A week ago, New York’s attorney general Letitia James announced the state of New York intended to sue Valve over its implementation of loot boxes in Counter Strike 2 and Dota 2. It’s her belief both children and adults are exposed to “illegal gambling” – comparing the loot box features to slot machines, and Valve to a casino.
It’s a big move for the state, there’s little doubt. But what does this lawsuit actually mean for Valve and those who play these games? To find out, we spoke to Justin Jacobson, a New York lawyer working in the video game industry. Jacobson believes the potential ramifications of this suit depends on whether New York can establish one fact: Do digital goods have real value?
“In other states where cases like this have gone forward, like the Supercell case, and Kater v Churchill downs. These cases pretty much said a virtual item isn’t a thing of value, that really the only value it brings is an aesthetic value, and there is no value beyond that,” Jacobson said. ” We may be like ‘Oh that skin is really valuable’, but that’s not valuable in the way the food you’re buying is valuable.”
The fact that New York is challenging Valve is noteworthy in and of itself. Unlike other states, New York’s legal framework has key differences that may prove fruitful in legal proceedings on this matter. For one, New York’s gambling statutes differ significantly from elsewhere in the US.
“Its gambling statutes don’t require something to be freely transferable on an authorised marketplace. Other states have that requirement, and that’s where things fall by the wayside,” Jacobson states. “There’s no legal way to sell what you’re gambling for in these Supercell games or what have you. The argument here is, and what the attorney general of New York is trying to do, is focus on Valve creating these skins to have a value. Valve has a monetary interest in this exchange: it gets paid when you buy keys to open these boxes, it gets paid a percentage on items sold on the community marketplace… So it’s an incentive for these skins to have value.”
There’s also the matter of how these digital items are valued in reality, compared to whatever lack of value is described in Valve terms of service. Here, New York also differs. “The big thing is, New York law looks at what’s actually happening in practice. What are you actually doing, what are the facts here, rather than what’s in your terms of service,” Jacobson posits. “These other states point to the terms of services and what they say, which can insulate companies.”
He continues: “The argument the attorney general is making is you have to look at the totality of the situation: internal memos, unbanning accounts… They even said they had an OAG (office of Attorney General) investigator buy stuff on it, get enough money to cash out for a Steam Deck, and sell this Steam Deck to an electronics store. If an investigator can do this, it’s like okay, everyone can do this. That’s why I think it’s a little bit different: Valve, whether intentionally or not, has made the skin aspect of things a part of the package. League of Legends isn’t saying, hey go trade your skins and here’s an easy URL so you can do it, right?
While lootboxes being gambling is no new debate, reaching as far as Canadian courts in the case of EA’s FIFA loot boxes, the unique nature of Valve’s lootbox ecosystem potentially opens it up to further scrutiny.
“Valve have also kind of developed market research tools that act as a stock market of sorts, there are Steam trade URLs that make transferring items easier than it may be in other games, and on top of all that Valve has actively policed skin gambling and other sites, but have left third party marketplaces alone,” Jacobson says. “If you read through the summons and complaint, the attorney general listed sometimes marketplaces were wrongly shut down, Valve was contacted, and they were reactivated. So not only is Valve letting them go, if it mistakenly captures them, it’s letting them go free. The difference here is Valve is arguably inducing this. That’s what the lawsuit is about, Valve’s conduct is involved in this marketplace.”
While there are certain differences between this case and others in the US, Jacobson also points to Kater vs Churchill Downs as a potential avenue of attack for New York. This case notably featured Washington’s panel stance that Big Fish Casino constituted illegal gambling under Washington law because its virtual chips were a “thing of value.” As Jacobson explains: “Basically, you could buy extra chips, but if you did X, you could get a bonus spin. That was an outlier that could provide some guidance for this case, because they did say this was a thing of value. In this case, they determined this virtual item was a thing of value because it saved you from having to pay X to have another spin. That’s a thing of value. Otherwise, you’d have to wade through the timer to refresh or you’d have to buy another energy or whatever. It will be interesting to see if New York has a similar thought process.”
There’s also the matter of political optics. As many have pointed out, the New York case against Valve also made sure to mention the potential promotion of gun violence by Valve. It reads: “In addition, although this case is about illegal gambling, it is important to note that Valve’s promotion of games that glorify violence and guns helps fuel the dangerous epidemic of gun violence, particularly among young gamers who can become numbed to grave violence before their brains are fully developed.”
Jacobson also notes the good political optics of such a case, which in the case of gambling, may have merit. “Their big thing is gambling against kids, and kids getting addicted to loot boxes. These companies kind of created these loot box mechanisms to mimic casino machines where it’s about to land on your [jackpot] and shifts over… Realistically, all of these things are pre-determined. You can open a box and whatever you see is just for fun. Why do that if you didn’t want to hone in on a person’s feelings of ‘ohh that was a close one'”.
So what happens now? Well, while the gears of the legal system do turn slowly, there are potentially big levers that could be pulled which could affect not only Valve financially, but Steam users in New York. Whether these are actually used by New York is a question of legal merit.
“What I thought was interesting is if the court issues a temporary injunction for this case,” Jacobson muses. “Saying, hey while we work this out, you’re barred from selling in New York. That is what could be really damaging for Valve. That would have to rely on the merits, there are elements to whether you can issue an injunction, but to me that would be a really big problem.”
Jacobson, who has clients within the esports ecosystem of Valve games, told Eurogamer that esports-centric skins are influenced heavily by geography. European teams with skins available in Counter Strike 2 loot boxes, for example, are largely popular among EU fans. He also pointed to the popularity of these games worldwide, not just in America (or New York).
However, as far as general Steam gaming purchases are concerned, there could be a significant impact if an injunction is established. “If general microtransactions are banned in New York for Steam and Valve products, that could be a sizable chunk of income lost. The New York skins probably won’t make that big of a difference compared to if the EU did something. If there were an EU-wide directive that said lootboxes were gambling, you’d have however many countries blocked out.”
