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Players Sue Apple Over Loot Boxes

The allegations of gambling issues with games continues. Last week, a class action lawsuit was filed against  Apple relating to games in its App Store that include loot boxes. The complaint alleges that sale of such games are predatory practices enticing consumers, including children, to engage in gambling and similar addictive conduct in violation of California law. The suit alleges that loot boxes are like Vegas-style slot machines and allegedly constitute illegal slot machines when played on an iPhone or similar device.

California Penal Code § 330(d) broadly defines an unlawful “slot machine or device” as:

a machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money, credit, allowance, or thing of value, or additional chance or right to use the slot machine or device, or any check, slug, token, or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance, or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of operation, also sell, deliver, or present some merchandise, indication of weight, entertainment, or other thing of value.

As we previously reported, in another gambling-related lawsuit level against a game company, the prior court found that there was no gambling. In part, the court concluded:

California law defines a “slot machine or device” as a “machine, apparatus, or device” that is operated by insertion of a coin or other object “or by any other means” and that “by reason of any element of hazard or chance” grants the user any of the following: (1) a “thing of value,” (2) an “additional chance or right to use the slot machine or device,” or (3) a token that may be exchanged for a “thing of value.”

The Court concluded that Defendant’s software was downloaded to an individual’s Apple or Android device, and there is “no cognizable reading of Section 330b that would reach a software developer whose software was only installed onto the devices of others.” Thus, the Court concluded that Defendant’s Casino function is not a “slot machine or device.”

The Court went further, noting that even if the Court were to embrace Plaintiff’s expansive understanding of “slot machine or device,” the Court would still find that Defendant has not violated Section 330b due to an important exception to the statute, which states: “Pinball and other amusement machines or devices, which are predominantly games of skill, whether affording the opportunity of additional chances or free plays or not, are not included within the [proscribed category].”

The Court found that the empire building game, as a whole, is a game of skill, not chance, and that the exception applied. The Court refused to adopt the Plaintiff’s position that the casino itself was a game. On this point, the Court stated: “Plaintiff proffers no authority for the proposition that the Court may excise one particular aspect of an integrated strategy game and evaluate that aspect in isolation. On the contrary, applying Plaintiff’s logic, one could excise the free replay and similar chance-based functions of any number of skill-based games—including pinball—and, viewing those aspects in isolation, find the games to violate section 330b.”

The court also found that because the virtual items could not be cashed out, they are not a thing of value.

We will see whether the California court views things differently here where the defendant sells both the devices and the software.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 167

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About this Author

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...

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