January 10, 2023
2022 was a busy year for the games industry. Despite a slight course correction following strong pandemic activity, we have seen some of the fastest selling games of all time, strong M&A/investment activity and the growth of new tech and business streams like cloud gaming. A lot has been (sometimes not so) quietly going on from a legal perspective as well, spanning loot boxes to AI to crypto. This piece takes a quick look back at some of 2022’s key legal developments and how they could impact the games industry in 2023.
Loot boxes unsurprisingly remained a popular topic of debate throughout 2022. While one study found that existing loot box restrictions are rarely being enforced, in practise these have reportedly caused at least some big titles to simply not release in certain territories.
In terms of recent developments, the most significant arguably comes from the UK. In July, the UK’s Department for Digital, Culture, Media and Sport (DCMS) released its long-awaited response to the call for evidence on loot boxes in video games, and recommended that (for the time being) loot boxes be subject to further industry-led self-regulation. The key outcome being that children and young people must not be able to purchase loot boxes until they are enabled by a parent or guardian. This implicitly requires businesses to conduct some level of verifiable age assessment, which the government and regulators have yet to provide meaningful guidance on. The DCMS will reassess the industry’s progress on this in Q1 2023.
While not the drastic legislative overhaul or government intervention that some had called for (and others had feared), the self-regulatory model proposed has the potential to significantly impact how loot boxes can be sold in games available to UK players in 2023. If successful, it may also prove influential in other territories, as has been the case with other recent UK regulation. In the meantime, developments in other territories such as Australia, the Netherlands and Spain continue.
Dall-E, Midjourney, Stable Diffusion; everyone has probably seen images created by AI art-generators pop up on their social feeds over the past year. The potential deployment of these technologies in the creation of games, particularly during conceptualisation and pre-production, is obvious.
Art generation is simply one example of how AI could be utilised in games though. Other current and proposed applications include game chat moderation, the creation of game music and voiceover work, game QA, player support, as well as the creation of entire games. The recently released ChatGPT from OpenAI, an impressive tool which provides detailed, human-like responses to prompt questions, also carries massive potential.
There are some big open legal (and ethical) questions surrounding this tech though. For example, does the use of copyright protected material without permission in training these tools constitute copyright infringement? Does copyright protection exist in works created solely by AIs (and if so, who owns it)? When will work output be considered infringing of the work input it is clearly inspired by?
These questions may seem largely academic, but the answers will determine if and how these technologies can be incorporated into the development and commercial exploitation of games. For example, if an AI-generated lead character, soundtrack or script cannot be protected by copyright, will a business want to build a game or franchise around these features? The answers to questions like these will be hotly debated (and likely litigated) throughout the course of 2023. To further complicate things, these answers will likely vary significantly between territories (e.g. the UK currently protects works generated solely by a computer where there is no human creator, whereas the US does not).
Readers may recall the debate surrounding the 2019 EU Copyright Directive and its controversial ‘Article 17 upload filters’. Articles 18 to 23 of the same directive though, which provide greater rights to the “authors” of copyright works, received comparatively little public attention at the time.
The fundamental objectives of these new rights are to entitle authors to information about the exploitation of their works and to an appropriate and proportionate remuneration. These rights include providing authors with information about the exploitation of their works (including revenues generated) as well as contract adjustment (a.k.a. “best seller”) and IP revocation rights, many of which cannot be overridden by contract.
Who exactly constitutes an author (and therefore receives these rights) can be complex, and will vary depending on who is creating different parts of a game. These rights do not apply to authors of computer programs, but would capture other audio-visual aspects of a game. To some, these rights may sound extreme. To others, these will be similar to rights already established at a national level.
While the directive was created back in 2019, some member states still haven’t implemented it fully into national law. As this position evolves, and authors start enforcing their rights, we expect more and more disputes will appear. All games businesses should consider their potential obligations and liabilities here, but particularly those heavily utilising external contractors and/or exploiting UGC.
Love them or hate them, blockchain games, crypto and NFTs dominated many a headline throughout 2022. Some see the technology as a fad with limited practical value within games, others (particularly investors) see a brighter future. One recent report indicated that the blockchain gaming sector received more than $500m of investment in October and November 2022 alone.
Much of the legal discussion to-date around blockchain games has surrounded the financial services aspect of whether or not tokens and NFTs utilised within those games constitute regulated “securities”. This is an important question, complicated by the ever-evolving and jurisdiction-specific regulatory landscape. While some proposed financial services regulation appears to suggest simple NFTs may generally fall outside of scope, this is not an absolute, and will depend heavily on the specifics of each NFT (e.g. what rights are attached to it). The legal position regarding other cryptoassets (including fungible tokens), as well as those businesses operating exchanges and cryptoasset custodian services, is more complicated.
Businesses operating blockchain games face a number of other legal challenges as well. If / how should children be protected from games with a clear financial component? How should blockchain games and tokens be marketed to inform players of the financial risks? What is the legal position regarding DAOs and the liability of their participants? What should holders actually be able to do with their NFTs and their underlying assets? Where exactly does liability sit between parties when something goes wrong? Governments, regulators and courts will be testing these questions (and more) throughout 2023.
Consumer Protection & Competition
2022 was a bumper year in terms of new consumer protection regulation, all of which sets the groundwork for additional compliance challenges for games businesses throughout 2023. This includes the UK’s ‘Children’s Code’ and work-in-progress Online Safety Bill, the EU’s Digital Services Act, Digital Markets Act and more. We have also seen enhanced activity from various competition regulators around topics such as mobile browsers and cloud gaming, the Microsoft-Activision deal and games industry subscription practices. These are huge and important topics, and we will be releasing a more detailed follow up article on how these impact the games industry in early 2023.