Clifford Chance

On 30 June 2022, representatives of six political parties submitted a motion in the lower house of the Dutch parliament demanding a stricter regulation of loot boxes in video games and a possible outright ban. This comes as a response to the recent ruling of the Dutch Council of State rendered on 9 March 2022, putting an end to the four-year 'FIFA Packs' debate by declaring that the loot boxes in FIFA-22 may not be categorized as a game of chance. Given that the Dutch government is actively engaged in curbing online gambling in the country, the ruling did not receive a warm welcome, and the Netherlands is now looking into the possibility of dealing with the issue of loot boxes through legislation instead.

The motion submitted to the parliament describes loot boxes as addictive, claiming that they are a form of gambling designed to manipulate children into spending their money and thus creating a financial burden for families. Furthermore, the proposal highlighted the attempt of consumer associations from 18 European countries calling for a stricter regulation of loot boxes. Due to the motion's considerable support from political parties (four of which comprise the current cabinet), it is expected that the motion will pass, making the Netherlands the next European country after Belgium to ban loot boxes.

What are loot boxes and what are the concerns surrounding them?

Loot boxes are bundles of randomized virtual items incorporated into video games, which can either be redeemed by the player as a reward or purchased with real money. The contents of loot boxes may vary from special characters to game-changing equipment, bonus points or "skins" the players can use to customise their characters. What makes loot boxes different from other in-game transactions is the element of uncertainty: contrary to traditional transactions, where a purchaser knows exactly what is being purchased, the contents of loot boxes are unknown before the transaction is entered into. Although loot boxes have been around in the video game industry for some time now, they became more prevalent only in the past couple of years, with developers aggressively expanding the use of loot box systems in many AAA / 'blockbuster' games such as FIFA, Call of Duty or Overwatch.

Loot boxes are facing heavy criticism from various stakeholders for a wide range of reasons, the most important claim being that loot boxes might qualify as a form of gambling. For example, researchers from Australia and New Zealand conducted a study involving over 7,400 game enthusiasts showing that loot boxes are "psychologically akin to gambling", hence they could serve as a gateway to gambling addiction. Moreover, it was demonstrated that players who are considered high risk in terms of gambling addiction generally tend to spend more money on loot boxes. In addition, there is also a potential risk for children to accumulate significant costs by playing video games, as they could easily buy loot boxes without realizing the financial consequences. Furthermore, an extensive investigation conducted on behalf of the European Parliament Committee on the Internal Market and Consumer Protection also highlighted the problematic design features of some loot boxes, which create an "irresistible urge to play" and may lead to negative psychological and financial outcomes such as addictive behaviours or problematic spending. The report has also emphasized that some reward structures are designed to mislead players about the likelihood of receiving valuable items thus promoting addiction, a concern which could be mitigated by using a more responsible game design that does not contain proven addictive features.

International perspective on the regulation of loot boxes

On an international level, gambling authorities from various countries have expressed their profound concerns about loot boxes, with regulators from 16 jurisdictions issuing an official statement as early as 2018 to warn about loot boxes which "blur the lines between gambling and gaming", and there has been heated discussion in countries like the UK, Denmark, or France about whether loot boxes fall within the framework of gambling under national laws.

Belgium

As of today, the only European jurisdiction where loot boxes are explicitly banned is Belgium, where the Gambling Commission declared loot boxes to be "in violation of gambling legislation" back in 2018, although a recent study showed that the Belgian regulator is struggling with enforcing the ban.

UK

As an example of a deviating approach, in the UK there has been an extensive two-year inquiry into loot boxes, which ended with the government deciding against including loot boxes under the current gambling regulations. The UK government's argument was that loot boxes resemble a pack of Pokémon cards rather than a slot machine, because the items received by players do not have real-life value and they serve only the enhancement of the gaming experience. Thus, in the opinion of the UK government, regulating loot boxes under the UK Gambling Act would amount to confusion and unnecessary repercussions for other industries.

Norway

The Norwegian Consumer Council recently released a new report on the impact of loot boxes on the gaming industry, which was supported by 20 consumer organisations from several European countries. The report suggests that the regulation of loot boxes should be more carefully addressed, in particular, regulators and policymakers should implement the following measures:

• Banning the "deceptive design" used by video game publishers to exploit consumers.
• Denoting all in-game purchases in real-world currency.
• Protecting minors by prohibiting the inclusion of loot boxes in games likely to be played by minors.
• Ensuring more transparency around algorithms that determine the outcome of a purchase by informing consumers in cases where algorithmic decision-making is utilized. Consumers should even have the option to use the game without any algorithmically driven decision-making.
• More efficient enforcement regarding consumer rights in games.
• As a last resort, if no remedies seem to mitigate the problems, banning loot boxes altogether should be considered.

How the case of the FIFA Packs began in the Netherlands

Turning to the series of cases concerning the FIFA loot boxes in the Netherlands, the outcome of the rulings could be described as somewhat contradictory. The case of the FIFA Packs can be traced back to 2019, when the Dutch Gambling Authority (Kansspelautoriteit, "KSA") imposed an administrative order subject to a penalty of up to five million euros on the developer of the FIFA games, Electronic Arts ("EA"), claiming that the FIFA football game contained illegal loot boxes that were in violation of the Dutch Gambling Act (Wet op de kansspelen,"WOK").

Within FIFA there are different ways to play the game, with the most popular mode being the FIFA Ultimate Team mode ("FUT mode"), where players have the freedom to create their own teams and play virtual football games. In the FUT mode, players can acquire items in several ways, one of which is by opening so-called FUT Packs, which are basically loot boxes integrated into the game.

The KSA's decision was preceded by an investigation conducted by the KSA, after concerns had been raised about loot boxes due to their high value and chance-based mechanism. As a result of the investigation, the KSA concluded that loot boxes constituted a game of chance, meaning that video game publishers are obliged to possess a licence in order to offer loot boxes incorporated into their games. Although several game developers adapted their games accordingly, EA, despite having received notification, did not comply with the conditions put forward by the KSA, which resulted in the imposition of the aforementioned fine.  

Quick background on the Dutch gambling regulation

Dutch law does not specifically regulate video games or loot boxes, but it does regulate certain areas of gaming which may appear in video games as well, such as providing games of chance. The most important piece of legislation in the Netherlands in terms of gambling regulation is the WOK, pursuant to which it is not allowed to offer a game of chance to a person in the Netherlands without a licence granted by the KSA.

The WOK specifies that a game must be regarded as a game of chance if the following two cumulative criteria are met:

• there is an opportunity for the participants to compete and win prizes or premiums; and
• the winner of the game is determined by chance.

The first criteria is met if the prizes or premiums comprise goods with an economic value, which can generally be considered a low threshold. With respect to the second criteria, in uncertain cases, when both skill and chance play a role, a game is considered a game of chance if the participant does not have a predominant influence on the outcome of the game.

The Hague District Court ruling against EA in the first instance

The dispute between EA and KSA was brought before the Hague District Court, which rendered its ruling on 15 October 2020. EA argued that that the FIFA Packs cannot be viewed as a game of chance within the meaning of the WOK, as they are inextricably linked to the FUT mode, which is a skill-based game given that its scope is playing football matches and winning the competition. EA further argued that the Packs have no monetary value and cannot be converted into money. The Hague District Court ruled against EA, allowing the KSA to proceed with the imposition of the penalty, and finding:

• FIFA Packs do indeed have an economic value, as they can be purchased via FUT coins, which in turn can be bought with real money, making it possible to assign real world economic value to FIFA Packs.
• Although these Packs were incorporated into the FUT mode, they could also be played as a separate game.
• Since the players could win items by opening the Packs, their contents must be considered as a prize, giving them the final qualification as a game of chance within the framework of the WOK.

The final ruling of the Council of State rendered in favour of EA

After the Hague District Court's decision, EA took the case to the Administrative Jurisdiction Division of the Council of State. Surprisingly, the Council of State overturned the KSA's decision, concluding that the penalty was wrongly imposed on EA. In its decision, the Council of State first looked at whether the FIFA Packs can even be considered as a separate game from the FUT mode, which is a key question when assessing whether the Packs may constitute a game of chance. The Council of State reaffirmed EA's arguments, in particular that obtaining and opening FIFA Packs cannot be seen as a standalone game, as they are an inherent part of a broader game, the FUT mode, which is regarded as a game of skill. Since the aim of the FUT mode is playing and winning the football matches, the Packs only serve as an instrument for players to build a team of their dreams. Consequently, these Packs stimulate the real-life uncertainty that also exists in the world of football, thus they represent only an element of chance as part of a mixed game of skill and chance, but they do not qualify as a separate game of chance.

Moreover, in the Council of State's view, although the FIFA Packs are opened separately from the quests and matches, this does not make them a separate game, as the vast majority of them (92%) are obtained and used in the FUT mode and for the purposes of fulfilling the in-game tasks. Consequently, the Council of State declared that the KSA had wrongly taken the position that the Packs can be regarded as a separate game, as the KSA had failed to substantiate that most of the Packs are obtained separately from the FUT mode.

In its judgment, the Council of State introduced a new standard of assessment, specifying that loot boxes are not subject to Dutch gambling laws if the following cumulative criteria are satisfied:

• The loot boxes are integrated into a video game where the winner of the game is decided by skill;
• The loot boxes are earned and opened in the video game;
• The loot boxes can also be obtained by playing the video game and most of them are indeed earned this way.

However, it is important to note that the judgment left it unclear what the accepted ratio is between purchased loot boxes and loot boxes obtained by playing the game. What seems to be the case is that most of the loot boxes are required to be obtained within the environment of the video game, however, no tipping point was specified.

The efforts of the Netherlands to contain online gambling

The Remote Gambling Act (KOA), enacted on 1 April 2021, opened up the Dutch online gambling market on 1 October 2021. This decision was implemented together with strict enforcement policies to curb illegal gambling activities and to protect consumers, especially minors. As part of these efforts, additional government measures have been planned to severely restrict gambling advertisements, which have skyrocketed since the opening of the Dutch online gambling market. These include:

• A ban on all TV, radio and public space gambling advertisements from 1 January 2023;
• A ban on gambling providers sponsoring events and television programmes from 1 January 2024;
• A ban on gambling providers sponsoring sports shirts and sports facilities from 1 January 2025.

In addition, the KSA has already issued a decision declaring that from 30 June 2022, gambling operators will be banned from using role models and celebrities in gambling advertising.

In light of the above, it is clear to see why the decision of the Council of State in the FIFA Packs case was not received with enthusiasm by the government. The decision goes directly against the Dutch government's intention to contain the online gambling market and to protect minors from gambling addiction, making it even more probable that the motion requesting the strict regulation of loot boxes – submitted just less than four months after the rendering of the Council of State's judgment – will be passed.