Loot boxes provide players with the opportunity to pay to open a ‘box’ and acquire an unknown quantity and quality of in-game items for use within the game. The UK Gambling Commission (the Commission) has identified loot boxes as a potential risk to children.

A key factor in deciding whether a gaming practice crosses the line of what is and isn't gambling and presents a risk to people is whether in-game items acquired ‘via a game of chance’ can be considered money or money’s worth. In practical terms this means that where in-game items obtained via loot boxes are confined for use within the game and can't be cashed out, they're unlikely to be caught as a licensable gambling activity.

There is a lot of complexity in this area. Following an extensive call for evidence, the government concluded in July 2022 that there was no evidence of a causal relationship between loot boxes and problem gambling and does not propose specifically covering them in the planned replacement to the Gambling Act 2005.

The government did, however, recommend that loot boxes containing the element of chance should be unavailable to all children and young people unless and until they are enabled by a parent or guardian. It also said that all players should have access to and be aware of spending controls and transparent information to support safe and responsible gameplay.

Industry-led guidance on loot boxes was published by the industry trade body Ukie alongside 11 industry principles published in conjunction with the Gambling Commission, and a Video Games Research Framework was published by the government.

Many parents aren't interested in whether an activity meets a legal definition of gambling. Their main concern is whether there is a product out there that could present a risk to their children. The Gambling Commission therefore continues to be concerned with the blur between video gaming and gambling.

Where a product doesn't meet the test to be classed as gambling but could potentially cause harm to children, parents will expect proper protections to be put in place by those that create, sell and regulate those products even if loot boxes aren't considered 'gambling' and aren't subject to regulation under the Gambling Act 2005 or its successor. This is a difficult balance for the Gambling Commission to manage moving forward and we may see enforcement strategies continue to develop in this area, particularly in light of recent activity by the UK's Advertising Standards Authority (ASA) which has led to concerns that the current self-regulatory approach may be insufficient.

Evolving views in the EU

Germany now looks as though it may take a stricter approach in this area, aligning itself with the Netherlands and Belgium which have already taken steps to regulate the use of loot boxes. The Bremen state governing coalition (made up of the Social Democrats, the Greens and Die Linke) is pushing for a ban on in-game loot boxes and the state parliament has asked the state senate to push for reform at a federal, nationwide, level. So, while the proposals have no practical effect yet, there is strong sentiment among some political parties in Germany to regulate loot boxes. The current position is similar to the UK in that titles containing them must declare this on the box and the inclusion of loot boxes will be factored into the age rating given to the game.

Ireland's draft Gambling Regulation Bill also, on the face of it at least, looks likely to bring loot boxes within scope of tighter regulation in Ireland. In the current GRB draft, “game” means a game— (a) of skill or chance, or partly of skill and partly of chance, and (b) where a participant in the game may, having made a payment, win a prize of money or money’s worth; “gaming” means providing a game or participating in a game and falls within the definition of betting. By this definition it seems likely that loot boxes will be caught.

Spain's Ministry of Consumer Affairs has initiated a draft regulation targeting a specific type of loot box, referred to as "random reward mechanisms". These require a monetary transaction from the player to activate the random reward mechanism, offering economically valuable rewards that can be exchanged among game participants or converted into real money or other virtual items, for example aesthetic improvements or competitive advantages. Currently, when game reward mechanisms fulfil these specific criteria, they are designated as gambling activities and banned. The new draft law aims to allow the use of random reward mechanisms under certain controlled situations. Access by minors would be banned by age verification mechanisms and spending limits introduced on virtual items for adults. Self-exclusion mechanisms will also be required to be available.

It will be interesting to see how these initiatives develop and whether we are going to start to see a wave of increased regulation of loot boxes across Europe.

Consumer protection and in-game purchases

As far back as 2013, The UK Office of Fair Trading (OFT), now the Competition and Markets Authority (CMA), looked at whether app-based games included: ‘...direct exhortations to children – a strong encouragement to make a purchase, or to do something that will necessitate making a purchase, or to persuade their parents or other adults to make a purchase for them.’

This is unlawful under the Consumer Protection from Unfair Trading Regulations (CPUT Regs) and on completion of its investigation, the OFT published guidelines that listed examples of behaviours that are ‘more likely to comply’ or ‘less likely to comply’ with consumer protection laws.

In respect of adverts for games that offer in-game purchases, these principles for online and app-based games (which have since been adopted by the CMA) are not themselves legally binding but reflect how the regulator views overarching consumer protection law as applying to such games.

The principles state that:

cost information and other material information about a game or the game publisher should be provided clearly, accurately and prominently up front, before the consumer plays, downloads or signs up to the game
the commercial intent of any in-game promotion of paid-for content, or promotion of any other product or service, should be clear and distinguishable from gameplay
a game should not mislead consumers by giving the false impression that payments are required or are an integral part of the way the game is played if that isn't the case
games shouldn't include practices that are aggressive, or which otherwise have the potential to exploit a child’s inherent inexperience, vulnerability or credulity to place undue influence or pressure on a child to make a purchase
a game shouldn't include direct exhortations to children to make a purchase or persuade others to make purchases for them
payments shouldn't be taken from the payment account holder unless expressly authorised.

Advertising in-game purchases

In the UK, the ASA has the power to examine the adverts for games and consider whether or not they could mislead the public.

The ASA has published guidance for advertisers to help them ensure that in-game purchases are marketed responsibly and aims to ensure consumers are better protected, amidst increased awareness of concerns about the potential for in-game purchasing to mislead consumers.

The guidance clarifies several means by which advertisers of games with in-game purchasing should seek to ensure that their ads are not misleading, including by:

making it easy for consumers to understand how much they are spending on in-game transactions
being clear before purchase or download of a game whether it contains in-game purchases and whether that includes loot boxes
ensuring that ads for games are clear about what content primarily relies on making extra purchases.

The ASA has also stated that adverts for games should make clear what consumers can expect from the free elements and whether in-game purchases will have a significant impact on gameplay and the CAP Code (the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing) has specific provisions on the use of the word ‘free’ (rule 3.23-3.26). Inappropriate use of the word ‘free’ is also on the blacklist under the CPUT Regs and will be deemed unfair.

As mentioned above, the ASA has actively enforced against game businesses in breach of the rules. As marketing for in-game purchases tends to be more aggressive when targeted at older children or adults, age filtering on online games platforms could help ensure children don't receive potentially infringing communications.

Physical video games warnings

In August 2018, Pan European Game Information (PEGI) added a new ‘In-game purchases’ content descriptor icon on rating licences for physical releases of video games (in addition to the existing requirement for digital-only games), informing parents prior to purchase about the possibility of spending money within the game, and in April 2020, PEGI announced a new ‘paid random items’ content descriptor for loot boxes.

The in-game purchases icon features a hand holding a credit card and joined existing graphics indicating a suggested age limit for players and providing a warning where games include content which features eg sex, drugs, bad language and gambling.

A complex regulatory framework

In-game purchases engage a range of regulatory issues. These become more complex for cross-border businesses, particularly in areas of divergence like loot boxes. It's important to understand the applicable regimes in order to ensure compliance.