Winning, but at What Cost? The Problem of Loot Boxes in Video Games and How the FTC Could Help

SYDNEY LANDERS—On August 3, 2020, a class action complaint, naming Electronic Arts (“EA”) as the defendant, alleged that loot boxes in games, specifically sport franchise games like FIFA, “entic[e] consumers . . . to engage in gambling and similar addictive conduct.” Loot boxes are a form of microtransaction: some use in-game currency to purchase new weapons or outfits for their character, while others use real money. Prior to purchase, the consumer knows what might be in the loot box but does not know the actual reward until after opening it. Loot boxes and other microtransactions are incredibly lucrative for game developers and publishers, with reports of the global online microtransaction market reaching over $33.4 billion in 2020. As the class action Complaint alleges, EA’s Ultimate Team Packs resemble Las Vegas slot machines and constitute illegal slot machines under California Penal Code section 330(b)(d). However, a California federal court will not be deciding the case because Judge Beth Freeman granted EA’s motion to compel arbitration on March 5, 2021. Before playing an EA game, the consumer must agree to the terms of EA’s User Agreement, which contains an arbitration provision detailing that all disputes will be determined exclusively by binding arbitration.

EA is not the only video game company facing suits. In 2020, Supercell Oy, the creator of the popular game Clash of Clans, was sued in a California district court for engaging in predatory practices because of its reliance on loot boxes in its games. The Complaint raises the same arguments as the EA Complaint, that the loot boxes are akin to slot machines that encourage addiction.

There are many concerns surrounding loot boxes aside from their resemblance to slot machines. These concerned parties allege that loot boxes manipulate and pressure consumers to spend. Further, these parties criticize game companies for failing to disclose the presence of loot boxes in games and the probabilities of getting certain items from them. Critics argue that the real cost of games are masked because, on top of the game’s price, loot boxes push consumers into microtransactions. This is especially true in online games where players feel they need to keep up with opponents by having the best gear. Children are especially vulnerable to manipulation and social pressures, and they may not understand the costs related to the transactions. Further, some loot boxes rely on dynamic odds that base the type of loot a player will receive on the player who opens the box or the time a player opens it. These odds were not traditionally disclosed to players; however, Apple and Google require all games on their app stores to disclose the odds of the loot boxes. Microsoft, Nintendo, and Sony have stated they would adopt the same practice.

Consumer groups trying to curb the practice of microtransactions may be challenged by enforcement of EA’s arbitration provision in its user agreement. For the most part, arbitration proceedings neither rely on nor create precedent. Thus, the arbitrator’s decision in the EA proceeding would likely not influence another loot box arbitration case. This could result in a problematic situation: to avoid litigation, other developers and publishers may follow EA’s example and place mandatory arbitration provisions in their user agreements. Based on Judge Freeman’s decision to enforce EA’s arbitration provision, a court may uphold similar provisions and send those cases to arbitration.

Other countries like Belgium and the United Kingdom have determined that loot boxes constitute gambling and encourage addictive behavior. Belgium banned the business model altogether. While there has been substantial criticism of loot boxes in the United Kingdom, the Gambling Act 2005, the country’s gambling regulation, does not cover loot boxes; therefore, the Gambling Commission is unable to take any regulatory action on them. However, a recent House of Lords Committee report on gambling called for loot boxes to be brought within the scope of the Gambling Act 2005, with a call for evidence being opened in September 2020 to investigate the proposal.

Accordingly, the impetus of change must come from Congress or an administrative agency, like the FTC. In May 2019, Senator Josh Hawley introduced the Protecting Children from Abusive Games Act, which aimed to prohibit pay-to-win transactions and the sale of loot boxes in video games. The Act would have made it unlawful for game publishers and distributors to offer loot boxes and pay-to-win microtransactions in games with young audiences. Moreover, the Act would have been enforced by the Federal Trade Commission (FTC), which would have treated distributions of violative games as an unfair trade practice under section 18(a)(1) of the FTC Act. Despite the energy surrounding the legislation, the bill was not enacted. However, the FTC still held a workshop on consumer issues related to loot boxes and wrote a Staff Perspective detailing the takeaways from the event.

As evidenced by Senator Hawley’s proposed bill, it would be within the FTC’s scope to produce regulation combating the problem of loot boxes. Section 18(a) authorizes the FTC to prescribe rules defining acts or practices that are unfair or deceptive, affecting commerce within the meaning of section 5(a). This section provides that “unfair or deceptive acts or practices in or affecting commerce . . . are . . . declared unlawful.” Deceptive practices are further defined as those involving a material “misrepresentation, omission or other practice, that misleads the consumer acting reasonably in the circumstances . . . .” Through the above sections, the FTC could define loot boxes as a deceptive practice and promulgate regulations to combat them, either by prohibiting them entirely or mandating more detailed disclosures of loot boxes and probabilities.

This change is unlikely to occur because of the lack of enthusiasm behind Senator Hawley’s proposed bill and mixed views about government regulation. For the moment, consumers must rely on their intuitions and decide for themselves whether to engage in microtransactions. Speaking up against loot box practices could help bring an end to this predatory practice because some content creators have discontinued loot box features based on negative consumer responses.