How loot boxes are regulated in different countries: an overview from Versus.legal

Alexey Vikharev, lawyer Versus.legal

What is a loot box?

To simplify, this is a special in-game item that contains a number of game objects and allows the player to get one or more of them (while choosing a specific object / objects occurs without the participation of the player).

From a legal point of view, a loot box is an object of intellectual property of the developer / copyright holder, the use of which takes place on the basis of a license prescribed in the Terms of service (Terms of Use) and End–user license agreement (License Agreement).

“If it’s the same in-game item, then what’s the problem?“.

The answer to the question lies beyond the plane of the relationship between the developer and the player. Due to the mechanics of the loot box, namely the inability of the player to influence the choice of a particular item when buying, regulators are increasingly expressing the opinion that loot boxes are too similar to gambling, which means that underage players are in danger.

Let’s look at what measures were taken last year to regulate loot boxes. And at the same time, in general, let’s see how they are treated at the legal level in different countries.

Netherlands

The gaming community has been following the fate of loot boxes in the Netherlands for several years during a regional trial involving Electronic Arts (hereinafter EA).

This case was based on the Gambling Law, the first article of which prohibits, without a special license, the organization and holding of games in which the winner is determined randomly without the possibility of significantly influencing the victory (game of chance). In 2019, the local Gambling Authority came to the conclusion that loot boxes are also a game of chance. EA, due to its lack of a license, was given a substantial fine.

However, in March 2022, the General Administrative Court of the Highest Instance of the Netherlands canceled the fine previously imposed by EA. He admitted that loot boxes are not gambling, and also provided his explanations (the decision can be found here).

In particular, the Dutch court pointed out that before it was important to determine whether the loot box is an independent gambling game inside another game or not (paragraph 8.3 of the decision). To do this, he tried to answer the following questions:

• what is the essence of using loot boxes?
• why do they buy loot boxes?
• where are the loot boxes used?

The Court came to the following conclusions:

• players use loot boxes (FIFA packs) to participate in the gameplay, in a virtual football match. The victory in the match is determined mainly by skills (game of skill);
• one of the results of game of skill is the receipt of in-game currency, which also allows you to purchase loot boxes for their subsequent use in the game. The fact that loot boxes can be purchased in another way (by a separate purchase) does not mean that they are an independent game – loot boxes are purchased to participate in the gameplay, and not for the subsequent resale of their contents. At the same time, it was emphasized that the turnover of FIFA packs on the “black” markets is not high;
• the decision also notes that FIFA packs do not open in an environment other than the game. In this regard, the loot box adds an element of randomness in the context of the game itself, but it is not a separate and independent game.

Bottom line: the decision was made by the court of the highest instance, which, in theory, allows us to assert the possibility of unhindered use of loot boxes in the Netherlands.

However, attempts to create strict regulation of loot boxes continue in the country today. In June 2022, representatives of six parties sent a petition to the House of Representatives of the Netherlands, in the text of which the loot boxes are explicitly called a gambling game, the functioning of which can have dangerous consequences for children. In this connection, officials are asking the government to prohibit their use at the legislative level. Interestingly, the current ban on loot boxes is cited as one of the arguments.

This petition was considered at the debate, after which minor changes were made to the new text of the petition. The document was put up for a vote, as a result of which 121 out of 149 deputies supported the petition.

Unfortunately, the parliamentarians completely ignored the court’s decision, and therefore we can expect the introduction of more restrictions on loot boxes soon.

Belgium

Prior to the decision of the Dutch court in March 2022, a similar ban on the use of loot boxes was in effect in the countries. The local Administration and the Gambling Commission have previously determined that loot boxes are an independent game of chance and for their use it is necessary to obtain a license (as for other gambling games).

In particular, the Belgian commission prepared a detailed report in 2018 with an analysis of loot boxes using the examples of Overwatch, Star Wars Battlefront II, FIFA 18 and CS:GO. The Commission considered that the use of loot boxes in each of the games fully meets the criteria of gambling. Therefore, if loot boxes continue to be present in the games, then developers will be fined up to € 800 thousand (the fine may be doubled if illegal actions affect minors).

It is necessary to make an important clarification – the main emphasis in the report is on paid loot boxes. This is due to the criterion of “the presence of a bet” in the game, which in a very broad sense means any payment by a player. And only if the in-game currency was received by the player absolutely free of charge (including excluding subscriptions), it will not be considered a bet.

However, the Belgian commission noted at the end of the report that free loot boxes can also be a “problem” if they somehow lead or stimulate the purchase of paid loot boxes.

Bottom line: the use of loot boxes in the country remains significantly limited.

But in practice, not all developers follow the ban. Recently, a researcher of the problems of loot boxes Leon Y. Leon Y. Xiao assessed the effectiveness of the ban imposed on the 100 highest-grossing games in the Belgian App Store. It turned out that in more than 80% of the games operating in the country, loot boxes are still available for purchase (the results of the study can be found here).

Perhaps the bans in the Netherlands and Belgium are terrible only “on paper”. Be that as it may, the activity of national consumer protection councils can lead to real bans.

Despite the results of the study, it is worth noting that during 2022, players from Belgium (as well as the Netherlands) were unable to play some games due to the restrictive position of local regulators on loot boxes. For example, Diablo Immortal remained unavailable to local players, and in September 2022, access to the Roblox game Adopt Me was closed for them! (the official statement about this without direct mention of the loot boxes has already been removed from the site, the text can be viewed via WebArchive here).

Therefore, before the release of the game with paid loot boxes in Belgium, it is worth thinking again about the need for such a step and possible risks.

Norway

Last year, the Norwegian Consumer Council published an extensive report on loot boxes. It caused a wide public outcry in many European countries and launched a new wave of discussions about the need to regulate loot boxes.

For 59 pages, the council examines in detail how loot boxes manipulate the behavior of players (not without mentioning specific titles, for example, FIFA 22 and Raid: Shadow Legends). Among the practices criticized are mentioned:

• deceptive design: ease of purchase and “confusing visual”;
• the development of an anxious mental state in players – the fear of missing the interesting (FOMO);
• opaque algorithms: developers do not report how the algorithms for using loot boxes function;
• aggressive marketing: advertising of loot boxes with “special” items that can be bought only at a certain point in time – time pressure (usually seasonal events);
• pricing and purchase of in-game currency: the purchase of loot boxes is usually carried out through the purchase of game currency in an uneven amount (for example, a player bought 200 units of currency, a loot box costs 150, and the balance cannot be withdrawn back to the account).

The report also pays great attention to the negative impact of loot boxes on minors. The recommendations proposed as a result boil down to a request to introduce strict regulation (including full transparency of algorithms and publication of the probability of obtaining items, as well as a ban on the sale of loot boxes to minors). The option of completely banning the use of loot boxes in games is also mentioned.

In May 2022, public hearings were also held in Norway on the issue of updating the Norwegian Gambling Act. The Ministry of Culture has prepared a proposal to consider a new Gambling Act with almost two hundred page explanations. In the course of such explanations, attention was paid to the problems of loot boxes and their similarity to gambling (for example, it was proposed to consider the loot box as a lottery reward model in video games).

However, the text as a whole emphasizes that there is no consensus on this issue, the studies conducted are not enough to make an accurate conclusion about the belonging of loot boxes to gambling. The text of the new proposed act itself does not contain any mention of loot boxes at the end of the explanations.

Bottom line: although the report of the Consumer Council itself is only a proposal to create stricter regulation of loot boxes (or their prohibition), in the very text of the bill, loot boxes are not yet recognized as gambling. Accordingly, the use of loot boxes in Norway is not yet prohibited.

Spain

In the summer of 2022, the Spanish Ministry of Consumer Protection published a bill that calls for regulating the mechanisms for receiving random rewards (loot boxes) in “leisure software products”.

It offers:

• prohibit minors from buying and using loot boxes (documentary verification of age plus the obligation to implement parental control);
• provide players with transparent and easily accessible information about loot boxes, including data on the probability of receiving items and the real value in euros (taking into account the probability);
• the introduction of administrative responsibility (including a fine of €3 million).

Bottom line: at the time of writing this material, public hearings have already been held on the bill, now it is being considered by the Council of Ministers and the Parliament of the country. The bill states that the law, if adopted, will enter into force on January 2, 2024.

The content of the bill may be adjusted or the document itself may be rejected. In this regard, it is necessary to monitor all possible changes, and in the case of the adoption of such a law, carefully study the final provisions, since they also have specific conditions.

Taking into account the general mood in the EU countries after the Norwegian report, the adoption of such a law may entail a significant restriction on the use of loot boxes for a significant part of European gamers.

Finland

In September 2022, one of the Finnish parliamentarians, Sebastian Tynkkynen, came up with a legislative initiative changing the legal definition of the lottery. Loot boxes will fall under the new definition, and their use will be equated to gambling.

Now the current definition of the lottery is based on the factors of randomness of profit and the availability of monetary value (monetary equivalent) of the reward received. This position reflects the general approach adopted in many countries and voiced by the Dutch court – if a player pays money for the opportunity to receive a random prize that has a monetary value, then this is recognized as gambling.

In the new version of the definition, a “virtual value” is added to the monetary value of a random prize, that is, such a prize /profit/ has value when it is used online (even if there is no monetary equivalent).

The Finnish parliamentarian gives a detailed explanation of his initiative. Its author points out that the current position on loot boxes, expressed in 2018 by the Finnish Police Department, is ambiguous. In particular, the department found that loot boxes can be recognized as gambling if they are purchased for money, the contents of the box are unknown, and the prize has a monetary value. The parliamentarian does not agree with the last part.

In addition to references to bans in Belgium and the Netherlands, as well as to the conclusions of the report of the Norwegian Consumer Council, Sebastian points out that there is a practice of unofficial sale and exchange of dropouts within the gaming community. And since all other elements of gambling (bet and chance) are present in the loot boxes, they can cause financial and other difficulties, so their use must be limited.

According to information from the website of the Finnish Parliament (at the time of preparation of the material), a plenary meeting was held on January 11, 2023 regarding this initiative, following which it was further referred to the administrative committee for consideration.

Bottom line: at the moment, such an initiative has not been adopted and changes to the legislation have not yet been implemented, therefore, the existing position on the use of loot boxes in the country remains – as long as the dropped items are known to the player and they have no monetary value, are associated with the game and are not sold for real currency, then there are no signs of gambling.

And although individual members of parliaments of different countries constantly come up with restrictive initiatives that do not always lead to any result, if there are paid loot boxes in the game, it is still worth considering and tracking such initiatives when released in Finland.

Great Britain

In the UK, the issue of regulating loot boxes was also raised again (in 2017-2021 it was already actively discussed): on the website of the country’s parliament, you can view various reports on this topic. There is no consensus on whether to recognize loot boxes as gambling mechanics.

In the House of Lords in May 2022, there was even a debate on the topic of loot boxes (in the midst of which one of the representatives of the House asked: “My Lords, as I do not gamble, can someone please tell me what a loot box is and how it works?”).

To date, the Government has put a preliminary end to the issue: in July, the Department of Digital Technologies, Culture, Media and Sports of the country published a detailed report in response to an open study on the mechanisms and impact of loot boxes on players from 2020, where they tried to come to a consensus and determine the fate of loot boxes.

The UK government has expressed concern about the possible impact of loot boxes on gambling addiction, especially in relation to minors. However, according to the report, loot boxes are not gambling and there is no need to change the law.

They argued it like this:

• loot boxes do not meet all the criteria of game of chance (there is no “cashing out” of the reward, since items from the loot box are used in the game itself);
• the new amendments will be difficult to implement technically, as adjustments to all current processes will be required (for example, it is impossible to calculate the fee, since loot boxes are purchased for game currency, part of which can be earned during the game, and the “prize” itself does not always lend itself to an objective monetary value).

In addition, the regulator decided:

• minors should not be able to purchase loot boxes without the permission of legal representatives;
• The responsibility for regulating loot boxes and protecting players lies with the developers themselves.

The British government calls on developers to independently limit the use of loot boxes by minors, as well as to create mechanisms for protecting and informing players in order to treat games responsibly (for example, if a player spends a significant amount of money on loot boxes, he must be informed about the danger of such behavior).

Bottom line: so far, British regulators believe that loot boxes do not relate to gambling. This allows developers to legally use the mechanics in games in the country. Moreover, the developers were offered to independently create conditions for a reasonable and responsible purchase of loot boxes. Therefore, the very use of loot boxes is possible.

European Union

Last December, a Report on consumer protection in video games was submitted to the European Parliament (the EU legislature). Special attention in the report was paid to the loot boxes.

The report itself calls on the European Commission (the EU executive body) to settle some issues in the gaming industry to protect consumers, especially minors. As grounds for new changes, the speaker Adriana Maldonado Lopez points to the lack of regulation of paid loot boxes at the European level and the lack of protective mechanisms that could ensure proper protection of players, in particular teenagers and children.

The official called:

• (colleagues) analyze the ways of selling loot boxes and take the necessary steps to develop a pan-European approach to them to ensure the protection of players;
• (also colleagues): check the loot boxes for compliance with EU consumer protection legislation (if insufficient compliance is detected, prepare a legislative proposal for an appropriate level of protection for players, which should include either an obligation to disable in–game payments and purchases of loot boxes by default, or a complete ban on paid loot boxes);
• (developers) to provide players with information about loot boxes in the most accessible form, as well as in the future to inform users about the probabilities of issuing in-game content and algorithms used in calculating the issuance.

Outcome: in January 2023, following the results of the vote, the report was approved by the European Parliaments and submitted to the European Commission (the final text of the document was published here).

Now the European Commission is invited to develop a unified strategy for video games, to understand the essence of loot boxes, to check whether the current European legislation sufficiently protects consumer players, as well as to develop and implement regulation of all in-game purchases, including loot boxes. The authors of the report are confident that such steps will significantly increase the level of protection of players.

The requirements for the settlement of loot boxes have reached a new, pan-European level, and they are clearly not in favor of the developers. As a result of the initiative, developers can expect new encumbrances, for example, the introduction of new incoming notifications and changes to current user agreements.

Japan

They started discussing loot boxes at the state level in Japan back in 2012. Despite the fact that at the moment loot boxes are not directly regulated and are not prohibited by law, Japanese associations (Japan Online Game Association – JOGA and Computer Entertainment Supplier’s Association – CESA) at one time prepared guidelines that help developers not to violate local rules or certain provisions of legislation (for example, on consumer protection). Following such guidelines is an unspoken rule that is usually enforced.

The JOGA report and the CESA report, among other things, contain already known recommendations:

• inform users about the probability of falling out of specific items from loot boxes;
• indicate whether it is possible to get the same item in different loot boxes;
• specify the cost of the loot box (the maximum cost is ¥50 thousand).

Bottom line: the use of loot boxes in Japan is possible in itself, but it is necessary to carefully familiarize yourself with the guidelines, and also make sure that the loot boxes used in the game do not fall under the definition of kompu gacha (mechanics in which a player can get a valuable item only if he collects a collection of rare items falling out of loot boxes that are in Japan is called the usual gacha). Kompu gacha was banned in Japan in 2012

Korea

A similar situation has developed in South Korea – loot boxes are not prohibited at the legislative level.

At the moment, the rules developed by the Korea Association of Game Industry in May 2021 apply to loot boxes. These rules make changes to the current Code of Self-Regulation, which local developers cannot ignore. They came into force on December 1, 2021.

The basic rules and new amendments are reduced to the fact that developers should provide maximum information on loot boxes to users (the information itself should be easily accessible and understandable). In particular, developers should inform users about what exactly and with what probability will fall out of the loot box.

Bottom line: loot boxes are not legally prohibited in Korea. The rules of the association apply to local developers (K-Games members), therefore they are optional for execution by foreign companies. However, we believe that a game with loot boxes can hardly expect a calm and successful regional release if the rules of the association are completely ignored.

Do not forget about the local law “On the promotion of the gaming industry“, which prohibits the promotion of speculative gaming products (which is why games with NFT were distributed).

China

The key rules regarding loot boxes adopted by the Ministry of Culture of the People’s Republic of China are as follows:

• Loot boxes cannot be purchased for real currency or for game currency if it can be bought for money.;
• items from the loot box can be obtained in other ways;
• the developer must inform the user about the probability of receiving an item from the loot box.

Some of these rules were established by the Notification of the Ministry of Culture of the People’s Republic of China in 2016, which was subsequently canceled. Despite this, they still continue to rely on him.

A striking example of circumvention of the rule prohibiting offering loot boxes for sale for money or game currency was demonstrated at one time by Blizzard Entertainment in relation to Overwatch: players could only buy game currency, but for such a purchase they received loot boxes “as a gift”.

Bottom line: the release of the game in China is already difficult, it requires compliance with a variety of criteria. For example, in relation to teenagers, it is necessary to take into account the limit on spending time in the game.

Singapore

The national legislation of the country, as in many other jurisdictions, does not contain direct prohibitions of loot boxes and does not regulate the procedure for their use. But at the beginning of 2022, the new Gambling Control Act 2022 was actively discussed in the country, which was adopted in March and entered into force on August 1, 2022.

Despite the fact that when writing it, there were conversations about loot boxes, during parliamentary discussions we came to the following: while games with loot boxes do not offer mechanisms for exchanging received items for real currency, their use is not gambling.

Bottom line: one of the consequences of the adoption of the act was the creation of a new Gambling Regulatory Authority (GRA), which will now regulate the sphere of gambling in the country (previously, these functions were carried out by the Casino Regulatory Authority of Singapore, controlled by the Ministry of Internal Affairs).

It is assumed that the GRA will also regulate the rules for the use of loot boxes. At the same time, the adopted document did not establish any measures or requirements on the basis of which it would be possible to unambiguously determine what position GRA would take in relation to games with loot boxes.

The media reported that the head of the GRA supports the position of the Ministry of Internal Affairs of the country on setting a limit on the cost of one mystery box. However, upon closer examination of the position of the Ministry of Internal Affairs in the Consultation, it becomes clear that we are talking about physical boxes with unknown contents, but not about in-game items.

USA

In the United States, there is currently no regulation of loot boxes at the legislative level. Although in 2020, the US Federal Trade Commission tried to draw attention to the problem of the lack of such regulation in its report, and one of the senators even sent a bill banning the sale of loot boxes to minors, however, neither the first nor the second led to any actual actions.

At the same time, in 2022, there were calls to take up loot boxes. In particular, Electronic Arts was once again in the spotlight. This summer, 15 organizations for the protection of children’s rights sent a single appeal to the US Federal Trade Commission with a request to investigate EA’s actions, in which the company allegedly benefited from minors in FIFA: Ultimate Team. Despite the appeal, according to media reports, EA did not rush to exclude loot boxes from games.

Bottom line: there are no separate requirements and a legislative ban on the use of loot boxes in the USA today. At the same time, various class-action lawsuits against Apple, Google and Valve from parents who asked to recognize loot boxes as gambling were rejected this year. However, the courts sided with the companies in each case (mainly because they only provided access to specific games with loot boxes and made payments from the player to the developer, but did not use loot boxes themselves).

It is worth considering the growing concern about the purchases and use of loot boxes by minors. In such cases, in our opinion, it is worth adding additional parental-oriented disclaimers to both the Terms of Use and the game itself (for example, before buying, add a notification that the player agrees to the user agreement and that he confirms the age of majority / consent of legal representatives for such a purchase).

Australia

Another legislative initiative to regulate loot boxes from a member of parliament has been proposed in Australia. At the end of November 2022, Andrew Wilkie proposed to amend the current rules of the Australian Classification Board on assigning a rating for games.

As explained in the explanatory conclusion to the changes, individual loot boxes may offer loot that has significant value for players and that can be sold for real currency. Luring players with the potential receipt of such items, loot boxes evoke the same emotions as regular gambling or poker machines. In this regard, it is necessary to change the current rating rules for those games that contain loot boxes: new ratings, a ban on buying for minors and notification of the presence of loot boxes in the product.

If such an initiative is adopted, the Australian Commission has two options for classifying the game with loot boxes: R18+ or RC. As the commission’s website suggests, materials with an R18+ rating are obviously intended only for adults, and the RC (Refused Classification) rating means a refusal to classify – such materials cannot be legally sold, advertised or imported into the country.

Bottom line: the initiative has recently been submitted to the Parliament and discussions are still underway regarding it.

It is curious that Australia is not the only country where they offer to additionally notify about the presence of loot boxes in the game. Back in 2020, the ESRB (Entertainment Software Rating Board) introduced a new label with a notification of the availability of in-game purchases, including “random” items (the conclusions of another study by Leon Y. are interesting here. Xiao, namely works about the absence of such labeling in most of the games studied, including Genshin Impact).

New labeling rules were also adopted by the German organization responsible for age ratings in video games – Unterhaltungssoftware Selbstkontrolle (USK). In the December press release, the organization introduced new alerts in the rating plates: a separate line about the availability of additional functionality in the game will be added to the usual figures in the form of a diamond and a rectangle. For example, there will be an alert about the presence of in-game purchases, chat or the presence of loot boxes (the German organization did not directly report anything about assigning games with loot boxes a rating of only 18+).

What is the result?

The authorities and authorities of different countries are in no hurry to equate the use of loot boxes to gambling (with rare exceptions), especially at the legislative level. However, in almost every jurisdiction, the same questions arise for games using loot boxes:

• does the game inform the user about the probability with which an item will fall out of the loot box;
• can the user sell the received item for real money;
• can minors buy loot boxes inside the game without the direct consent of their parents.

At the same time, some countries have additional questions (especially regarding minors), so before releasing the game with loot boxes to the world, you should once again familiarize yourself with the basic rules in the jurisdictions of interest.

We should also follow the fate of the report in the European Commission and expect new research, conclusions, and possibly legislative changes in the EU game development industry, including restrictions and disclaimers for all in-game purchases, and not least for loot boxes.

Perhaps in the future, the problem with loot boxes can be solved, for example, by dynamically developing in-game content based on the experience of a particular player (attempts to change the content in the process taking into account the behavior of the player are already being made by Electronic Arts, see the patent application).

In the meantime, I would like to highlight once again the decision of the Dutch court, which really tried to understand the essence of the loot boxes. In our opinion, the understanding of the court is correct: the loot box is part of the game. This mechanic is primarily aimed at interaction and gaining an advantage within the gameplay (after all, reselling an item through the markets is not the main goal of most players).

The existence of such a court decision with a detailed analysis could become a new point in the positive development of the regulation of loot boxes, however, as the year 2022 shows (and the decision of the European Parliament in January 2023 only confirms), most countries are inclined in favor of strict regulation of the niche.