Taylor Wessing - Key legal issues for games businesses

Key legal issues for games businesses in Europe
Terms of Use/Terms of Service
u Issues
Each of the 28 European Union Member States has different mandatory
legal requirements protecting players, which generally apply to the terms
games businesses enter into with them (often referred to as terms of use
(ToU) or terms of service (ToS) and often entered into jointly with an end
user license agreement (EULA)).
The most common areas that are subject to the varying laws are limitations
of liability, requirements for local language, indemnities, one-sided
provisions generally, and restrictive choices of governing law and jurisdiction.
If these legal requirements are not met then those terms could be
rendered unenforceable, (leading in some cases to unlimited liability or at
least uncertainty of terms.) also, local consumer-protection bodies can
apply sanctions causing cost and potentially fines.
In many cases competitors can trigger this through submissions to regulators.
Furthermore, in Europe, small print is increasingly seen as a brand
issue, with many games businesses using “plain speaking”, “FAQ” style
approaches which support their brand and ethos. The example of Instagram
shows how poorly conceived small print can drive to brand damage
and, ultimately, shareholder loss.
u Market Practice
Localising terms for all 28 European Union Member States is, of course,
time consuming and raises practical issues. Our experience is
that many games businesses focus on the top X markets in Europe
(X may commonly be 5, or more, but rarely 20+), and develop terms that
comply with the local laws in those markets.
Development and publishing
Contracts for games development and games publishing need to balance
interests between the parties involved. The particular circumstances for
the several platforms such as PCs, consoles and mobile devices have to
be kept in mind.
Data Protection and marketing
u Issues
On 25 th of May 2018 the General Data Protection Regulation (GDPR)
came into effect. This Regulation harmonises data protection across
Europe although several aspects remain in the national legislation via
flexibility clauses (e.g. processing in employment context). GDPR builds
on some existing principles, it also contains extended and new obligations
regarding data processing as well as extended rights for data subjects.
Most importantly, fines have drastically increased.
In addition, special national regulations must be observed due to the flexibility
clauses contained in the GDPR (e.g. with regard to data processing
in the employment context). Furthermore, the GDPR also applies to non-
EU companies that operate in the EU and process data from EU citizens.
Guidance regarding the implementation of the GDPR is provided by national
supervisory authorities as well as the European Data Protection Board.
The following principles are the basic principles of the GDPR:
> Lawfulness, fairness and transparency
> Purpose limitation
> Data minimisation
> Accuracy
> Storage limitation
> Integrity and confidentiality
> Accountability
The transfer of personal data of players to third parties outside the European
Union requires additional legitimation, such as reliance on EU model
clauses or – with regards to the US – reliance on the “EU-US Privacy
Shield”. As the value of player data, and the knowledge and awareness of
European consumers about their rights, increases, these issues are crucial
for games businesses.
The GDPR also imposes a number of requirements around the use of
cookies, tracking and similar technologies. In particular, it is important to
distinguish between technologies that require consent and other that
do not require consent. The upcoming e-Privacy Directive will introduce
additional rules for cookies. Providers of games sites/platforms should
carry cookie policies which specify details as to cookies used along with
information about how to deactivate them. The same legal assessment
has to be carried out regarding the sending of marketing/promotional
newsletters.
u E-Privacy Regulation
The EU is also currently working on the revision of the ePrivacy Directive,
which is intended to strengthen citizens‘ rights online and regulate data
protection in the online sector. The Regulation will affect almost every
form of electronic communications, including both traditional communications
services and novel technologies.
The use of cookies is expected to be regulated more stringent, including
the question which cookies require consent. The ePrivacy Regulation will
exist in addition to GDPR and is expected to enter into force at the beginning
of 2019 at the earliest, followed by a transitional period.

E-Commerce – before the purchase
The European market is subject to “distance selling” laws that protect
players in relation to purchases online. Prior and after any purchase of
games, or in-game items or virtual currency, online-game businesses have
to comply with numerous requirements, which include:
> The communication of clear terms and conditions at the time and
also by e-mail (or at least a “durable medium”) upon order;
> Fulfilment requirements in terms of payment; and
> A right of refund for some products and services (which may apply
to gaming items depending on the circumstances).
Unfortunately, these requirements vary to a degree across the Member
States. Further, each European Union Member State was required to give
effect to the Directive on Consumer Rights (Directive 2011/83/EU) by
13 June 2014. Each country is doing so under its own legislation. This
new Directive requires, inter alia, online games businesses to ensure the
player, when placing an order, explicitly confirms that the order implies an
obligation to pay. If placing an order entails activating a button or a similar
function, the button or similar function must be labelled in an easily legible
manner only with the words ‘order with an obligation to pay’ or a corresponding
unambiguous formulation in the local language.
There are also new regulations regarding digital content which will have an
impact on games businesses, such as the requirement to obtain express
consent and acknowledgment from players that the 14 day cooling off
period will not apply after download.
The current draft for a European Directive on Digital Content is likely to introduce
the concept of “payment by data”, establish significant statutory
warranties and retrieval of user content and user data upon termination.
As the scope of this directive is broad, it will affect all online and mobile
games providers selling to European customers. It is currently expected
that the EU will adopt the Directive by the end of 2018.
If games businesses fail to comply with the legislation which implements
the Directive on Consumer Rights, it is likely that their players will not be
legally bound under the relevant end user terms which include, of course,
the obligation to pay (e.g. the cost of the game, virtual items and/or currency).
It is therefore important that games businesses ensure the information
disclosure and other requirements of the implementing legislation
are complied with.
Online liability
To the extent games businesses allow players to communicate with each
other/post content or comments on the platform, such businesses run
the risk of content liability. European laws do include certain defences
around “hosters” and “ISPs” however the applicability of these is dependent
on careful consideration in terms of operating model, particularly
around moderation and notice and take-down procedures for so called
host providers. According to recent case law of the European Court of
Justice, internet access providers may be obliged to block content which
infringes copyright under certain circumstances.
Hosting of tournaments
Games tournaments can be subject to various legal requirements. When
hosting “offline” tournaments often held at events such as Gamescom or
GDC, the host might also have to comply with additional requirements
such as in respect of youth protection (e.g. not permitting underage gaming
or supplying minors with alcohol), gambling law, advertisement law
and entry requirements for players.
When streaming a tournament, that streaming may under certain conditions
qualify as a broadcast and be subject to a licensing requirement.
The same may apply for gamers streaming gaming content on platforms
like Twitch.
Used games and key selling
Recent case law in Europe has confirmed the rights of software licensees
to share software which is “sold” and software providers, depending on
their licensing model, cannot prevent this. The application of these laws to
games software is uncertain but possible. Technical measures can be used
and cloud based games are likely to not be caught. Of course the second
hand market in disc based games is long established, however the laws
present challenges for providers of downloaded games and terms need to
be carefully crafted.
Similar questions arise in connection with so-called key selling. German
district courts ruled that the sale of isolated product keys by a third party
infringed copyright and could be stopped accordingly.
General additional issues
Recent case law in Europe has confirmed the rights of software licensees
to share software which is “sold” and software providers, depending on
their licensing model, cannot prevent this. The application of these laws to
games software is uncertain but possible. Technical measures can be used
and cloud based games are likely to not be caught. Of course the second
hand market in disc based games is long established, however the laws
present challenges for providers of downloaded games and terms need to
be carefully crafted.
Similar questions arise in connection with so-called key selling. German
district courts ruled that the sale of isolated product keys by a third party
infringed copyright and could be stopped accordingly.
In-game currencies
u Issues
> Contractual rights to such currency, and what it can buy (meaning
the terms need to be very clear on the value and rights relating to
in-game currency);
> Regulatory requirements around electronic money (which generally
will only apply where a currency can be cashed out or used in other
games/platforms or can otherwise be converted);
> Regulatory issues relating to money remittance and payment
systems, and also money laundering requirements in Europe; and
> The increasing awareness in the media of the risk of minors running
up significant bills through in-game purchases, leading to (i)

complaints by parents/guardians and (ii) in some markets, the threat
of government intervention (such as around consent notices, or limits
on spend over a fixed period of time).
u E-money
E-money means any electronically stored monetary value represented
by a claim against its issuer which:
> Is issued on the receipt for the purpose of making payments and
> Is accepted by someone who is not the issuer as valid means of
paying for goods or services.
Financial regulation is not the most obvious issue in the context of games,
but publishers should be mindful of inadvertently issuing ‘e-money’
to facilitate in-game purchases. E-money is regulated throughout the EU
under the Electronic Money Directive and requires, among other things,
that the issuer be authorised by its national regulator, for funds to be safeguarded
and for the e-money to be redeemable on demand.
Typically, this could be relevant to any third party issuing pre-paid vouchers
or virtual ‘tokens’ that enable customers to make in-game purchases.
As always, the devil is in the detail and affected businesses should
seek professional advice to ensure they are not carrying on regulated activities
without the requisite licence.
u Virtual currencies
Not to be confused with the regulation of issuing e-money in the somewhat
less regulated world of virtual currencies (such as Bitcoin). Bitcoin,
in particular, is increasingly accepted by games businesses such as Zynga,
and Microsoft recently restored it as a payment option in its Xbox
and Windows stores. Virtual currencies have been getting a lot of media
attention, not always positive, which may scare off potential users. Any
business thinking of accepting virtual currencies must consider how to
manage risks including theft, fraud, exchange or marketplace insolvency,
hacker attacks and money laundering as well as the risk of serious reputational
damage, if things go wrong.
Along with the US and other jurisdictions, the UK government has started
to consider whether regulation is necessary in this area and there is a risk
that fragmented regulatory and taxation frameworks could emerge. Mainstream
adoption is hindered by the overall lack of certainty in core areas
and, ultimately, we expect legislation to harmonise requirements covering
a range of topics, such as refunds, price guarantees, complaint handling,
protection schemes and secure IT-Systems.
Publishers need to think about how they can design systems to accept
virtual currencies – and how to redeem them – in an ever changing regulatory
environment.
u Market Practice
Whilst some games businesses may focus only on the key markets in
which they operate in Europe, it is important to note that non-compliance
can lead to criminal sanctions. As such, the in-game payment issues
should be treated as higher risk.
Advertising Law
Advertisement in Europe is regulated by several Directives such as the
Directive on Misleading and Comparative Advertising and the Directive on
Unfair Commercial Practices. There is a strict labelling requirement as all
advertisements should be recognisable as such. Subliminal techniques are
generally unlawful. Labelling should be sufficiently clear and visible. Advertising
directed at children may not contain direct exhortations to purchase.
Advertising should be true and not misleading and the advertiser needs
to be able to show and prove that his assertions are correct. Specific advertising
restrictions apply to certain media (e.g. broadcasting), content
(e.g. violence or nudity) and specific products (e.g. alcohol). When using
influencers on social media for advertising campaigns, advertisers may
also be liable for false or missing labelling by such influencers.
Loot boxes
The purchase of so-called loot boxes is currently the subject of controversial
discussion, in particular, the classification as a game of chance. The
Dutch and Belgian gambling supervisory authorities have classified some
games (Overwatch, FIFA franchise, CS: GO, Star Wars: Battlefront II) as
gambling due to the embedding of loot boxes and found that they violate
the relevant gambling laws. Either the loot boxes must be removed or a
gambling license must be purchased. In Germany, loot boxes are currently
not seen as generally illegal. In addition to gambling law issues, questions
may also arise with regard to consumer law and the protection of minors.
General additional issues
The above issues do not include the general additional issues that any
digital business operating in Europe needs to cater for including:
> IPR protection including trade mark registration (in each territory or
as a European wide Community Trade Mark);
> IPR licensing (from partners, to users and across corporate groups);
> VAT, corporation tax, transfer pricing and other tax and accounting
issues;
> Employment and stock options;
> Specific issues regarding in-game content such as age-related
restrictions, copyright, trademark, design and competition law issues;
> Use or selling of cheat bots.
Outlook
There are a number of upcoming European sets of rules which need to be
monitored, such as:
> The EU-Geo-Blocking Regulation which will enter into force in
December 2018 and will prohibit to block or limit access to online
interfaces on the basis of nationality, residence or establishment of
the customer;
> The EU Commission’s proposal for a Directive on the Regulation
of Online Platforms;
> Plans by the EU Commission to introduce new tax rules for digital
activities;
> New rules will be introduced in European Copyright Law by the
Directive on Copyright in the Digital Single Market which is
currently still being negotiated but expected to become binding
law soon.

About Us
The international Games Group of Taylor Wessing advises on all legal aspects of the video games business on a national and international level,
with a specific focus in Europe, the Middle East and Asia.
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