Gaming: China: quasi-gaming and mystery boxes

This article is an excerpt from GTDT Gaming 2022. Click here for the full guide.

Gambling has been prohibited and banned in the People’s Republic of China (PRC) since the 1980s. Depending on the circumstances of each case, illegal gambling may be subject to administrative penalties under the PRC’s Administrative Penalty Laws for Safety public, or give rise to criminal liability under the criminal law of the PRC, or both. It is also worth mentioning that as of 2020, institutions such as the PRC Supreme People’s Court, the PRC Supreme People’s Procuratorate and the PRC Ministry of Public Security have repeatedly introduced judicial interpretations and additional provisions targeting cross-border gambling. , extending and reaffirming its commitment to cracking down on cross-border gambling.

However, if we have to step back, from a legal point of view, there is a much broader concept than just gambling, which is what we call “behaviours based on the utility of uncertainty” or an example of “random contract”. The main characteristic of the game is its nature of uncertainty; However, as we see in many other contexts, such utility of uncertainty has been well enforced legally in the retail and video game industries, making the leap into a new business model. These uncertainty-utility activities have underlying characteristics similar to gambling, but can still be differentiated from it, and we sometimes call these activities quasi-gambling.

Among the sea of ​​quasi-game activities, perhaps the most typical and popular example would be “mystery boxes”. Selling products through mystery boxes has quickly become the current trend, the theory behind this mode of “hunger marketing” being that it recognizes consumers’ cognitive appetite and curiosity to bet on an uncertain future. This mode of marketing led to the great success of PopMart and prompted other companies to emulate the strategy by launching similar business models, gradually creating the illusion that anything can be a “mystery box”.

In response to the sale of mystery boxes, on January 10, 2022, the Shanghai Municipal Administration for Market Regulation issued the Notice of Implementation of Compliance Guidelines for Business Activities of Mystery Boxes in Shanghai (No. 20220014), with the aim of regulating this business model. , also signaling the government’s attention in this regard and its intention to intervene.

In this chapter, we aim to describe and identify the characteristics of mystery box sales and its legal limits. We also aim to identify how quasi-gaming should be differentiated from gambling – in other words, finding the boundary in defining the legal status of quasi-gaming.

In reality, whether mystery boxes are legitimate or not depends on whether real goods were exchanged as the basis of the sale, and this question gives rise to several important considerations, as follows.

Whether the commodity actually exists and is allowed to be traded legally

First and foremost, Mystery Boxes meant to be sold in the market cannot be empty. In this case, the object of the sale becomes a mere “probability”; a probability that has been sold in the market for consideration without repayment of principal or interest, which in effect constitutes a “lottery” pursuant to Article 2 of the PRC Lottery Regulations (the Regulations). Under the Regulations, the sale of lottery tickets without the express authorization of the Council of State is an illegal act.

Section 2 of the Regulations states that:

“Lottery tickets” within the meaning of these regulations means vouchers that are authorized and sold by the state according to law for the purpose of raising social welfare funds and promoting the development of social welfare enterprises. Natural persons buy them voluntarily and get the opportunity to win the lottery according to specific rules. The lottery ticket does not return the principal amount and does not earn interest.

Section 3 of the Regulations states that:

the Council of State authorizes the issuance of social lotteries and sports lotteries. The issuance of other lottery tickets without the authorization of the Council of State is prohibited. It is prohibited to issue or sell lottery tickets overseas within the territory of the People’s Republic of China.

It is worth mentioning that a number of e-commerce platforms have launched marketing strategies such as “One Dollar Groupon”. Specifically, each user will pay 1 yuan to buy a “share” of probability, and in the end, only one user will win the goods, other users will receive nothing. Most of the above is already the sale of lottery tickets. Unsurprisingly, this mode has already been criticized by the Office of the National Leading Group for the Special Rectification of Financial Risks on the Internet as part of the opinions on the categorization and elimination of the online “shop for a dollar” business model. , which clarifies that such a marketing strategy can be defined as a disguised game or a fraud.

Second, merchandise for sale in mystery boxes must be legally cleared for transaction; of course, this is mainly from the point of view of the legality of the goods being transacted and the protection of the rights and interests of consumers, rather than from the point of view of the differentiation of games of chance.

In this regard, mystery boxes selling pets are strictly prohibited, as are items requiring special qualifications and monitoring before sale, including tobacco, alcohol, drugs and other prohibited substances.

Whether the goods for sale can be converted into legal tender

When sales are made through mystery boxes, it is quite common for a particular mystery box commodity to become highly coveted due to its rarity, making its market value much higher than other commodities (these items are referred to as “affected” or “hidden” items). In this case, the mystery box sales platform will not be allowed to redeem the above-mentioned goods with legal tender, thus avoiding the appearance of the “currency – mystery box – currency” fund circle, which actually satisfies the elements of a casino.

In addition, Mystery Box selling platforms may in no way organize or finance any secondary market trading platform that encourages secondary transactions between users regarding the goods sold. Specifically, mystery box selling platforms do not encourage users who have achieved an achievement or hidden item to resell in order to obtain high economic returns through price manipulations, official prices or call auctions, thus inducing users to keep buying because of high prices. economic returns instead of adhering to the basic principles of rational consumption and their real needs.

It should be noted that the criteria for authorizing the conversion of goods sold into legal tender also apply to virtual goods, in particular virtual currencies issued by various consumer platforms (such as video game platforms, competition platforms and e-commerce platforms). The operation of the above platforms generally includes the following steps:

  • to start, users are required to top up with legal tender in order to obtain virtual currency, and users are encouraged to actively introduce new users in order to obtain marketing incentives (i.e. more currency Virtual) ;
  • second, users are encouraged to win or lose virtual currency on the platform based on “uncertainty utility” (such as betting on the outcome of contests or lucky roulette) according to the rules specified by the platform ; and
  • finally, users can convert their virtual currency (or goods purchased with their virtual currency) into legal tender (i.e. cash), or economic interest equivalent to legal tender, through a redemption through the official platform or a transaction on the designated secondary site. market. Thus, as in the analysis above, a circle of “legal tender – virtual currency – legal tender” is created, culminating in the tort of running a casino.

In summary, the key to determining whether quasi-gambling behavior constitutes gambling is whether real goods or services were exchanged as the basis for the sale, rather than merely selling probabilities, and whether it provides a cashing circle to achieve “luck”. Without the above “flagged” items, the quasi-gambling itself does not give rise to the risk of criminal liability, but of course it may be subject to restrictions under the PRC’s data protection laws. rights and interests of consumers, and the PRC Unfair Competition Laws.

With increasingly rapid innovation of business models, we believe that the Chinese government is becoming more open to business modes that arise from the usefulness of uncertainty in different consumption contexts and, in the spirit of guidance rather than of prohibition, progressively allows innovation and development within the bounds of the law, with the premise of course that such behavior does not cross the legal boundary of the game, leaving the “monster that does not want to be woken” only.

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