The worldwide loot box controversy continues. After the Dutch and Belgian Gambling Authorities announced enforcement action on loot boxes this week and the week before, a new loot box bill was introduced in Minnesota, USA this week. The bill joins other state level legislative efforts in the USA which were introduced since the global loot box debate peaked in the second half of 2017. This short summary describes the most notable political and regulatory reactions to loot boxes in the USA so far, including the newly introduced Minnesota bill.

 

I.        ESRB developments in light of political pressure

1.        Early ESRB statements

One of the first reactions to the global loot box debate in the USA was a statement by the Electronic Software Rating Board (‘ESRB’) released in October 2017 after the ESRB received numerous complaints on the matter. The ESRB declared that it does not consider loot boxes to be gambling: “While there’s an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don’t want)”. However, the ESRB also stated that any game which provides ‘Real Gambling’ would receive an Adults Only (‘AO’) rating. According to the ESRB, ‘Real Gambling’ requires that the player ‘can actually gamble, including betting or wagering real cash or currency’.

2.        Letter by New Hampshire’s Senator to the ESRB

On February 14, 2018 it became known that New Hampshire’s Senator, Maggie Hassan, had sent a letter[1] to the ESRB asking the board to re-consider the rating process in light of loot boxes and requesting that “[a]t minimum, the rating system should denote when loot boxes are utilized in physical copies of electronic games”. Furthermore, the Senator asked the ESRB to “examine whether the design and marketing approach to loot boxes in games geared toward children is being conducted in an ethical and transparent way that adequately protects the developing minds of young children from predatory practices” and “to consider working with the relevant stakeholders – including parents – to collect and publish data on how developers are using loot boxes, how widespread their use is, and how much money players spend on them”.

3.        Hearing of the Senate Commerce, Science and Transportation Committee

On the same day Senator Maggie Hassan sent her letter to the ESRB (see above) she asked four FTC nominees in a public hearing of the Senate Commerce, Science and Transportation Committee about their feeling towards loot boxes and if they would be willing to take action against such practices. Furthermore, the exact words used by the Senator left room for interpretation as to whether they were meant as a threat against the ESRB because the Senator asked the nominees if the FTC would be willing to look at loot boxes as an issue independently “depending”[2] on the ESRB response to her. The statement and questions by Senator Maggie Hassan read as follows:[3]

In the past the FTC has looked at video games issuing a report on the marketing of violent video games to children in 2009 and in 2013. It also studied the Entertainment Software Rating Board – or ESRB – finding it one of the most effective voluntary enforcement boards. That’s why I am confident that the ESRB will take this issue seriously. So today I am sending a letter to the ESRB outlining my concerns with microtransactions which may take the form of loot boxes – that’s what they are called – and allow in-game purchases for surprise winnings and in many cases these are being marketed to and used by children who are obviously particularly susceptible to being addicted to them. Last month, the World Health Organization recognized gaming disorder as diagnosable disorder. We should be doing all we can to protect our children and to inform parents about their options when it comes to these types of games. So, the questions for you are: Do you agree that children being addicted to gaming and activities like loot boxes that might make them more susceptible to addiction is a problem that merits our attention and depending on how the ESRB responds to my inquiry would the FTC be willing to look at loot boxes as an issue independently.”

All four nominees agreed with both counts and assured that they will look into the matter if they would be confirmed.

4.        Initiatives by the ESRB

As a reaction to the ongoing loot box debate, the ESRB announced on February 27, 2018 its plan to introduce a new label for “In-Game Purchases”. The label is supposed to stand outside the normal rating box and content descriptors, similar to the “Online Interactions Not Rated by the ESRB” notification.[4] The explanation of the label as provided on the ESRB’s website reads as follows:

In-Game Purchases - In-game offers to purchase digital goods or premiums with real world currency, including but not limited to bonus levels, skins, surprise items (such as item packs, loot boxes, mystery awards), music, virtual coins and other forms of in-game currency, subscriptions, season passes and upgrades (e.g., to disable ads).

The label will be applied to any title with in-game opportunities to spend real-world currency. Hence, the new label does not particularly concern loot boxes but instead all forms of microtransactions, including the direct purchase of virtual items or even DLCs. During a roundtable with journalists, ESRB president Patricia Vance explained why the new label does not particularly address loot boxes:[5]

I'm sure you're all asking why we aren't doing something more specific to loot boxes, and I'll tell you we've done a lot of research over the past several weeks and months, particularly among parents. What we learned is that a large majority of parents don't know what a loot box is, and even those who claim they do don't really understand what a loot box is. So it's very important for us to not harp on loot boxes per se, but to make sure we're capturing loot boxes but also other in-game transactions.

Parents need simple information, we can't overwhelm them with a lot of detail. We need to be clear, concise, and make it easy for them. We have not found that parents are differentiating between a lot of these different mechanics. They just know there might be something in the game they can spend money on.

This is a couple of steps forward. We'll continue to work with the industry to ensure there are effective disclosures about in-game purchases in general, and more specifically loot boxes. So if there's more that we can do, we will.

However, Vance explicitly stated that the ESRB would not take action in terms of obliging publishers to disclose the drop rates for loot-box-generated-items.[6] Vance also responded to Senator Maggie Hassan’s letter by taking a rather opposing position:[7]

While I appreciate your position and concerns, given the longevity of loot boxes as an in-game mechanic, there does not appear to be any concrete evidence of 'gaming disorders' stemming from loot boxes nor am I aware of any scientific evidence indicating that unlocking loot boxes has any psychological impact on children more specifically. Additionally, in investigating the claims set forth in your letter, we did not encounter any loot boxes that specifically target children. Regardless, we will continue to monitor the research in this field, as well as stay abreast of parental concerns, should they arise, about the potential impact loot boxes have on children and help guide parents accordingly.

Lastly, as an additional initiative the ESRB launched the website ParentalTools.org to help parents to set up parental controls on different entertainment devices by providing step-by-step instructions (e.g. on the type of games played by minors, how long they are played and how much money children are allowed to spend).

II.       Reaction by Hawaii lawmakers

1.        Reactions by Hawaiian state representatives Chris Lee and Sean Quinlan

In November 2017, Hawaiian state representative Chris Lee released a video where he classified loot boxes as “predatory practices” and stated that he will seek legislative action that will prohibit sales of games to underage players that feature ‘loot box’ mechanics.[8]Shortly after, Lee released a statement on reddit, where he further explained that there have been discussions with “a number of other states who are also considering how to address this issue”.[9] Furthermore, Lee encouraged others to step up as well and to call their state legislators.

Sean Quinlan another Hawaiian state representative took a critical position on loot boxes. However, Quinlan’s reaction was slightly more reserved.[10] According to Quinlan the video gaming industry should self-regulate the matter: ‘The fear when you introduce government legislation into private enterprise is that we are going to overreach. Ultimately, it’s best for the industry to self-police’. Quinlan suggested either to exclude gambling-like systems in games sold to children or to have games rated 21-plus by the ESRB. However, Quinlan implied that the he would consider legislation if the industry does not handle the matter on its own. Both, Lee and Quinlan, asked Hawaii State Attorney General Doug Chin for an official opinion about the legal issues surrounding loot boxes.[11]

2.        Proposed bills to regulate loot boxes

On January 24, 2018 four bill proposals were introduced by Hawaiian lawmakers to regulate loot boxes. The initiative caused major global media attention. However, all bills failed to meet final deadlines since being introduced in January.[12] Nevertheless, the bills provide a good understanding of how potential loot box regulation in the USA could look like, in particular in light of the similar newly introduced Minnesota bill:

a.        House Bill 2686 and Senate Bill 3024

House Bill 2686[13] and Senate Bill 3024[14] identically proposed to prohibit the sale of video games that contain a system of further purchasing a randomized reward or a virtual item that can be redeemed to directly or indirectly receive a randomized reward to consumers under 21 years of age. According to the Bills’ introductory section “video game publishers have begun to employ predatory mechanisms designed to exploit human psychology to compel players to keep spending money in the same way that casino games are so designed’. The introduction also addressed the key issue of secondary markets (see the UK section above for more details): “There are even online marketplaces where players can buy and sell digital items won from loot boxes and other gambling-like mechanisms in many games, enabling players to effectively cash out their winning”. The Bills identified as a key issue that “[t]here is currently no age restriction on games which include loot boxes and other exploitive gambling-like mechanisms” and that “[i]n fact, games which include these mechanisms are often marketed to youth”. Furthermore there would currently be “no disclosure required at time of purchase that video games contain predatory loot boxes and gambling-like mechanisms which may pose a harmful risk for some people, particularly youth and young adults”.

b.        House Bill 2727 and Senate Bill 3025

House Bill 2727[15] and Senate Bill 3025[16] identically proposed to establish certain disclosure requirements to oblige publishers of video games that contain a system to purchase a randomized reward or virtual item that can be redeemed and directly or indirectly converted to a randomized reward to disclose and publish to the consumer the probability rates of receiving each type of randomized reward or rewards at the time of purchase and at the time any mechanism to receive a randomized reward or rewards is activated so as to meaningfully inform the consumer’s decision prior to the purchase or activation of any mechanism to receive a randomized reward or rewards. Additionally each video game was supposed to bear a prominent, easily legible, bright red label on its packaging which reads:‘Warning: contains in-game purchases and gambling-like mechanisms which may be harmful or addictive‘; or a corresponding notice for online purchases.

III.      Bill by three Washington State Senators

On January 11, 2018, three Washington State Senators (Ranker, Carlyle, and Keiser) introduced a bill that if passed would charge the Washington State Gambling Commission to conduct a study of the use of loot boxes and similar types of mechanisms in online games or apps by no later than December 1, 2018.[17] According to Section 3 of the bill, the Washington state gambling commission must provide the appropriate committees of the legislature written findings and provide recommendations regarding how to best regulate the practice of including loot boxes and similar types of mechanisms in online games and apps, including options for the adoption and implementation of a regulatory and enforcement system, restrictions on the sale of games, containing these mechanisms, and any appropriate disclosures.

IV.      Bill by Californian Assembly Member Dr. Bill Quirk

On February 12, 2018, Californian Assembly Member Dr. Bill Quirk introduced a bill (AB 2194[18]) which would require a manufacturer of a video game that is sold in California and includes the opportunity to engage in a microtransaction, as defined, within the video game to provide a clear disclosure that the video game includes the opportunity to engage in a microtransaction on the physical box the video game is sold in. Under the bill, a violation of this provision would be subject to a civil penalty of up to $1,000 per violation. The legislative process is still ongoing. Quirk stated: “Gaming has become an essential part of California’s entertainment economy. I am happy to join other legislators from across our nation in addressing this issue by making sure California does its part to protect consumers in creating a more transparent process in how information is shared by manufacturers regarding video-game microtransactions”.

V.       The new Minnesota Bill

On April 24, 2018 the Minnesota House or Representatives released a press release[19]stating that State Rep. Rick Hansen (DFL-South Saint Paul) introduced the bill H.F. 4460, which “would regulate ‘loot box’ gambling in video games”. The matter was discussed and both parties spoke in favor of the bill. According to Rep. Hansen “People are spending real money on random drawings in video games. Minnesota regulates gambling and when loot boxes meet the threshold to be considered gambling, then we need to treat it as such and regulate it too.

The bill prohibits the sale of a “video game containing a system that permits the in-game purchase of (1) a randomized reward or rewards, or (2) a virtual item that can be redeemed to directly or indirectly receive a randomized reward or rewards to a person under 18 years of age” [sic]. Additionally, no video game may be sold or provided unless accompanied by a warning stating: “Warning: This game contains a gambling-like mechanism that may promote the development of a gaming disorder that increases the risk of harmful mental or physical health effects, and may expose the user to significant financial risk.” For games sold through electronic means, the warning must be acknowledged by the purchaser.

VI.      Additional Comments

The new Minnesota Bill, similar to the failed Hawaii bill, shows a general lack of understanding for the business model of the most loot box games which are based on a free2play model. Since these games are not “sold”, as required by the introduced bills, a vast majority of games including loot boxes would not even be caught by the new legislation. The introduced bills were unmistakably drafted in light of the public outcry on loot boxes which was mainly driven by player complaints about only a number of full prize AAA titles (and of which a few were even stripped off their loot box mechanisms in the meantime). The different political statements jointly referring to loot boxes as “gambling” also ignore the fact that the majority of US courts have already cleared loot box like mechanisms from this allegation.[20] To regulate loot boxes as gambling would therefore require a more in-depth legislative amendment of applicable state gambling laws. However, it should be noted that recent case law brought some uncertainty in this regard: Big Fish Casino Decision reversed by US Court