Last month, a jury found mobile gaming company Papaya Gaming Ltd. liable for false advertising for $420 million in actual damages under the federal Lanham Act and New York State law. Papaya competitor Skillz Platform Inc. had alleged that Papaya conducted a multi-year campaign of fraud and false advertising that materially damaged Skillz and the skill-based gaming industry.
The case may appear, on first blush, to be about the use of bots to play, and therefore whether the games at issue were genuine skill contests, or rather just games of chance. However, the claims in the case were actually premised on more traditional, run-of-the-mill false advertising questions.
According to Skillz, Papaya advertised and ran pay-to-play games such as Solitaire Cash and Bubble Cash, engaging in a variety of misleading and deceptive advertising tactics that enabled it to outcompete Skilz. Even if they were not the central focus of the case, some of these deceptive advertising tactics—such as controlled win rates and the misleading use of bots in games marketed as human-versus-human competition—may arguably have led to gambling law violations.
Legally, if the outcome of a game is determined by chance, game operators cannot require a fee to play the game, because that would violate state gambling and lottery laws. If, however, the outcome is determined by the player’s skill, in most states fees can be charged in order to play.
Link to False Advertising in Skill-Based Gaming False Advertising in Skill-Based Gaming
The facts that surfaced at trial showed that Papaya Gaming ran advertisements using phrases like “Turn your skills into dollar bills!” and claiming that players would be matched against other humans of a similar skill level. However, discovery turned up internal documents showing that Papaya Gaming would place successful players into “tailored sessions” to play against bots to ensure they would lose. If a human player lost too much, Papaya Gaming would put them into a tailored session and ensure guaranteed wins, otherwise the human players would stop playing (and stop paying to play).
Link to Bots, Matchmaking, and Games of Chance Bots, Matchmaking, and Games of Chance
A game is considered skill-based if outcomes–who wins and who loses–are determined by player ability along the lines of reaction time, strategy, memory, or decision making. The practice of using bots to play skill games against human users is not inherently unlawful and does not, in and of itself, render a game’s outcome determined by chance and thus illegal if payment to play is required. If bots behave consistently and can be beaten through better play, they are just another opponent.
If, however, outcomes depend on hidden randomness, such as rigged matchups or variable bot strength designed to produce a specific win or loss, that becomes more like an outcome determined by chance, not skill. Skillz’s lawsuit did not turn on the use of bots alone. Rather, Skillz’s successful legal claim was premised on false advertising. The jury agreed with Skillz that the Papaya Gaming advertisements were false in that they (mis)led consumers to believe that the games to be played were genuine skill contests, when in fact, the outcome was rigged.
Link to Gaming Advertising Compliance Remains Critical Gaming Advertising Compliance Remains Critical
Ultimately, the determination of whether any specific pay-to-play game constitutes a legal contest of skill or an illegal game of chance requires a fact-intensive inquiry into the mechanics of the game itself, the state law involved, and whether chance or skill determines the outcome of game play (who wins and who loses).
The Papaya Gaming lawsuit did not delve too deeply into that question. Rather, the jury’s very large award was premised on the false advertisements promoting the games, and not the structure of the games themselves. But it’s important to keep both advertising and gaming issues in mind when structuring and advertising any game, as both may ultimately be vulnerable to challenge.
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