Simply put, "loot boxes" are "mystery reward packages" that players can purchase using real or in-game currency. Part of the appeal of loot boxes is that they contain one or more random digital rewards (for example, a special customization option for the player's character, or a weapon) which may be rare or something of value. What is ultimately inside the loot box is up to the game developer, and loot boxes are used by developers to increase overall session time and user engagement.
Only a few weeks later, we already began to see EU countries adopting diverse national responses to these recommendations: with the filing of a motion in the Netherlands ("the Motion", available in Dutch only) from six political parties; and now the publication of a Spanish Draft Law (“the Proposals", only available in Spanish) that considers an outright ban on loot boxes.
What would the proposals change?
Whilst we await the final text of the Dutch proposed legislation and the final Spanish legislation, details of precisely what these amendments will entail are limited.
However, both are unequivocal in their condemnation of the current loot box landscape. The Motion from the Netherlands, for example, describes children as being "manipulated into micro-transactions" which are "addictive" and can "burden families with unexpected bills for these transactions, with disruptive consequences". For although in most cases loot boxes are a form of "microtransaction" (a transaction in which each individual payment is relatively small), it is an open secret that these can quickly add up to a very serious expense for the user (and a considerable source of income for game developers).
As such, the Motion calls on the government to consider an outright ban on loot boxes in videogames altogether. This escalation is being seen partially as a response to the latest ruling from the Netherlands Appeals Court in relation to Electronic Arts, which, in 2019, had been fined €10M after refusing to modify certain games containing loot boxes to comply with the country's gambling laws; but which the company was ultimately successful in overturning on appeal. In essence, the Administrative Jurisdiction Division disagreed with the Netherland's Gaming Authority interpretation that such loot boxes fell within the country's national gambling laws, which upended the effective ban on the practice this "gambling" interpretation had created. It seems now the intention is to make the ban explicit: producing specialist legislation to deal with loot boxes directly, rather than simply re-interpreting existing gambling legislation to include them.
In response, the Dutch government has made clear that it is considering the options available to regulate loot boxes proposed in the Motion, as well as the report conducted by the Dutch Trimbos Institute in 2021. The latter is notable for having highlighted the "risks for gamer welfare […] especially with regard to vulnerable groups" which loot boxes present, and recommending the government "evaluate the effectiveness of industry self-regulation" and consider "legal measures that cover games and oversight", amongst other suggestions. The Dutch government has given assurances the House of Representatives will be updated this autumn – so further regulatory plans are anticipated shortly.
The thrust of the Spanish Proposals look very similar: highlighting the need for a bespoke legislative regime for loot boxes (or indeed "random reward mechanisms" more broadly). Again, the protection of minors and the prevention of addictive behaviours at a young age are highlighted as critical issues. Article 6 of the Proposals therefore introduces a prohibition against Spanish minors accessing or using loot boxes, and imposes an obligation on videogame companies to implement ID verification (including with the use of voluntary biometric identification) systems to give effect to this restriction.
However, Article 7 further imposes restrictions on the types of "commercial communications" that can be addressed to Spanish minors regarding loot boxes. In this context, a commercial communication is defined as any communication that directly or indirectly promotes the use of, or access to, loot boxes. It is currently understood that simply advertising a videogame, which may include loot boxes in-game that are not mentioned in the advert, would not satisfy this definition, but developers would be advised nevertheless to be wary of this development when considering their marketing strategy in Spain. This will be particularly tricky considering that the Proposals would now: require certain messages and warnings to be included (e.g. that minors are not permitted to take part, and that players should participate "in moderation", similar to UK messages to "drink responsibly"); create watershed restrictions on advertising in audio-visual media (adverts only being permitted between 1AM and 5AM); and impose an outright ban on face-to-face advertising.
As we have seen in other jurisdictions, transparency requirements are also being introduced. Article 8 gives players rights to obtain information on costs, parental controls, "responsible use", and critically "clear, truthful and easily accessible" information on "participation conditions" (generally known as "drop rates") before and at any time during use. Article 9 contains complementary disclosure obligations for companies.
Another interesting inclusion is Article 10, which creates new obligations on developers to include "self-exclusion mechanisms". As in the gambling world, this would mean an option for users to temporarily suspend themselves from activating random reward mechanisms for a period of between 3 months and 5 years (and which may not be changed after this period has been set). On top of this, Articles 11 and 12 require developers to facilitate players limiting loot box spending and establish the maximum time of use/maximum spend before being able to access or use any loot boxes.
To enforce these new restrictions, the Proposals introduce significant sanctions: 200,000 EUR to 3M EUR for "very serious" infringements (e.g. allowing access to minors, violating the rules on commercial communications, or not including spending limits). Similarly, "serious" infringements (e.g. failing to offer information that is sufficiently "clear and comprehensible") will carry the risk of sanctions from 25,000 EUR to 200,000 EUR. Continuing the overlap with gambling legislation, these sanctioning powers (as well as those of supervision, inspection, and control of the regime) will be granted to the Directorate General for Gambling Regulation within the Spanish Ministry of Justice.
What should the industry expect?
Various legislative efforts like these that attempt to regulate loot boxes have stalled in the past. For example: Senator Josh Hawley's proposed Protecting Children from Abusive Games Bill in the US has been in legislative purgatory since 2019, and the UK Government White Paper expected since a House of Lords Report in July 2020 has recently been mothballed.
Similar initiatives in East Asia have gone back and forth. For example, South Korea attempted to amend regulations specifically to regulate loot boxes in 2015, only to do so again in December 2020. The Korean example is particularly notable for ultimately leading to industry efforts to self-regulate. However, the renewed scrutiny from legislators suggests that these efforts have not been as successful as might have been hoped in either the Asian or European contexts, or at minimum, that what changes which have been introduced have been limited to their home jurisdiction.
As yet, it is not clear that guidance from the European Commission's public consultation (expected towards the end of this year) will resolve this national divergence. For now, studios and publishers releasing games that feature loot boxes will therefore need to continue monitoring developments here closely – or risk getting caught out by what could be an ever more complex series of national responses on this issue.
Sign up to our email digest