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The post is authored by Vadita Agarwal, a 3rd year B.A.LL.B. (Hons.) student at the West Bengal National University of Juridical Sciences, Kolkata.
1. INTRODUCTION
Online gaming in India has been brought under The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (‘IT Rules’). This is coupled with adding online gaming and esports under the aegis of the Ministry of Electronics and Information Technology (‘MeITy’). In addition to provisions concerning due-diligence obligations of an online gaming intermediary and mandatory Know-you-consumer (‘KYC’) compliance by the users, the IT Rules propose creation of a self-regulatory mechanism for registration, regulation and grievance redressal of online gaming intermediaries.
In the absence of legislation specifically dealing with online games, the newly-established self-regulatory mechanism has a host of aspects to deal with. Specifically, this paper concerns regulation of microtransactions in online games. Often taking the form of loot boxes or treasure boxes, microtransactions are in-game rewards which permit players to enhance gameplay or gain in-game advantages through a system of random chance. This paper specifically concerns those microtransactions which are purchased with real-life money.
This paper aims to lay down parameters for self-regulation of microtransactions in online gaming, keeping in mind the nuances adopted by game developers and other countries’ approach to the same. Part I of the paper explains how microtransactions work and what their self-regulation could entail. Part II of the paper undertakes an analysis of India’s approach to gambling and suggests an alternative framework for self-regulation. Part III undertakes an inter-jurisdictional analysis through Japan, the country closest to India in terms of its experience with regulating microtransactions. Part IV lays down parameters which should be considered in regulating online gaming, with a brief comment on the recently notified amendments on the IT Rules.
2. UNDERSTANDING THE FRAMEWORK
Digital platforms, like video games, connect two or more market players to facilitate transactions, as well as share products and services. The subsequent portion places self-regulation and microtransactions in the larger architecture of video games.
A. PLACING ONLINE GAMING UNDER THE AMBIT OF SELF-REGULATION
As opposed to direct forms of government control such as legislation, taxes or licences; self-regulation comprises steps taken by industry actors to supplement or pre-empt government rules. In the pre-internet era, movie ratings, classification of sexual content and warnings against consumption of intoxicants were all through self-regulation of their respective industries. The concept of self-regulation works and is promoted by governments due to the idea that players are cognizant of the needs of their respective industries and thus are more likely to establish reasonable guidelines that they comply with.
The IT Rules in the present case envisages a self-regulatory mechanism where each self-regulatory body, among others, comprises representatives from public policy and medicine. This implicitly creates a system of ‘co-regulation’where a diverse group of stakeholders such as the state and members of the industry come together to align their goals. Co-regulation marginally differs from traditional self-regulation insofar that it attempts to fulfil public objectives beyond mere regulation of the industry at hand.
Additionally, it is pertinent to note that the ultimate decision regarding compliance of the self-regulatory body with the rules of the amendment rests with the MeITy and it has the power to suspend the body after certain procedural requirements. Considering this extent of government control, the self-regulatory mechanism can qualify as ‘sanctioned control’, or when the collective body is allowed to make regulations on its own discretion which are post facto approved by the government. This independence offered to online gaming intermediaries is beneficial. This is because self-regulation is more likely to work in industries where the players have homogeneous goals and are thus likely to be motivated by the same incentives.
The subsequent section explains the nuances of microtransactions and how game developers use them to create additional revenue.
B. DECONSTRUCTING MICROTRANSACTIONS
The advent of microtransactions in video games was triggered by a transition of these games from having ‘lifetime value’, to becoming ‘player-centric’ and adapting accordingly. Earlier, the measure of success of a game would become static once it was sold. Now, interaction of the players with the gameplay is an opportunity to keep the product relevant even after it's been shipped. As game developers are becoming more ambitious with graphics and production quality, the idea of a video game has transformed from a one-time product to a service. Several video games operate on the ‘Freemium’ model where while a game is downloaded for free, players get bonuses and advantages through in-game purchases which require real-life money. This emphasis on long term engagement, coupled with high costs of production necessitates game developers to look for avenues to maximize profits. Increasingly, they choose to do so through in-game microtransactions.
Microtransactions take the form of small purchases undertaken in-game, often in the form of treasure boxes or loot crates. While some loot boxes contain cosmetic items like skins or embellishments, some contain items like maps or weapons which affect gameplay. Often known as ‘Pay to Win’ schemes, the problem with this framework is that players are incentivised to spend money to ensure in-game progress rather than simply spend more hours on playing the game. As opposed to prizes which are earned after completing in-game tasks, these microtransactions require payment through real-life money.
The problem of the exploitative mechanism of microtransactions generated international discourse when Electronic Art’s (‘EA’) launched its anticipated game Star Wars Battlefront II. The game was created such that the most popular characters could be unlocked by either playing the game for thousands of hours, or by purchasing them for USD 2,000.
Developer of games like Call of Duty and Player Unknown’s Battlegrounds (‘PUBG’) which are massively popular in India, Activision, in 2020 amassed nearly USD 600 million from microtransactions alone. In 2015 Activision got a patent approved which permitted it to match junior players with experienced ones, encouraging the former to undertake in-game purchases to improve their performance. The algorithm would work in a way so as to match players with a certain weapon with those who don’t, implicitly promoting in-app purchases through what is described as a “microtransaction engine”.
The subsequent portion of the paper undertakes an analysis of the Indian jurisprudence on gambling vis-à-vis online gaming in an attempt to rectify the predatory schemes of microtransactions.
3. THE NEED TO LOOK BEYOND GAMBLING
The IT Rules establishes conformity with the gambling laws in India as a necessary pre-requisite to registration of an online game. There is abundant literature on how microtransactions illicit psychological responses in players which are akin to gambling.
This part establishes that in light of India’s aversion to include online gaming within the ambit of the The Public Gambling Act, 1867, (‘Gambling Act’) regulations which don’t rely on legislation but nonetheless curb the addictive aspects of microtransactions are needed. While the Gambling Act only accounts for gambling in a physical space or a “common gaming house”, various states have attempted to incorporate virtual gambling within their respective legislations.
Primary to this discussion is the Karnataka Police (Amendment) Act, 2021 (‘Karnataka Amendment’) which attempted to expand the definition of “place” of gaming from a physical space, to a virtual platform, or any electronic application. Additionally, the definition of “gaming” was amended to include “risking money on the unknown result of an event including on a game of skill”.
The Karnataka Amendment was struck down by the Karnataka High Court due to the contention that games of skill do not transform into games of chance merely because they are played online. Specifically, on the question of whether ‘fantasy games’ such as Dream 11 qualified as gambling, courts have upheld the same as “undoubtedly games of chance” and not of skill. Moreover, games were protected as sources of “artistic and recreational value” and given protection under Article 19(1)(A) of the constitution. This hesitancy to include wagering in games of skill under “gaming” has been reflected by the Supreme Court in a catena of cases. Effectively, games of skill which are played virtually are constitutionally tenable in India.
Thus, even though microtransactions can academically be held akin to gambling, their legal recognition as such seems unlikely in the Indian context. This legal vacuum can be taken advantage of by game producers to create regulations which suit the industry’s needs, rather than waiting for legislative changes which can be detrimental to their profit-making interests.
Japan, which was also once at the precipice of a gap in legislation and self-regulation, faced a similar dilemma. The subsequent section uses the Japanese example to strengthen the paper’s argument.
An exploration of this jurisdiction that has extensively dealt with this issue, along with relevant parameters for regulation, are discussed by the author in the second part of this blog, available here.