“Fair Use!” Shouldn’t Be The Battle Cry of Pirates

***Disclaimers: Jim Sterling emphasizes that he does not advocate pirating Nintendo games; he  only argues that there is a moral justification for doing so. Furthermore, I don’t have all of the information on this matter, and I’ve tried to indicate when I’m inferring some facts. As always, this writing is NOT legal advice.***

Jim Sterling thinks it’s morally justified to pirate Nintendo’s games. I disagree.

As I understand it, Jim’s argument is that Nintendo abuses copyright law by failing to respect the legitimate activities of journalists like him. Jim feels that Nintendo’s failure to respect the legal rights of others permits others to ignore the legal rights of Nintendo.

The basic analysis of this claim comprises two questions: 1) Is Nintendo actually abusing copyright law? and 2) Does that abuse justify piracy? I think simple proportionality suggests that if a company fights with one person over a few pennies, responding by depriving the company of millions of dollars from millions of customers is probably not justified. So, I’ll just focus on the first question.

1)  Is Nintendo Abusing Copyright Law?

Probably not. As far as I can tell, Jim is angry that Nintendo issues ContentID strikes against Jim’s videos that incorporate some of Nintendo’s content (e.g., a few seconds of a trailer for a Nintendo game). Jim contends that his use of Nintendo’s content is protected under Fair Use.

A) ContentID: Still Not The Same As Appearing In Federal District Court

Nintendo is operating within YouTube’s copyright-themed pretend-cyber-law-court system. (I don’t know if they’ve issued DMCA takedowns, which would be an actual, real, legal action.) ContentID has a status similar to a retail store’s policies, in that it’s up to the private enterprise to design and operate the system pretty much however they like. Except in this case the law (DMCA) frames how a private company will design their system: If a party issues a warning about a copyright issue and the host service doesn’t remove it, and then the party goes to court with original poster over it, the party can collect from both the original poster AND the host. Thus, the host is really incentivized to make the choice for which the law will never penalize them, and just take down everything, every time anyone is unhappy. Maybe there are some complaints to levy against the DMCA for that (and against copyright law for incentivizing rights holders to protect their rights or risk losing them). But being slighted by a retail store’s return policy doesn’t justify torching the manager’s car.

B) Fair Use: Still Not A Magical Invocation

Jim’s claim to the Fair Use exception is not as clear as he hopes it is. Before the internet, fair use was a tiny, unheard of piece of an area of law that most citizens and attorneys didn’t think about very often. In the last 20 years, it has become the backbone of the amateur, self-starter internet entertainment and journalism industry. Despite getting burdened with all of that extra responsibility, the legal doctrine has not been expounded or clarified by courts or legislatures. The biggest case for fair use was Campbell v. Acuff-Rose Music, Inc. in 1994, which focused on the use of music for parody and explicitly stated that the law does not recognize a market for derivative works (which, I would argue, is very close to what most UGC on the internet is). (It would be great if someone could take a corporation like Nintendo to court to get a ruling on Fair Use in the context of YouTube journalism and criticism—though I’m sure that corporations will settle at outrageous expense in order to avoid losing the grey area that allows them to make these kinds of aggressive claims.)

Jim’s use of Nintendo’s content seems intuitively fair to most of us, but the analysis required by the law isn’t the intuition of the average citizen. The statute requires consideration of four separate factors:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The biggest problem for Jim in this analysis is that his videos are monetized, which means that his use of Nintendo’s content is not a non-profit endeavour. He also might use as much as 1/3 of a 3 minute trailer, and seeing the trailer in Jim’s video might make some people less likely to go watch the full trailer (though it could also have the opposite effect). The point is that there are some arguments to be made against the idea that Jim’s use of Nintendo’s content is beyond reproach. I think the balance of analysis goes in Jim’s favor for fair use, but I don’t think every single court in the US would rule that way- though more court rulings are moving in this direction. (I did not apply Lenz to this analysis because: 1) It applies to DMCA takedowns, not ContentID strikes, 2) There is a good-faith argument in consideration of fair use, as outlined above, and 3) It’s a Circuit ruling, rather than a Supreme Court ruling.)

Ultimately, Jim’s entire argument really hangs on this one point- that fair use gives him a right to do this, just like the first amendment would give him a right to run a newspaper or stand on a soap box in Central Park. As a matter of academic legal analysis, 17 USC 107 is not as robustly defined or developed as the Free Speech clause of the First Amendment. Fair use is not just a legal way of saying “I used citations.”

I don’t want to pick on Jim too much, though. This case is just an example of the kind of faith that consumers and “Prosumers” and “content developers” and “social media dracoliches” put in the legal concept of fair use. It’s an incredibly misunderstood point of law, and it’s a point of law that is bearing more of a social and economic burden than it was ever originally designed to bear. Every year, ordinary intuitions about the meaning of “fair use” are driven further from the statutory language by cultural norms and everyday practices. In the end, no one seems to have a good grasp on this concept: Consumers and content creators think it is carte-blanche permission to use someone else’s work, and entertainment companies seem to think it’s a lie invented by hippies who just want free stuff.

2) “Legally Justified” Doesn’t Mean You’re Either Good or Smart

I think there’s a reasonable case to be made that Nintendo is acting within their legal rights. I think there’s a much stronger case to be made that Nintendo is acting against their economic interests. Copyright law is woefully outdated, and companies that cling to it too tightly will fall behind the times. One of the most useful aspects of copyright law is the right of the owner to not pursue actions against infringers. A smart company recognizes when infringements under the law can work in the interests of the company. Entertainment companies that are the most successful in steadfastly safeguarding their intellectual property will be among the least successful at recruiting, engaging, and retaining an audience.

Entertainers without audiences are dead.

I think there’s a better way for Jim (and his industry) to strike back at Nintendo: just leave them behind. Nintendo wants to live in the 20th century. Nintendo doesn’t want to participate in a world of Let’s Plays and livestreams and podcasts and social media and fan participation. There’s no shortage of other game companies and other games to play and discuss. It doesn’t help that Nintendo recycles only 2 or 3 major franchises and rarely comes up with any new ideas- and fails to execute them when they do. Nintendo needs all of these copyright infringements to survive, but they don’t know it. I don’t think they will learn that lesson until they get exactly what they want.

The Potential Dangers of Minds Getting Played

I clearly remember hearing about a new kind of game back in the late 90s- a friend handed me a magazine while I was playing Descent. The article detailed a new genre of game: Alternative Reality, in which the content of the game connected with the real world, and the gameplay was woven through physical space as much as game space. The article focused on a game called Majestic. Even before law school secured my youthful cynicism, I was already concerned about the potential for disaster with this game: trespassing, distracted operating of motor vehicles, unfortunate confusion with actual crime- by both police and criminals, etc. The game, and the genre, never really took off, and so a lot of the issues got pushed aside and ignored for a decade and a half.

Then Pokemon Go came out.

I) How do we Distinguish Alternative, Augmented, Virtual Realities from Plain Ol’ Boring Reality?

As Jerry “Tycho” Holkins has pointed out, when someone is experiencing a reality that differs from the reality that others are experiencing, we usually conclude that the singular experience of reality is a hallucination of some kind. So, inviting a parallel version of reality is a bit ambitious for a species that still has some fundamental questions about the nature of reality and the capacity to perceive it. But humans tend to be ambitious.

Metaphysics has tried for several millennia to explain what reality is, and epistemology and philosophy of mind (now backed up by nascent efforts of neurobiology) have tried to understand how the human mind interacts with whatever reality is. These kinds of questions seem tiresome and sophomoric because they seem to be trying to solve a problem that we don’t have. Fortunately for philosophers, scientists, and lawyers, humans are good at creating interesting problems.

II) Augmented Reality, Virtual Reality, Social Media, and AI: A Combination for Confusion

The biggest danger isn’t really just immersing the human mind in an alternative reality. Literature and media have been doing that since the first tools of imparting imagination were created. However, there have always been clear markers about the borders of fiction and reality: the edges of pages, the entrance to the theater, the “play” button. Since video games started making recognizable depictions of reality, political bodies have been concerned with the ability of the mind to keep the fiction of the game separate from reality.

Some games have recently made a deliberate effort to blur the distinction between the game and reality. In Batman: Arkham Asylum, the villain Scarecrow created a visual effect that looked to the player as though the game-machine itself was having technical problems. Metal Gear Solid villain Psycho Mantis had similar behaviors, interfering with the usable controller ports on the Playstation, reading memory cards to learn what other games the player plays, and giving the appearance of technical problems with the visual display.

The connection of games to social media platforms and profiles perforates some barriers between games and reality. These perforations tear wider the more the game uses them. How much more of a leap would it be for a game to read the social profiles of a player and allow a villain to make threats against the actual friends and family members of the player?

This trajectory, combined with increasingly better artificial intelligence programs that can learn and affect both game worlds and real worlds, creates the potential for some bizarre problems that will still seem like science fiction even after the first time we read an article reporting on why a 22 year old is dead after a cat walked across her keyboard while she got a soda. It may not be long until someone is arrested in real life for a murder committed in a game due to a bug or an AI program getting out of control. Or, perhaps even more likely, some hacker will make use of the obfuscated and blurred boundary between the game and reality to either commit a crime or frame someone for one.

III) Pokemon Go: Traps, Muggers, Molesters

If these possibilities seem like pure fantasy, we should remember that we’ve already seen some of the first iteration of the dangers of people trying to handle two realities simultaneously. Pokemon Go serves as an example the nature of the problems and the sometimes tragic stakes of not handling the problems well. There have been reports of muggers and sex offenders using the game to their own malicious ends, as well as reports of accidental deaths and car accidents from the simple carelessness of distracted (or overly-ambitious) players.

If you die while playing Pokemon Go, you die in real life.

IV) Philosophy is still relevant

In 1967, Phillipa Foote introduced the famous “Trolley Problem”: a hypothetical dilemma of choosing to allow a train (or trolley) to kill several people, or choosing instead to intervene and divert the train to kill only one person. The problem was meant to probe people’s moral intuitions, as the goal was not so much the answer to the problem but the justification for the choice. Many people outside of philosophy dismissed this hypothetical as irrelevant nonsense that showed how stupid and meaningless academic philosophy had become in the enlightened, advanced age of the 20th century. Then, in the early 21st century, automotive engineers and programmers confronted the exact problem in determining how to program self-driving cars when confronted with similar dilemmas.

The story for the philosophical field of Aesthetics (the area concerned with understanding art and beauty) is similar. In the coming years, the interactive entertainment media industry will have to confront problems of understanding the boundaries of how, when, and why fiction is experienced. The analysis of essays on the use of the fourth wall and meta-humor will be important to cutting-edge games looking to balance novel thrills with consumer safety.

V) Solutions: Design for Safety, Be Helpful

The law can make some efforts to protect the public, but it’s almost always going to be reactive, not proactive, in these matters.

Developers should design for Audience Meta-Awareness. Yes, the much-touted quality of immersion adds fun to the experience. However, it is necessary to provide safety outlets for that immersion. The game creates a space- players need to always be able to see the door to the space and get out of it. They need to be clear about when they are in that space and when they are not. Games that actively seek out players to update them about the game undermine that distinction. Games that don’t allow players to put down the game, or don’t allow players to know when they have put down the game, are looking for problems.

The community can create safety nets, as we saw with Pokemon Go players acting as safety guards in potentially dangerous scenarios. However, if we’ve learned anything from the internet, it’s that groups of people knit together by cyberspace are not always a recipe for safety and well-being. Still, the more that games resemble mind-altering drug experiences, the more important it is to have a sober friend nearby.

 

The Strategic Benefits of Balanced Consumer Protection

 

Reigns is an interesting game because you can lose by winning too hard. As the monarch of a fictional country in something like Middle-Ages Europe, you must make decisions that will affect your nation in four areas: food, military, religion, and population. Intuitively, if any area reaches zero, you lose the game. However, you also lose the game if any area does too well. Consumer protection law is an area of law that must be kept in a similar balanced state for optimal results; actually having too much success in consumer protection law is really a loss for everyone.

Consumer Protection: Is There Ever A Downside For Consumers?

The benefits of consumer protection law are pretty apparent. Laws help protect consumers from dangerous and harmful products, and also curb the deception and misinformation from advertising. By imposing regulations and penalties on companies, the law increases the overall safety of goods and services for consumers and creates a means of recourse when harms occur. By codifying requirements around safety and advertising, consumers can trust in a minimal floor of consumer protection, and companies understand the standards to which they are held.

As with most good things, it can be hard to believe that there can be too much consumer protection. Could consumers ever be too safe or too well-informed? I don’t think any American will ever be in danger of such a fate – but to the point at hand, it’s important to understand the downsides of consumer protection law. Compliance with safety regulations comes at a cost. Buying higher quality materials, training employees to a higher level, quality-control checking goods, and other dimensions of complying with consumer protection requirements require time and money. If legal restrictions or regulations ran out of control, companies would struggle to remain compliant. Furthermore, consumer protection provides for monetary penalties (either as government fines or as awarded damages after a lawsuit); fear of these penalties can chill a company’s innovation or expansion, and a single lawsuit could completely destroy a company if the damages were high enough.

Shutting down a single, reckless company or imposing high safety standards doesn’t seem undesirable at all, of course. But shutting down multiple companies for single, harmless infractions, or imposing such high quality standards as to raise prices by tremendous proportions—those things hurt both the company and the consumer. Setting aside any moral arguments about whether strong consumer protection undermines the societal notion of personal responsibility, rampant consumer protection leads to undesirable economic outcomes.

Short Case Studies

An example of well-balanced consumer protection comes from a ruling in New Jersey last month. A New Jersey consumer protection law allowed consumers to bring claims against a company for certain violations contained in documents like End User License Agreements. A court dismissed two cases under this law because there were no harms that resulted from the violations in question. The result is that consumers still have recourse if they are harmed, but companies are free to draft their documents how they like and will only be penalized if consumers are actually harmed.

A new question in consumer protection is whether software developers should be held liable for bugs in software. This question becomes more pressing as software becomes a functional part of the lives of consumers in everything from cooking and hygiene to medical care and construction. The disproportionate amount of expertise held by developers and the complexity of the product in question are reminiscent of one of the earliest subjects of consumer protection law: automobiles. Perhaps crafting new laws for software liability should begin with considering the reasoning behind regulations on manufacturers and sellers of cars in the mid-20th century.

It will be important to bear these principles of balanced consumer-protection in mind in the future, as questions will only continue to become more complicated. A lawsuit against Niantic poses several questions, such as responsibility for placing digital content on private property. In August, a New Jersey resident filed against the developers of Pokemon Go because players kept asking if they could go into his backyard to catch a pokemon. Plenty of other controversies from Pokemon Go have raised questions, but this one includes both liability for digital content and using that digital content to influence consumers to behave in ways which (hypothetically) could become illegal (e.g., if the players started trespassing or started harassing the plaintiff).

Communication: Essential to Problem-Solving as a Group

Scream Blame to Lose

It’s hard for me not to think of League of Legends as a social experiment: Five strangers, thrown together to solve a problem (made up of a series of problems). Sometimes it works incredibly well, other times, it goes incredibly poorly. I still don’t know if the single most important factor for success is execution or communication, but I have learned that communication matters a lot more than I initially thought it would.

After thousands of games, I have noticed some unsurprising patterns: optimism, clear and specific communication, and goal-oriented planning are consistently effective; negativity, blame, malice, and angry generalizations routinely lead to failure. While some games can be won with relatively little communication at all, I have seen negative communication cause losses that would not have happened amid total silence.

Like a lot of Americans, I’ve been reflecting on the most recent election cycle. As someone with an interest in language, political science (the effort to describe and explain political phenomena), the effect of media on individuals and society, and a little US history, I am particularly struck by the current state of political discourse in the US.

A Nation of Arguments

The USA is a weird country from its inception. Before, during, and after the Revolutionary War, the country was arguing- constantly and continually- about the correct decisions for its political structure. What makes this weird is not that there was disagreement among the revolutionaries—every revolution has factions some internal struggles. What makes the US peculiar is that the revolutionaries kept debating, writing, and arguing. For years. Decades, even. They didn’t kill each other (except Burr v. Hamilton?), they didn’t just decide the other side was too stupid to see reason and give up, and they didn’t quit. This pattern for ceaseless debate and argumentation was the hallmark of US politics until about 1852, when the last two really great debaters and negotiators (Clay and Webster) died—and the nation plunged into Civil War less than a decade later.

But despite ongoing differences in an ever-expanding nation, the Federal government continued to debate and argue until they found a way to work together. Throughout most of the 20th century, Congress was divided into Red and Blue teams, but those teams repeatedly worked together for the greater good of the nation.

Echo Chambers and Intolerant Vitriol

It’s always hard to tell how your own time period compares to the times you never experienced. But I think there’s some objective evidence to support the claim that the US is more divided than it was at any time in the 20th century—and maybe at any time outside of its civil war.

There are a lot of problems and concerns facing the American people and the US political structure. Though it appears less immediate than some of those problems, I am most concerned about the condition of discourse. I am most concerned about this because it is an indispensable tool for politics in the US. If citizens and politicians cannot (or will not) rise to the level of the first 100 years* of political discussion and effort, I don’t know how much of America (as ideals, laws, political norms, etc) will survive the next few years. I am concerned about the future of a nation founded on debate and compromise that has no capacity for debate and no tolerance for compromise. I don’t know what comes of an America that loses its ability and willingness to doggedly wade through complicated political issues to reach understanding and compromise. If the past is any indication, it looks like 1860-1865.

I hope I’m just being an overly- anxious alarmist. I’ve had plenty of games where communication broke down, but then recovered.

 

*Let’s be real: it was not all sunshine and roses. Jefferson v Adams is up there in for the dirtiest smear campaign in US history. And the only assault of a US Senator, BY a US Senator, on the SENATE FLOOR, happened just before the Civil War. I don’t want to over-romanticize the past.

Law Without Accountability is DOOM

St. Thomas Aquinas wrote that there are four essential components to the concept of a law: 1) an ordinance of reason 2) for the common good 3) given by the entity who has charge (or authority) over those subject to the law, and 4) promulgated, so that those subject to the law are aware of the law. For example: It would be an ordinance of reason, for the common good, for government to promulgate rules against turning humans into demonically possessed hellspawn when you are supposed to be mining supernatural energy from the bowels of the underworld. It seems so obvious- so what happened in this year’s reboot of the classic game DOOM?

Aside from a contract with the rulers of hell, it doesn’t look like there’s much law in DOOM. Though there are several types of law from a certain perspective, the absence of common legal structures is both understandable and important.

Lessig’s Four Flavors of Law

In an effort to explain the problem of copyright infringement in the context of the digital era, Lawrence Lessig suggested that there are really four categories of law: statutory (the laws “on the books”), economic (market incentives and disincentives), cultural (social norms, traditions, etc), and architectural (limits of physical possibility). Through this lens, we see an abundance of law in DOOM.  Each of the four main characters presents each of these types of law:

VEGA, the non-judgmental AI Architecture

Created by Hayden, VEGA is an artificial intelligence that monitors and operates the facility. He explains state of affairs and limits of possibility and explains the architectural laws that govern the situation they face. VEGA does not have his own agenda, but only wishes to serve by providing factual information.

“Dr.” Samuel Hayden, Economics and market

The President and CEO of the Union Aerospace Corporation, Hayden is concerned with the economic impacts of the Doom Slayer’s choices. The massive loss of human life at the facility is secondary to his focus on efficiency and scientific progress.

Olivia Pierce: Corporate Cult-ture

The antagonist Olivia creates and enforces cultural law throughout her cult and her corporation. Hologramatic announcements and documents gathered in the game reveal the overlap between Olivia’s demonic cult and the corporate policies and guidelines at the UAC. Presumably, Hayden allowed this culture because it served his economic interests. Olivia maintained this culture because it served her interests of climbing Hell’s social ladder… or descending into Hell’s cesspool. I don’t know how that metaphor works for demons.

The Doom Slayer: Statute, Adjudication, and Enforcement

The Doom Slayer is the embodiment of statutory law. He is there to fix the runaway obsessions of cults and markets. He is there to ensure a fundamental floor of safety. As a bonus, he’s going to take care of the enforcement, too. In the first iteration of Doom, the player was a Marine stationed on Mars as part of a United Nations force. In this year’s version, he is an eternal killer of demons. In both versions, his purpose to ensure the safety of humanity and balance the risks and dangers of the UAC’s activities. His role is both to decide what the rule should be, and then ensure that the rule is followed.

 

Energy Law: Laws of physics, laws of people.

The core principle behind energy law is preventing energy extraction and distribution from wrecking needless destruction. Energy law works closely with limits of science and technology, and recognizes certain risks and dangers that are likely or inherent in certain situations. This is why there are rules about where and how oil companies can drill, or what levels of hazardous emissions are permissible for factories. Laws have to be adapted to the relevant circumstances. Sensible energy policies facilitate the extraction, processing, and use of fuels while minimizing risk and harm to the environment and humanity. In DOOM, this might include regulations and safety measures against unleashing extra-dimensional monstrosities upon mankind.

 

Conclusion: The Need For Enforcement and Monitoring.

Americans tend to fervently and piously believe in law as an institution – and that belief alone goes a long way to creating a stable society. However, the mere existence of a set of laws is not enough to bring order or safety. The laws must also be followed and enforced. Having laws that permit or forbid actions isn’t enough to change how people feel about the subject matter. Without proper enforcement, people will just act in whichever ways seem most convenient.

Upholding the law isn’t just abiding by it individually – it’s also the social effort of maintaining institutions and practices that hold people accountable. That’s why we monitor, audit, and certify. Someone needs to actually go check secret laboratories for secret underground catacombs for ritualistic sacrifices and 10-story high cyberdemons. Rules against opening up transdimensional portals to fulfill blood contracts with demonic powers are an important start, but they are not enough. Even obviously important laws can be ignored, and they are likely to be ignored if there is no enforcement or accountability.

Getting an MBA from the University of Auir?

Real Time Strategy games have a lot in common with business practices. The core of both is managing limited resources and making strategic decisions to achieve select objectives. Although the execution of the strategy is the obvious part of the game, Starcraft II rests on theory-crafting, timings, build paths, and strategic decisions.

Businesses – from industrial machinery manufacturing to food and entertainment services – have to consider the strategic advantages of short-term or long-term plans, organizational structures, short- and mid-range objectives, budgetary allocations and constraints, and adequate staffing. Real time strategy* games require consideration about long-term strategies, allocation of resource-gatherers, timing an expansion or an upgrade, investing in buildings or unit production, and monitoring army size and strength. The micro-decisions that appear, on the surface, to comprise the core of the game- tactics, when and where to move armies,  grouping and splitting, and so forth- are actually secondary to the  broader, macro-decisions.

Business is also concerned with the potential decisions of competitors, as well as customers and markets.  Business tries to anticipate the decisions of other forces and position accordingly. This involves some risk taking, but that riskiness is mitigated by a strong understanding of the competitor and the market. Competitive games like Star Craft II also center on anticipation and strategic positioning, and the risk involved is mitigated by experience and game knowledge.

I noticed these similarities while reading a series of business emails as executives debated making an  upgrade to their facilities and equipment. The discussion sounded strikingly similar to the internal dialogue I hear when deciding to upgrade or expand in an RTS. There were all of the considerations about the risk and cost of an immediate investment, but the undeniable fact that the action would be indispensable in the long-term. It isn’t surprising that this similarity exists: The basic concepts of opportunity cost, risk, return on investment, and long-term planning are part of everyday life. But the similarities between executives discussing a facility upgrade and a player deciding to build another base were just too uncanny to ignore. It made me wonder to what extent strategy games can prepare a person for the business world. My assessment is that if the player engages with strategy games with a methodical, process-driven paradigm, the gap is closed substantially. The fundamental essence of business is having an organized structure and process for managing resources towards a goal. Professional gamers strive to achieve exactly the same thing.

Oh, and also:  jargon – I can’t discount the role of jargon. Both business and gaming have a lot of jargon that sounds stupid, nonsensical, and pretentious to anyone outside of the practice. Often, jargon captures meaningful, actionable concepts, but it is nevertheless a roadblock to being taken seriously by those who don’t already understand and appreciate the language.

 

*Most of this also applies to turn-based strategy, but Heroes of Might and Magic 5 is a lot less thrilling to watch than Starcraft II.

I’m Betting That Overwatch Loot Boxes Aren’t Gambling (under 31 USC 5362)

Disclaimer: As with all of my posts, this is NOT LEGAL ADVICE. This is academic analysis on a subject of law – and I don’t even have a good tool set (WestLaw, Lexis, etc) for that.

1- Introduction: Micro Transactions and Loot Boxes

The business model for free to play games is to include micro-transactions for aesthetic, trivial add-ons. For Counter Strike: Global Offensive, this manifests as the opportunity to pay a few dollars to buy a key to unlock boxes which are randomly distributed during play. Paying to unlock a box gives a play a random chance to receive aesthetic enhancements for a weapon (a “skin”). The rarity of the skins varies widely. Some of the most rare and prized ones are occasionally sold on eBay (or other 3rd party sites) for over $1,000.*

The question is: Are Loot box systems gambling? What about cereal boxes, TCG booster packs, or other things that allow children to participate in contests involving chance?

Some internet-folk grew a discussion thread to eight pages on the Overwatch forums discussing this topic, and not a single one of them reached for a legal definition of the subject at hand. People just talked about how they felt about the subject. Apparently, it takes a law degree to find the first search result on Google. Law has some flexibility – and that makes these questions difficult-, but there are rules, people!

2- What is the Definition of Gambling?

(For simplicity, I removed references to Insurance, Commodities, and Securities.)

31 U.S. Code § 5362 – Definitions

(1)Bet or wager.—The term “bet or wager”—

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;

[Lotteries and gambling administration]

(E) does not include—

[Insurance, Commodities or Securities]

(viii) participation in any game or contest in which participants do not stake or risk anything of value other than—

(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or

(II) points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or [Fantasy Sports]

3- Analysis: Winning the Gamble Must be Distinct from Winning the Prize

The real key is in part (1)(A): “upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person … will receive something of value in the event of a certain outcome.”

Let’s take three examples that are not legally considered gambling: buying TCG booster packs, putting random prizes in cereal boxes, and… *sigh* there are a lot of reasons I don’t want to mention a certain online service that sends subscribers monthly boxes containing a random assortment of goodies… but imagine that such a thing exists.

My best guess** is that the law requires the “certain outcome” and the prize (“receive something of value”) to be two different and distinct things. In the case of cereal boxes and booster packs, the “certain outcome” is the prize. There is a chance of getting a Holographic Charzard, but winning only means getting the Holographic Charzard. You cannot “win” the card without, at the very same time, having the card: winning the prize always already entails having the prize.

In contrast, consider some examples that are legally considered gambling: slot machines, lottery tickets, and blackjack. In each of these cases, the outcome entitles the player to a prize: the slot machine dispenses quarters (“makes it hail”) as a result of the outcome. For a slot machine, the outcome itself is only a sequence of matched cherries or bars; for a TCG booster pack, the outcome of opening a pack is having a stack of cards.

This distinction may seem pedantic or petty, but it allows people to play games of chance without involving money. It allows people to play poker among friends for no money, or to made idle wagers for fun. It allows Disney to sell boxes of figurines with one shrouded “mystery” figurine included and it allows schoolteachers to play “Science Bingo” in class. It’s a tiny distinction that allows a lot of innocent behavior.

4- Application To Loot Boxes

However, there is still an interesting metaphysical investigation required to conclude this legal analysis: is the opening of a loot box like the opening of a booster pack, or is it like playing a slot machine? Is it actually two different events, or only one? Does the computer run the RNG when it is unlocked, and then determine the prize based on the outcome of the RNG? Or does the loot box already “contain” the prize before the opening?

Blizzard already told players not to bother hoarding loot boxes in the hope of getting future skins, because the contents of the box are already determined when the box is given to the player. If this is true (and if my guesswork-analysis is correct) then there is good reason to think that loot boxes are not legally considered gambling under 31 USC 5362.

I don’t know if a judge would actually go to this level of technical granularity, but there has been a long-standing debate about whether electricity should be legally classified as a “good” or as a “service” – and the distinction relies on a scientific understanding of whether you are being given electrons at your home, or just having your electrons vibrated. It seems like the order of operations carried out by a computer program is somewhat of a macro-level question than the movement of sub-atomic particles.

 

*A tiny cottage industry grew out of this: 3rd party websites that allowed people to wager their digital property from Valve’s game. Several of these sites were recently issued cease-and-desist letters after one of them was revealed to be promoting itself under false and misleading pretenses on YouTube.

** I looked around, and was surprised that I didn’t find a case, law review article, or law that dove into this issue with more specificity. I suspect that there has been a case about this, or at least an article – I just don’t have access to a law library right now.