Over the past few years loot boxes have attracted heightened interest amongst regulatory authorities for their alleged potentially addictive qualities or their misuse as novel instruments of money laundering. Loot boxes are not yet regulated in India. But the ever-expanding Indian online gaming market (slated to reach $7 billion by 2026) would likely soon bring this issue into spotlight, attracting both media and government attention. This multi-part series of articles examines the potential legal and regulatory concerns vis-à-vis loot boxes in India.
In this first part, we highlight the logical flaws and legal gaps in classification of loot boxes as 'gambling'.
What is a 'Loot Box'? Rest assured, there is no 'loot'-ing of anyone.
Loot boxes are in-app purchases. Online game users can use in-game currency or real money or both to purchase a 'box'. The item in the box i.e., subject matter of the purchase transaction, is randomized and not known in advance. The items can be anything – a new or rare 'skin', 'avatar', or 'costume' or a rare or improved weapon in a shooting game, or an upgraded player card in a sports simulation game. Exciting and stimulating fanfare in the form of audio-visual effects often precedes the revelation, enhancing the 'high' and euphoria of receiving a vaunted item from a loot box, adding to their overall allure.
However, considering the fascinating history of origin of 'loot boxes' and the reasons we argue using the same (see below sections), typical / standard 'loot boxes' is a misnomer in the context of video games and ought to be done away with entirely.
Why are regulators concerned about loot boxes?
Loot boxes seem closely linked to the origin of the gacha games, a moniker given to video games which implement gachapon mechanisms. Gachapon are coin-operated toy dispensers, which require users to stake money in order to receive in return a completely randomized item. Given the randomisation involved in determining the item the user receives, gachapon attracted regulatory concerns and drew similarities to gambling. Likewise, gacha games, which are centered around or affected predominantly by gachapon mechanisms, have been subject to similar regulatory scrutiny.
This anti-gambling regulatory lens through which gacha games are perceived and scrutinised appears to have been extended to 'loot boxes'. Regulators globally have been quick to equate 'loot boxes' to gambling given the money and chance element involved. However, the glaring fallacy here is that such comparisons, and meting out similar regulatory scrutiny to 'loot boxes', fails to account for the extent, if any, to which such gachapon mechanisms are implemented in the game in question and thereby impact its overall gameplay. It also erroneously presumes that all 'loot boxes' are based on or dictated by gachapon mechanisms, which is not necessarily the case in the current gaming ecosystem or at least a significant part of it.
In any case, it appears that the mechanisms and implementation of 'loot boxes' have gained more regulatory interest given that online games (and hence, by extension, loot boxes within them) are usually targeted at and played by children, who are presumed to be vulnerable to their allure, leading to allegations of addiction.
Are loot boxes a form of 'gambling'? We think not!
What's there in a name?
As hinted in the earlier section, we believe the term 'loot box' is a misnomer as it clubs together a disparate number of completely different in-game offerings. In fact, a loot box does not, typically, involve 'loot'-ing of anything at all. The word 'loot' has Anglo-Indian origins. It is derived from the Hindi word 'lut' meaning spoils of war. The Hindi word 'lut' can further be traced back to the Sanskrit word 'lotram', meaning stolen property or booty or plunder.
Some 'loot boxes' in video games may be designed to enact or give the feeling of marauders collecting spoils of war – however, not all 'loot boxes' are the same. In fact, most do not involve any function of a "loot" or "looting". Therefore, clubbing disparate types of 'loot box' designs under the overarching umbrella of 'loot', which has a negative connotation, is likely perpetuating the myth that loot boxes are 'sin' products akin to gambling.
Okay, is it perhaps gambling?
If one were to ignore the negative perception and narrative being driven through the use such nomenclature, 'loot boxes' may also perfunctorily seem to fall afoul of the gambling or gaming laws, including under the Indian gambling or gaming laws. This is because a common theme across all gambling or gaming laws in India (i.e., both the Central as well as State Laws) is as follows:
- Gambling is unlawful; and,
- Gambling is defined as wagering or staking of money on outcomes dictated predominantly by chance.
Adding the two together, it is arguable that loot boxes may be prohibited in India as amounting to Gambling since players or users put in money (whether in-game money or real money) on the expectation of an outcome (viz. the reward) and that such outcome is not linked to or determined by the skill of the player.
Nah – not really!
In our view though, such an interpretation is reductionist, driven by the aforesaid negative connotation associated with the word 'loot' itself, and clearly suffers from a lack of finer understanding of both 'loot boxes' and the gambling laws in India. Classifying 'loot boxes' as a form of gambling is fundamentally erroneous because a critical trigger for an act of gambling is missing in this mechanism – viz. the "wagering" or "staking" or "betting" of money. A "wager or bet", as per the Oxford English Dictionary as well as common sense, necessarily entails a promise to give money or money's worth upon the determination or ascertainment of an uncertain event or for forecasting the outcome of an event. A 'loot box' does not involve the 'staking' or 'wagering' of money on the correct determination or prediction of an outcome. Rather, it is merely a blind purchase of an asset (albeit a digital one usually limited to a game) or payment of a consideration to possess something of value (vary as it may) in the game. In gambling, when money or money's worth is wagered, the outcome is typically one of three – (i) the person wins more money (or money's worth) over and above what was wagered; (ii) the person neither wins nor loses money (or money's worth), i.e., recovers only the wagered amount; or (iii) the person loses the wagered money (or money's worth) and does not recover anything (in worse scenarios, the person may have to pay more money to cover up for the loss incurred). In 'loot boxes', on the contrary, the person simply purchases a digital asset of some value which may have utilitarian value, cosmetic / aesthetic value, trading value, etc. for the player within the game.
An alternate way to describe 'loot boxes', in an analogical manner, could be that they are akin to a blind purchase of a product (for e.g. auctioning of warehouses, unclaimed airport lost-and-found baggage, etc.). The purchaser pays money in the hope, anticipation, and expectation of an equivalent or higher value reward, but at no point of time prior to the purchase is the buyer aware of the exact nature or value of the product / reward.
In this regard, a parallel may also be drawn between 'loot boxes' and sealed packs of trading cards (sports-related, Pokemon, etc.), which have been manufactured and sold, and marketed to children for decades. In both, a person may purchase for consideration and possess an unknown commodity (physical or virtual) – yet, conspicuously, such trading cards have never been the subject any scrutiny let alone being equated to gambling. In both the cases of 'loot boxes' and trading cards, the purchaser has no visibility or prior knowledge of the reward / cards he / she will get till after the purchase. One may then question whether this discrepancy in regulatory scrutiny is attributable solely to the operation of loot boxes in a virtual world having a far wider reach than the traditional, physical trading cards, and if so, whether this constitutes a valid basis for such differential treatment.
In any case, it is clear that although 'loot boxes' may possess elements of chance which immediately catches the eye of gambling regulators, their classification as a form of gambling cannot be so readily presumed and certainly not in a blanket manner across all games. The authors also re-emphasise upon the need to shun the very nomenclature of 'loot boxes', given its adverse etymological implications and the ensuing perpetuation of the anti-'loot box' narrative.
Finished level 1? Congratulations, level 2 is right around the corner!
In level 1, we've put forth the argument that 'loot boxes' do not constitute and cannot be treated as gambling under India's existing gambling laws or even otherwise under the commonplace, public understanding of gambling. We even press for a change in the name 'loot box' and argue that it is a misnomer carried over from the erstwhile days of video gaming which does not really have relevance across most of the games today.
In level 2, which shall venture further on our discussion into the loot box maze and consider the impact of consumer protection laws and whether loot boxes, even if not qualifying as gambling, could be rendered unlawful under the present consumer laws in India.
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