Loyola University Chicago School of Law, JD 2024
In 2019, Senator Josh Hawley put forth legislation to regulate loot boxes advertised or sold to minors in video games. The legislation was referred to the Committee on Commerce, Science, and Transportation but did not move any further. The Federal Trade Commission (FTC) has also been researching the use of loot boxes since 2018 and has done multiple workshops to promote public awareness of microtransactions. More recently there has been public sentiment for change in the gaming industry and other countries such as Singapore have taken steps this year to protect consumers from predatory practices of game companies.
Why does this matter?
Loot boxes are part of a larger practice called “microtransactions” where digital content is sold within a game to a player for real world currency. A large amount of these transactions are for cosmetic content that have no impact on the game. The reason for the added scrutiny is that in some cases, the microtransactions are necessary to play the game and can become addicting to players of the game. The videogames are advertised to children, and by extension, the microtransactions are largely used by minors. The addictive qualities of microtransactions have led to the practice being compared to gambling and therefore some argue they should be regulated the same way.
Game companies often point out that nothing is being gambled by players, as the player pays for content and nothing is wagered. However, many of the loot boxes do not have guaranteed contents and have randomized rewards. Games, such as Diablo Immortal and FIFA 22, require amounts as large as $110,000 to receive all of the available content. In addition, gambling companies have made similar arguments or used similar practices to get around regulation. Legislators have since produced legislation or changed definitions to close any loopholes.
Legislators outside the U.S. have found microtransactions to be close enough to gambling to require the same level of scrutiny. For example, both the Netherlands and Belgium have banned certain loot boxes in their respective countries. After public support for similar measures in the U.S., Senator Hawley, along with the support of two other senators, put forth S. 1629 to regulate loot boxes and microtransactions that are present in video games played by minors. The bill was read on the senate floor May 23rd, 2019, then referred to the committee on commerce, science, and transportation. As of September, no remarkable progress has been made since then and the bill has not been passed.
What has been done so far to combat predatory microtransactions?
Under FTC act 15 U.S.C. § 45, the FTC is empowered to police unfair business practices through civil action and inform the public of companies that use such practices. Panelists in a workshop done by the FTC in 2020 found that some game companies pressured players to buy loot boxes in their games otherwise they would be uncompetitive and would let down their friends. They also found that the disclosure of loot box odds are often misleading, giving players an inflated sense of value in the boxes or other microtransactions. In response, app companies like Google and Apple require accurate disclosure of the probability of receiving in game loot. The risk of unfair practices is worse when large quantities of minors are playing these games. Panelists supported new parental warnings for microtransactions in addition to the existing mature or adult only advisories. There was consensus between panelists that something needed to be done to address predatory practices related to microtransactions. However, there was a large amount of debate about how the practices should be addressed with many being uncomfortable with government regulation. This may explain why legislation hasn’t been passed despite public outcry against microtransactions.
The Singapore approach
Despite considerable debate over how to combat predatory microtransactions, some feel that an aggressive approach, that is to classify microtransactions as gambling, is the most comprehensive solution. This was done by Singapore and their new Gambling Regulatory Authority (GRA). The Gambling Control Act 2022 was passed in March 2022 and came into full effect on August 7 to empower the GRA to regulate gambling as it is defined by the act. The act uses a broad definition that also includes games of chance or payment being made in online games. The act empowers the government of Singapore to block access to such games, so such transactions are not possible if deemed “harmful”. So far, the GRA has not made any prominent bans on video games with microtransactions, but the act likely gives them the authority to ban many mobile games in Singapore.
If the GRA definitions were applied to the United States via legislation, states would likely be able to regulate loot boxes and microtransactions in a similar fashion. For example, Illinois passed a video gaming act in 2009 that regulates electronic gambling machines and how they are used. The text of the act currently applies to digital machines that are physically present in a casino or licensed gambling establishment. However, with added definitions for “games of chance” as listed in the GRA Act would empower the state of Illinois and its municipalities to regulate the predatory practices of online games. This may play out very differently in the United States than in Singapore, as the United States largely does not regulate access to the internet or certain websites unless a crime is being committed. States may elect to regulate the game companies like countries in Europe did this year, but that can also lead to further disputes and potential constitutional challenges. Thus, while there is room for more regulation in the video game industry, for now it seems like loot boxes aren’t going anywhere anytime soon in the United States.