Imagine you are playing golf, badly, and at the fourth hole a caddy appears out of nowhere with a large box and an offer. In exchange for $20, you can open the box, which may contain high-tech clubs to improve your game, fashionable new gloves or a voucher for a free round. Perhaps you hesitate, uncertain whether paying $20 will be worth the potential reward, but those new golf clubs are tempting. Now imagine a similar offer, but digital and within one of your favorite mobile games, where items are nontangible and there is more uncertainty around reusability. In the gaming world, these offers are referred to as “loot boxes.”

On Aug. 7, 2019, the Federal Trade Commission (FTC) will hold a workshop on issues related to loot boxes. The workshop will feature industry representatives, consumer advocates, trade associations, academics and government officials. The topics to be examined include (1) loot box in-game transactions and gameplay impact; (2) behavioral research regarding digital transactions, including children’s behavior; and (3) consumer awareness and education relating to loot box transactions, mechanisms, marketing and financial commitments.

Globally, there is a debate about whether loot boxes constitute gambling, unfair or deceptive business practices, or a risk to child consumers. After the 2018 Gambling Regulators European Forum, 15 countries (Austria, Czech Republic, France, Gibraltar, Ireland, Isle of Man, Jersey, Latvia, Malta, Netherlands, Norway, Poland, Portugal, Spain, United States and UK) signed an agreement to investigate the role of loot boxes in digital gambling. Around a year ago, the UK Gambling Commission determined that the sale and acquisition of loot boxes should not be considered gambling. France agreed with that conclusion. In the rest of the European Union, however, such a determination is less clear-cut. In April 2018, for example, the Netherlands and Belgium determined, independent from each other, that loot boxes violated certain gambling laws.

Further, the European Union’s General Data Protection Regulation (GDPR), in force since May 2018, applies to loot box practices such as automated processing, the collection of personal data from children and advertising to children. Accordingly, loot boxes may be unlawful under the GDPR in some respects, or these practices may be subject to heightened data protection obligations, including special data protection safeguards.

On the other side of the globe, South Korea and China require loot box probability disclosures, similar to those required for other types of gambling activities. In 2017, China outlawed virtual lottery tickets, leaving many companies wondering whether loot boxes may be viewed as lotteries and therefore subject to the ban. In Japan, the concept of loot boxes against other forms of pay-to-play features has been debated for about a decade as certain types of loot boxes have been banned under consumer protection laws, though they are seen as a potential gambling issue. The Australian government also has investigated loot box gambling issues.

In the United States, the Entertainment Software Rating Board, although concluding that loot boxes are not gambling, recommends including “In-Game Purchase” disclosures for games that include loot boxes that can be purchased with real money (as opposed to virtual currency), and limiting such purchases to gamers over the age of 18. State legislators have introduced loot box laws, including Minnesota’s 2018 bill meant to prohibit the sale to children under 18 of games containing loot boxes that allow an exchange of real money. The FTC’s power to enforce children’s interactions with loot boxes and digital media may be broadened by the recent introduction by Senator Ed Markey, D-Mass., of the Do Not Track Kids Act, meant to expand the Children’s Online Privacy Protection Act (COPPA). The bill would introduce additional digital rights relating to children’s personal information as well as raise the COPPA applicability threshold from under the age of 13 to under 16. This may affect a company’s current practices using children’s data to advertise and facilitate in-game purchases.

In preparation for the FTC workshop, video game companies may wish to consider filing comments with the FTC, and should re-evaluate their in-game purchase policies, including how they may affect fair gameplay or encourage gambling. Companies also may want to take a new look at their online gaming marketing mechanisms and privacy practices, with a particular emphasis on activities that may affect child gamers.