The New York Attorney General has filed a lawsuit against Valve Corporation, alleging that the video game developer behind popular franchises Counter-Strike, Team Fortress, and Dota is promoting illegal gambling through loot boxes.
The complaint is aimed at the “skins” that can be received from loot boxes, which require users spend money to open for the chance of receiving a randomly assigned virtual item – the skin – that enables players to visually customize their virtual game items but otherwise provide no advantage or other impact on gameplay. Virtual items range from extremely common to exceedingly rare, and Valve provides the odds of receiving a virtual item associated with each loot box. Once obtained, the virtual item may either be kept by the player or listed for sale on the Steam Community Market in exchange for virtual (non-redeemable) funds added to the seller’s Steam Wallet.
Per Valve’s Steam Subscriber Agreement, virtual items are treated as “subscriptions” (i.e., license) to use in accordance with the platform’s services, with all ownership and/or other property rights remaining with Valve or the creator of the item.
New York AG: Loot Boxes violate state constitution
Specifically, the complaint alleges the following causes of action stemming from Valve’s operation of loot boxes:
- Count I – Violation of Article 1, Section 9 of the New York State Constitution, which prohibits “lotter[ies] or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling,” except as authorized under state law.
- Count II – promoting gambling in the second degree, by knowingly advancing or profiting from gambling activity.
- Count III – promoting gambling in the first degree, by engaging in bookmaking and/or receiving money in connection with a lottery or policy scheme or enterprise.
New York Penal Law Article 225 states “A person engages in gambling when [1] he stakes or risks something of value [2] upon the outcome of a contest of chance or a future contingent event not under his control or influence, [3] upon an agreement or understanding that he will receive something of value in the event of a certain outcome.”
The need to make a purchase in order to open a loot box in which the user has no control over the virtual item actually assigned therefrom would appear to meet the first two requirements.
‘Something of Value’ definition at issue
The New York AG’s claims will be determined based on whether the virtual item obtained satisfies the states’ definition of “something of value.” NY Pen. §225 defines “something of value” as “any money or property, any token, object or article exchangeable for money or property, or any form of credit or promise directly or indirectly contemplating transfer of money or property or of any interest therein, or involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge.”
The AG’s complaint alleges that loot box items meet such definition, because the virtual items (1) can be sold on the Steam Community Market for Steam Wallet funds that can be used to buy other items available on the marketplace, and (2) can also be sold for cash on third-party marketplaces.
This is not the first time this position has been raised, albeit on the opposite coast. In Mai v. Supercell Oy, No. 5:20-CV-05573-EJD, 2021 WL 4267487, the Northern District of California ruled that loot box items were not “things of value” under California’s Penal Code, because “any items obtained from loot boxes can only be used within the games themselves, [and] are not prizes that can be cashed out for real-world money to be spent elsewhere.” Another Northern District of California case – Taylor v. Apple, Inc., No. 20-CV-03906-RS, 2022 WL 35601 – similarly held loot boxes do not offer players a chance to win “a thing of value” due to “the lack of any real-world transferable value to the items…”
Valve will likely argue that its loot box items similarly lack any real-world value, Steam Wallet funds earned from a sale on the Steam Community Market cannot be exchanged for cash, thus the items cannot be cashed out. As to the state’s argument that items can be sold on third-party marketplaces, Valve will presumably counter by claiming any such sales violate the Steam Subscriber Agreement and thus cannot be held against the platform.
Case precedent on Valve’s side
This is not the first time Valve’s loot box scheme has come under fire. In 2022, a civil lawsuit filed in the United States District Court for the Western District of Washington alleged Valve’s loot box feature violated Washington’s Consumer Protection Act by facilitating illegal underage gambling. In affirming the district court’s grant of summary judgment, the United States District Court of Appeals for the Ninth Circuit highlighted that “neither the Washington courts nor the legislature have deemed video game loot box features to be gambling.”
Noticeably, Washington’s gambling statute defines “thing of value” the same as New York. Valve will likely rely on this case law, in addition to other defenses, in response to the AG’s complaint.
