RIGGING THE GAME: THE LEGALITY OF RANDOM CHANCE PURCHASES ('LOOT BOXES') UNDER CURRENT MASSACHUSETTS GAMBLING LAW.

• Author: Wood, Thomas

1. Introduction

   Microtransactions are generally defined as any additional payment made in a video game after the customer makes an original purchase. (2) Over time, microtransactions have increased in prominence and are featured today in many free-to-play mobile games. (3) However, some video game developers, to the outrage of consumers, have decided to include microtransactions in PC and console games, which already require an upfront $60 retail payment. (4) Consumer advocacy groups have increasingly criticized Microtransactions as unfair to consumers. (5) Others have defended the practice of including microtransactions in console video games as a necessity for large game developers to profit from their large, increasingly higher-budget games in a multi-billion-dollar industry. (6)

   The most recent type of microtransaction used by game developers have been what are called random chance purchases (or "loot boxes"). (7) Loot boxes are digital crates, packs, or boxes which can be purchased with real-world currency and give players a random chance to receive valuable items in-game. (8) Some consumer advocates have argued the use of loot boxes as a microtransaction is even more unethical because of its visual similarity to casino slot machines. (9) In fact, class action lawsuits have already been brought by gamers against video game developers arguing that loot boxes are unregulated, illegal gambling. (10) The recent question of whether loot boxes are illegal gambling has been decided through class action lawsuits on a jurisdiction-by-jurisdiction basis, and has bitterly divided federal courts in illinois, Maryland, and Washington state. (11)

   The argument that loot boxes are illegal gambling has also received traction in the state of Massachusetts, with some raising the possibility that gamers in MA have the ability under current consumer protection laws to sue game developers for "loot box gambling losses" incurred. (12) This note will discuss whether money spent from loot boxes would be subject to the Massachusetts Gambling Loss Recovery statute, which is designed to protect consumers from illegal gambling. (13) Part II of this note provides a brief overview of the history of gambling regulations in the United states, describes the current gambling statutory scheme in the Commonwealth of Massachusetts, and provides a detailed explanation of the history of microtransactions. (14) Part III of this note will discuss how microtransactions came to be such a common feature of video games, the litany of investigations by international & domestic regulators, and give a detailed explanation of the divide in federal courts over the legality of video game loot boxes. (15) Part IV will provide analysis to the applicability of Massachusetts law to loot boxes in video games and conclude that loot boxes likely do not constitute illegal gambling under current state law. (16)

2. History

   Gambling is generally defined as a contract where parties agree to gain or lose something based on the occurrence of a specific event. (17) There are 3 categories of gambling: (1) gaming, (2) betting, and (3) lotteries. (18) Gaming is the playing of a game for stakes hazarded by the players. (19) Betting (or wagering) is the promise to give consideration upon the determination of an uncertain event that may involve skill or judgment. (20) A lottery is a game where a price is paid for the chance to win a prize. (21) Slot machines have traditionally been classified as lotteries under standard gambling law because slot machines require payment of tokens purchased with real world money and give out prizes depending entirely on chance. (22) Whether a particular slot machine is a lottery subject to gambling regulations is decided on a case-by-case basis. (23)

   For a game (such as a slot machine) to be considered a lottery, three elements must be established: (1) a prize, (2) distribution by chance, and (3) consideration in exchange for the prize. (24) To satisfy the prize element, courts generally require proof that the prize given out after the game is something of value. (25) For the game to qualify as having a distribution by chance, courts must decide whether the game is predominately a game of skill, or game of chance. (26) Finally, in order for the game to qualify under the consideration element, the game must pay something of value upfront. (27)

   1. The Current State of Massachusetts Gambling Law

      As one of the original colonies, the Commonwealth of Massachusetts has had a long and complex history with gaming, going back and forth between supporting legalized gambling to enacting puritanical anti-gambling statutes. (28) On the one hand, Harvard University, the Massachusetts State House, and the Plymouth Rock memorial were all funded from gambling revenues collected by the state. (29) Yet in 1646, Massachusetts became the first colony to enact anti-gambling statutes out of concern for the effects legal gambling would have on the work of other pioneers. (30) After a financial crisis in the early 1970s, the Commonwealth reversed course again and adopted a state-run lottery program. (31)

      Today, Massachusetts enjoys some of the most liberal gambling laws in the country, allowing for several types of gambling, including lotteries, casinos, charity bingo games & raffles, and race betting. (32) However, Massachusetts also imposes strict regulations on very specific forms of gambling. (33) For example, it is still a crime to set up or promote non-state-run lotteries in the Commonwealth. (34) Slot machines are also illegal under current state law, with the limited exception of state-approved "casino nights" operated by non-profit organizations. (35)

      Gambling is defined under Massachusetts law as, either: (1) a physical game played with cards, dice, tiles or dominoes, or (2) an electronic, electrical or mechanical device or machine for something of value. (36) If the specific game fits either of those definitions of gambling and does not fall under at least one of five exceptions under Mass. general laws chapter 4, section 7, it is illegal gambling. (37) Those exceptions include: (1) Any lottery game specifically conducted by the Massachusetts lottery commission; (2) Any game that is approved by the Massachusetts Gaming Policy Advisory Committee; (3) Horse and dog race betting under MGL chapter 128A and 128C; (4) A game of bingo conducted under chapter 271; and (5) Charitable games that are conducted under chapter 271. (38)

      Currently, Massachusetts has no laws which directly address whether online gambling is legal or illegal. (39) several unsuccessful attempts have been made by state legislators to pass legislation regulating online gambling in Massachusetts. (40) However, Massachusetts Attorney General Maura Healey has been able to successfully impose regulations on Daily Fantasy Sports players in Massachusetts. (41) Regardless of whether current law is interpreted to include internet gambling transactions in Massachusetts, it is very likely internet gambling will be legalized in the near future. (42)

      While Massachusetts has given consumers plenty of gambling options, the Commonwealth also has legislation designed to provide protections to consumers of illegal gambling. One of these consumer protection laws is the Massachusetts gambling recovery law, which allows people who lose money from illegal gambling operations to recover that money through a civil suit. (43) Section 1 allows for a person who loses gambling money in an illegal gambling operation to sue for the value of goods lost in the game. (44) Section 2 establishes that owners of gambling establishments are equally as liable as the winner of the game. (45) Section 3 makes any notes, bonds, mortgages, or other securities or conveyances which are derived from illegal gambling void under state law. (46) in order to adequately state a claim for running an illegal gambling operation under chapter 137, a pleading must describe the defendant's address, provide a description of the property used, the games played on the property, and a description of why it was that the games constituted illegal gambling under state law. (47)

      The Massachusetts Supreme Judicial Court has held that for a game to be considered a lottery, the three traditional elements of gambling must be established: (1) that the game is a one of chance, not of skill ("game of chance element"); (2) that the game requires consideration ("consideration element"); and (3) that the player has the possibility of winning a prize ("prize element"). (48) First, to meet the game of chance element, the First Circuit Court of Appeals held in United States v. Marder that the chance component, if any, must predominate over the skill component. (49) Next, to meet the consideration element, the player must be required to give something of value at the start of the game. (50) Finally, to meet the prize element, the Commonwealth or plaintiff must show that the winner receives something of value. (51) Massachusetts courts have rejected the argument that a defendant is not liable under the gambling loss recovery statute merely because the injured plaintiff had "unclean hands" when he or she agreed to participate in an illegal game. (52)

   2. History of Microtransactions: How They Became so Prevalent in Gaming

      Microtransactions are in-game purchases which allow a person playing the video game to unlock either cosmetic features to continue the game, change the appearance of their character, or upgrade the game character's specific abilities. (53) There are 4 types of microtransactions: (1) In-Game Currencies; (2) Expiration; (3) In-Game items; and (4) Random chance purchases. (54) In-Game currency is "fake" currency that players use to "purchase" in-game items. (55) Expiration microtransactions, typically used in arcade games, ask the player to pay additional money when a player is "killed" in order to continue playing. (56) In-Game Items are in-game...