Loot boxes (consumable virtual items in games) have been the focus of considerable regulator attention, in particular in respect of how they should be legally defined under Dutch law. The most important question is whether loot boxes can qualify as a 'game of chance' which would bring them within the definition of "gambling" and within the scope of regulation by the Dutch Betting and Gaming Act.
Games of chances – Dutch Betting and Gaming Act
The Dutch Betting and Gaming Act (BGA) prohibits gambling unless a licence is acquired from the Dutch Gaming Authority (DGA). Licences are not currently issued in relation to online gambling although a legislative proposal is currently under review by the Dutch Senate, which would make it possible to obtain a licence under strict conditions.
Pursuant to Article 1(a) BGA, it is prohibited to "provide an opportunity to compete for prizes or premiums if the winners are designated by means of any calculation of probability over which the participants are generally unable to exercise a dominant influence, unless a licence has been granted therefore, pursuant to this law."
In other words, the definition of gambling contains two important elements:
- the outcome should be determined by chance; and
- a prize or premium can be won.
The BGA does not require a payment to be made in order for a game to fall under the broad definition of gambling. This means that free games can also qualify.
Do loot boxes fall within the definition of gambling?
Comparing the definition of gambling in the BGA with the way loot boxes work in practice, we are of the opinion that, in most cases, a gamer does not have any real influence on the contents of loot boxes. This would mean that the contents of the loot boxes are determined by chance.
Can the contents of the loot boxes be regarded as a "prize or premium" within the meaning of the BGA? There is no clear guidance in Dutch case law, nor from the regulator about when something is considered a prize or a premium. Under the Dutch Gambling Taxation Act (GTA) however, the definition of "prizes" includes all goods that have a certain economic value in the course of trade.
The question of whether virtual goods can qualify as "goods" (under Dutch criminal law) was answered by the Dutch Supreme Court in a case concerning a virtual mask and amulet in the MMORPG Runescape (13 January 2012). The Court held that a virtual good can indeed qualify since it has a certain value for the owner who also has the actual and exclusive possession of it. This decision could be used by authorities to argue that goods in loot boxes are also goods in a legal sense which have a certain economic value.
We are, however, of the view that loot boxes do not, in most cases, fall under the scope of "gambling" under the BGA and that they are, therefore, allowed under Dutch law. This is because the contents of the loot boxes cannot usually be traded outside the specific game and, consequently, have no economic value in the course of trade, but only in the game itself. The contents of loot boxes do, of course, represent a certain value to the possessor, but we do not think it is an economic value as defined by the BGA.
The regulatory position on loot boxes has been similarly debated in many other jurisdictions with varying views, and little firm law. The UK regulator (the Gambling Commission), for example, has issued a paper on social gaming in which it states that loot boxes themselves are not gambling where the prizes have no real monetary value (ie they can only used in the games themselves). This simplistic view rather ignores the developing practice for contents of loot boxes to be capable of being traded or cashed out (a likely exception noted by the Commission). As soon as the contents of loot boxes can be traded outside the game, the chances are high that they will be considered as a form of gambling and consequently prohibited in the Netherlands.
Loot boxes will most likely also be considered as gambling when they do not represent at least the same value as the player has paid for them. If there is a risk of the player losing money, a loot box will most likely be considered as gambling anyway. If, however, a loot box always represents at least the same value as the amount paid for it, it can be argued that the only unknown factor in buying a loot box is the surprise element of the bonus the player actually receives, which is not sufficient to constitute gambling.
The position will only become clearer if and when prosecutions arise. Watch this space.
Recent developments – position of the Dutch Gaming Authority
The use of loot boxes in (online) games has been under the scrutiny of the DGA – responsible for the civil and administrative enforcement of the BGA – since at least 2016. In its 2016 annual report, the DGA noted that a lot of online players moved from social games to gambling. It had SuperData Research investigate the Dutch market in social gaming and gambling which led to a report which included the following main conclusions:
- about half of Dutch young adults up to 24 years of age, move from social gaming to gambling (which is relatively high compared to players of different ages);
- online gambling players spend over 100 times more money compared to online social gaming players;
Based on the SuperData Research report, the Dutch gaming Authority published a press release indicating that it would focus on two high-risk factors regarding social gaming which could lead to addiction:
- playing social games leads to the normalisation of online gambling; and
- it is not always clear to players when social gaming transfers to actual gambling.
In September 2017, the DGA announced it would look at enforcement potential under the BGA against companies offering social games that qualify as gambling and that provide prizes assessable in money. This was clearly aimed at addressing issues relating to addiction and games targeting minors.
In October and November 2017, there was suddenly a lot of media attention around the use of loot boxes in (online) games in the Netherlands and Belgium as a result of the Belgian Gaming Authority launching an investigation into the use of loot boxes. The Belgian minister responsible said clearly that loot boxes are illegal and should be banned as soon as possible. In particular, the game Star Wars: Battlefront II was the target of a lot of criticism because of the use of loot boxes in the game.
Soon afterwards, the DGA announced that it had launched a similar investigation. Unlike the rather firm statements from the Belgian authorities, the DGA was more balanced, stating in its press release:
"Whether or not social games and loot boxes are games of chance for which a licence is required from the Dutch Gaming Authority is a complex question. Therefore, the Dutch Gaming Authority will soon launch a public online consultation called ‘Definition of Offering of Games’. That document will show how the Dutch Gaming Authority will establish if chance takes the upper hand in a game compared to skill and if prizes can be won or not."
At the time of writing, the consultation has not been published, however, the fact that the DGA itself defines this question as a complex one, is an indication that enforcement against companies offering games with loot boxes is unlikely at this stage. Our assessment is that the DGA will await the outcome of the consultation and will only enforce the BGA against clear violations, e.g. when content of loot boxes can be traded outside the game or other indications are available that the content represents an economic value in the course of trade.
In the words of Mrs. Marja Appelman of the DGA in an interview with the national news channel NOS:"It is very difficult to establish if it is really gambling. It will only be gambling when the content of the loot boxes has an economic value outside of the game. And that is very difficult to establish."
Advertising law – Dutch Civil Code – Dutch Advertising Codes
Given the recent focus on the use of loot boxes in online games by the media and the DGA, it is vitally important to comply with the applicable advertising requirements in this area. As already mentioned, the risk of addiction and offering games to minors are the drivers in the DGA looking into the sale of loot boxes in the first place.
Regarding games, the relevant parts of the Dutch Civil Code (an implementation of the EU Directive on comparative and misleading advertising) apply. More guidance has been given by the Dutch Advertising Committee in the Dutch Advertising Code and the special advertising codes (self-regulation), notably the Code for advertising directed at children and young people. In general, advertisements should not be misleading or qualify as an unfair commercial practice. In particular, Article 5(5) of the Code for advertising directed at children and young people prescribes that:
"game and in-game
- Game and in-game advertising must be clearly recognisable by optical, virtual and/or acoustic means appropriate for children’s capacity to understand and must distinguish itself from the game.
- Game and in-game advertising must clearly and unambiguously state in the game and before the game can be started, by means appropriate for children’s capacity to understand, that the game or parts of the game constitute advertising and for which advertiser."
The DGA is responsible for the (administrative) enforcement of the BGA in the Netherlands. Criminal enforcement of the BGA is also possible.
The criminal sanctions for violation of the BGA are:
- maximum imprisonment of two years and/or a penalty of EUR 20,250;
- if the proceeds of the crime, or the worth of goods which were used to commit the crime, exceed a quarter of EUR 20,250, a maximum penalty per violation may be imposed of EUR 81,000;
- if that is not suitable as far as legal persons are concerned, a penalty of EUR 810,000 can be imposed.
The DGA can enforce the BGA by means of administrative sanctions and can impose penalties under the BGA of up to the higher of EUR 810,000, or a maximum of ten per cent of the turnover in the previous year. It can also impose administrative orders under pain of a penalty and incremental penalty payments. In practice, enforcement of the BGA will almost always be carried out by the DGA using administrative sanctions.
Sanctions for breach of Dutch advertising law are all civil. A competitor can start legal proceedings before the courts in the Netherlands and apply for an injunction. The Dutch Advertising Committee is responsible for the enforcement of the Dutch Advertising Codes based on self-regulation. That means that any consumer can file a complaint with the Dutch Advertising Committee but that the Committee cannot impose injunctions or award any damages. However, the Dutch Advertising Committee can make its decisions public which can also lead to reputational damage.