CLIENT ALERT: Washington Federal Court Finds Social Casino Games Not Gambling
January 6, 2016

In late November, a federal court in the Western District of Washington dismissed a class action complaint seeking recovery of monies paid to a social casino game provider because the monies were lost to an illegal gambling operation. The court determined that the complaint did not state a plausible claim for relief because the provider did not award something of value (requisite prize element under definition of gambling), and therefore, the game was not illegal gambling under Washington law. As all of the plaintiffs claims were contingent on a finding of illegal gambling, the court dismissed the entire complaint. In addition to this conclusion, this decision was noteworthy because it reinforces the legality of monetizing social casino games, as long as certain criteria are met.

The class action suit claimed that under Washington state law, social casino games using purchasable virtual casino chips constituted illegal gambling. Therefore, under Washington's Recovery of Money Lost at Gambling Act (RCW 4.24.070) they should be allowed to recover the amount of the money or the value of the thing lost in the defendant's illegal gambling operation. Such recovery requires that there first be a finding that the defendant was engaged in gambling.

The following undisputed facts described the defendant's operation. The defendant ran a virtual game platform that was downloaded free of charge. Once downloaded, users were credited a certain number of virtual casino chips for free, which they could use to play games (blackjack, roulette, etc.). Users could obtain additional chips by winning games (free), waiting until additional chips were awarded to them (free), or by purchasing additional chips or other virtual items to enhance or extend gameplay. Additionally, the defendant's terms of use stated that the chips had no cash value, and could not be exchanged for cash or merchandise, either with the operator or other users.

The arguments in this case focused on the prize element, and centered on whether or not the social casino service awards a prize constituting something of value. The plaintiff alleged that the virtual chips won in the social casino games had value even though they could not be exchanged for cash or merchandise, since the chips: (1) allow users to extend gameplay, and (2) can be sold to other users for actual money on a secondary market that the defendant facilitates and profits from.

As for their first contention that the chips allow users to extend gameplay the plaintiffs pointed to the definition of thing of value under Washington's Gambling Act (RCW 9.46.0285), which in pertinent part, includes anything involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge. The defendant (successfully) argued that the definition of thing of value was adopted after courts in Washington and throughout the county found that some businesses were attempting to circumvent anti-gambling laws that prohibited them directly awarding cash or prizes by awarding free plays that later could be exchanged for cash. Therefore, the focus of the analysis should not be on whether extended plays are awarded but whether those extended plays could eventually result in awarding cash or prizes.

As for the plaintiffs second argument that the chips can be sold for actual cash on a secondary market to other users, and that the defendant facilitates and profits from this process the court focused on the defendant's terms of use, which the plaintiffs were required to accept in order to access the game. The terms of use expressly prohibit the exchange of chips for money. Specifically, the terms of use stated that users have no property interest in any virtual item. Virtual items may not be transferred or resold for commercial gain in any manner may not be purchased or sold from any individual or other company via cash, barter or any other transaction have no monetary value cannot be refunded or exchanged for cash or any other tangible value. Essentially, the plaintiffs were attempting to recover damages related to conduct expressly violating the terms of use, which they agreed to abide by. As noted by the court, allowing someone to sue a defendant based on their own breach of contract, would be contrary to basic principles of law and equity.

In summary, the court held that the social games did not satisfy the requisite prize element, and therefore, was not illegal gambling under Washington law. The games and virtual chips did not constitute something of value because: (1) any extension of play awarded could never result in the award of cash or merchandise, and (2) even if there was a secondary market in which users bought or sold chips, their actions expressly violated the terms of use for the games.

Plaintiffs have appealed this decision to the 9th Circuit Court of Appeals. However, it is important to note that, in a separate action, the Washington State Gambling Commission came to the same conclusion.

For more information on this decision, social games or Lewis Roca Rothgerber Christie's interactive gaming services, please contact: Tony Cabot at ACabot@lrrc.com or Karl Rutledge at KRutledge@lrrc.com.

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Gambling means: (1) staking or risking something of value (2) upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, (3) upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome. RCW 9.46.0237; State ex rel. Evans v. Bhd. of Friends, 41 Wn.2d 133, 150 (1952) (all forms of gambling involve prize, chance, and consideration).  

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