Overview

Globally, several jurisdictions are in the process of considering, or have already considered, their regulatory regimes in respect of loot boxes and have reached differing views as to the best way to regulate them. In this focus paper, we consider Australian and international regulatory developments with respect to the regulation of loot boxes.

On 6 March 2019, the Australian Government responded to the Senate Inquiry Report on Gaming Micro-Transactions for Chance-Based Items (the Loot Box Inquiry).1 The Senate Environment and Communications Reference Committee (the Committee) made a single recommendation at the conclusion of the Loot Box Inquiry, that a comprehensive review should be conducted of loot boxes in video games.2

However, in its response to the Loot Box Inquiry, the Australian Government considered that a formal departmental review of loot boxes was not warranted. Consequently, the Australian Government is unlikely to take any further action with respect to the regulation of loot boxes at a Federal level in the near future.

It will be interesting to see how the Australian Government responds to international regulatory developments with respect to loot boxes and how industry shapes the future regulatory treatment of loot boxes in Australia.

What is a loot box?

A “loot box” is a voluntary feature contained in a video game which enables players to acquire virtual items which can be used to enhance an individual’s game play and experience. These features are usually randomised and not necessarily known to the player at the time the loot box is “opened”.

Loot boxes are typically found or earned as a reward for playing the game. While the mechanics of each game differs, players can typically purchase loot boxes using in-game currencies such as coins, crystals or tokens. However, some loot boxes can also be purchased using real world currency. In some cases, players can even trade or sell items obtained from loot boxes using third party platforms.

The availability of these features has sparked debate over whether loot boxes constitute a form of gambling and whether it is appropriate for them to be included in video games which are popular with, and accessible by, younger players.

Developments in Australia 

In its response to the Loot Box Inquiry, the Australian Government noted the Committee’s recommendation of a comprehensive review. The response also acknowledged the five additional recommendations made by the Australian Greens which encouraged significant reform to existing classification laws and a review of the definition of “gambling service” under the Interactive Gambling Act 2001 (Cth).3

The Australian Government also noted the Senate Committee’s observation, that the research into the potential gambling-related harms linked to loot boxes is in its infancy and the lack of established research made it challenging to develop an evidence-based regulatory framework to address these potential harms.

Citing the lack of established research, the Australian Government indicated that it will not commission a comprehensive review of loot boxes immediately after the Loot Box Inquiry. Instead, it stated that the Department of Communications and the Arts (the Department) will continue to consider other regulatory regimes, work with other government bodies and industry and monitor academic research in relation with loot boxes.

International Developments 

Australia appears to have adopted a similar position to the UK Government. The Digital, Culture, Media and Sport Committee of the UK Parliament is conducting currently an inquiry into immersive and addictive technologies. Appearing before the inquiry, Margot James (the Minister of State for the Department for Digital, Culture, Media and Sport) stated that there was insufficient evidence available to conclude that loot boxes in video games constitute gambling.

Kerry Hopkins (the Vice President of Legal and Government Affairs at Electronic Arts) also appeared before the inquiry and generated headlines by labelling certain features of the game Star Wars Battlefront II “surprise mechanics” and comparing payment for loot boxes to buying Kinder Eggs.4

The position adopted by the authorities in Australia and the UK stands in contrast to the stance taken by the authorities in Belgium and the Netherlands last year. As discussed in previous focus papers, the authorities in Belgium and the Netherlands concluded that the provision of paid loot boxes should be prohibited under their respective gambling legislation.5 China has also implemented restrictive measures with respect to paid loot boxes.

In the U.S., certain politicians have been advocating for law reform in the area of loot boxes. On 8 May 2019, Senator Josh Hawley announced his intention to introduce the Protecting Children from Abusive Games Bill in the U.S. Senate.6 Senator Hawley stated that the Bill would prohibit “pay-to-win” micro-transactions and “loot boxes” in games designed for general audiences or games targeted towards those under 18 years of age. However, cosmetic downloadable content would be excluded from this prohibition.

The U.S. Federal Trade Commission is due to hold a public workshop on 7 August 2019. The workshop will examine consumer protection issues arising from loot boxes and intends to bring together a variety of stakeholders including industry representatives, consumer advocates, trade associations, academics and bureaucrats.

Elsewhere, the Swedish Consumer Agency was instructed to conduct an investigation into loot boxes, and is expected to publish its findings on 1 October 2019.7

Industry “Self-Regulation” 

Beyond governmental action, certain businesses within the video game industry have begun to modify their practices with respect to loot boxes. In its response to the Loot Box Inquiry, the Australian Government recognised the efforts of certain industry participants who are removing loot boxes from existing games or publishing games without loot boxes.

These efforts by games developers recognise community concern with the lack of transparency regarding the odds of players winning loot boxes. This is reflected by an online survey conducted in Australia on loot boxes and simulated gambling in games in the context of classification.8 Of the 2,000 people surveyed, a majority (71%) of parents who had some familiarity with loot boxes, believed game developers should publish the odds of winning loot boxes.

As a result of these concerns, the Google Play platform now requires apps offering mechanics which enable the receipt of randomised virtual items from a purchase (i.e. loot boxes) to display clearly the odds of receiving those items prior to a purchase.9

These approaches include a willingness by certain sections of the industry to engage in a form of “self-regulation”. Self-regulation is not a novel concept in the video game industry. For example, following recommendations from the Japanese authorities as to which forms of loot boxes should be prohibited, the Japanese mobile gaming industry has engaged in self-regulation. This self-regulation has proven to be successful, even in the absence of formal regulation.10

Way Forward 

The Australian Government is unlikely to take any further action with respect to the regulation of loot boxes at a Federal level in the near future. It is not alone in its hesitancy to regulate the conduct of loot boxes, given the difficulty of developing evidence-based measures to address the potential harms of interacting with loot boxes and regulating loot boxes under existing gambling and consumer law frameworks.

In contrast, certain jurisdictions, and some sections of the video game industry, have altered their approaches to loot boxes. These approaches, at least implicitly, appear to suggest that current industry practice falls short of consumer, and broader community, expectations.

There may be an opportunity for certain businesses and governments to begin to find common ground with respect to loot boxes. International developments indicate that there may be scope for government and industry to co-regulate loot boxes in the future. The Japanese model demonstrates that a degree of self-regulation is viable.

In any event, the story of “surprise mechanics” is far from over. It would come as no surprise if the Australian Government revisits loot boxes following the implementation of restrictions, or prohibitions, on certain types of loot boxes overseas and the availability of increased research on the potential impacts of loot boxes on consumers.