New EU report suggests consumer protection approach to tackle loot boxes

A new report (the "Report") commissioned by the European Parliament's Committee on Internal Market and Consumer Protection (IMCO) recommends tackling the topic of loot boxes by looking beyond gambling aspects and approaching the issue from a wider consumer protection angle.

The Report, titled 'Loot boxes in online games and their effect on consumers, in particular young consumers' notes that the national gambling authorities have come to different conclusions about the nature of loot boxes, despite similarities in their national legal definitions of gambling and despite their cooperation, shows the limitations of a national approach. In particular, the Report found that banning loot boxes under national laws regulating gambling (as is the case for example in Belgium and the Netherlands) effectively removed loot boxes that were considered gambling from video games in those countries, but this also has an impact on the European Single Market strategy. Due to the differences in national approaches, the Report finds that videogame publishers are not able to market and sell the same games throughout the EU, and players cannot buy and play the same games.

The Report further notes that loot boxes are a specific (albeit prominent) example of more general issues related to problematic game design and in-game monetization methods which can also appear in video games independently of loot boxes. The Report recommends adopting a broader approach, since a focus solely on the topic of loot boxes would likely lead to these mechanisms being simply replaced by "other potentially problematic game designs and monetization methods in the future and that regulation will lag behind technological development".

The Report states, for example, "some reward structures and presentation features might mislead players regarding the likelihood of receiving valuable items and could promote addiction. These issues could be alleviated through responsible game design, which refrains from using proven addictive features. Moreover, players should be clearly informed about the presence of loot boxes in games prior to downloading/purchasing them and about the probabilities of receiving certain items from a loot box at the moment of access."

The Report then recommends that the European Union “broaden the perspective beyond gambling aspects and approach the issue of loot boxes and other problematic game designs from a wider consumer protection angle," on the basis of the European Commission's broad powers to harmonize rules relating to consumer protection in the European Single Market.

According to the Report, "measures to protect video game players, in particular minors, from potentially harmful effects of loot boxes and similar in-game purchase systems can be put in place at different points of the consumer journey". Examples mentioned in the Report include providing consumers with information at the pre-purchase phase (such as raising awareness about risks, restricting advertisements targeting minors, informing consumers that a game includes loot boxes or disclosing the probabilities of winning) and providing additional protection at the post-purchase phase (for example through robust refund policies). Nevertheless, the Report notes that experts have doubted the effectiveness of some of these transparency and information measures.

The Report further found that "parental control measures cannot be expected to be effective if they are not activated by default and if parents are not aware of their existence or do not use them correctly. These settings need to be accessible and intuitive and provide the consumers with a range of options regarding payment history, spending limits, alerts, transcripts or refund policies to protect all types of consumers and empower parents to protect their children. Moreover, parental control measures should be reframed to motivate adoption by adult players to protect themselves from harmful practices".

Finally, the Report finds that "while consumer information, transparency and player control measures are certainly welcome initiatives, it is recommended that their effectiveness is systematically verified, for example through consumer testing. It also needs to be made sure that such measures are supervised and enforced by independent bodies."

Loot boxes have been gaining a lot of attention recently. For example, the UK's House of Lords has called for the UK Government to "act immediately to bring loot boxes with the remit of gambling legislation and regulation" (see our note on this here). In June, the UK Government published a report on loot boxes and "immersive and addictive technologies" and announced that it will launch a call for evidence in relation to the impact of 'loot boxes' later this year (see our note on this here). We also noted in the same note that class action complaints have been filed against Apple and Google for allowing developers to market apps and games with loot boxes on their app stores.

In addition, the European ratings board, known as Pan European Game Information (PEGI), launched in April 2020 its new “paid random items” rating, while the Entertainment Software Rating Board (ESRB) in the US announced its new "In-Game Purchases (Includes Random Items)" rating (see our note on the PEGI and ESRB rating here).