SAN FRANCISCO — Free-to-play doesn’t mean free-from-scrutiny.
With the world of free online video games becoming a big business, at least one law firm has taken aim at the industry.
The Edelson firm in Chicago so far this year has sued the makers of the “massively multiplayer” Game of War: Fire Age and Castle Clash as well as the companies who run social casino games Big Fish Casino, Slotomania and Double Down Casino.
The games derive much of their revenue from a tiny sliver of users who pay real-world money for virtual “coins,” “gems,” “chips” and currency to hasten their advancement or refill their pretend coffers. Plaintiffs in the string of suits claim that the games run afoul of various states’ laws by running thinly veiled gambling enterprises.
A federal judge in Baltimore became the first jurist to weigh in on one of the suits this past week, emphatically rejecting claims against Palo Alto-based Machine Zone Inc., the maker of Game of War, over its operation of a virtual casino within the game. Among other shortcomings, U.S. District Judge James Bredar found that a player’s losses in virtual currency can’t support legal claims under California’s Unfair Competition Law and other statutes.
“Perceived unfairness in the operation and outcome of a game, where there are no real-world losses, harms, or injuries, does not and cannot give rise to the award of a private monetary remedy by a real-world court,” Bredar wrote.
But questions related to whether and when virtual world losses can breed real world liabilities are unlikely to disappear as quickly as the Machine Zone suit. With annual revenues in the casino-style online games alone pegged by analysts to hit $2.4 billion this year, the industry has the attention of plaintiffs lawyers and regulators.
In all five complaints, Edelson lawyers cite a study that found more than half of people seeking treatment for gambling disorders say that social casino games were their entry point to the habit. Recently launched state and federal probes into the workings of daily fantasy sports sites DraftKings and FanDuel have renewed the discussion over where the line should be drawn between a game of skill and a game of chance. The companies targeted in the round of lawsuits filed by the Edelson firm aren’t taking the threat lightly. They’ve brought on top flight defense firms including Arnold Porter, Susman Godfrey, Sheppard, Mullin, Richter Hampton, and Paul Hastings.
LITIGATING OVER ‘PLAY MONEY’
Edelson lawyers sued Machine Zone earlier this year on behalf of Mia Mason, a Maryland woman who plays Game of War, a multiplayer strategy game available on Android and Apple mobile devices where players seek to gather resources they can use to build cities and armies.
Although the game is free to play, players can purchase virtual gold to help speed the conquest of virtual worlds. Mason claimed that she lost more than $100 worth of the virtual currency wagering at an in-game casino where players can place bets on a virtual wheel. Spins of the wheel grant players virtual resources such as wood, stone or additional gold.
The Edelson lawyers argued that the in-game casino was an unlawful “slot machine or device” under California’s gaming statute and that Machine Zone violated California’s Unfair Competition Law by owning and operating it. They also sought restitution under Maryland law and to certify a class of Game of War players who allegedly lost “millions of dollars” in the game’s casino.
Siding with Machine Zone and the company’s lawyers at Arnold Porter, Bredar wrote that the laws of California and Maryland “do not trifle with play money,” and dismissed the case Oct. 21. He minced no words in his appraisal of the suit as a “hodgepodge of hollow claims lacking allegations of real-world harms or injuries.” In a footnote, Bredar scolded the plaintiffs lawyers for wasting court resources, writing that the federal dockets are crowded enough with “credible allegations of true harms.”
Edelson’s Rafey Balabanian said that he was disappointed in the court’s decision and that he plans to seek appellate review. Machine Zone lawyer Michael Berta of Arnold Porter said his team was pleased by the result.
Bredar concluded that although the in-game casino might resemble a classic game of chance aesthetically, Game of War as a whole is predominantly a game of skill. The judge also pointed out that under the game’s terms of service, Mason could never cash out of her stake of virtual gold or sell her account to another player. Therefore, Mason’s loss occurred not in the casino, he wrote, but at the moment she swapped “something of value (real money) for something of whimsy (pretend ‘gold’).”
He further noted that each wager in the casino resulted in some prize—which would leave him in “the unenviable position of pricing the conversion from virtual gold and chips to virtual wood and rock” to determine damages in the case.
“Such a whimsical undertaking may spark the imaginations of children and ardent game enthusiasts, but it can have no place in federal court,” he wrote.
Just like monopoly?
Defense motions raise similar arguments in the four pending cases.
Lawyers for IGG.com, maker of Castle Clash, wasted no time in pointing out Bredar’s decision to the judge overseeing its case in the Northern District of Illinois. The company’s lawyers at Sheppard Mullin Richter Hampton filed a copy of Bredar’s decision with the court the day it was handed down, calling it persuasive authority for the argument that anti-gaming laws don’t apply to “virtual videogames with fictional heroes.”
Partner Mark Eisen said that he sees some defense arguments that hold for all the cases filed thus far. “You can’t cash out. You can’t get real money,” Eisen said. “You’re buying the product and that’s all it is. Whatever you get stays in the game.”
The complaint against IGG includes the allegation that the company ran an event that ranked every player in the world by the number of “gems” purchased within the game over a certain period in 2014. The top 20, according to the suit, were awarded a special character within the game (“the latest legendary Hero Moltanica”). Plaintiffs pointed to reports in an online forum dedicated to the game claiming that players among the top of the leader board during the event spent $3,000 in one day attempting to win.
The social casino game defendants face alleged losses by individual plaintiffs that skew higher, climbing to $12,000 for the name plaintiff in the suit against Slotomania. The casino-style defendants also won’t be able to argue that they operate games of skill, not chance.Caesars Interactive Entertainment, which acquired Slotomania’s Israel-based parent company in 2011, is represented by Paul Hastings. In a motion to dismiss, the lawyers argue that since players need pay nothing to play and can’t cash out, it is nor more gambling than the game of Monopoly.
To the Edelson lawyers, it’s relevant that the casino-style game is designed to stoke the same psychological triggers as real-world gambling and mimic Vegas slot machines.
First-time players are awarded 10,000 free “coins.” Once those run out, players can purchase more at a price that starts at $1.99 for 7,500 coins but descends for larger purchases. The game is connected to the same rewards program used in Caesars and Harrah’s casinos, plaintiffs allege. “There can be no question,” the team writes, “that Slotomania constitutes a gambling game.”
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