In recent years, there has been an increase in putative class actions alleging that game developers, game publishers, and even platforms should be liable for alleged harms flowing from loot boxes in mobile or other electronic games. "Loot boxes" are items that contain random rewards—usually the user has a higher probability to receive "common" items while a user has a much lower chance to receive the most highly desired or powerful rewards. In three recent cases, defendants have defeated claims that loot boxes constitute illegal gambling under California or Washington law, with each case reaching the same result on at least partially different grounds. All three cases are on appeal, giving the United States Court of Appeals for the Ninth Circuit the opportunity to clarify the law of loot boxes in California and Washington.
Taylor v. Apple
In Taylor v. Apple, Rebecca Taylor and her minor son, C.T., alleged that loot boxes in the game Brawl Stars constituted an "illegal gambling device" under California law. Section 330b(d)(3) of the California Penal Code defines such illegal devices slot machines in part as a device that "by reason of any element of hazard or chance … , the user may receive or become entitled to receive any … thing of value."
Even though Apple did not develop the games containing loot box mechanisms, the plaintiffs sought to hold Apple liable because it allegedly worked with app developers to publish games with loot boxes on its app store and took a percentage of the money spent on in-game virtual currency that was later used to purchase loot boxes. The plaintiffs argued that Apple's facilitation of those games made it liable under the "unlawful" prong of California's Unfair Competition Law (UCL), the "unfair" prong of the UCL, the California Consumer Legal Remedies Act, and common-law unfair enrichment.
The trial court (Seeborg, J.) granted Apple's motion to dismiss on March 19, 2021.1 All of the plaintiffs' claims failed because they lacked standing against Apple under the UCL: C.T.'s alleged injury did not occur when he purchased in-game virtual currency through which Apple directly profited. Instead, the court explained, the alleged injury occurred when C.T. later used that virtual currency in Brawl Stars to buy loot boxes.
In the alternative, the court held that the plaintiffs' claims also failed because Brawl Stars could not be considered a slot machine (i.e., illegal gambling) under California law. As noted above, California law explains that illegal gambling devices allow users to receive a thing of value based on factors outside the user's control. Moreover, Section 330b(f) explains that "amusement machines" that "are predominantly games of skill … are not included within the term slot machine or device." The court held that Brawl Stars was not a gambling device because 1) the virtual items in the game were not "things of value" as there was no "real-world transferable value to the [in-game] items" and 2) the randomness inherent in the loot box could not be divorced from the larger game of skill.
Notably, however, the court rejected Apple's argument for immunity under Section 230 of the Communications Decency Act. Under Section 230, providers of services over the internet cannot be held liable as though they were the publishers of third-party content.2 The court contended that Apple would not be immune under Section 230 because "Plaintiffs are seeking to hold Apple liable for selling allegedly illegal gaming devices, not for publishing or speaking information."
On January 4, 2022, the court granted Apple's motion to dismiss the plaintiffs' amended complaint with prejudice. The court re-affirmed its reasoning in every respect (including its rejection of Apple's Section 230 defense, adding: "[E]xisting statutory law does not plainly prohibit 'loot boxes.'"3
The plaintiffs' appeal was docketed on February 7, 2022.4 Apple conditionally cross-appealed, arguing that, in the alternative, it should be given immunity under Section 230.
Coffee v. Google
On the same day that the Apple lawsuit was filed, the same plaintiffs' lawyers filed a corresponding complaint in Coffee v. Google, No. 5:20-cv-03901-BLF (N.D. Cal. June 12, 2020), alleging the same causes of action against Google because Google allegedly marketed games with loot boxes and took 30 percent of the revenue. Plaintiff John Coffee alleged that he spent $500 on loot boxes in various games while plaintiff Mei-Ling Montanez estimated that her plaintiff minor son spent $100 on loot boxes in Dragon Ball Z Dokkan Battle.
On February 20, 2021, the court (Freeman, J.) dismissed all of the plaintiffs' claims with leave to amend, reaching the same outcome as Taylor, but for different reasons. Unlike the Taylor court, the Coffee court held that Google was immune from suit under Section 230 because the plaintiffs were seeking to hold Google liable for publishing third-party content—i.e., the apps through which loot boxes were accessible.5 The court went on to hold, as the Taylor court did, that the UCL and CLRA claims in Coffee also failed because the plaintiffs had purchased only virtual currency from Google and received the virtual currency for which they paid. The plaintiffs thus lacked standing under the UCL and could not point to a sale of goods or services as required by the CLRA.
On January 10, 2022, the court reached the same conclusions with respect to the amended complaint and dismissed the action with prejudice. In that order, the court followed Taylor in concluding that the loot boxes did not constitute illegal gambling: "Based on the relevant case law holding that Loot Box prizes are not things of value under California gambling laws, and absent any case law holding to the contrary, the Court concludes that Loot Boxes are not illegal slot machines under California law."6
The plaintiffs' appeal was docketed on February 11, 2022.7
G.G. v. Valve Corp.
In 2016, G.G., her minor son, other parents, and their minor children filed a lawsuit in Washington state court, alleging that Valve violated various laws and committed tortious act by selling loot boxes in Counter Strike: Global Offensive (CS:GO) containing "skins" (cosmetic enhancements to in-game weapons) and by allowing users to gamble the skins as casino chips at third-party gambling websites.
After removal to federal court, the district court (Coughenour, J.) granted Valve's motion to compel arbitration (based on Valve's subscriber agreement). Although the arbitration appeared to resolve the dispute, the United States Court of Appeals for the Ninth Circuit held that the parents were not parties to Valve's subscriber agreement through their minor children and therefore the parents could litigate their claims in district court.8
On remand, the plaintiffs alleged that Valve's actions violated the Washington Consumer Protection Act and the Washington Gambling Act of 1973, constituted unjust enrichment, and were negligent.
On December 16, 2020, the court (Robart, J.) dismissed most of the plaintiffs' claims. The negligence claim was dismissed because the plaintiffs failed to show that "a video game company" owed a duty of care "to parents of the players of that game." The Washington Gambling Act claim was dismissed because there is no private right of action under that law.9 The Washington Consumer Protection Act claims (in part) and the unjust enrichment claim about gambling skins failed because the arbitrators had already concluded that there was no evidence that Valve was connected with any of the third-party gambling websites.
However, the court held that the plaintiffs' Washington Consumer Protection Act claims survived as to loot boxes because the arbitrator had not ruled on that issue and because the plaintiffs alleged that Valve "intentionally designed its Lootboxes to replicate the look, feel and sound of a slot machine; incorporated this system into CS:GO without a gaming license; and failed to disclose the odds of obtaining the most valuable items in the Lootboxes or that that the value of the items in the Lootboxes were subject to change."10
On January 7, 2022, the district court granted summary judgment to Valve with respect to loot boxes because, under the Washington Consumer Protection Act, a plaintiff must show that their injuries were caused by deception. The plaintiff parents could not show that they were misled by any misrepresentations or omissions because they had never read any statements by Valve other than line items on their credit card statements.11
G.G.'s appeal in G.G. v. Valve was docketed on February 4, 2022.12
As noted above, all three cases are now on appeal to the United States Court of Appeals for the Ninth Circuit. The court's most analogous precedent is in Kater v. Churchill Downs Inc.,13 where a panel held that Churchill Downs violated Washington state's Recovery of Money Lost at Gambling Act by selling virtual chips in its Big Fish Casino app and that users could potentially recover the value of lost "chips" in the app.14 However, these loot box cases (Taylor, Coffee, and G.G.) differ from the Big Fish Casino case in important respects. Big Fish Casino was a slot-machine-style game, and the chips could seemingly be used only to play more slots. Because of the resemblance of Big Fish Casino to an actual casino, the Ninth Circuit opened its opinion by mocking the defendant's argument: "[L]ike Captain Renault in Casablanca, purports to be shocked—shocked!—to find that Big Fish Casino could constitute illegal gambling. We are not." By contrast, most games with loot boxes include purchases as small part of a larger game of skill and/or allow users to make non-randomized purchases with in-game virtual currency.
Despite the lack of success in these cases thus far, the plaintiffs continue to file putative class actions over loot boxes. On February 25, 2022, defendant Take Two removed a putative class suit brought by a plaintiff and his minor daughter that argued, among other things, that Take Two owed damages to anyone who bought any loot box in any of Take Two's games because those loot boxes "are games of chance that players of Defendant's games purchase, and thus constitute unlawful gaming under New York law."15
We will continue to monitor developments regarding loot boxes and similar in-game features, including all three appeals noted above, and will offer further updates as necessary.
Please do not hesitate to contact Aaron Hendelman, Christopher Paniewski, Brian Levy, or one of the other attorneys in the firm's electronic gaming group if you have any questions about loot boxes or random or other rewards in your game or interactive product. For more information about Section 230, e-commerce, computer software and hardware, gaming, and entertainment, please contact a member of the firm's internet strategy and litigation practice.
[1] See Taylor v. Apple, No. 3:20-cv-03906-RS (N.D. Cal. Mar. 19, 2021), ECF No. 46.
[2] See, e.g., David H. Kramer et al., California Supreme Court Rules That Section 230 of Communications Decency Act Prevents Courts from Ordering Online Services to Remove Negative User Reviews, Wilson Sonsini Goodrich & Rosati (July 6, 2018), https://www.wsgr.com/en/insights/california-supreme-court-rules-that-section-230-of-communications-decency-act-prevents-courts-from-ordering-online-services-to-remove-negative-user-reviews.html.
[3] Taylor v. Apple, Inc., No. 20-cv-03906-RS, 2022 U.S. Dist. LEXIS 1468 (N.D. Cal. Jan. 4, 2022).
[5] See Coffee v. Google LLC, No. 20-cv-03901-BLF, 2021 U.S. Dist. LEXIS 26750 (N.D. Cal. Feb. 10, 2021).
[6] Coffee v. Google LLC, No. 20-cv-03901-BLF, 2022 U.S. Dist. LEXIS 4791, at *40-41 (N.D. Cal. Jan. 10, 2022).
[8] See G.G. v. Valve Corp., 799 F. App’x 557 (9th Cir. 2020).
[9] See G.G. v. Valve Corp., No. C16-1941JLR, 2020 U.S. Dist. LEXIS 236755 (W.D. Wash. Dec. 16, 2020).
[10] G.G. v. Valve Corp., 2020 U.S. Dist. LEXIS 236755, at *23.
[11] See G.G. v. Valve Corp., No. C16-1941JLR, 2022 U.S. Dist. LEXIS 3656 (W.D. Wash. Jan. 7, 2022).
[12] See Galway v. Valve Corp., No. 22-35105 (9th Cir.).
[13] 886 F.3d 784 (9th Cir. 2018).
[14] See Aaron Hendelman et al., ESRB Introduces New Disclosure for Loot Boxes on the Heels of Regulatory and Litigation Developments, Wilson Sonsini Goodrich & Rosati, https://www.wsgr.com/en/insights/esrb-introduces-new-disclosure-for-loot-boxes-on-the-heels-of-regulatory-and-litigation-developments.html (Apr. 24, 2020).
