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VOLUME 6 | NUMBER 1 | SPRING 2019

California Class Action Litigation Over Loot Boxes

Yen-Shyang Tseng


Yen-Shyang Tseng
Yen-Shyang Tseng is an appellate attorney at Horvitz & Levy LLP, a law firm in Burbank that specializes in civil appellate litigation. He has represented clients in the California Supreme Court, California Court of Appeals, United States Court of Appeals for the Ninth Circuit, and in state and federal trial courts. He currently serves on the executive committee of the LACBA Entertainment Law and Intellectual Property Section. You can contact him at ytseng@horvitzlevy.com.

 

Introduction to Loot Boxes

 

The video game industry is estimated to have earned $117 billion in 2018 and is expected to earn $132 billion by 2021 and $160 billion by 2022.This dramatic growth is driven in part by the rise of items called loot boxes, sales of which could reach $50 billion by 2022, up from under $30 billion in 2018.2

Loot boxes have come under scrutiny in recent years. Loot boxes are in-game boxes containing random items that players can buy using in-game currency or real money.3 The current iteration of loot boxes appears to have originated in the Chinese game ZT Online in 2006 or 2007.4 These days, many popular online games include some form of buyable random reward mechanic such as loot boxes.5 This article focuses on loot boxes in Overwatch and card packs in Hearthstone to provide a basic understanding of this mechanic in two very different types of games (a shooter game and a card game)6—and because one lawsuit has already arisen over these two games.

Each loot box in Overwatch contains four random items with a rarity of common, rare, epic, or legendary.These items include cosmetic items such as “sprays” that players can place on surfaces in the game, “player icons” that are displayed next to a player’s usernames, “emotes” or animations that players can have their characters perform, and “skins” that can change the appearance of characters and their weapons. Likewise, each card pack in Hearthstone contains five random cards with a rarity of common, rare, epic, or legendary, with each pack guaranteed to contain at least one card of rare quality or better.Players can use these cards to compete in matches against others.

Ongoing Regulatory Issues

Loot boxes have become controversial due to concerns that they constitute gambling and are particularly harmful to minors who may be most psychologically affected by the randomized reward structure. While the United States has not yet regulated loot boxes, efforts may be underway. Some states have introduced legislation seeking to investigate or regulate loot boxes, several of which focus particularly on the sale of loot boxes to minors.In 2018, U.S. Senator Maggie Hassan—also invoking the protection of minors—called upon the Entertainment Software Ratings Board to update its ratings system to account for loot boxes.10 She later asked the Federal Trade Commission to investigate loot boxes, and the FTC has scheduled a workshop in August 2019.11 Most recently, on May 23, 2019, U.S. Senator Josh Hawley, along with Senators Ed Markey and Richard Blumenthal, introduced legislation to ban the sale of loot boxes to minors.12 

Other countries have also begun investigating or regulating loot boxes.  South Korea’s Fair Trade Commission recently fined three game developers for misleading customers in their promotion of loot boxes.13 Other countries have focused mainly on the gambling aspect. In 2018, sixteen gambling regulators signed a declaration to initiate constructive dialogue regarding activities, including the sale of loot boxes, that could be considered gambling.14 The Netherlands Gaming Authority and the Belgian Gaming Commission published reports finding that loot boxes violate their gambling laws.15 A senate committee in Australia has also investigated whether loot boxes might be considered gambling.16 

Class Action Lawsuits Under California Consumer Protection Statutes

Apart from regulatory efforts, companies must also face the possibility of private litigation over loot boxes. Two putative class action lawsuits have already been filed in California since 2018—Smith v. Blizzard Entertainment, Inc. (Sacramento County Superior Court Case No. 34-2018-00237322), 2018 WL 4051570 (Smith) and R.A. v. Epic Games, Inc. (C.D. Cal. Case No. 2:19-cv-1488), 2019 WL 1002976 (R.A.). These lawsuits are similar despite differences in the underlying facts. Smith alleged that Blizzard Entertainment misrepresented and omitted the odds of obtaining items in Overwatch loot boxes and cards in Hearthstone card packs, while R.A. alleged that Epic Games misrepresented and omitted the odds of obtaining items in Fortnite loot boxes. Both lawsuits rely on several consumer protection statutes, most notably the California Consumer Legal Remedies Act (CLRA).17

The CLRA “established a nonexclusive statutory remedy for unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.”18 Its purpose is to “protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.”19 The CLRA lists 24 unfair and deceptive acts of consumer fraud.20 Smith alleged four of these acts, discussed further below. He supported his allegations by pointing to certain advertising language on Blizzard’s website for selling Overwatch loot boxes and Hearthstone card packs:

 

  • “[Y]ou want your hero to feel like you—so grab a few Loot Boxes and customize to your heart’s content”21

     

  • “PACKED FULL OF SURPRISES. Maybe you’ll nab a shiny new Skin or celebrate a hard-won triumph with a new Victory Pose. With four items in each Loot Box, you’re sure to be pleased with your assortment of Overwatch goodies”22

     

  • “Loot boxes have items in Common, Rare, Epic, or Legendary quality . . . and if you get a duplicate item, we’ve got you covered. You’ll get in-game credits you can use to acquire many customization options!”23

     

  • “MORE CARDS, MORE POSSIBILITIES, MORE FUN! Give your deck a boost with a Hearthstone card pack! Available in quantities of 2, 7, 15, 40, and 60, these decks will add value to your Hearthstone card collection. They’re the best option for new players . . . and opening them is half the fun!”24

     

  • “CONTAINS AT LEAST ONE RARE CARD. There are five cards in each pack, and at least one card will be of Rare quality or better. You could even get an Epic or Legendary!”25

     

  • “A SURPRISE IN EVERY PACK. With hundreds of cards already in the game, you’ll never know what you’re going to get!”26

 

Smith alleged violations of subsections (a)(1), (5), (9), and (19).

Subsection (a)(1) prohibits “[p]assing off goods or services as those of another.”27

Smith alleged that Blizzard violated this subsection by “pass[ing] off the Packs and Loot boxes as more likely to contain the valuable Cards and Items than they actually are.”28 But the statutory language suggests that it is intended to address misrepresentations about the source of goods or services.29 Thus, it is unlikely that a claim under subsection (a)(1) would succeed without showing that Blizzard passed off their loot boxes or card packs as another company’s products.

Subsection (a)(5) prohibits “[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he or she does not have.”30 This subsection provides the strongest basis for liability under the CLRA because it encompasses misrepresentations about the odds of getting items in loot boxes. Indeed, Smith alleged that Blizzard “knowingly misrepresent(ed) the odds of winning Cards in its Packs and Epic and Legendary items in its Loot Boxes.”31

But did it? Smith also alleged that Blizzard “does not publish or otherwise inform players of the odds of winning more powerful cards” in Hearthstone and “does not publish or otherwise inform players of the odds of winning Epic or Legendary items in Overwatch Loot Boxes.”32 And Blizzard stated that each Overwatch loot box contains “four items” that are in “Common, Rare, Epic, or Legendary quality,”33 and that each Hearthstone card pack contains five cards, at least one of which would be of rare quality or better, and that a player “could even get an Epic or Legendary!”34 Blizzard even says that a player will “never know what [they’re] going to get!”35

Further, since at least 2018, Blizzard has disclosed the odds of getting cards in Hearthstone in response to Apple’s requirement that all “[a]pps offering ‘loot boxes’ or other mechanisms that provide randomized virtual items for purchase” must “disclose the odds of receiving each type of item to customers prior to purchase.”36 Blizzard revealed that on average, players will get an epic card in five card packs.37 Players will also get one legendary card within the first 10 packs of a new set, although the odds of getting additional legendary cards from that set are one in 20 packs on average.38 These published odds correspond with statistics gathered by Hearthstone players between 2016 and 2018.39

Under the facts as alleged, it seems unlikely that Blizzard has misrepresented the odds of getting items in Overwatch loot boxes or cards in Hearthstone card packs under subsection (a)(5).

Subsection (a)(9) prohibits “[a]dvertising goods or services with intent not to sell them as advertised.”40 Smith alleged that Blizzard “knowingly advertise[d] services with intent not to sell them as advertised.”41 Blizzard described each Overwatch loot box as having four items in “Common, Rare, Epic, or Legendary quality.”42 And it described each Hearthstone card pack as having five cards, with at least one “of Rare quality or better,” with a chance at an epic or legendary card.43 If players receive loot boxes and card packs as advertised, a claim under this subsection would likely fail.

Finally, subsection (a)(19) prohibits “[i]nserting an unconscionable provision in the contract.”44 To succeed on a claim under this subsection, a plaintiff must point to a contract and a provision he claims to be unconscionable. Smith alleged only that Blizzard “induced Plaintiff and the Class into spending money on Packs and Loot Boxes that Defendants knew were likely worthless.”45 This claim does not appear to fall within the scope of subsection (a)(19) at all.

Besides his allegations that Blizzard made affirmative misrepresentations, Smith also claimed that Blizzard misrepresented the odds of getting cards and items by not disclosing those odds.46 A plaintiff may allege a CLRA violation based on an omission, but must show that the omitted fact is “‘contrary to a [material] representation actually made by the defendant’ ” or “ ‘a fact the defendant was obliged to disclosed.’”47 Thus, a company could face liability if its nondisclosure of the odds of getting items and cards is contrary to any affirmative representations it made, or if it fails to comply with an obligation to disclose those odds. But if Blizzard made no representation at all about the odds of getting items and cards, its nondisclosure of those odds do not appear contrary to anything. Further, if it has complied with all of its disclosure obligations (for example, under Apple’s developer guidelines)48 then it is unlikely for a CLRA claim based on omissions to succeed.

If some of Smith’s allegations sound familiar, that is because courts have previously addressed similar issues in the context of physical trading cards. In Chaset v. Fleer/Skybox International, LP, the Ninth Circuit confronted eight cases in which plaintiffs alleged that inclusion of rare chase cards in card packs violated the Racketeer Influenced and Corrupt Organizations Act (RICO).49 The Ninth Circuit affirmed the district court’s rulings that had held that the plaintiffs, who purchased card packs hoping for chase cards, failed to allege fraud or dishonesty by the defendants because the plaintiffs received what they paid for.50 The Ninth Circuit likewise concluded that the plaintiffs suffered no cognizable injury because they received what they paid for—a card pack with a chance of getting a chase card.51 Other courts that have reviewed this question have come to the same conclusion.52

Companies can argue that similar principles should apply here: Players who buy loot boxes and card packs online in search of rare items or cards might not receive what they wanted, but they received what they paid for: a loot box or card pack with a chance at the rare item or card they sought. While the facts in every case differ, so long as a company has not affirmatively misrepresented the odds of receiving items (such as by disclosing false odds) and has not otherwise violated any obligation to disclose those odds, it should have a viable defense under the CLRA.

Conclusion

Public pressure has already caused some companies to back away from including loot boxes in their games.53 But those that continue to seek a share of the $50 billion loot box market should prepare not only for the coming regulatory battles, but also for the legal battles alleging claims under consumer protection statutes. Some of the ideas for self-regulation discussed within the industry54 could avoid both formal regulatory oversight and costly litigation.

 



[1]              See Juniper Research, Loot Boxes & In-Game Spend Drive Digital Games Market: Surpassing $160 Billion by 2022 (May 1, 2018), https://www.juniperresearch.com/press/press-releases/loot-boxes-in-game-spend-drive-digital-games; see also Note, Unpacking the Loot Box: How Gaming’s Latest Monetization System Flirts with Traditional Gambling Methods, 59 Santa Clara L. Rev. 165 (2019) [hereinafter Unpacking the Loot Box].

[2]              See Juniper Research, Loot Boxes & Skins Gambling to Generate a $50 Billion Industry by 2022 (Apr. 17, 2018), https://www.juniperresearch.com/press/press-releases/loot-boxes-and-skins-gambling.

[3]              See Note, A Comparative Overview of eSports Against Traditional Sports Focused in the Legal Realm of Monetary Exploitation, Cheating, and Gambling, 37 Cardozo Arts & Ent. L.J. 513, 538-542 (2019); see also Overwatch Wiki, Loot Box (last visited May 13, 2019), https://overwatch.gamepedia.com/Loot_Box; Hearthstone Wiki, Card Pack (last visited May 13, 2019), https://hearthstone.gamepedia.com/Card_pack.

[4]              Harry Lawrence, Are Loot Boxes the Future of Mobile Game Monetization? (Mar. 19, 2018), https://gameanalytics.com/blog/loot-boxes-future.html; Steven T. Wright, The Evolution of Loot Boxes (Dec. 8, 2017), https://www.pcgamer.com/the-evolution-of-loot-boxes

[5]              See Alex Avard, Video Games Have a Loot Box Fetish, and It’s Starting to Harm the Way We Play (Oct. 10, 2017) https://www.gamesradar.com/loot-boxes-shadow-of-war (stating that the author has played “seven major titles which explicitly use loot boxes as part of their in-game economies”).

[6]              Most of the discussion surrounding loot boxes have not focused on card packs in games such as Hearthstone.

[7]              Blizzard Shop, Overwatch Loot Boxes (last visited May 13, 2019), https://us.shop.battle.net/en-us/product/overwatch-loot-box; Overwatch Wiki, Loot Box, supra, n.3.

[8]              Blizzard Shop, Hearthstone Classic Packs (last visited May 13, 2019), https://us.shop.battle.net/en-us/product/hearthstone-classicpacks; Hearthstone Wiki, Card Pack, supra, n. 3.

[9]              See, e.g., S.B. 177, 121st Gen. Assemb., Reg. Sess. (Ind. 2019); H.R. 199-19, 30th Leg., Reg. Sess. (Haw. 2019); H.R. 1767, 91st Leg., Reg. Sess. (Minn. 2019); H.B. 1066, Gen. Assemb., Reg. Sess. (N.C. 2017); S.B. 8505, 2017-2018 Leg. Sess. (N.Y. 2018); S.B. 6266, 2017-2018 Leg., Reg. Sess. (Wash. 2018).

[10]             Letter from Margaret Wood Hassan, United States Senator, to Patricia Vance, President, Entertainment Software Ratings Board (Feb. 14, 2018), available at https://www.hassan.senate.gov/imo/media/doc/180214.ESRB.Letter.Final.pdf; Entertainment Software Rating Board, ESRB to Begin Assigning “In-Game Purchases” Label to Physical Video Games (Feb. 27, 2018), available at https://esrbstorage.blob.core.windows.net/esrbcontent/about/news/downloads/igp-press-release-final-22718.pdf

[11]             See Maggie Hassan, National Coverage of Senator Hassan Securing Guarantee from FTC Chairman to Investigate Loot Boxes in Video Games (Nov. 29, 2018), https://www.hassan.senate.gov/news/in-the-news/national-coverage-of-senator-hassan-securing-guarantee-from-ftc-chairman-to-investigate-loot-boxes-in-video-games; Federal Trade Commission, FTC to Hold August Workshop on Consumer Issues Related to Loot Boxes (Apr. 5, 2019), https://www.ftc.gov/news-events/press-releases/2019/04/ftc-hold-august-workshop-consumer-issues-related-loot-boxes.

[12]             See Josh Hawley, Senators Hawley, Markey, and Blumenthal File Legislation to Stop Manipulative Video Game Practices Aimed at Children (May 23, 2019), https://www.hawley.senate.gov/senators-hawley-markey-and-blumenthal-file-legislation-stop-manipulative-video-game-practices-aimed; Josh Hawley, Frequently Asked Questions Regarding Legislation on Pay-to-Win and Loot Boxes (May 23, 2019), https://www.hawley.senate.gov/sites/default/files/2019-05/Loot-Box-Bill-FAQ.pdf.  The text of the bill is available at https://www.hawley.senate.gov/sites/default/files/2019-05/Loot-Box-Bill-Text.pdf.

[13]             Sam Nordmark, South Korean Game Developers Fined $945,000 for Their Implementation of Loot Boxes (Apr. 9, 2018), https://dotesports.com/business/news/south-korean-game-fined-945-loot-boxes-22609.

[14]             United Kingdom Gambling Commission, Declaration of Gambling Regulators on Their Concerns Related to the Blurring of Lines Between Gambling and Gaming (Sept. 17, 2018), http://www.gamblingcommission.gov.uk/PDF/International-gaming-and-gambling-declaration-2018.pdf.

[15]             Netherlands Gaming Authority, Study Into Loot Boxes: A Treasure or a Burden? (Apr. 10, 2018), available at https://kansspelautoriteit.nl/publish/library/6/onderzoek_naar_loot_boxes_-_een_buit_of_een_last_-_eng.pdf; Belgian Gaming Commission, Research Report on Loot Boxes (Apr. 2018), available at https://www.gamingcommission.be/opencms/export/sites/default/jhksweb_nl/documents/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf; see Press Release, Loot Boxes in Three Video Games in Violation of Gambling Legislation (Apr. 25, 2018), https://www.koengeens.be/news/2018/04/25/loot-boxen-in-drie-videogames-in-strijd-met-kansspelwetgeving (translated from Dutch).

[16]             Environment and Communications References Committee, Gaming Micro-Transactions for Chance-Based Items (Nov. 2018), available at https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/~/media/Committees/ec_ctte/Gamingmicro-transactions/report.pdf.

[17]             The plaintiffs also raise related claims under the Unfair Competition Law and False Advertising Law based on the same allegations. Similar analysis generally applies to these related claims. See Stern, Business & Professions Code Section 17200 Practice, ¶ 10:14 (The Rutter Group 2019) (noting that a violation of any of CLRA’s 24 prohibited acts are “ ‘unlawful’ ” and therefore can be “ ‘piggybacked’ onto § 17200 and ‘borrowed’ to form the basis of an ‘unlawful business practices’ claim”); Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663, 679 (2006) (“ ‘The standards for determining whether a representation is misleading under the False Advertising Law apply equally to claims under the CLRA’ ”).

[18]             Reveles v. Toyota by the Bay, 57 Cal.App.4th 1139, 1154 (1997).

[19]             Hogya v. Superior Court, 75 Cal.App.3d 122, 135 (1977); Cal. Civ. Code, § 1760.

[20]             Cal. Civ. Code, § 1770(a)(1)-(a)(24).

[21]             2018 WL 4051570, at ¶ 55(a).

[22]             2018 WL 4051570, at ¶ 55(b).

[23]             2018 WL 4051570, at ¶ 55(c).

[24]             2018 WL 4051570, at ¶ 44(a).

[25]             2018 WL 4051570, at ¶ 44(b).

[26]             2018 WL 4051570, at ¶ 44(c).

[27]             Cal. Civ. Code, § 1170(a)(1).

[28]             2018 WL 4051570, at ¶ 84.

[29]             Accord Bank of the West v. Superior Court 2 Cal.4th 1254, 1263 (1992) (describing the “common law tort of unfair competition” which was “generally thought to be synonymous with the act of ‘passing off’ one’s goods as those of another”).

[30]             Cal. Civ. Code, § 1170(a)(5).

[31]             2018 WL 4051570, at ¶ 84; see also 2019 WL 1002976, at  126 (alleging that Epic Games “mis[led] consumers about the odds of receiving loot in its Llamas”).

[32]             2018 WL 4051570, at ¶¶ 44, 55.

[33]             2018 WL 4051570, at ¶ 55(b), (c).

[34]             2018 WL 4051570, at ¶ 44(b)

[35]             2018 WL 4051570, at ¶ 44(c)

[36]             Chaim Gartenberg, Apple Now Requires Games with Loot Boxes to Disclose Odds (Dec. 21, 2017), https://www.theverge.com/2017/12/21/16805674/apple-loot-box-app-store-games-odds-probability-disclosure; App Store, App Store Review Guidelines (last visited May 13, 2019), https://developer.apple.com/app-store/review/guidelines.

[37]             Blizzard Entertainment, Inc., Hearthstone Shop (last visited May 13, 2019), https://us.battle.net/support/en/article/32545.

[38]             Blizzard Entertainment, Inc., Hearthstone Shop (last visited May 13, 2019), https://us.battle.net/support/en/article/32545.

[39]             Hearthstone Wiki, Card Pack Statistics (last visited May 13, 2019), https://hearthstone.gamepedia.com/Card_pack_statistics (showing the probability of an epic card being approximately 20.56 percent and the probability of a legendary card being approximately 5.13 percent).

[40]             Cal. Civ. Code, § 1170(a)(9).

[41]             2018 WL 4051570, at ¶ 84.

[42]             2018 WL 4051570, at ¶ 55(b).

[43]             2018 WL 4051570, at ¶ 44(b).

[44]             Cal. Civ. Code, § 1170(a)(19).

[45]             2018 WL 4051570, at ¶ 84.

[46]             2018 WL 4051570, at ¶ 80; see id. at ¶¶ 6, 11, 44, 47, 55, 65, 70(a)-(e), 80, 93, 105, 112 (focusing on the nondisclosure of the odds of receiving items and cards); see also 2019 WL 1002976, at ¶ 126 (alleging that Epic Games “fail[ed] to disclose the odds of receiving loot in its Llamas”).

[47]             Gutierrez v. Carmax Auto Superstores Cal. 19 Cal.App.5th 1234, 1258 (2018); see Daugherty v. American Honda Motor Co., Inc. 144 Cal.App.4th 824, 834 (2006); Bardin v. DaimlerChrysler Corp. 136 Cal.App.4th 1255, 1276 (2006).

[48]             See supra, n. 36 (discussing Apple’s requirement). China also now requires game developers to disclose the odds of receiving items. See Unpacking the Loot Box, supra, n.1, at 196 (discussing China’s requirement); see also Chaim Gartenberg, China’s New Law Forces Dota, League of Legends, and Other Games to Reveal Odds of Scoring Good Loot (May 2, 2017), https://www.theverge.com/2017/5/2/15517962/china-new-law-dota-league-of-legends-odds-loot-box-random; Allegra Frank, Overwatch Loot Box Probabilities Revealed – at Least for China (May 5, 2017), https://www.polygon.com/2017/5/5/15558448/overwatch-loot-box-chances-china.

[49]             300 F.3d 1083 (9th Cir. 2002).

[50]             See Schwartz v. Upper Deck Co., 104 F.Supp.2d 1228, 1230-1231 (S.D. Cal. 2000).

[51]             Id. at 1087-1088.

[52]            See e.g., Price v. Pinnacle Brands, Inc. 138 F.3d 602, 607 (5th Cir. 1998).

[53]             See Unpacking the Loot Box, supra, n.1, at 198-201.

[54]             See id. at 197-198. The executive director of the International Game Developers Association has called for such self-regulation and offered concrete suggestions. See Jen MacLean, Call to Action: Loot Boxes (Nov. 29, 2018), https://www.igda.org/blogpost/1016423/313945/Call-to-Action-Loot-Boxes. Notably, one other card game, Magic: the Gathering Arena, has disclosed the distribution and odds of getting items in card packs and special events. See https://magic.wizards.com/en/promotions/drop-rates.

 

 



 


             
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