Free to Play: It’s Addictive. Should We Regulate It?

As the Zynga empire has shown, free-to-play online games have become an incredibly lucrative part of the industry. Free-to-play allows anyone to take part without paying a dime, but the games become profitable by inserting advertising and by offering features that will cost you. This could be extra levels, special items, or skipping ahead to later stages. Is calling a game “free" but then later charging fees a deceptive practice? Is it legal, and more fundamentally, is it ethical?

Deceptive trade practices are an important branch of business law. Federal and state law control what qualifies as deceptive practice, and many states have been influenced by the Uniform Deceptive Trade Practices Act. A lot of the doctrines deal with trademark law, a topic we recently covered with respect to Joustin’ Beaver. Pretending that a good is made by a company when it is not is a deceptive practice. So is selling something as new if it is used, disparaging the goods of another by misrepresenting facts, advertising things you do not intend to sell, and so on. Deceptive practices set basic standards of honesty between businesses and consumers. These rules, generally, are at the state law level, and accordingly do vary from state to state. What follows is a general discussion without any particular state’s viewpoint guiding.

Most of those concepts come into play when advertising a product, but there are additional deceptive practices that govern how businesses can behave in their ongoing relationships with customers. This would likely be the area of the law relevant to free-to-play games. It prohibits unfair adhesion contracts, which is when a “take it or leave it" agreement exists between parties with unequal bargaining power. For it to be considered unfair, courts look to whether the terms are outside reasonable expectations, whether the less powerful party would know a term was there, or if the contract is unconscionable or oppressive.

An outgrowth of this concept is the shrink wrap-contract, which directly applies to buyers and sellers of software, like games. The terminology comes from the fact that you cannot see the terms without opening the product. In the case of downloads or websites, web-wrap, click-wrap, and browse-wrap terms only appear when you use the program. There is no nationally controlling decision on the subject. Some major cases like ProCD v. Zeidenberg suggest that these types of contracts are perfectly legal, while others such as Specht v. Netscape found them invalid. Of course, any decision is specific to the facts of the case, so a court would consider an agreement by analyzing it for reasonableness and unconscionability, just like adhesion contracts. Unless a company misled players into believing nothing in the game was ever going to cost money, it seems like free-to-play games with monetized aspects are fine under these principles.

Some countries are extremely concerned about the addictive nature of gaming and have regulated it accordingly. Ars Technica noted that Japan is set to restrict certain practices that prey on compulsive behavior. The new regulations would deal with games that offer random items for a price. Japan’s Consumer Affairs Agency has received complaints after some customers burned through enormous amounts of money while attempting to complete rare sets of digital items. Even though some social gaming companies already voluntarily capped the amount children could spend, authorities have argued the practice violates Japan’s lottery laws.

But as we noted previously, the US is a different story. Japan may be tightening the screws on social games with aspects that resemble gambling, but the Justice Department’s new interpretation of the Wire Act points in the opposite direction. As long as the wager is on the game itself and not some outside activity, the American government seems willing to tolerate it. If a game company does not make promises it cannot keep or step outside of reasonable behavior, they are legally safe building costs into a free-to-play game.

Of course, legal and ethical principles do not always overlap. As free-to-play has boomed, many have wondered whether it is right. When people go overboard and dedicate too much money and time to any game, it makes us uncomfortable. People can become addicted to anything, and games are not an exception. Free-to-play is ripe for criticism because the costs are not immediately apparent.

With other games, the sticker price is immediately obvious. (Some companies have also been criticized by making additional features available only after spending more money, but that is only getting more popular.) With free-to-play, a gamer could end up spending as much or more than they would on your average console title. Some developers are opposed to this because they consider it misleading, while others have it built into their business model. There is no widespread agreement on how to handle this, and gamers will set the industry standard by voting with their wallets.

A challenge with resolving this question is that it raises a larger point about the ethics of sales. Producers of anything from food to video games face a very competitive market. There are a myriad of options and it is a battle to get noticed. One of the most effective ways to court customers and establish an audience is to give them a complimentary taste. That is the logic behind the free samples in the grocery store, or the coupons offering deep discounts for new items. It also underpins the tried and true technique of the game demo that is offered shortly before the full release. You let someone give your product a try, decide if they like it, and hopefully they choose to pay for it.

Free-to-play operates the same way. The developer provides a base version that introduces you to the engine, allows you to have some fun, and then they make their money once you are hooked.  Some believe that because games are ripe for compulsive behavior, they must be regulated. But that is a slippery slope. People can have an unhealthy relationship with food: does that make dropping the price on a new kind of chip unethical? If we started down this road, we might never stop. But it is also possible that the way we perceive games will evolve, and we will shift closer to Japan’s approach. As free-to-play’s market share expands, so does the chance for regulatory scrutiny.

As a gamer, you have influence on how this plays out. If you dislike free-to-play, then do not download the games. Governments might choose to respond, but the market will always be more nimble. As long as free-to-play is a cash cow, it is going nowhere.



Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

LGJ: EA's Online Pass a ticket to FTCville?

In the latest LGJ, we take a look at the Online Pass and some potential unwanted consequences.

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LGJ: Does PS3 Firmware 3.21 come with a refund?

On this week's LGJ, we talk about the interesting refund issue that has accompanied the PS3's loss of Linux support. Be sure to note, though, this is basically an advertising issue, not a discussion of Sony's EULA.

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LGJ: FTC could target EULAs

This week's LGJ focuses on the FTC potentially targeting the EULA.


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LGJ: Here Comes the FTC

This week's LGJ focuses on the announcement that the FTC is considering consumer protection related to digital rights management and what that could mean for consumers and developers.

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UMG v. Augusto: Big Win for Consumer Rights.

Recently, I wrote a piece on Joystiq which referenced the then still pending UMG v. Augusto suit. The verdict is in on that case, and it's a big win for consumer rights. The motion for summary judgment is available here, but I will summarize it for you. Promo CDs are in fact governed by the first sale doctrine even though they are never sold to the consumer. This means that, by extension, promotional DVDs and games are also covered by the first sale doctrine in the same manner. So long as the producer transfers title in those items to someone else, then that satisfies first sale. Should the producer actively recover the products, then first sale would not apply, but since these items are distributed without any intention of being returned to the producer, then it is considered sold.

The victor here is clearly the consumer. This means that if you get your hands on a promotional CD, DVD, or game, even one labeled not for resale, you can keep it or sell it on eBay without worry about repercussions from the game's publisher. More importantly, it prevents an expansion of the first sale doctrine, which could have limited your ability to resell games you've purchased at all. Game resellers, both those on eBay and the major retail chains, should be applauding this decision as it supports their livelihood.

This was a big win for consumer rights, and a big win for all of us as consumers.

Jack Thompson: Online Game Sales = Deceptive Trade Practices!

I'm certain many of you, the readers, have seen the latest Jack Thompson coverage on Game Politics found here and here. Dennis was quick to point out the FTC provision about credit card ownership being adequate proof of age for online transactions, and the FoxNews contributor was quick to play the free speech card. However, there's an elephant in the room I'd like to address.

Everything Mr. Thompson has said about games applies to movies on DVD.

Anyone with a credit card can go to Amazon.com and pick up Saw I, II, or III (unrated, meaning the more violent cut than the theatrical one) just as easily as you can order Manhunt 2. The same applies to Best Buy, Circuit City, or whatever other entertainment online store you'd like to site. To the same ends, in-store id checks are equally lacking on these (and other) movie titles. While I haven't played Manhunt 2, I can only imagine the graphic content is probably on par with the Saw series, which is exceptionally brutal if you haven't seen the movies. Given that the research on the impact of media is mixed, and that movies have been found to affect young people like games by some studies, why ignore the movie industry?

There can only be a few answers:
1. Mr. Thompson is afraid of the people in the movie industry, as they would likely be viewed as "more powerful" than the game industry.
2. Mr. Thompson is giving undue weight to the unproven link between interactivity and a heightened impact.
3. Mr. Thompson has an unhealthy fixation on and unequivocal bias toward games, which cannot easily be explained.
4. Mr. Thompson's logic is flawed, for some other unexplained reason, so that he either ignores or actually favors violent movies. (Perhaps he is a Saw fan.)

The simple point being: If you would like to go on a crusade against the media, go on a crusade against the media, not one medium.

Ultimately, the decision should still be left to the parents, and the tools are in place for the parents to make those decisions. It is not up to the government, or Mr. Thompson, to make those decisions for society, parents who are failing to perform their duties as parents, or parents who are actively monitoring their child's media consumption. And if anyone is to be held responsible, it should be the inadequate parents, not the game manufacturers, game retailers, or game raters. I can only hope that the news media will tire of this issue soon, or that the American people will begin to realize that playing the "For the Children" card has reached a point where it should be accompanied by automatic scrutiny, as it is rarely actually being used to help the children anymore.

Of Warranties and Consumer Protection: An Xbox 360 Story

Last evening, my second Xbox 360 died, approximately 7 months after it arrived. I had a launch console, which died about 8 months ago, and was replaced by the recently deceased refurbished console. I know what you are thinking, "Join the club." Or "Yep, and it seems Microsoft is never going to tell you why."

However, Law of the Game is a site about video game law, and while my second dead Xbox 360 may seem like it has nothing to do with the law portion of that description, it works as an interesting lead in to a short post on the law of warranty and the concept of consumer protection.

The concept of a warranty is simple enough: Someone selling a product assures the buyer that of something. In a typical consumer transaction, the assurance is generally that the product will work for some period of time or is free from defect. Warranties can be express (written) or implied (imposed by law on all sales). Express warranties must be available to the consumer pre-sale, according to the Magnuson-Moss Act of 1975, a Federal Law. The FTC has a fairly complete consumer guide for written warranties.

We all know what the Xbox 360 warranty says, it's right here and here. It is the second variety of warranties that are more complex, the implied warranties. Implied warranties are imposed by law, and vary from state to state in the US and country to country abroad. As a result, I could spend the next year just trying to lay out the complex worldwide warranty matrix and still not finish the task. So, instead I will briefly mention two major forms of implied warranties: Merchantability and Fitness for a Particular Purpose.

Merchantability implies that the goods are what they say they are, and they conform to the standards of trade for that item so that they can be used as expected for that item. So, when sold, an Xbox 360 is warranted to be working, packaged and assembled in a uniform way, and able to play Xbox 360 games and DVD movies.

Fitness for a Particular Purpose is more specific. A merchant in this case must know that the consumer is planning to use the item for something specific and tells the consumer that the items are fit for that purpose. Say I went into a furniture store asking for a table to support a very heavy (200+ pound) TV set. If the salesman told me that a particular table would work, and it in fact collapsed, there would be a violation of the warranty.

Neither of these implied warranties are of much use, unless your system is dead out of the box. Moreover, they typically apply to the merchant (the place you bought the item), not the manufacturer.

A related issue is the concept of a deceptive trade practices acts. Deceptive trade practices are pretty much what they sound like (an action that in some way deceives the consumer about the product), and they are also a state by state action. In fact, some states have a long list of industry specific violations in addition to the general violations. It would be a bit of a stretch to apply this as well, although some concept of a failure of represented quality might be applicable, although Microsoft has generally admitted Xbox 360 failures, which may preclude this option.

There are probably potential other causes of action related to the Xbox 360 failures, but these are the ones that seem to appear on the message boards the most.

I would also like to take a moment to point out another legal issue related to the Xbox 360 failures: Fraud. Going to Wal-Mart (or other retail store), purchasing a console, and then returning your broken console is fraud. While it may seem like an easy fix, just don't do it.

Microsoft has encountered an interesting problem with the 360. The failure rate is high, but so are sales. What is a gamer to do? Hunt for weeks, if not months, to get a Wii, which I admit I enjoy thoroughly but is a little short on software until some of the big releases later this year (Metroid Prime 3, Smash Bros. Brawl, Mario Galaxy). Buy a PS3, which is even more expensive than the 360 and has, for the time being, a weak software lineup. Or buy a 360 and play some quality games until it fails, which seems a near certainty, at which point you might be under warranty, might have to pay for a repair, or might just buy a new console. It's quite an odd problem, and one I certainly wish Microsoft would resolve. Unfortunately, sales don't seem to be suffering enough for Microsoft to really take notice. Not that I blame the consumer, since I'm just as hooked as most everyone else. This issue, though, is also one that I cannot remember happening to this degree with any other console. In fact, I have never had another console in my collection fail, including my launch PS2 (which did have a notable failure rate).

What is a consumer to do? Unfortunately, short of a product recall (which seems unlikely given that it has not happened yet and safety is not the issue) or a class action suit, the individual consumer is likely stuck. Why? The cost of an action against Microsoft would be astronomical, and more than likely, they will just settle before any court could place any actual fault on them in order to avoid future, similar suits. This speaks to the failure of consumer protection on the whole. The Xbox 360 user base is vocal and adept at using the internet, so this issue is well known and widespread. Who knows what other products may present the same result to a less technically savvy group. On the flip side, I am certain that other products that work well are being unduly burdened by consumer protection attempts. It probably balances out in the grand scheme of things, but is unfortunate in many particular instances.

And so I, like everyone else, will be once again calling 1-800-4-MY-XBOX and hoping for the best. At least this time, it is in the off season, rather than right before a major game release (my last console was being repaired during the Gears of War release).