December 8, 2019

December 06, 2019

Subscribe to Latest Legal News and Analysis

December 05, 2019

Subscribe to Latest Legal News and Analysis

Game Goes On: Court Dismisses With Prejudice Class Action Alleging Social Gaming Micro-transactions Constitute Illegal Gambling

Another lawsuit alleging illegal gambling in a social game has been dismissed.  Over the last year, social gaming mobile applications have come under attack from the Plaintiffs’ bar as gambling in disguise.  Plaintiffs’ attorneys theorize that in-app micro-transactions where consumers pay cash for virtual items (i.e., gold coins or gems) designed to speed up or otherwise enhance gameplay are, in effect, wagers insofar as other in-game materials can subsequently be “won” with those items.  None of the plaintiffs have prevailed in these recent cases.

In Soto v. Sky Union, three plaintiffs brought nine claims on behalf of four putative classes under various state anti-gambling laws against the mobile application Castle Clash—a popular civilization building strategy game.  Specifically, Plaintiffs asserted claims under the laws of California (Cal. Penal Code §§ 330b and 319 and the UCL), Illinois (720 ILCS 5/28-8(a), 815 ILCS 525/20, the Illinois Consumer Fraud Act and unjust enrichment) and Michigan (MCL 600.2939(1) and unjust enrichment).

Plaintiffs contended that because players can purchase “gems,” and subsequently use those gems to attempt to win “heroes” and “talents,” Castle Clash was in effect a masked gambling enterprise whereby players could “wager” for heroes and talents. Though there is no means by which to “cash out” through Castle Clash itself, Plaintiffs contended that players were able to subsequently sell their accounts—made more valuable by certain heroes and talents—on unsanctioned, secondary markets.

On January 29, 2016, Judge Matthew F. Kennelly of the United States District Court for the Northern District of Illinois dismissed the Sky Union complaint in its entirety with prejudice.  Judge Kennelly grounded his decision in the common sense fact that fictional, virtual items such as heroes and talents cannot conceivably be items of value within the context of state anti-gambling law.  Specifically, Judge Kennelly first held that, generally speaking, for a given game to constitute gambling, there must be three key elements: (1) payment, (2) chance and (3) prize of value.  As it pertains to the latter, Judge Kennelly held:

Heroes and Talents are not exchangeable for real money or other goods, either within the game or in the real world. Ultimately, players who use their purchased gems to play . . . are not paying for the chance to win anything of measureable value.

Importantly, the Court disregarded Plaintiffs’ theory that value can be leveraged from the fact that players could allegedly sell their accounts on unsanctioned secondary markets. Even if, the Court held, players could actually sell their accounts, “[t]he amount a player can get for selling his account to another player says little about the values of the individual items (Heroes, Talents, etc.) contained within that account.”

Considering that Castle Clash does not award players “prizes of value,” the Court dismissed each of the anti-gaming claims, as well as the California and Illinois unfair competition claims.  And finally, concerning unjust enrichment, the Court concluded its analysis by holding:

[P]laintiffs received precisely what they sought when they gave their money to Sky Union: gems for use in gameplay . . . . It is not inequitable, therefore, for Sky Union to retain the money plaintiffs spent to purchase gems for use in Castle Clash . . . .

This is another significant win for the social gaming industry on a fundamental business practice—the ability to sell virtual items for use in winning other virtual goods to enhance gameplay. In recent blog posts, we discussed two similarly significant victories in Maryland and Washington district courts against other mobile games.  With these decisions should come a collective sigh of relief from the social gaming industry as courts continue to dismiss claims alleging that winning virtual items, for which there is no opportunity to cash out from the game provider, constitutes illegal gambling.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

TRENDING LEGAL ANALYSIS


About this Author

David S. Almeida, Business Attorney, Sheppard Mullin law firm
Partner

David S. Almeida is a partner in the Business Trial Practice Group in the firm's Chicago office. 

David's areas of practice are varied and include all aspects of consumer protection law, including defense of alleged consumer fraud, unfair and/or deceptive business practices claims, many of which are often associated with online and offline privacy issues, direct marketing, mobile and electronic commerce platforms, loyalty programs and various promotions practices.

312-499-6318
James Mattinson Blockchain Technology and Digital Currency Lawyer Sheppard Mullin Washington DC
Partner

Jim Gatto is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office. He is also Co-Team Leader of the firm's Digital Media Industry and Social Media and Games Industry Teams, Blockchain Technology and Digital Currency team, and Team Leader of the firm's Open Source Team. 

Areas of Practice

Mr. Gatto leverages his unique combination of nearly 30 years of IP experience, business insights and attention to technology trends to help companies develop IP and other legal strategies that are aligned with their business objectives. His practice focuses on all aspects of intellectual property, internet and technology law, including patent, trademark, copyright, trade secret and open source. Mr. Gatto advises clients of all sizes (start-ups to Fortune 100 companies) on key legal and business issues relating to the use of social media, video games, social games and online gambling (gamblification), virtual goods and currency, social networks, virtual worlds, mirror worlds, augmented reality, open source user-generated content, location-based services and gamification.

He has extensive experience advising internet and social media companies on business and legal strategies relating to virtual goods and virtual currency, developing IP protection and monetization strategies, handling terms of service and end user license agreements, development, licensing and partnership agreements, developing DMCA policies, handling DMCA enforcement, privacy and COPPA policies and much more.

Mr. Gatto's practice is national and international, and it encompasses a full range of IP and technology issues, including: patent, trademark, copyright and trade secret litigation; counseling and technology transactions; developing and implementing IP strategies to protect and to monetize IP assets; creating and implementing corporate IP programs; conducting IP audits; conducting complex patent prosecution, including patent appeals, interferences, Inter Partes Review (IPRs), reissues and protests; handling patent enforcement issues, including licensing and litigation; negotiating and drafting technology agreements; conducting IP due diligence in and negotiating IP aspects of mergers, acquisitions and financings; rendering opinions concerning the infringement, validity and enforceability of patents; handling trademark prosecution, domain name, copyright and trade secret matters; handling IP aspects of employment issues; advising clients on legal issues associated with open source software including open source patent issues, licensing, open source compatibility issues, indemnity issues and developing and implementing corporate policies on use of open source software; advising clients on the legality of cutting edge Internet business methods and technology; and advising clients on computer law issues such as computer fraud and abuse and SPAM-related issues.

202.747.1945
Associate

Mark Eisen is an associate in the Business Trial Practice Group in the firm's Chicago office.

312-499-6310