More Video Game Gambling News From Washington State

As I wrote last week, CCP's reintroduction of gambling into EVE Online has me reviewing some of what I wrote back in 2016-2017. One of the flash points then was the state of Washington and the gambling surrounding Counter Strike: Global Operations. At the beginning of December, a new lobbying group formed to protect "smartphone" games from Washington state gambling laws.

Gaming industry and civic leaders in Washington state are launching a new lobbying organization today, part of a broader effort to exempt smartphone games from local gambling laws.

Game On WA is launching in response to a federal court decision last year that cast uncertainty on the legal status of smartphone games with in-app purchases in Washington state. The organization is led by former government officials and tech leaders. Its goal is to persuade the state legislature, gambling commission, and public that Washington gambling laws should not apply to so-called “social games.”

The gaming industry has flourished in Washington over the past decade, led by companies like Microsoft, Valve, and Big Fish Games. For years, the Washington State Gambling Commission did not enforce gambling laws on social games. But a 2018 federal court decision broke with that tradition, leaving the casual gaming industry in “legal limbo” in Washington state, according to Game On WA.

The case, Kater v Churchill Downs, overturned an earlier ruling that dismissed a case against Churchill Downs and its game, Big Fish Casino. Since I find the legal opinion more descriptive than the articles I found, I'll quote quite extensively from the opinion. First, what is Big Fish Casino?

Big Fish Casino is a game platform that functions as a virtual casino, within which users can play various electronic casino games, such as blackjack, poker, and slots. Users can download the Big Fish Casino app free of charge, and firsttime users receive a set of free chips. They then can play the games for free using the chips that come with the app, and may purchase additional chips to extend gameplay. Users also earn more chips as a reward for winning the games. If a user runs out of chips, he or she must purchase more chips to continue playing. A user can purchase more virtual chips for prices ranging from $1.99 to nearly $250. (pp 3-4).

Kater's suit involved three main charges against Churchill Downs.

1. Violations of Washington’s Recovery of Money Lost at Gambling Act (RMLGA)
2. Violations of the Washington Consumer Protection Act
3. Unjust enrichment

The lower court ruled that the chips used in Big Fish Casino did not constitute a "thing of value" and dismissed the case with prejudice. The federal court disagreed. According to Washington state law, a  "thing of value" is:

[A]ny money or property, any token, object or article exchangeable for money or property, or any form of credit or promise, directly or indirectly, contemplating transfer of money or property or of any interest therein, or involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge. (Wash. Rev. Code § 9.46.0285.)

I think the key argument made by Kater's lawyers was "...that the virtual chips are a 'thing of value' because they are a 'form of credit . . . involving extension of . . . entertainment or a privilege of playing [Big Fish Casino] without charge.'" (p. 6). The court agreed. I think the reason is important going forward to understand where we are at this point in the United States.

We agree. The virtual chips, as alleged in the complaint, permit a user to play the casino games inside the virtual Big Fish Casino. They are a credit that allows a user to place another wager or re-spin a slot machine. Without virtual chips, a user is unable to play Big Fish Casino’s various games. Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have “the privilege of playing the game.” Id. Likewise, if a user wins chips, the user wins the privilege of playing Big Fish Casino without charge. In sum, these virtual chips extend the privilege of playing Big Fish Casino. (pp. 6-7)

The three-judge panel decided that Washington state case law, specifically Bullseye Distributing LLC v. State Gambling Commission, was more relevant than out-of-state cases such as Mason v Machine Zone Inc.

Notably, the only Washington court to analyze section 9.46.0285 supports our conclusion. In Bullseye Distributing LLC v. State Gambling Commission, the Washington Court of Appeals held that an electronic vending machine designed to emulate a video slot machine was a gambling device. 110 P.3d 1162, 1163, 1167 (Wash. Ct. App. 2005). To use the machine, players utilized play points that they obtained by purchase, by redeeming a once-a-day promotional voucher, or by winning a game on the machine. Id. at 1163–64. In reviewing an administrative law judge’s decision, the court concluded that the game’s play points were “things of value” because “they extend[ed] the privilege of playing the game without charge,” even though they “lack[ed] pecuniary value on their own.” Id. at 1166. Because the play points were a “thing of value,” the machine fell within the definition of a gambling device, and therefore was subject to Gambling Commission regulation. Id. at 1167. (pp. 7-8)

However, the decision decided to uphold a subject I pointed out back in 2016: the terms of service of a game can legally matter. In a footnote on page 8, the court ruled against the real money trading argument made by Kater.

Kater makes a second argument, which we reject. She argues that the chips are a “thing of value” because users can sell them for money on the “black market.” However, Big Fish Casino’s Terms of Use prohibit the transfer or sale of virtual chips. As a result, the sale of virtual chips for cash on a secondary market violates the Terms of Use. The virtual chips cannot constitute a “thing of value” based on this prohibited use. See Mason v. Mach. Zone, Inc., 851 F.3d 315, 320 n.3 (4th Cir. 2017).

I should point out that the decision sending the case back to the lower court didn't really conflict with Mason v. Machine Zone in another important fact. Big Fish Casino is a gambling simulator, period. Every mini-game is a game from a casino, hence the name. In Game of War: Fire Age, the casino is just a small part of a MMO strategy game. As was stated in the opinion in Mason v Machine Zone:

Even were the Court to embrace Plaintiff’s expansive understanding of “slot machine or device,” the Court would still find that Defendant has not violated section 330b. This is because, while the penal statute broadly proscribes the manufacture and ownership of such devices, it carves out an important exception: “Pinball and other amusement machines or devices, which are predominantly games of skill, whether affording the opportunity of additional chances or free plays or not, are not included within the [proscribed category].” Cal. Penal Code § 330b(f) (emphasis added). Here, Defendant argues, “Plaintiff’s pleading and indisputable facts show that there is no dispute that GoW, as a whole, is a game of skill, not chance.” (ECF No. 7–1 at 18.) Plaintiff does not refute this point directly; instead, she complains that “[u]nder Defendant’s logic, any game of chance normally violating § 330b . . . can be transformed into a legal game by surrounding it with games of skill.” (ECF No. 18 at 23.)

Defendant’s logic would lead to no such result. The game at issue here is not “Casino”; the game is GoW. Plaintiff proffers no authority for the proposition that the Court may excise one particular aspect of an integrated strategy game and evaluate that aspect in isolation. On the contrary, applying Plaintiff’s logic, one could excise the free replay and similar chance-based functions of any number of skill-based games—including pinball—and, viewing those aspects in isolation, find the games to violate section 330b. In essence, Plaintiff invites the Court to read the subsection (f) exclusion out of the statute. The Court declines Plaintiff’s invitation.

Part of the reason for writing this post is, from the reporting I'd read, a judge was ruling against online gambling in video games in a major change in the law. But the ruling in Kater v Churchill Downs won't even extend to the nine states that make up the Ninth Circuit Court of Appeals as the law in question is a state gambling law.

One of the biggest, if not the biggest, challenges in figuring out the gambling laws in the U.S. is that each state has its own. We may eventually see a federal law pass, but I doubt Congress will do so in a presidential election year. Still, I expect to hear a lot of campaign rhetoric on the subject. If history is any judge, lots of YouTubers and writers will get excited about the eminent demise of lock boxes. I'll try to not jump on the bandwagon without looking carefully first.