MICRO-TRANSACTIONS IN MACRO-GAMING: A STUDY INTO THE NUANCES OF LOOT BOXES

This Article has been authored by Mayura Joshi and Riya Wasade, fifth year law students at ILS Law College, Pune

Introduction

In today’s day and age, technology is one of the few constant aspects of development that never cease to advance. With the ever-increasing dependence on technology and the internet, one of the industries that has made major leaps in its services, is the video game industry. Video games and their producers, with their increased popularity, have been reporting solid, consistently rising profits for the past decade or so, having created a virtual world of property and currency. According to Forbes,[1] it is believed that the gaming industry is likely to be worth over $300 billion by the year 2025. With around 2.5 billion gamers around the world, there aren’t many factors that affect the sale, and use of video games; acting like an all-weather friend, with constant updates and a never-ending gaming experience.

Receiving high profits through its various components, video game producers have long since decided to take it a step forward to boost their revenue through micro-transactions, mostly seeking to expand its mobile gaming market. Micro-transactions are small purchases inside a video game, that give the players content that may be downloaded in the lifetime of a game, for a fee, either for aesthetics, or to gain some advantage in the game. They have different formats of additional content such as virtual currency systems, permanent in-game content, temporary in-game content and the loot box systems.[2] Within the realm of micro-transactions, loot box systems are a popular form, and the major focus of this paper.

While the root idea underneath the system of loot boxes and the loot box itself has been around for quite some time, the concept as has existed in the past decade or so, has raised multiple concerns, becoming increasingly controversial, as players, parents and also legislators, have begun to see this concept as a form of gambling due to the effects created and the randomized reward received, keeping players hooked regardless of the content.

‘...life is like a box of chocolates. You never know what you’re gonna get,” is a quote from the movie Forrest Gump, which perfectly embodies the essence of loot boxes. The audience willing to indulge in loot boxes gets a hypothetical box of chocolates, but have no idea as to what chocolate, or randomized reward is present inside. Loot boxes are marketed in such a manner that their possession seems essential and the rewards, uber advantageous and convenient. Players may never know what they might receive through the ‘loot’ so obtained, but what is sought is an advantage to boost their game, allowing them better performance and the entire in-game experience, targeting player features, power ups, or aesthetics.

Loot boxes can essentially be seen as grab bags, which allow the use of either virtual, in-game or real currency. The question that lies ahead is whether the randomized nature of loot boxes and the use of a form of currency for these micro-transactions, can be considered equivalent to the bane of gambling, whether an addiction to utilisation of these micro-transactions should be treated the same way a gambling addiction is treated and hence, whether micro-transactions should be regulated in the same way, as is gambling.

An Addiction to Loot Boxes

The psychology behind how an addiction works has always been difficult to understand. The party line for describing what an addiction is has always been associated with drugs and substance abuse. While most definitions continue to primarily focus on the substance part of addictions, the idea of it has been evolving. Oxford Languages[3] ­defines an addiction as ‘the fact or condition of being addicted to a particular substance or activity’. This definition has evolved out of the coalesced version of an addiction which has been considered fundamentally as a substance consumption problem.

The American Society of Addiction Medicine[4] defines addiction as a ‘primary, chronic disease of brain reward, motivation, memory and related circuitry, resulting in characteristic biological, psychological, social and spiritual manifestations, wherein an individual pathologically pursues reward and/or relief by substance use and other behaviours.’

The latter definition is more inclusive and therefore tends to cover other types of addictions as well. This is where the addiction to gaming enters.

In 2018, the World Health Organisation (WHO), recognised, for the first time, “gaming disorder” in its International Classification of Diseases (ICD-11). It reiterated the aspects of gaming that have allowed it to become particularly addictive, like its unique immersive capabilities, ease-of-access, but most of all, its gambling like mechanics, as have increasingly sprung up in recent years.[5] Recognising gaming as an actual addictive disorder, WHO has sought to get ahead of this problem, to create a base for health care response to it, and propel further research and education towards its prevention. The research that WHO’s recognition of this disorder is based on has suggested the regions of the brain that are activated by drug cue-associations, are the same regions in which game cue-associations occur, insinuating that gaming is an observable neurophysiological phenomenon.[6]

Video games, especially mobile games, as a major sub section of the gaming industry have been relying increasingly upon ‘micro-transactions’ as a way to earn more revenue. A player might spend small amounts of money for a quick advantage or to speed up the game a little, only to realise that it could quite possibly have a snowball effect, as they have become a well-nuanced norm. As it is being realised that videogaming has the potential to be addictive, micro-transactions are emerging as a way for developers to keep their players hooked, with less regard towards their addictive behaviour towards it. The randomness of the loot boxes is what is considered as the addictive factor in gaming.[7] The erratic availability of loot boxes and/or loot drops kicks in the adrenaline in the body, employing the brain’s dopamine system, which would be extremely interested in the possibility of gaining a reward. The brain responds strongly and positively to uncertain rewards, no matter how miniscule the reward, rather than the reception of the same or similar things in a foreseeable manner. The effects of this very variation termed the ‘variable interval reinforcement’[8] where a behaviour is reinforced after random number of responses are what make loot boxes inherently addictive. This kind of response remains persistently high throughout such reinforcement because of the expectation that the next response might result to be the one to receive reinforcement. Apart from this, loot boxes are formulated to be audibly and visually attractive as well.

Gaming or Gambling?

Gaming includes a number of abstracts which engross players and keep the reeling such as game codes, reward tokens, surprise rewards, multiple challenges, and an entirely different world for individuals to indulge and completely immerse themselves in, which ensures the experience of the human mind that is actively charged for a rewarding experience, developing into addictive behaviour, spending time, effort and subsequently money on hunting for a rush that comes at unpredictable intervals.

Gaming addictions generate a variety of destructive burdens[9] mainly in five such domains of academic, social, occupational, developmental and behavioural. Although it is known that addictions have a genetic component behind it, it has been suggested that the layout of these games can also be considered to be an important factor, invariably promoting addiction.[10]

It is suggested that loot boxes in various aspects mimic gambling. This doesn’t mean that its necessary for the players to gamble on something, but just that the characteristics that make gambling attractive have proven to be similar to the characteristics that make gaming in general, and loot boxes specifically, attractive. In its broadest sense, the existence of ‘irregular frequent awards’ is what caught the eye of many to associate it with gambling. The element of chance that is introduced in such games through frequent unknown rewards is the closest similarity that games share with gambling. The random element of chance, the money (virtual or real) spent on winning a chance at the advantage itself, and the uncertainty of what can be received or lost are what make loot boxes an equivalent to gambling. A player pays a pre-decided “attractive” price as consideration for an uncertain reward, thus, emulating the very characteristic that allows gambling to be a dangerously addictive activity, enough for it to be highly regulated.

The concept of a loot box as has been previously observed can be detrimental if not regulated, as it advances the possibility to use not only virtual money (money that one may earn through the game itself, to be utilised in the game) but also real-world currencies, gaining an unprecedented position in gaming. When a loot box is opened, it builds anticipation, through animation, camera work, sounds etc.; some even use slot machine like visuals with rolling reels which show you ‘near misses’, insinuating how close the players were, encouraging them to spin the reels again, which sometimes includes paying either virtual or real money for multiple chances, therefore, encouraging gambling like behaviour where players repeat these actions until a desired result.[11] This is extremely problematic for people who don’t gamble but especially so for people who are inclined towards an addictive behaviour.

The free-to-play to mobile games significantly drive up the competitive edge that one can gain through micro-transactional advantages,[12] which include loot boxes, making it essential to further their game progress by spending more and gaining whatever reward they can find, to retain a competitive edge in the game. This can be seen as “buying your way” into a game, which, as is known, is also a very prominent feature of gambling that is recreated.

Game developers consistently fanfaronade the manner in which they keep attracting their players, often comparing the audio-visual experience they provide to slot machines, and their ‘addicted audience’ to ‘casino whales’[13], therefore themselves normalising the idea of gambling to be inserted into the minds that play these games.

The amount of money that is spent on micro-transactions like loot boxes is tremendous but the people who spend large amounts of money that contribute to this revenue-generation are few, who are referred to as ‘whales’ in the gaming industry.[14] Regardless of such disagreeable behaviour, loot boxes have, unfortunately, not been regulated as strictly as they should be. While there exist laws that govern gambling in India and other countries, there are many lacunas that exist and many that don’t consider this epidemic of loot boxes as gambling. The features that loot boxes contain and the experience that they provide show enough uniformity with that of gambling for it to not fall in the same category.

Laws governing gambling - India

The Public Gambling Law, 1867[15] is the central legislation with respect to gambling laws while but virtue of the power conferred on the State Legislatures by the Constitution of India they have been entrusted with the framing of state specific laws related to the issue. While a few states have adopted the central legislations, others have gone ahead with enacting legislations to regulate the gambling/gaming activities within their territories. It is pertinent to note that most of these legislations were enacted prior to the advent of online gaming and thus their application is limited to gambling activities in physical spaces, specifically known as “common gaming-house”[16] in the interpretation clause of the 1867 Act. It would be problematic to bring online gaming within the ambit of the concept of common gaming- houses as the act refers to a enclosed area with cards, dices, tables and other instruments which may be used for profit of person owning, occupying or keeping such house, whether by way of charge for using the instruments, the space, the enclosure, or otherwise howsoever.

The Indian Contract Act, 1872[17] contemplates “wagering agreements” and states that agreements by way of wager are void and that no suits can be brought for the recovery of anything so alleged to be won by way on a wager, or that has been entrusted to any person to abide the result of any game or any uncertain event on which a wager has been made.[18] The only exceptions to the above rule are certain prizes won in case of horse-racing and crossword competitions. There has been amendment to the legislation specific to loot boxes or even online games in general.

While many states enacted legislations related to physical gambling within their territories as authorized by the Constitution, Sikkim and Nagaland are the only two states which have adopted legislations specific to regulation of online gambling. In the state of Sikkim, the online gaming is regulated by the Sikkim Online Gaming (Regulation) Act, 2008[19] and Rules of 2009 which aims at controlling online gaming through electronic as well as non-electronic formats and to impose tax on such games. It provides for clear definitions of “online games” and “online gaming” while also necessitating the holding of licences to hold and exhibit online games. It also mentions the duration of such licence, procedure for renewal of the licence along with the penalty for contravention of the conditions for licences. The act related to online gaming in Nagaland is The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skills Act, 2015[20] which aims at prohibiting gambling while also regulating and promoting games of skill specifically. As per the definition of gambling under this act, it means and includes wagers and bets on games of chance but does not include wagers or bets made on games of skills. This act provides a list of games that fall within the scope of games of skill and states the requirement of a licence for those who wish to offer any games of skill on their website and also lists down the conditions for refusal to issue the licence.

Albeit these legislations deal solely with the online gaming, there exists several lacunae as they fail to consider in-game features such as loot-boxes and micro-transactions; and their similitude to gambling.

Global Steps – Legal Status of Loot Boxes in Different Jurisdictions

Belgium

In April 2018, the Belgian Government released a report on loot boxes[21] which stated that loot boxes will fall within the ambit of games as per their domestic gaming and betting legislation which was enacted in May 1999. The report, while classifying loot boxes as gambling went ahead to clarify the concept of wager in the following manner:

“wager (bet) of any type is sufficient to qualify as betting for these games. Use of money is not necessary. Just because virtual currency is used in a game does not mean that there is no wager. It must be possible to attribute a value to this wager, however. Value can be defined as the degree of usability. Specifically, items that the player finds useful or nice and for which he pays money.”

According to this, the interpretation of value is far more than just financial gain. Value includes that which may be useful for a player while he is engaged in gameplay.

The games that offer loot boxes that contravened the provisions of the betting and gaming legislation of Belgium could face criminal prosecution.

Netherlands

The Netherlands Gaming Authority in 2017, had forewarned the possible threats of loot boxes. A study[22] by the same body, in the year 2018, led to the conclusion that certain loot boxes contravene the gaming laws; as the contents obtained from those are matter of chance and the same can be traded outside the game, i.e., the prices have some market value.

It characterises loot boxes as a mixture of game of skill and game of chance and states that:

“Although the outcome of games is determined by skill, the outcome of loot boxes is determined by chance.”[23]

Their analysis also revealed that loot boxes could be addictive and are similar to slot machines or roulette with respect to the design and mechanism. The providers of games with loot boxes that satisfy the definition of prize as encapsulated under the domestic betting and gaming legislation, have been called upon by the Netherlands Gaming authority to modify their games so as to be incommensurate with the norms stipulated under the Dutch Laws.

United Kingdom

According to the UK Gambling Commission, loot boxes do not fall within the concept of gambling. That activity that loot boxes would come under is gaming[24], which is defined as “playing a game of chance for a prize”[25]. The reason for it not being categorized as gambling by them would be that there are no ways to monetize rewards obtained from it.

In the November 2017 report of the commission, further guidance was provided about loot boxes and whether they meet the criteria of gambling and in that regard, they stated:

“…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 cannot be cashed out it is unlikely to be caught as a licensable gambling activity. In those cases, our legal powers would not allow us to step in.”[26]

Upon investigation of the video games with loot boxes by the commission, they suggested self-regulation in such games as these games could still harm children.

United States of America

Considering that United States has one of the largest video game markets in the world, the legal position in relation to loot boxes are relatively clear as there mostly exist relevant state laws regarding gambling.[27] The U.S. government is working efficiently to induce self-regulatory initiatives and raise awareness about the riddle that is loot boxes and for this purpose, the U.S. Federal Trade Commission announced in April 2019 that it would be holding a public workshop to scrutinize the consumer protection issues related to loot boxes.

Apart from this, The Entertainment Software Rating Board, a self-regulatory body to provide rating for games that are sold in the U.S.A and China had stated that loot boxes are not gambling.[28] Later it was entrusted with assigning rating to video games and apps with the view to keep the parents and guardians informed and updated.[29]

As a reaction to this prolonged loot box debate, states such as Hawaii, Washington State, Minnesota, and California carved out legislations with the hope that these would be able to prevent loot boxes being accompanied in video games being marketed for children. But these bills yet remain under discussion and have not have any prohibiting effect.

China

Despite there being no specific definition as to what constitutes as gambling, the activity is forbidden in mainland China.[30] But as comprehended under other jurisdictions, in China too, three elements are necessary: payment, chance and prize. But Chinese regulators didn’t have to look into this aspect, upon the rise of loot boxes, as they were already regulated under their two major domestic regulatory authorities.[31]

As regards loot boxes, the Ministry of Culture, one of the gaming regulatory authorities in China has provided for certain requirements to be met by providers of virtual items and additional services through randomized draws which are[32]:

1. Loot boxes cannot be obtained through money; virtual or real.

2. The virtual items offered therein must be obtainable by other means.

3. Game publishers must provide details about functions and quantities of loot boxes, virtual items and services provided along with the probability of winning.

4. The results of the loot boxes must be disclosed publicly. And their records must be preserved by the game publishers for a minimum of 90 days.

Chinese legislators and regulators seem to have appreciated the role that loot boxes play in video games and thus, instead of prohibiting them completely, they have paralysed the mechanism which give the impression of gambling by virtue of their explicit restrictions and requirements.

Conclusion

Gambling is a state subject as per Entry 34, List II of Schedule 7 of the Constitution of India, each state has the liberty to draft and enforce laws in that regard. While most states concur on the definition of gambling, there may be a possibility of some minor differences, but in essence they all consider the two most essential characteristics of gambling viz., ‘risk’ and ‘reward’.

There is a likelihood that just like the regulators of Netherlands and Belgium, Indian legislators and regulators may also forbid loot boxes in the games that are played by Indian participants. India has been behind in covering up the ground to regulate these micro-transactional systems but legislators have begun to stir and take notice of the implications.

While the concept of loot boxes is evolving and yet to be fully realised, certain precautionary measures need to be ascertained and laid down by the Ministry of Electronics and Information Technology. Two major foreseeable threats of this in-game feature are, firstly, the possibility of addiction to this form of gambling; secondly, the probability of increase in this activity upon the emergence of games with blockchain technology and collectible tokens; and the complicated nature of this thereby causing further difficulty in regulation. The gaming industry has been in its ‘golden age’ of growth and innovation.[33] Loot boxes, while providing certain benefits to its players, are potentially disastrous towards those who are inclined towards addictive behaviour. Loot boxes should, although not be considered an illegal form of gambling, they most certainly should be regulated strictly.

[1] Ilker Koksal, Video Gaming Industry & Its Revenue Shift, https://www.forbes.com/sites/ilkerkoksal/2019/11/08/video-gaming-industry--its-revenue-shift/#34b2966c663e (last updated Nov. 8, 2019) [2] Four types of microtransactions are in-game currencies, random chance purchases, in-game items, and expiring items. Prateek Agarwal, Economics of Microtransactions in Video Games, INTELLIGENT ECONOMIST, https://www.intelligenteconomist.com/economics-of-microtransactions/ (last updated Apr. 10, 2019). [3] Meaning of Addiction, https://www.lexico.com/definition/addiction (Sept. 17, 2020) [4] ASAM Definition of Addiction, https://www.asam.org/Quality-Science/definition-of-addiction (Sept. 17, 2020) [5] German Lopez, Video Game Addiction is Real, Rare, and Poorly Understood, https://www.vox.com/science-and-health/2018/12/6/18050680/video-game-addiction-gaming-disorder-who (last updated Dec. 6, 2018) [6] Jon E. Grant et al., Introduction to Behavioural Addictions, 36 AM. J. DRUG & ALCOHOL ABUSE 233, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3164585/ [7] Alex Wiltshire, Behind the Addictive Psychology and Seductive Art of Loot Boxes, PC GAMER https://www.pcgamer.com/behind-the-addictive-psychology-and-seductive-art-of-loot-boxes/ (Sept. 28, 2017) [8] Annabelle G.Y. Lim, Schedules of Reinforcement, https://www.simplypsychology.org/schedules-of-reinforcement.html#:~:text=A%20variable%20ratio%20schedule%20is,one%20needed%20to%20receive%20reinforcement (last updated July 2, 2020) [9] Daphne Bavelier et al., Brains on Video Games, 12 NATURE REVS. NEUROSCIENCE 763, 764 (2011) (A twenty-two-year-old man also beat and killed his mother for complaining about his gaming.); Mark Tran, Girl Starved to Death While Parents Raised Virtual Child in Online Game, GUARDIAN, https://www.theguardian.com/world/2010/mar/05/korean-girl-starvedonlinegame (Mar. 5, 2010) [10] Supra note 6. [11] Supra note 7. [12] Ethan Gach, Meet the 19-Year-Old Who Spent Over $10,000 on Microtransactions, KOTAKU, https://kotaku.com/meet-the- 19-year-old-who-spent-over- 10000-on-microtra- 1820854953 (Nov. 29, 2017) [13] Jose P. Zagal, Staffan Bj~rk & Chris Lewis, Conference Paper, Dark Patterns in the Design of Games, FOUNDS. OF DIGITAL GAMES 1, 6 (2013), https://gup.ub.gu.se/file/101018 [14] Stephanie Carmichael, What It Means to be a 'Whale'-and Why Social Garners are Just Garners, VENTUREBEAT, https://venturebeat.com/2013/03/14/whalesand- why-social-gamers-are-just-gamers/ (Mar. 14, 2013) [15] The Public Gambling Law, 1867, Act No. III of 1967 [16] Id, Section 1. [17] The Indian Contract Act, 1972, Act No. IX of 1872 [18] Id, Section 30. [19] Act No. XXIII of 2008. [20] Act No. III of 2016. [21] FPS Justice, Gaming Commission, Research Report on Loot Boxes, https://www.gamingcommission.be/opencms/export/sites/default/jhksweb_nl/documents/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf (Apr., 2018) [22] Netherlands Gaming Authority, Certain Loot Boxes contravene Gaming Laws, https://dutchgamesassociation.nl/wp-content/uploads/2018/04/Press-release-Certain-loot-boxes-contravene-gaming-laws.pdf (Apr 19, 2018) [23] Id. [24] Leon Y. Xiao; City, University of London, Online Gambling in Video Games: A Case Study on the Regulation of Loot Boxes [25] UK Gambling Act, 2006 S. 6(1) https://www.legislation.gov.uk/ukpga/2005/19/section/6 [26] Environment and Communications References Committee Gaming micro-transactions for chance-based-Items November; The Senate, Australia, November 2018. [27] Id [28] Unboxing the Issue: The Future of Video Game Loot Boxes in the U.S. Maddie Level, https://kuscholarworks.ku.edu/bitstream/handle/1808/29981/Level.pdf?sequence=1&isAllowed=y [29] David J. Castillo Volume 59 | Number 1 Article 5, Santa Clara Law Review, Unpacking the loot box: how gaming’s latest monetization system flirts with traditional gambling methods, https://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=2871&context=lawreview [30] Supra note 24. [31] Tang, T, 2018, Mondaq, China: A Middle-Ground Approach: How China Regulates Loot Boxes and Gambling Features in Online Gameshttp://www.mondaq.com/china/x/672860/Gaming/A+MiddleGround+Approach+How+China+Regulates+Loot+Boxes+and+Gambling +Features+in+Online+Games (Sept. 29, 2020) [32] Id. [33] Christina Gough, Gaming Monetization-Statistics & Facts, STATISTA, https://www.statista.com/topics/3436/gaming-monetization/(indicatingthemarketvalueofmicrotransactionsforconsolesin2017was$2.94billion (Mar. 7, 2019)