Gaming is arguably one of the most advanced forms of entertainment. It brings joy to billions of players and connects international communities by acting as a source of inspiration, purpose and achievement. Gaming also provides for a rapidly increasing number of skilled jobs and contributes significantly to the global economy (for example, consumers spent $152.1b worldwide in 2019).
However, whilst the music and television industries have been perceived as increasing their value propositions to consumers in recent years through their use of technology (particularly with as a service library subscriptions), over the same period the video games industry has faced accusations of excessively monetising players, creating addictive gameplay loops, and conducting highly targeted data collection.
Such criticism is arguably almost inevitable due to the combination of the incredibly interactive nature of the medium and significant advances in data analytics. Developers can view in a fine level of detail how players are responding to specific elements of their games, paywall content that would previously have been on disc at no extra cost, and even match up free players against those that have spent money on performance enhancing in-game items (or, increasingly, bots).
Practices such as these can be sensibly justified on the grounds of making better games, price discriminating legitimately, and rewarding players who have invested in a game ecosystem. However, against this backdrop of player unrest, governments and regulators worldwide have increasingly begun to take note of certain recent practices in the video games industry. This has led to both state level regulation being imposed and promises of self-regulatory practices being made by key players in the industry.
As a result, companies operating in the video games space have the task of striking a balance between providing ever more immersive, accessible, and indeed monetised games to consumers whilst not being perceived as exploitative or - in the worst case scenario - deemed in actual breach of consumer protection laws.
This task is increasingly difficult because the lines in the sand are shifting. Restrictions around the use of loot boxes are getting ever tighter, as is advertising and tracking data in games targeted at children. Falling on the wrong side of the line can lead to the levy of large fines or restrictions on sales.
By understanding both the current legal position and the direction of travel, developers, publishers and platforms alike can be better placed to stay on the right side of consumer protection laws and achieve growth through new and exciting business methods without risking fines or sanctions.
In this insight we set out considerations across six discrete areas that video games companies should be aware of to help ensure good business practices do not stray into breaches of consumer protection law (excluding data protection laws, which are outside the scope of this article).
1. Auto-renewal
Auto-renewal of contracts is a mutually convenient solution for gaming companies and consumers alike. For players with live-service memberships, it affords a seamless gaming experience and continuity of service, while businesses save time and expense by not having to process multiple repeat transactions.
It is, however, a practice that is closely monitored by regulators. In 2019, the Competition and Markets Authority (CMA) launched an investigation into the way Nintendo, Sony and Microsoft use auto-renewals for online gaming contracts (as well as looking into their respective refund policies and T&Cs). The CMA is seeking to determine whether the companies’ auto-renewal policies are unfair and has made it clear that “should we find that the firms aren’t treating people fairly under consumer protection law, we are fully prepared to take action”.
Insight: It is important to ensure that gamers are provided with clear, plain English information about the contract at the time of purchase of the gaming services to avoid the risk that an auto-renewal term may be deemed an unfair term under the Consumer Rights Act 2015 (plain and intelligible language is a pre-requisite of a fair term under the aforementioned legislation). Further, such information should highlight, in particular, the length of the contract, the terms of auto-renewal (including the time at which auto-renewal kicks in and when the customers’ account will be debited), and the cancellation policy. Allowing customers a cooling-off period following auto-renewal is also likely to be looked upon favourably by regulators, alongside notifying gamers that their contracts have been renewed, for how long and highlighting payment and termination terms.
2. Refunds
Increasingly, video game companies in Europe and beyond are coming under fire from regulators over the issue of refunds.
In 2018, France's DGCCRF (Directorate-General for Competition, Consumer Affairs and Fraud Prevention) fined Valve and Ubisoft over the companies’ refund policies.
Valve’s 14-day refund policy only applied to games that had been played for less than two hours, while Ubisoft had no refund policy in place for its Uplay store. It was held that both companies were at odds with French law which states that consumers have 14 days to demand a refund in respect of digital services.
Similarly in Australia, the Australian Competition and Consumer Commission (ACCC) brought proceedings against Sony for allegedly refusing to provide refunds for faulty games that had been downloaded, or if more than 14 days had elapsed since purchase of the game. The ACCC also took issue with Sony offering refunds in the form of PlayStation Store credit rather than cash.
In the UK, the Consumer Rights Act 2015 provides that any digital content purchased by consumers must be (1) of satisfactory quality, (2) fit for a particular purpose, and (3) as described by the seller. If the digital content does not meet this criteria, the customer is entitled to a repair or replacement - for example, a patch - or, failing that (i.e. where repair is impossible or unsuccessful, takes unreasonably long, would be significantly inconvenient or disproportionate in cost), a refund. However, consumer rights under the Consumer Rights Act 2015 are against the seller, rather than the publisher or manufacturer necessarily.
Insight: Keep abreast of regulatory trends both at home and abroad - regulators tend to monitor developments elsewhere and may adopt a similar line to their overseas contemporaries. Ensure that your refund policy is clear and not only conforms to the black letter of the law, but also gives your players choices on how to receive the refund (i.e. cash, store credit, price reduction) - this may keep them in your ecosystem!
3. Freemium model
The so-called freemium model - whereby profit is generated from selling in-app purchases - is seen as a win-win arrangement for both publishers and users. As there is no upfront cost to downloading a freemium game, it has the potential to reach a very wide audience. If users enjoy the game, in-app purchases offer an enhanced gaming experience with features that are not accessible on the lite version. The freemium model is therefore an attractive way for publishers to monetise their products.
However, care should be taken in how freemium games are advertised. If a game requires in-app purchases to be made in order for the user to continue gameplay, this is likely to draw criticism (and possibly the unwanted attentions of regulators). For example, the Advertising Standards Authority has investigated several companies (such as Mind Candy and Moshi Monsters) for marketing free games, which require significant in-app purchases, to children. The developers of Harry Potter: Hogwarts Mystery have also come under fire from the general public for requiring users to pay money to continue playing the game after the main character gets trapped in Devil’s Snare.
Insight: Clarity is key - ensure that you make clear to users in advertising materials what to expect from the freemium games, and how failures to make in-app purchases can affect gameplay. This is also a relevant consideration to bear in mind at the development stage - consumers are increasingly critical of gameplay which is significantly impeded by pop-ups requiring purchases, and may turn to regulators to seek redress.
4. Games played by children
Consumer watchdogs pay particularly close attention to apps and games that are mainly purchased on behalf of, or are marketed to, children, who are considered to be particularly vulnerable consumers and unable to give appropriate consent. Game content, in-app purchases, privacy settings and advertising are all likely to receive enhanced scrutiny.
App store operators are particularly wary of receiving regulatory attention for children-targeted apps on their stores. Following a complaint to the Federal Trade Commission in 2019, Google tightened its Google Play policies by requiring developers to clearly identify whether children are part of the target audience of their apps. Apps that are aimed at children must observe certain requirements in relation to content and processing of personally identifiable information. Further, developers are only allowed to display adverts on their children-targeted apps that have been certified by Google as complying with its families policies.
Apple followed suit shortly by updating its Apple App Store policy to ban third-party advertising or analytics software in children-targeted apps, and preventing data transmission to third parties from such apps.
Insight: Given their ubiquity in the mobile world, being prevented from selling games on Google Play or the Apple App Store would mean a huge loss of market access, and may even sound the death knell of a mobile game. Developers and publishers should therefore ensure that their games conform to the content, advertising and data protection policy requirements in relation to children, and to monitor any regulatory action that might spook game store operators into policy changes.
5. Loot boxes
Many games facilitate in-game purchasing to sustain the economic viability of their free-to-play distribution model, allow players to express themselves creatively, and deliver additional content to players in new and creative ways.
Although not necessarily inherently controversial, certain implementations of in-game purchasing methods have increasingly caught the eye of consumer watchdogs and regulators worldwide.
Most notably, the loot box, a virtual container of randomised in-game items, has come under intense global scrutiny as a mechanism which, it is alleged, could cause harm particularly to children or those with gambling addiction issues. This has led to governments around the world beginning to implement piecemeal regulation governing the sale of loot boxes, as well as the games industry itself taking a number of significant and meaningful steps to self-regulate loot boxes and demonstrate to governments that it is acting responsibly (and, crucially, to show that further heavy handed regulation is not necessary). For example, on the self-regulatory side, in 2018 both the Pan European Game Information (PEGI) and the Entertainment Software Rating Board (ESRB) added In-Game Purchases and Loot Box content descriptor icons.
In August 2019, the Entertainment Software Association (ESA) announced that many of their largest members will voluntarily disclose (or only allow games to be published on their platforms if those games disclose) the odds of a player winning in-game items via paid loot boxes. This is in-line with the position Google and Apple have taken for their respective app stores.
In terms of government action, China has mandated the disclosure of loot box odds for some time, while in South Korea the GRAC (South Korea’s video game content rating board) has been setting monthly spending limits for users under 18 at KRW 70,000 per month (approximately GBP 47) and KRW 500,000 per month (approximately GBP 340) for those over 181. Belgium and the Netherlands have already found some loot boxes as contrary to existing gambling laws.
In the UK, the influential Digital, Culture, Media and Sport Committee and the Gambling Commission have expressed their concern about the issues raised by loot boxes2,3. In the US, a bill4 was placed before the Senate on 23 May 2019 that would prohibit sales of loot boxes to children. It has since been referred to the Committee on Commerce, Science, and Transportation.
In short, it is clear that the landscape for loot boxes is dramatically changing, globally, and what is acceptable in certain jurisdictions today may be unacceptable in future years, either through state imposed regulation, or industry standards of acceptable behaviour.
Insight: If you are utilising loot boxes or similar forms of in-game purchasing in your games, keep abreast of both the current position in the jurisdictions where your games are available and future trends as the public eye is firmly on loot boxes. We have previously suggested steps companies may wish to take (by way of self-regulation) when utilising loot boxes.
6. Virtual goods and currency
Billions of dollars are spent on virtual goods and virtual currencies within games, yet there is uncertainty as to the legal status of these.
Although this issue has not received as much attention as loot boxes , due to the increasing amounts spent by consumers (for example tens of thousands of dollars on virtual football player cards or virtual space ships) it is likely that the legal status of virtual goods and currencies will be the next big issue in the video games industry.
For example, consider how consumer groups are likely to react if players have spent large amounts of money on virtual goods in a game that is in early access, but is abandoned due to development issues. Or, if a player’s virtual goods or currency are confiscated due to a contentious breach of the terms of service. Similarly, issues arise if players make profits from reselling virtual items and whether these transactions are taxable events.
At its core, there is an inherent contradiction in that consumers purchase virtual goods and currency because they anticipate deriving utility from them, however the terms of service of the game or the platform are likely to state that that virtual goods and currency have no real world value, and in any event are not property owned by the consumer upon purchase.
While the legal status of virtual goods and currency is unclear, this is an issue for legal systems in the digital age that extends beyond video games. In November 2019 the UK Jurisdiction Taskforce considered the legal status of cryptoassets and smart contracts under English law. The Taskforce recognised that cryptoassets are capable, in principle, of being property under English and Welsh law (which analysis was endorsed by the English court in two recent cases5 ), and smart contracts can be legally enforceable but some of the details were not addressed. In any event, consumers will often lack awareness of the legal status of the virtual goods and currency.
Insight: Although there is some case law endorsing cryptocurrency as property, in the absence of further guidance on the status of virtual goods and currency, the best preparation to take in anticipation of a disgruntled player raising grievances over the legal status of their purchases, is to state very clearly in the terms of service that they are purchasing virtual goods or currencies which can be removed at the discretion of the developer or publisher, but also to consider having practical measures in place that can provide for discounted refunds, or the transfer of virtual goods or currencies to other games, once games are closed down.
Article authored by Viktorija Kasper, Simmons & Simmons LLP
1 The GRAC has been setting monthly spending limits for users under 18 at KRW 70,000 per month (approximately GBP 47) and KRW 500,000 per month (approximately GBP 340) for those over 18. The GRAC would not award game ratings for those games that would exceed these limits - essentially in practice enforcing these limits onto games. However, on 19 June 2019 a partial amendment to the game rating regulations were made that eliminates the need to disclose a monthly spending limit for adult games when applying for a rating.
2 DCMS “Immersive and addictive technologies” report dated 9 September 2019
3 Gambling Commission “Virtual currencies, eSports and social casino gaming position -paper” dated March 2017
4 Bill S. 1629 to regulate certain pay-to-win microtransactions and sales of loot boxes in interactive digital entertainment products, and for other purposes.
5 See AA v Persons Unknown and Others, Re Bitcoin [2019] EWHC 3556 (Comm) (we have published an article on this case which can be accessed here); Vorotyntseva v Money -4 Limited t/a as Nebeus.com [2018] EWHC 2596 (Ch)
