The Commissioners of the FTC agreed, during an oversight hearing on November 27, 2018, to investigate the use of “loot boxes” in video games. Senator Hassan (D-NH), following up on questions she asked the newly appointed Commissioners during their confirmation hearings, specifically requested the FTC investigate loot boxes citing addiction concerns, (especially as it relates to children) and the resemblance of loot boxes in video games to gambling.
A loot box is a digital container of virtual goods that a user can purchase in-game using real-world currency. A user does not know what is in the loot box before purchasing. The loot box may contain digital goods (such as character skins, tools, weapons, etc.) that the user can use in the game. Importantly, the user cannot choose the contents of the loot box. The box could contain an extremely rare/sought-after item or the contents could be a collection of items already owned by the user (or somewhere in between).
The offering of loot boxes in video games has drawn the scrutiny of various foreign governments, and some, like Belgium and the Netherlands, have passed legislation banning the use of loot boxes.
The Entertainment Software Rating Board (“ESRB”), which is the non-profit, self-regulatory body of the video game industry, has taken the position that loot boxes are not gambling, but are more analogues to packs of game cards (“Sometimes you’ll open a pack and get a brand new holographic card you’ve had your eye on for a while. But other times you’ll end up with a pack of cards you already have”), a business model blessed by the Ninth Circuit in 2002. Chaset v. Fleer/Skybox Int’l, LP, 300 F.3d 1083, 1087.
The FTC’s agreement to investigate loot boxes continues a trend started by other U.S. law enforcement authorities in recent years. In 2017, Hawaii state representatives introduced bills requiring the labeling of games with loot boxes as harmful or addictive and restricting their sales to players over the age of 21. The bills were ultimately dropped. Earlier this year, Senator Hassan, the instigator of the FTC’s action, published an open letter demanding that the ESRB more strongly consider the ethics of the loot box model.
While the Commissioners have agreed to investigate loot boxes, it remains to be seen what form the investigation will take. We will be sure to monitor the situation, as well as any potential expansion of the investigation into other aspects of gaming.
For additional information on loot boxes, and potential regulatory issues, such as money transmission and escheatment, please refer to one of our prior client alerts, Filthy Lucre: Regulatory Risks of Digital Currency, Loot Crates, and Other Video Game Monetization Strategies.