TechNotes – Top 10 issues for gaming and entertainment

1. User-generated content

User-generated content or UGC can be any form of content, such as images, videos, text, and audio, that has been posted by users on online platforms.

In the context of video games, UGC covers a broader meaning as UGC may include: (i) "modding" which changes the game in some way. More and more games provide official modding support where developers provide tools for gamers to make changes and even create a new game within the game; (ii) create new elements within the game which other players use; or (iii) livestreaming gameplay on social media platforms (e.g. Twitch or YouTube).

One of the primary issues is the confusion surrounding IP ownership rights for UGC.

In the US, there was the case of Blizzard Entertainment v Lilith Games (Shanghai) Co Ltd. where Blizzard made a claim for copyright infringement on mobile games that were based on Warcraft III and the DotA mod. It was an interesting case as a significant amount of the IP at issue in the claim was based on UGC.

The case looked at various issues but one takeaway is the importance of end user license agreements (EULA), as the Warcraft III EULA did not clearly assign the rights in any UGC back to Blizzard. However, there are still many open questions on how IP rights between developers and players should interact.

2. Online safety and protection of minors

Addressing online safety legislation is a crucial theme in the gaming sector, particularly as concerns about user safety for minors continue to grow.

Some examples of this across different jurisdictions include:

(A) UK: The Online Safety Act (OSA) was introduced in October 2023. It regulates illegal and harmful content. Gaming services that enable user interactions through chat functionalities, user-generated content, virtual reality spaces, and built-in livestreaming are likely to be affected, except for those limited to basic communication services like SMS or posting comments.

(B) Singapore: Singapore's Online Criminal Harms Act (OCHA) was intended to deal with scams and online crime, although the powers granted to the authorities are wide enough to tackle the risks of online gaming (ie cyberbullying, online grooming, and the problematic aspects of loot boxes). Authorities can issue directives to game developers and ISPs to restrict or block offenders' access to games and communication platforms, request information to identify offenders, and enforce measures to stop verbal abuse and grooming activities.

(C) China: China has implemented strict regulations to curb screen time among minors. As of 2024, minors in China are limited to one hour of gaming per day on weekdays and 2 hours per day on weekends. It is also mandatory for players to register with real identities to enforce these regulations. In 2022, online gaming and media companies were directed to introduce a "youth mode", aimed at creating a safer online environment for young users.

3. Commercialising player data

Gaming companies use user and player data to enhance the gaming experience through the lens of behaviour analytics. This involves collecting and analysing data on player preferences, interactions, and in-game actions.

Data also helps in developing the next game.

An example is Rollic Games. Rollic Games, under the umbrella of Zynga (developer of Farmville), specialises in creating games for the "hypercasual" gamer - those looking for quick, easy-to-learn games that offer brief but engaging play sessions.

As the gaming industry becomes more data-centric, the frequency of data breaches is on the rise. This has brought data protection and security to the forefront of international concern.

There is also the issue of cyber-attacks and the risk of such attacks has risen – which can lead to significant financial and reputational damage.

An example is Rockstar Games. Rockstar in America was hacked by international gang Lapsus$ in September 2022. A teenager from Oxford who was a member of the group, managed to hack Rockstar from a hotel with an Amazon Firestick, his mobile phone, and the hotel's television in order to successfully leak various clips online of a game waiting release. Rockstar claimed the hack and the subsequent leak cost them 5 million dollars and thousands of staff hours.

4. Tax credits

Tax breaks and credits have been used by different jurisdictions to attract gaming studios. In APAC, Australia and New Zealand have implemented tax credit programmes to try to retain and attract talent. For example, New Zealand's recent Game Development Sector Rebate was introduced following Australia's Digital Games Tax Offset scheme.

In Europe, countries such as Italy and Ireland have also adopted tax credits, pushing traditionally conservative nations like Germany to reconsider their stance on such incentives. These tax breaks are not only seen as a way to create jobs but also as a means to nurture local gaming industries and position them as competitive players on the global stage.

In 2024, Brazil's senate passed a bill on a new legal framework for video games. Under the bill, companies are able to classify themselves as a video game business rather than just a software or audiovisual business.

In so doing, individuals may have the ability to receive an exemption of up to 6% of their income tax, and legal entities could get up to 4% if they invest in game production. A proposed article that allowed a 70% tax reduction on remittances abroad for companies involved in the exploration or licensing of games, provided they invest in developing independent Brazilian game projects, was vetoed by the Brazilian president.

5. Regulation of AI

The integration of artificial intelligence (AI) in game development presents both opportunities and challenges from a legal perspective.

AI can enhance gameplay experiences through adaptive learning algorithms or procedurally generated content.

However, it also raises concerns about intellectual property infringement and data privacy. For instance, AI-generated content may inadvertently infringe on existing copyrights if not properly managed. Moreover, using AI to analyse player behaviour can raise privacy issues if personal data is not handled in compliance with applicable laws.

As regulatory frameworks, such as the EU's AI Act, around AI continue to develop worldwide, developers must ensure their use of AI technologies aligns with emerging legal standards while leveraging their potential benefits responsibly.

6. Age restrictions and content rating

Age restrictions and content ratings need to be taken into consideration to ensure compliance with laws designed to protect minors from inappropriate content.

Each jurisdiction has its own rating system self-imposed by the industry, such as the Entertainment Software Rating Board (ESRB) in North America, Pan European Game Information (PEGI) in Europe, and the Computer Entertainment Rating Organization (CERO) in Japan.

These organisations assess games based on their content, assigning age-appropriate ratings that guide consumers and retailers. Failure to obtain the correct rating can lead to legal penalties, restricted sales, or reputational damage. Additionally, digital distribution platforms often require compliance with these ratings as part of their terms of service.

Developers must navigate these varying standards to avoid inadvertently exposing minors to unsuitable material, which could result in fines or bans in certain markets. For example, in Germany and Brazil there is a requirement that games have a content rating.

A question in Germany had been whether this would apply only to games released after the implementation of the new legal requirement or to all games, regardless of the date of release. The German Federal Department for Media Harmful to Young Persons (BzKJ) is said to have reviewed the content rating on Steam and called for adjustments where Steam is required to only offer games for sale in Germany that have either "been through Steam's built-in rating process or have a rating issue by Germany's rating agency, USK" in the words of Steam.

7. Digital Distribution Agreements

The shift towards digital distribution platforms such as Steam and the Epic Games Store has changed how video games are traditionally marketed and sold.

This puts a greater focus on careful negotiation of distribution agreements. These agreements cover a range of significant legal issues, including revenue sharing, intellectual property rights, and platform exclusivity.

For instance, Steam historically takes a 30% cut of game sales revenue, while the Epic Games Store offers a 12% share, creating significant implications for profitability and strategic partnerships.

Additionally, platform exclusivity deals can lead to consumer backlash and impact a game's market reach, as seen with titles like "Metro Exodus" shifting platforms mid-release (from Steam to the Epic Games Store).

8. Esports

Player contracts outline terms such as duration, compensation, and intellectual property rights, which include the use of gamertags and personal branding. These agreements need to be carefully crafted to ensure fairness and clarity, preventing disputes over issues like remuneration or contract termination.

Sponsorship agreements also play a crucial role, as they involve complex negotiations over exclusivity, brand compatibility, and intellectual property usage.

The governance of competitive events requires robust regulation to maintain integrity, addressing challenges such as cheating and match-fixing (there was a match-fixing scandal in the Royal Southeast Asia Cup competition for Valorant in 2020).

Regulatory bodies like the Esports Integrity Commission (ESIC) are pivotal in setting standards to combat these issues. However, unlike traditional sports, esports does not have a central international governing body. The industry is fragmented with developers largely regulating their own events in which their own games are played.

Esports events have grown and now involve large financial sums—the prize pool for the 2024 Esports World Cup was just over USD60m.

There have been discussions on tackling concerns around doping, which parallels traditional sports challenges but requires tailored solutions for the digital realm. For example, should professional tournaments include compulsory doping tests and equipment tests similar to traditional sports.

9. Loot boxes and gambling laws

Loot boxes, which offer players randomised virtual items in exchange for real or in-game currency, have been likened to gambling due to their chance-based nature and potential for monetary value.

Countries like Belgium and the Netherlands have taken a strict stance, classifying loot boxes as gambling when they involve real-world currency and can be traded outside the game.

This classification requires developers to obtain gambling licenses, which are often very difficult to secure, leading to bans on such mechanisms in these regions.

In contrast, jurisdictions like the United States have seen mixed responses, with some legal challenges dismissed due to the lack of consensus on whether loot boxes constitute gambling.

Meanwhile, countries such as China and South Korea have implemented specific regulations requiring transparency about the odds of obtaining items and restricting purchases.

See more of our articles on loot boxes here.

10. Antitrust

Antitrust and competition law have come to the fore for the games industry with high-profile cases like Epic Games vs. Apple and Google.

These cases broadly challenged the control exerted by major platforms over app distribution and payment systems.

In the Epic Games vs. Apple case, Epic claimed that Apple was maintaining a monopoly by restricting app distribution to its App Store and mandating the use of its in-app payment system, which collects a 30% commission.

Although the court ruled that Apple's App Store is not a monopoly, it found Apple's anti-steering policies—preventing developers from directing users to alternative payment methods—anti-competitive, requiring Apple to allow such options.

Similarly, in the case against Google, Epic alleged that Google's practices around its Play Store were monopolistic.

A recent ruling mandated Google to open Android to rival app stores and prohibited it from compensating companies to avoid competition with its Play Store.