European consumer organisation challenges in-game monetisation landscape as unfair

In-game monetisation, whether through (among other things) the sale of in-game items, additional content or new features, is an increasingly important revenue generator within the video games industry. Indeed, the commercial model for a number of games (particularly on mobile) is based entirely around in-game purchases – via a ‘freemium’ model, players can download and use the game for free, but can optionally purchase in-game content to enhance their experience. The player benefits from a free game, and the publisher can reach wide audiences and establish a sustained revenue stream. However, in-game monetisation techniques have often sparked debate over the protection of players, particularly regarding fairness, transparency and safeguarding of younger players. This has culminated in a complaint (principally under EU consumer protection laws) by the ‘Bureau Européen des Unions de Consommateurs’ (BEUC) to the European Commission. The complaint represents 22 member organisations from 17 countries from the BEUC; and it comprises of various recommendations to the European Commission, including calls for new law and regulation, and stronger enforcement actions under the current legal framework. Below we delve into some of the most interesting points (and associated legal arguments) presented by BEUC. However, first we must (as is typical of lawyers) establish some definitions to contextualise the debate. 

1. The recommendations

In a nutshell, the BEUC recommendations are:

(a.) An outright ban on Premium VC.

(b.) If (a) is not possible, an outright ban on Premium VC for minors. 

(c.) If (a) or (b) are not possible, new stricter transparency laws should be implemented regarding disclosure of prices in Fiat Currency for Premium Transactions (in addition to the Premium VC price).

(d.) Stronger regulation generally of in-game monetisation, such as laws requiring that in-game transactions are switched off by default (i.e., players much ‘opt in’ to microtransactions). 

2. An outright ban on Premium VC?

The BEUC have put forward some recommendations which would significantly overhaul the in-game transaction landscape. They start with a proposed ban on Premium VC. The complaint challenges the existence of Premium VC, alleging that Premium VC serves to confuse consumers over the true costs of Premium Transactions. This can be complicated by the fact that Premium VC often does not have a simple ‘conversion’ rate into Fiat Currency, given players can usually benefit from cheaper rates by purchasing Premium VC bundles on discount. Moreover, some games implement multiple layers of Premium VC and Soft VC which, together, can further distort the true financial value of Premium Transactions. 

The BEUC is not the first body to raise transparency concerns. The UK’s main advertising regulator, the Advertising Standards Authority (ASA), published guidance on in-game purchasing in 2021. Whilst the ASA’s guidance does not anticipate a ban on Premium VCs, it advises publishers on how to comply with advertising regulations when using in-game transactions. The guidance is underpinned by the ‘core rule’ of advertising; ads must not mislead consumers, or be likely to do so.  For example, the ASA’s guidance describes the concept of ‘odd-pricing’ (which BEUC also alludes to). This refers to the practice of selling Premium VC in bundled increments which do not align with the costs for Premium Transactions. This means consumers could have residual unspent Premium VC, meaning they either lose money or purchase more Premium VC to spend it. 

For example, take our in-house game ‘BEAQ’. You can buy our Premium VC, “SDZ” in increments of 100. A player sees an ad for the Robin Revolver, priced at 30 SDZ, and wants to buy it. The player opens BEAQ and finds out they need to purchase 100 SDZ at minimum. The player has 70 SDZ remaining after buying the weapon.  

In the ASA’s view, ads for In-Game Items (particularly those outside game, where consumers are ‘further removed’ from the costs of Premium VC) require disclosures explaining that financial discrepancy, such as “Minimum currency purchase is [100 SDZ for £10]”. This is to reduce the misleading impression of the ad. 

Another key issue raised by BEUC is behavioural science; consumers feel less of a ‘sting’ when they purchase In-Game Items with Premium VC over Fiat Currency. This is particularly the case for younger children who lack developed understandings of the value of money, and who are prone to ‘impulse spending’ and ‘FOMO’ (fear of missing out). It may feel unusual to connect the realms of psychology and the law, but in fact, behavioural science plays a key role in interpreting consumer laws, particularly in court and regulatory enforcement actions. Indeed, the UK’s main consumer regulator, the Competition and Market’s Authority (CMA), employs a Behavioural Hub comprised of behavioural scientists who support on consumer law cases. It is the above legal and behavioural issues that underpin BEUC’s overarching challenge against the actual existence of Premium VC. 

On the other hand, many argue that virtual currencies are well understood by consumers (having been fairly ‘standard’ within the industry for a number of years), and represent a fun and engaging part of the game experience. Moreover, it’s often the case that Premium VC can be earned as identical Soft VC without spending Fiat Currency. Whilst this may not assist with the ‘transparency’ agreement of Premium VC, it does provide a route whereby players can achieve the same benefits without spending any Fiat Currency. They can access, complete and enjoy the game without spend. 

In its 2021 guidance, the ASA seems to account for this view by stating that such guidance does not apply to in-game ads and store fronts if the relevant In-Game Item can be purchased with either Premium VC or Soft VC. In the ASA’s words, “the virtual currency is acting as a direct proxy for real money, and the decision to spend it is fundamentally a decision to spend real money. However, if that virtual currency can be earned in the game, then it is considered to be an in-game resource in its own right, regardless of whether players can also pay to ‘top up’. In this case, it is no longer a direct substitution for real money and any inducement to or presentation of purchase with the virtual currency would not be considered to be advertising.”  Whilst general consumer laws continue to apply in such situations, the question is whether equivalent Soft VC can mitigate the risks of consumer harms in the context of in-game monetisation. 

Overall, there is currently no general legal prohibition on Premium VC in the UK or EU. As the complaint outlines, it is possible to implement Premium VC in a way that falls outside the scope of e-money regulation. However, it remains true that Premium VC should be used in compliance with consumer protection laws and advertising regulation. The challenging aspect of such laws is that they are often principles-based and interpretative, meaning there can be different approaches to achieving compliance and guidance does not tend to neatly cover all scenarios (and note our comments in section 5 below on the ‘professional diligence’ provisions of the Unfair Commercial Practices Directive (UCPD) as an example of the issues/risks associated with this principles-based approach). 

3. Displaying In-Game Content prices in Fiat Currency 

On pricing transparency, the BEUC states that the equivalent Fiat Currency price (in addition to any Premium VC price) should be clearly and prominently displayed before a player completes a Premium Transaction.

The BEUC believe there is a clear legal basis to this. The Consumer Rights Directive (CRD) obliges businesses to state in plain and intelligible language, the total price of digital content before the consumer is bound by the purchase. These CRD pre-contract information rights apply (amongst other situations) where a consumer pays a ‘price’ (Article 3(1) CRD). Under European Commission guidance, a ‘price’ should include digital representations of value, such as virtual currencies.  Similarly, the UCPD prohibits misleading omissions. In short, this refers to an omission of material information a player needs to make an informed transactional decision. The UCPD specifically states that inclusive pricing is ‘material information’. Equally, European Commission guidance states that the prices for In-Game Items must be clearly and prominently displayed in Fiat Currency, in addition to any Premium VC amounts.

Similar requirements apply in the UK, given the obligations of the CRD and UCPD were implemented into UK consumer law prior to the withdrawal from the European Union. However, a new upcoming law (the UK’s Digital Markets, Competition and Consumers Act (DMCCA)) could see stricter implementation of these rules. The DMCCA will prohibit omissions of material information from invitations to purchase (Section 230, DMCCA). However, there is no need to meet the ‘transactional decision’ test, which considers the impact of omission on the consumer’s behaviour (note the psychology here!). In other words, the omission of the Fiat Currency price prior a Premium Transaction could be automatically deemed a banned practice, without a regulator needing to prove a behavioural effect on the player buying the In-Game Item.  

Overall, market practice in this area is mixed (with the response to the European Commission’s Digital Fairness Fitness Check stating that a little over half of in-game stores display prices both in Premium VC and Fiat Currency).  There are also practical challenges to compliance – it’s difficult to calculate a real world price if the Premium VC is not based on a standard unit. Moreover, if the same Premium VC can be earned for free as a Soft VC, then how does that impact the overall financial ‘value’ of the In-Game Item? There is also a legal argument that when the Premium VC is redeemed, that reflects the exercise of a contractual right as opposed to new transaction taking place. This creates further ambiguity for those seeking compliance. Then, there is also the question as to whether a Premium Transaction is a transaction to which consumer law applies at all (for which, see section 4 below).

4. Legal status of a Premium Transaction

Under EU and UK consumer protection laws, certain rights attach to players in the context of a business-to-consumer transaction. At a high level, these include:

• pre-contract information rights (for example, the pricing obligation described above)
• 14-day withdrawal/cancellation rights
• rights to fair contractual terms and statutory warranty rights (for example, that In-Game Content will be of satisfactory quality and fit for purpose)

However, BEUC states that the legal application of consumer rights to Premium Transactions is unclear – BEUC takes the view that a Premium Transaction should be considered a ‘consumer contract’, though to our knowledge this point has not been tested.

This raises an interesting point over consumer withdrawal rights and the digital content waiver process (see our previous article on this topic here). The general rule is that consumers have 14 days from purchase to cancel and refund their digital content (such as when buying an In-Game Item). Alternatively, these withdrawal rights can be wholly excluded where the consumer expressly agrees to their waiver. This entails taking certain steps, such as introducing tick box functionality to obtain the consumer’s consent. Implementing such functionality for Premium Transactions would be a significant change to standard practice across a large section of the industry.

5. PEGI ratings, parental tools and enhanced ‘professional diligence’ for minors

The PEGI age rating system helps classify which games are appropriate for which age groups. The PEGI content descriptors provide further context of the themes included within a game. Of particular note is the ‘in-game purchases’ descriptor, which signifies the inclusion of Premium VC and other paid-for content. In the UK, the ASA guidance makes clear that marketers must ensure that game ads clearly disclose if the applicable game contains in-game transactions (and particularly so, for loot boxes – see our previous article here).  

Image source: https://pegi.info/what-do-the-labels-mean 

The key concern raised by BEUC is that the presence of in-game transactions does not impact the PEGI age rating. It’s worth flagging however, that children are protected under consumer law by the general prohibition on directly exhorting (The DMCCA will update this language to a “direct appeal” (Schedule 20)) children to buy advertised products.  In any event, BEUC considers that prior disclosure tools do not adequately protect children from over-spending in such games. The complaint therefore recommends that in-game payment mechanisms should be switched off by default, and players (or parents) are required to ‘opt-in’. Linked to this, is that the BEUC cites parental accounts as “insufficient”. However, we would note that an increasing number of publishers offer parental controls for child accounts, which enable parents to control in-game spend, social settings and play time schedules. These tools are advertised widely, and empower parents to responsibly control the in-game spending of their children.  

In asserting a legal basis for the extra measures they say are necessary to protect children, the BEUC refer to the requirements under the UCPD for traders to act with “professional diligence”, which requires traders to act in accordance with:

the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader’s field of activity.

Often seen as a ‘backstop’ provision of the UCPD, if this provision were found (whether through updated Commission guidance or a court decision) to impose added requirements on publisher businesses when dealing with minors, the consequences could be quite far-reaching. Given its broad and (arguably) subjective nature, building a successful legal case on the ‘professional diligence’ provisions of the UCPD would likely give traders in all sectors pause for thought, as well as potentially emboldening regulators and litigious consumer groups.

European Commission Digital Fairness Fitness Check

At the time of writing, the European Commission published its response to the Digital Fairness Fitness Check consultation (which is BEUC’s proposed vehicle through which its recommendations should be addressed). The Commission response calls out concerns that some game environments may “induce digital addiction”, particularly for vulnerable consumers, such as children. More specifically, the response captures several concerns raised in this article:

• Virtual currencies distorting the true value of virtual items and encouraging spend
• Bundling and price presentation (including ‘odd-pricing’)
• Withdrawal rights/cancellation rights (survey results found that only one third of video game providers explained the digital content waiver process)
• Loot boxes and gambling

Interestingly, on the topic of legal status of Premium Transactions, the Commission parks that question and states that the determination of the existence of a contract (which triggers the application of consumer rights) is subject to national law requiring a case-by-case assessment: “i.e. the legal status of these transactions is not certain” .  On the overall topic of in-game design and monetisation, the European Commission concludes rather pessimistically with a general recognition that EU consumer law is not sufficiently clear or effective enough to address the multifaceted harms arising from digitally addictive design.

Our take 

The complaint touches on a number of areas where we see widely diverging market practice, potentially at least in part due to grey areas in existing law and guidance when it comes to in-game monetisation. Whether or not the BEUC is correct in its interpretations, what is true is that the European Commission (and possibly local EU regulators) have been put on notice of these issues, with the Commission’s own ‘Fitness Check’ then drawing them even more sharply into focus. Against a backdrop of major updates to consumer laws, increasing enforcement powers for regulators, and consumer class-actions, could now be the ‘GDPR moment’ for consumer and advertising law in the games industry?