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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Electronic Arts Inc.    EA

ELECTRONIC ARTS INC.

(EA)
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Electronic Arts : Opening Pandora's Loot Box? Canadian Class Action Lawsuit Over Loot Boxes May Provide Guidance On The Legality Of Loot Boxes In Canada

11/11/2020 | 09:18am EST

On September 30, 2020, a class action lawsuit was filed in the Supreme Court of British Columbia seeking reimbursement of "loot box" payments (the "Claim") made by class members to  Electronic Arts Inc. and Electronic Arts (Canada) Inc. (collectively, the "Defendants").1 While it was filed in British Columbia, the Claim is national in scope. The Claim was brought on behalf of joint plaintiffs (a British Columbia resident and an Ontario Resident), as well as all other Canadians who purchased loot boxes in any of over 60 of the Defendants' video game titles, between 2008 and 2020.

A "loot box" is defined in the Claim as a consumable virtual item that can be redeemed to receive a randomized selection of further virtual items. In the modern videogame industry, the items granted by loot boxes range from simple cosmetic options for a player's in-game avatar, to game-changing items that alter how the game is played (potentially giving players an edge in competition with other players).2 The Claim states that the random chance aspects of loot boxes are central to their appeal to developers and publishers, and that loot boxes are considered part of the "compulsion loop" of game design, used to keep players invested in games.3 The Claim asserts that loot boxes function similar to slot machines doling out prizes, and that the items in loot boxes have intrinsic value as they can often be purchased directly with real money, or sold/traded in-game.

The Claim states that loot boxes are a form of unlawful gambling  under the Criminal Code of Canada, and the Defendants have breached gambling laws in Canada by selling loot boxes.4 Further, the Claim asserts that the Defendants and their executives were at all times fully aware of the unlawful nature of loot boxes and took active steps to sell them regardless, or alternatively, were reckless or willfully blind to the unlawful nature of loot boxes.

The legal basis for the Claim is the Defendants' unjust enrichment from profits obtained by selling Loot Boxes, which constitutes an alleged scheme for advancing games of chance, betting, or similar behaviours, or a lottery scheme contrary to the Criminal Code.5 Additionally, the Claim states that the Defendants breached the provincial Gaming Control Act, because offering loot boxes to the public constitutes "gaming services" and the Defendants are therefore unlicensed "gaming services providers."6 Some older Canadian laws refer to gambling as "gaming", with the obvious possibility of confusion when discussing the video game industry. The Claim also alleges that the Defendants have breached the BC Business Practices and Consumer Protection Act ("BCPA")7 and the OntarioConsumer Protection Act ("OCPA")8 by:

<ul
  • concealing the odds of loot boxes in affected titles;
  • failing to have safeguards in place to prevent minors from consuming loot boxes; and
  • making high-value items that affect gameplay available exclusively from loot boxes, thereby forcing players to obtain loot boxes.
  • The Claim asserts that the Defendants breached the BCPA and OCPA by taking advantage of consumers' inability to understand the nature of loot boxes, or alternatively the terms and conditions within the Defendants' video games were too adverse to consumers to be equitable. The Claim also states that the Defendants breached the Competition Act, by offering loot boxes for sale, advertising an internet gaming site, failing to disclose loot box odds, failing to promote responsible gaming and failing to protect minors as required by advertising regulations.9 Finally, the Claim identifies that the Defendants collected money from players who are under the age of legal majority ("infants") and therefore are entitled to compensation under the Infants Act. 10

    The Claimants have thrown a wide variety of legal claims at the Defendants in the apparent hope that the BC Supreme court will agree that at least one of the allegations will apply.

    Loot Boxes in Other Jurisdictions

    Loot boxes are utilized by numerous developers and publishers, and are prevalent in many of the most popular video games in the world. However, most jurisdictions have not imposed regulations on loot boxes, or issued binding determinations of their legality within existing regulatory frameworks for gambling and consumer protection.

    In May 2019, an American Senator introduced a bill to federally regulate the sale of loot boxes in the United States, but no such regulation has yet been passed.11 Some individual states have taken action with regards to the sale of loot boxes, for example: Washington State has indicated that it is investigating loot boxes, and Minnesota has introduced a law prohibiting the sale of games that offer loot boxes for real money to anyone under the age of 18.12 Perhaps coincidentally, a class action lawsuit against Electronic Arts Inc. very similar to one discussed herein, was filed on August 13, 2020 in California. This lawsuit alleges that Electronic Arts "relies on creating addictive behaviors in consumers to generate huge revenues" and singles out loot boxes in the Defendants' FIFA and Madden NFL game series as being "predatory and designed to entice gamers to gamble."13 California courts may well be the first American tribunals to issue binding rulings on the legality of loot boxes under general anti-gambling or consumer protection laws.

    Most European countries have yet to take a stance on loot boxes, with a few notable exceptions. In Belgium, it has been determined that some loot boxes violate existing gambling laws (although no loot box-specific regulations have been passed).14 While in France, a gambling regulating body determined that loot boxes were not legally a form of gambling.15 In mid-October of this year, the Court of The Hague in the Netherlands authorized the Netherlands Gambling Authority ("KSA") to enforce a fine of up to €5m against Electronic Arts Inc. for violating the Netherlands Gambling Act through its use of loot boxes in FIFA.16 KSA has declared loot boxes illegal "games of chance" which, under Dutch law can only be provided to the public if a relevant licence has been granted. This is one of the first outright declarations that loot boxes are illegal, and Electronic Arts Inc. has already indicated that it plans to appeal this ruling.17

    While the discussion on loot box legality appears to be heating up, in some jurisdictions the focus lately has been on informing consumers about loot boxes, rather than banning them outright. For example in China and South Korea, developers selling loot boxes in their games must disclose the probability of receiving any given reward.18 Voluntary industry self-regulation has also taken steps in this direction, with both the Entertainment Software Rating Board ("ESRB") and Pan European Game Information ("PEGI") introducing new labelling requirements for videogames containing loot boxes. We covered this loot box disclosure issue in an article published earlier this year titled "Loot Boxes May Still Be Random, but Games that Offer Loot Boxes Will Be Clearly Labelled."

    The Future of Loot Boxes in Canada

    Traditional legal frameworks have trouble accommodating loot boxes. The Claim against the Defendants marks one of the first times that loot boxes have been placed under the scrutiny of a Canadian court, and may provide stakeholders  in the videogame industry with  much-needed guidance on the  legality of these types of video game mechanics.

    Both developers and publishers should pay close attention to this lawsuit. Depending on the Claimants' success, this Claim is a potential springboard for similar loot box-related lawsuits both in Canada and abroad. In the absence of industry-specific regulations that clearly define legal and illegal practices, class actions like this one may end up shaping how videogame publishers and developers do business in Canada for many years to come.

    Footnotes

    1.Notice of Civil Claim shared by The Patch Notes, ("Claim") Online: https://thepatchnotes.com/wp-content/uploads/2020/10/Notice-of-Civil-Claim.pdf

    2. Claim, footnote 1 at para 20

    3. Claim, footnote 1 at para 24

    4. Criminal Code, RSC 1985, c C-46, Online: http://canlii.ca/t/54cpx

    5. Criminal Code, footnote 4,  s 206, s 207 Online: http://canlii.ca/t/7vf2#sec201

    6. Gaming Control Act, SBC 2002, c 14, s 95,  Online: http://canlii.ca/t/84kz#sec95

    7. Business Practices and Consumer Protection Act, SBC 2004, c 2

    8. Consumer Protection Act, 2002, SO 2002, c 30, Sch A

    9. Competition Act, RSC 1985, c C-34, Online: http://canlii.ca/t/54cq0

    10. Infants Act, RSBC 1996, c 223, Online: http://canlii.ca/t/53j4l

    11. S-1629 - 116th Congress (2019-2020) Online: https://www.congress.gov/bill/116th-congress/senate-bill/1629/text

    12. T.J. Hafer, "The legal status of loot boxes around the world, and what's next in the debate" (2018) PC Gamer,

    Online: https://www.pcgamer.com/the-legal-status-of-loot-boxes-around-the-world-and-whats-next/

    13. Andy Robinson, "EA faces a class action lawsuit over Ultimate Team 'loot boxes'" (2020) Video Games Chronicle, Online: https://www.videogameschronicle.com/news/ea-faces-a-class-action-lawsuit-over-ultimate-team-loot-boxes/

    14.     (1) Andy Chalk, "Netherlands Gaming Authority cracks down on loot boxes in some games" (2018) PC Gamer,

             Online: https://www.pcgamer.com/netherlands-gaming-authority-cracks-down-on-loot-boxes-in-some-games/

            (1) Andy Chalk, "Belgium'sGambling Commission rules against loot boxes in Overwatch, FIFA 18, and CS:GO" (2018) PC Gamer, Online: https://www.pcgamer.com/belgiums-gambling-commission-rules-against-loot-boxes-in-overwatch-fifa-18-and-csgo/

    15. Hafer, Footnote 14 at para 9

    16. Kansspelautoriteit, "Imposition of an order subject to a penalty on Electronic Arts for FIFA video game", (October 29, 2020) Online: https://kansspelautoriteit.nl/nieuws/nieuwsberichten/2020/oktober/imposition-an-order/

    17. Wesley Yin-Poole, "EA to appeal Dutch FIFA loot boxes ruling following €5m fine" (2020) Eurogamer, Online: https://www.eurogamer.net/articles/2020-10-29-ea-to-appeal-5m-dutch-fifa-loot-boxes-fine

    18. Hafer, Footnote 14 at para 6

    The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

    Mr Karam Bayrakal
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