The gaming industry is growing and, in parallel with it, several legal issues arise. In addition to other concerns (see this article), one of the hottest and most debated topics in the gaming sector is related to so-called "Loot Boxes". Loot Boxes have become a major source of income in the videogame industry but many countries are currently setting up specific committees to establish whether, for instance, certain kinds of Loot Boxes should be qualified as gambling and need to be regulated appropriately.

The question mainly arises from the fact that gambling is often considered an illegal activity in many countries, due to its potential harmful consequences. For instance, from an Italian jurisdiction perspective, Article 110 (4) of the Decree June 18, 1931, No. 733 (Testo Unico delle Leggi di Sicurezza Pubblica, as further amended) provides that running gambling business is illegal, unless specifically authorized by the public authorities.

But what are Loot Boxes and what are the main related legal issues?

Loot Boxes are virtual items in online video games (usually in the shape of crates, cases or bundle boxes, hence the name) that contain non-monetary rewards through which the gamer can improve the gaming experience (e.g. in terms of strength, extra points, new facilities/weapons) or advance in the game. In order to do so, the gamer must purchase the Loot Boxes using real money, though the user has no obligation to do so. Moreover, the reward in the Loot Box is hidden and unknown to the gamer, who will have to buy it in the hope of finding the wished for enhancement/improvement, with no prior guarantee that it will occur. Therefore most commentators define Loot Boxes as "virtual games of chance" – i.e. games in which luck rather than skill determines the outcome – which use microtransactions that allow the purchase of virtual goods for a small amount of real currency.

Because of these characteristics, a number of commentators associate paying to open Loot Boxes with gambling, raising obvious concerns because of the potential large proportion of minors that are involved. Clearly, in both Loot Boxes and traditional gambling games (e.g. slot machines), individuals spend real money in the uncertain expectation of getting a prize which is valuable for them.

However, not all Loot Boxes are the same. It is true that they usually require a payment of real money in order to be opened but there are also cases in which opening Loot Boxes is costless. Furthermore only certain Loot Boxes provide the possibility to gain money from the contents: while some video games allow the trade of rewards in return for other items or even real money (i.e. the so-called "cash out"), other prizes may be specifically associated with the personal account of the player and cannot be sold or exchanged.

Despite striking similarities, the qualification of Loot Boxes as gambling remains debatable, in particular due to the fact that Loot Boxes normally do not grant rewards in cash and always guarantee a win.

That said, and given the level of concern raised, many commentators are now urging an internationally-coordinated regulation of the Loot Boxes phenomenon.

European and international initiatives addressing Loot Boxes.

In 2018, the Gaming Regulators' European Forum (GREF) published the "Declaration of gambling regulators on their concerns related to the blurring of lines between gambling and gaming". The GREF member states voiced their common concern about game microtransactions that are borderline gambling, and committed to work together to analyze the characteristics of video games and social gaming in order to establish if national gambling legislations were applicable.

As also highlighted by GREF, the regulation of Loot Boxes as gambling activities will depend on each national gambling definition and will require the involvement of national authorities responsible for consumer protection, health, education, digital and financial regulations.

Certain authorities have addressed the issue. For instance, the Belgian Gaming Commission and the Netherlands Gaming Authority (Kansspelautoriteit) classified in 2018 some forms of Loot Boxes as gambling. They determined that laws regulating lotteries and slot machines applied, and ordered the removal of Loot Boxes from video games. On the same lines, the UK Government's Department for Digital, Culture, Media & Sport Committee recently released a report in 2019 that recommended Loot Boxes should not be sold to children and should be regulated as a form of gambling.

Conversely, the German Commission for the Protection of Minors in the Media (KJM) and the French Online Gambling Authority (Autorité de régulation des jeux en ligne) established in 2018 that Loot Boxes cannot be classified as gambling activities according to their current national laws but, nevertheless, highlighted the necessity to further investigate the issues, given that Loot Boxes share some characteristics with gambling.

Outside Europe, in the United States in 2019 a bill for the regulation of pay-to-win microtransactions and sales of Loot Boxes was presented. If approved, the "Protecting Children from Abusive Games Act" would prohibit video game publishers and distributors of minor-oriented games from including pay-to-win mechanisms, or selling Loot Boxes in interactive digital entertainment products that are not minor-oriented when the video game companies have constructive knowledge that any of the users are under the age of 18.

What about Italy?

As many other countries, Italy has not yet developed regulations directly targeting Loot Boxes. However, as discussed above, some commentators are considering the applicability of Article 110 (5) of Royal Decree June 18 , 1931, No. 733 (Testo Unico delle leggi di sicurezza pubblica), which defines as gambling tools "those inherent to betting or that allow purely random winnings of a prize in cash or in kind".

Moreover, some also push for an explicit extension to Loot Boxes of the legislation that protects minors from developing a gambling attitude (i.e. Article 24(20) of the Law of July 15, 2011, No. 111), which explicitly forbids allowing minors under the age of 18 to participate in public games with cash prizes. In addition, it may be deemed appropriate to impose a specific obligation to provide gamers purchasing Loot Boxes with all the information required by the Italian Consumer Code (Legislative Decree September 6, 2005, No. 206), in order to adequately protect certain (often young) consumers who may not be fully aware of the consequences of their actions.

In any case, and regardless of the qualification as gambling activities, Loot Boxes might also fall under the scope of Article 1 of Legislative Decree April 14, 1948, No. 496, which reserves to the State the organization and exercise of games for which "a reward of any kind" is paid and in which the participation requires a payment in cash.

More rules?

Following the initiatives in the Belgian and Dutch jurisdictions, more regulations on Loot Boxes may be expected. In the meantime, given the legal uncertainty in relation to the qualification of Loot Boxes, the legal consequences of their implementation and use should be carefully assessed, also taking into account the specific jurisdictions involved.

Ilaria Boschi co-authored this post. Contact our team if you want to know more about this topic, and don't forget to follow our Dentons' TMT Bites!

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