Hazy Regulations: The Attack on Loot Boxes

Sean Méndez-Catlin, Esq.

Intellectual Property Committee // The Briefs // July 2020, Vol. 88 No. 6

Loot Boxes. Whether you call them surprise mechanics or cash grabs, they are one of, if not THE, hottest topic in the gaming industry. My first memory of loot boxes is from when I was a small child. Every trip to the supermarket ended with a stop at the register, where there was an assortment of multi-colored holographic playing cards: Pokémon, NBA, MLB, NHL, NFL, or Magic: The Gathering. I found myself peddling these cards on my parents’ carts (or buggy depending on where you’re from) in the hopes that they would purchase the card pack for me. Usually, it was the ten-card pack. Sometimes, I was lucky and could get the fifty-card starter pack. Looking back, it is easy to see that these were in fact loot boxes. I would get my parents to spend $2.99 to give me a chance at getting a Charizard, Venusaur, Blastoise, or that all-mighty holographic Pikachu. If you were lucky, you got all the cards quickly; if you were less lucky, it might take several trips to the supermarket and creative bargaining with parents.

Fast-forward to today, and loot boxes have become common in almost all areas of the gaming market. They are especially prevalent in the video game market. From NBA 2K to Destiny 2, there is some sort of chance mechanic, usually termed “RNG.” “RNG” refers to the random number generator utilized to determine what items a player receives from a loot box purchased with in-game currency for a chance at greatness. Juniper Research estimates that loot boxes will create a $3 billion increase in revenue in the gaming market by 2022.1

The financial success of the loot box system, as well as the deceptive tactics used by some game companies, has caused many governments to focus on loot boxes and their legal future. Senator Josh Hawley announced his intention to introduce legislation to ban loot boxes for use in games marketed to minors. The ban would apply to any games targeting players under the age of eighteen. The bill sets forth the following criteria to determine whether a game is one that targets minors:

(A) the subject matter of the product; (B) the visual content of the product; (C) the music or audio content of the product; (D) the use of animated characters or activities that appeal to individuals under the age of 18; (E) the age of the characters or models in the product; (F) the presence in the product of—(i) celebrities who are under the age of 18; or (ii) celebrities who appeal to individuals under the age of 18; (G) the language used in the product; (H) the content of materials used to advertise the product and the platforms on which such materials appear; (I) the content of any advertising materials that appear in the product (J) other reliable empirical evidence relating to—(i) the composition of the audience of the product; or (ii) the audience of the product, as intended by the publisher or distributor of the product; or (K) other evidence demonstrating that the product is targeted at individuals under the age of 18.2

Clearly, there are several elements evaluated to make the determination; however, the bill (in its current form) would probably be unconstitutional. Attorney Brandon Huffman has already detailed how the bill likely fails any First Amendment challenge in an article posted on his firm’s website.3 In short, Huffman argued that the speech in games is protected speech. He relied on the opinion delivered by the late Justice Scalia in Brown v. Entertainment Merchants Ass’n, 564 U.S. 785 (2011). There, the Supreme Court held that video games were protected just like violent speech in books and radio.4 Both of those fields have previously been attacked, and the courts have protected the speech in their holdings.

The bill also fails a due process challenge. The bill, as constructed, would almost certainly fail as void for vagueness. This constitutional law concept is fairly straightforward. In 1926, the Supreme Court stated that “a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.”5

The doctrine was discussed at length in United States v. L. Cohen Grocery Co., 255 U.S. 81 (1921). In L. Cohen Grocery, the law under review made it:

unlawful for any person willfully . . .to make any unjust or unreasonable rate or charge in handling or dealing in or with any necessaries; to conspire, combine, agree, or arrange with any other person . . . (e) to exact excessive prices for any necessaries. . . . Any person violating any of the provisions of this section upon conviction thereof shall be fined not exceeding $5,000 or be imprisoned for not more than two years, or both. . . .6

The Court held that this statute impermissibly left the determination of illegal actions to the jury.7 The Court explained that the language of the statute does not control any specific action because “[i]t leaves open . . . the widest conceivable inquiry, the scope of which no one can foresee and the result of which no one can foreshadow or adequately guard against.”8

The Pacifica and Fox line of cases informed the public that the doctrine applies to civil statutes as well as criminal matters. In FCC v. Pacifica Foundation, 438 U.S. 726 (1978), the Supreme Court evaluated the constitutionality of the FCC policy related to Title 18 U.S.C. § 1464 governing obscene and indecent behavior. 9  The case centered around the broadcast of a monologue by George Carlin that used language dealing with sex and excretion. 10  The Court held that the FCC could limit the speech as it was not fully protected.11 Fast-forward to 2012 and the Court would again revisit this issue in FCC v. Fox TV Stations, Inc., 567 U.S. 239 (2012).

Fox Television Stations and ABC Television received indecency complaints about three broadcasts lodged against them.12  The Court summarized the issues as follows:

First, in the 2002 Billboard Music Awards, broadcast by respondent Fox Television Stations, Inc., the singer Cher exclaimed during an unscripted acceptance speech: “I’ve also had my critics for the last 40 years saying that I was on my 613 F. 3d, at 323. Second, Fox broadcast the Billboard Music Awards again in 2003. There, a person named Nicole Richie made the following unscripted remark while presenting an award: “Have you ever tried to get cow s*** out of a Prada purse? It’s not so f***ing simple.” Ibid. The third incident involved an episode of NYPD Blue, a regular television show broadcast by respondent ABC Television Network. The episode broadcast on February 25, 2003, showed the nude buttocks of an adult female character for approximately seven seconds and for a moment the side of her breast. During the scene, in which the character was preparing to take a shower, a child portraying her boyfriend’s son entered the bathroom. A moment of awkwardness followed.13

Fox and ABC were sanctioned by the FCC for the broadcasts and sued the FCC.14  At the time, there was an FCC policy stating that if the use of expletives was “fleeting,” then there was no sanction. Unfortunately, the FCC had changed the policy multiple times. In fact, just after the broadcast, the FCC determined that even a fleeting use of expletives was actionable.15  Justice Kennedy wrote the Court’s opinion which centered on the idea that “[a] fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.”16  He clarified further stating:

Even when speech is not at issue, the void for vagueness doctrine addresses at least two connected but discrete due process concerns: first, that regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way.17

Justice Kennedy also emphasized that where speech is concerned this principle is important to avoid vagueness that may affect protected speech.18  The Supreme Court determined that the FCC policies in conjunction with the language in the statute did not give Fox or ABC notice that a fleeting expletiveor a brief shot of nudity was something thatcould be sanctioned.19

These rulings are important to Senator Hawley’s proposed bill. In its current iteration, a clear prohibited action has not been adequately defined. When I was younger, I always wanted to play Halo because my cousin always played it. Given the current proposed bill, Microsoft may be held liable if there are loot boxes in the game because I was attracted to the game as a minor. Microsoft did not target players under the age of eighteen. Many companies may limit their protected speech to avoid prohibited behavior. For example, Borderlands 3, released in September 2019, utilizes a loot box mechanic for its items, and 2K has to worry about whether the mechanics are actionable. Although the story, gameplay, and concepts should not be prohibitive, the game utilizes bright saturated colors and there are characters that act childlike. This may be enough to ban the mechanic from the game. The options are either—stay true to the vision of the game or limit your speech to ensure a profit.

This is just a proposed bill: edits and rewrites may lead to a bill that is constitutional. It is almost certain that there will be some sort of restriction to loot boxes in the coming years. We have seen the trend worldwide of strict loot box laws, such as Japan’s law restricting kompu gacha. This law restricted Japan’s companies from implementing multilevel/combination loot boxes, known there as complete gacha. The impending U.S. restriction needs to fit appropriately to the market and should not be overbroad. Recently, 2Ksports released NBA 2K20 and in its wisdom added a slot machine design in a mode. Although there are other legitimate gambling mechanics in the game, the aesthetic has created an uproar about gambling being promoted to children and undoubtedly has added fuel to the fire and delayed parts of the modification for redesigns. To be clear, it still looks like a casino. We shall soon see what effect the spread of COVID-19 will have on the government reaction; however, it is currently quiet. That is unlikely to persist as Congress continues to review the bill.

Sean Méndez-Catlin, Esq., is the managing partner at MC & J Law, PLLC. The firm focuses on business formation and dissolution, intellectual property, video game law, business litigation, and criminal defense, including DUI defense. He is the incoming chair of the OCBA Intellectual Property Committee, a member of the Criminal Law Committee, and a member of the Video Game Bar Association’s Public Policy Committee. He has been a member of the OCBA since 2016.

1. James Batchelor, Loot boxes expected to drive games market to $160 billion by 2022 (May 01, 2018), GAMESINDUSTRY. BIZ, https://www.gamesindustry.biz/articles/2018-05-01-loot-boxes-expected-to-drive-games-market-tousd160-billion-by-2022 (last visited June 2, 2020).
2. A bill to regulate certain pay-to-win microtransactions and sales of loot boxes in interactive digital entertainment products, and other purposes, S. 1629, 116th Congress (2019) (as introduced to the Senate, May 23, 2019).
3. Brandon J. Huffman, Esq., The First Amendment Video Games–Part 5: Brown v. EMA, ODIN LAW AND MEDIA,

https://odinlaw.com/the-first-amendment-and-videogames-part-5-brown-v-ema/ (last visited June 2, 2020).

4. Brown v. Entm’t Merchs. Ass’n, 564 U.S. 786 (2011).
5. Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926).
6. U.S. v. L. Cohen Grocery Co., 255 U.S. 81, 85 (1921).
7. Id. at 92-93.
8. Id. at 89.
9. FCC v. Pacifica Found., 438 U.S. 726, 738 (1978).
10. Id. at 729, 745.
11. Id. at 750-51.
12. FCC v. Fox TV Stations, Inc., 567 U.S. 239 (2012).
13. Id.at 247-48.
14. Id. at 248, 250.
15. Id. at 248.
16. Id. at 253 (citation omitted).
17. Id. at 253 (citation omitted).
18. Id. at 253-54.
19. Id. at 258.