Loot boxes in Europe: what does the future hold?

A lot is being said about Random Chances Purchases (“RCP”), better known as loot boxes, the fast growing and incredibly remunerative business model in the video game industry.

At a European level, the debate is focused on whether to classify the loot boxes as gambling and hence to specifically regulate them. This debate is driven largely by the fact that the gaming industry is marketed strongly at minors and therefore the need to provide comprehensive protection is more pressing.

The interface between gambling and loot boxes is that gamers do not know what virtual asset they are going to receive in exchange for their real money. Many see this lack of certainty as the ‘gambling’ element in loot boxes, especially considering the potential mental health toll on minors and other vulnerable gamers who are more susceptible to falling into adverse patterns of behaviour, driven by the risk/reward factor of RCPs.

The core of the problem is recognised by jurisdictions and market players globally. In addition to the debate about loot boxes in the context of gambling, we are also seeing efforts to frame the debate towards consumer protection, as this would provide the EU with an array of tools to address problematic practices and minimise potential harm, especially for minors.

Focusing on Europe and speaking from a legal perspective, it is noteworthy that the European Union has no competence in the area of gambling, which remains a matter of national competence and, as such, is tackled differently by each country.

As a result of the disruptive growth of this business area in the last decade, the European Commission has adopted several recommendations concerning the protection of minors in the gaming and gambling context; a proactive EU-level action plan and pan-European coordination efforts have been put in place.

Within the background of this report, just few Member States have already begun regulating the loot boxes matter. These are namely Belgium and the Netherlands, where the national authorities have banned loot boxes from video games altogether. Moreover, many other Member States, although not yet actively involved in the adoption of specific loot box regulation, are increasingly focusing on the matter.

Across Europe we are seeing some alternative, but significant, approaches taken to loot box regulation:

The German Bundestag has passed a proposed reform to the country’s youth protection law, which could result in new standards being applied to video games featuring loot boxes. The reform is now at the approval of the Bundesrat and could soon become law.

In Italy the approach is based on transparency and information about loot boxes, to create awareness in the public. This is achieved primarily through the supervising (and sanctioning) activity of the Italian Competition Authority and the Italian Communication Authority which seem to be willing to educate market players.

The Spanish gambling regulator has very recently opened a consultation asking whether loot boxes should require new regulation, be regulated as gambling products or prohibited entirely.

In France, no specific regulation exists yet. However, the competent authority (ARJEL) criticised loot boxes in 2018, advising that a combined and coordinated action plan is required to deal with them, requiring input from several institutions including gambling authorities, consumer protection authorities, financial and banking regulators, and data protection authorities.

In the UK, a call for evidence into the impact of loot boxes on gambling-like behaviour was opened (and closed last November) with the aim of supporting the ongoing government’s wider review of the Gambling Act.

Notwithstanding the different approaches taken by these countries, it is clear that loot boxes are a significant element of gaming that pose a risk to vulnerable gamers. This understanding is shared across the video game industry and its relevant stakeholders. The ongoing challenge will be to find the right balance between protecting gamers, and enabling video game manufacturers to grow this new revenue- producing element of gaming.

Edoardo Tedeschi is a partner in Simmons & Simmons’ Corporate & Commercial group and heads the ICT practice and the TMT sector in Italy. He has accrued considerable experience in national and cross border M&A and corporate transactions and in negotiation of contracts for large scale projects including Telco and Automotive.

n.b. Article co-written by Alessandra Bianchi, supervising associate at Simmons & Simmons.