Valve facing second, class-action lawsuit over loot boxes

Less than two weeks after New York state sued Valve for "letting children and adults illegally gamble" with loot boxes, a second, consumer class-action lawsuit has been filed making essentially the same allegation: That loot boxes in Valve games, like Counter-Strike 2, Team Fortress 2, and Dota 2 are "carefully engineered to extract money from consumers, including children, through deceptive, casino-style psychological tactics."

"We believe Valve deliberately engineered its gambling platform and profited enormously from it," Steve Berman, founder and managing partner at law firm Hagens Berman, said in a press release. "Consumers played these games for entertainment, unaware that Valve had allegedly already stacked the odds against them. We intend to hold Valve accountable and put money back in the pockets of consumers."

The system is well known to anyone who's played a Valve multiplayer game: Earn a locked loot box by playing, pay $2.50 for a key, unlock it, get a digital doohickey that's sometimes worth hundreds or even thousands of dollars but far more often is worth just a few pennies. Is that gambling? If these cases go to court, we'll find out.

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The full complaint points out that the unlocking process is even designed to look like a slot machine: "Images of possible items scroll across the screen, spinning fast at first, then slowing to a stop on the player's 'prize.' Players buy and open loot boxes for the same reason people play slot machines—the hope of a valuable payout."

Loot boxes, the complaint continues, are not "incidental features" of Valve's games, but rather "a deliberate, carefully engineered revenue model." So too is the Steam Community Market, and Steam itself, which the suit claims is "deliberately designed" to enable the sale of digital items on third-party marketplaces through "trade URLs," despite Valve's terms of service prohibiting off-platform sales.

And while the debate over whether loot boxes constitute a form of gambling continues to rage, the suit claims Valve's system does indeed qualify under Washington law, which defines gambling as "as “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence.”

"Valve’s loot boxes satisfy every element of this definition," the lawsuit alleges. "Users stake money (the price of a key) on the outcome of a contest of chance (the random selection of a virtual item), and the items received are 'things of value' under RCW 9.46.0285 because they can be sold for real money through Valve’s own marketplace and through third-party marketplaces that Valve has fostered and facilitated."

"What makes this case particularly egregious is that Valve knew children were on the other end of these transactions," Berman said. "Rather than protect young players through age verification or a parental consent mechanism, we believe they rigged the game to extract more money from them." (The use of "rigging" here isn't literal: Berman's statement doesn't accuse Valve of engineering fraudulent outcomes with its loot box systems.)

Daniel J. McGinn, a lawyer unaffiliated with the New York case who published an analysis of it, noted that up until this point, "plaintiffs challenging loot boxes in video games have run into a brick wall in federal court." But McGinn believes there is a difference between this case and those that Valve has faced in the past.

"What sets the New York case apart from prior litigation is the [New York] AG’s argument that the virtual items won from Valve’s loot boxes are genuinely valuable—not just subjectively meaningful to gamers, but convertible to real money in a publicly visible and recognizable manner." McGinn continues, "The New York case is not constrained by California’s consumer protection framework or its 'thing of value' jurisprudence. New York’s Penal Law defines gambling broadly as staking something of value on a contest of chance for the chance to receive something of value in return—without requiring the item to be freely transferable under an authorized marketplace."

To gamers, though, the timing of this wave of legal action will feel rather delayed: Counter-Strike 2 and Dota 2 have featured loot boxes since 2013 and 2012 respectively, and controversy has surrounded these systems, particularly in CS, for a full decade. Though Valve has faced some regulatory consequences over loot boxes after pressure from the Netherlands and Belgium, it has not lost outright in court. The popularity of Steam (and, I would argue, of Valve founder Gabe Newell himself) has gone a long way toward insulating Valve from the sort of loot box community blowback faced by other studios.

There's at least one sign that Valve is taking action to comply in advance in some territories. Late last week, Valve announced an "X-ray scanner" feature for Counter-Strike 2 players in Germany, which will enable them to see what's inside containers before they're opened—an apparent move to bring CS2's item system into compliance with the very specific letter of the law.