Game on! in a potential legal battle in Canada over loot boxes

By Tony Poland, LegalMatters Staff • A lawsuit targeting a video game manufacturer for selling “loot boxes” will likely test the interpretation of the Criminal Code, says Toronto class-action lawyer Margaret Waddell.

A class-action suit was filed in September against Electronic Arts (EA) in Canada, claiming the company operated an illegal gambling system in numerous games by selling loot boxes that contained randomized items to enhance the playing experience. The lawsuit has yet to be certified, and the allegations have not been proven in court.

The claim alleges that the loot boxes are a game of chance and that they were offered without publishing the odds of winning prizes. It was also noted that only some of the rewards in the boxes allowed users to move on to higher levels in the games.

‘Revenue generation’

“Many manufacturers use the same sort of business model. They make tools or weapons available in these loot boxes for purchase through the game,” says Waddell, a partner with Waddell Phillips Professional Corporation. “The goal is obviously revenue generation for the game manufacturer, as well as to enhance gamer engagement.”

But, because the consumers don’t know what is contained in the loot box until they have purchased it, there is a gambling element to each box. 

“It’s like buying a lottery ticket – a game of chance,” Waddell tells LegalMattersCanada.ca. “Sometimes you get something good, sometimes you get something of lesser value.

“The theory of the claim is that offering the loot boxes is a form of gambling. It’s alleged that it is contrary to the Criminal Code because they are operating without a provincial gaming licence, therefore it is illegal.”

She says buying an enhancement for a game is distinguishable.

“If you know what you are getting, you can decide whether the cost is worth the price,” Waddell says. “Whether you are buying it from the game manufacturer of bartering with other players, that’s just commerce. It’s the element of chance that arguably puts the loot boxes off-side the Criminal Code.”

Minors can purchase loot boxes

She says another issue with the loot boxes is that anyone can buy them, regardless of age.

“Game manufacturers don’t have fail-safes in place to limit who is purchasing these things. To the extent that children can buy them, that is problematic,” says Waddell, who is not involved with the case and comments generally.

“If you are under the age allowed in each province to gamble that’s another matter of concern. It is arguably a predatory practice when you are soliciting the purchases from minors.”

A BBC report says restrictions imposed by coronavirus lockdowns have led to more people spending money on loot boxes.

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“It is a perfect storm with people having time on their hands,” Matthew Gaskell, clinical lead for the NHS Northern Gambling Service, tells the BBC. “With all the strains and stresses around for people at the moment, it’s easy to escape into these things and of course the regulation is not where we would want it to be. There’s a lot of discussion around the blurring of the lines between gaming and gambling.”

Waddell says s. 206 of the Code makes it an indictable offence to sell, barter, exchange or otherwise be involved in any lot, card, ticket or other means or device for advancing, lending, giving, selling or otherwise disposing of any property by lots, tickets or any mode of chance whatever.

‘Broadly worded’

“The phrase ‘any mode of chance’ could readily be interpreted to include the prospect that you are getting something valuable in your loot box,” she says. “The section is very broadly worded. When you are dealing with gambling, people are always going to dream up new ways of doing it. The language is intentionally broad so it can incorporate different things that wouldn’t have previously been envisioned.”

While these types of claims have been advanced in the United States, Waddell says she believes this is a first for Canada.

“I am glad someone is taking a run at it because it is highly problematic,” she says. “On its face, I would say the claim asserts a good argument that is likely to get some traction.”

“However, I suspect the plaintiffs are going to meet up with some pretty aggressive defences from the gaming company,” Waddell adds.

She says the defendant could argue about whether a Canadian court has jurisdiction over the case. However, Waddell points to Douez v. Facebook, where the Supreme Court of Canada refused Facebook’s attempt to block a privacy class action claim in British Columbia because its terms of use specified that legal arguments must be brought in California.

Criminal Code considerations

“There are policy reasons for allowing the claims to proceed here, particularly when we are talking about Criminal Code breaches,” she says. “Courts in Canada have a genuine interest in resolving that issue. They are likely to accept jurisdiction over the claim.

“The other question is whether this is actually a breach of the Criminal Code. Are these virtual tools “property” that would fall within the definition of the offence under the Code?”

Waddell says the case will be worth watching.

“Gaming is already addictive. When you add in a financial enticement to it, that’s when, in my view, it has the potential to become predatory,” she says. “We have consumer protection rules and Criminal Code provisions to shelter people from that type of conduct.”