OFT’s investigation of UK free to play games and children: a step into the unknown?
The UK’s Office of Fair Trading has announced an investigation into “whether children are being unfairly pressured or encouraged to pay for additional content in ‘free’ web and app-based games”. The investigation, the first of its kind by a consumer protection regulator in the EU, has potentially wide ramifications for the mobile, social and online games business in the UK and worldwide.
The Office of Fair Trading (OFT) is the principal consumer protection regulator in the UK. The OFT has announced that it will be investigating the free to play mobile and app based games under the Consumer Protection from Unfair Trading Regulations 2008 (the “Unfair Trading Regulations”), being the UK’s implementation of the European Union’s Unfair Commercial Practices Directive.
What do the Unfair Trading Regulations do?
The Regulations give the OFT the power to take action to stop businesses from engaging in misleading, commercially aggressive or otherwise unfair conduct to consumers. These requirements are drafted in wide terms deliberately, though the Regulations contain guidance about the kinds of conduct this covers. For example, it is unfair to describe “a product as …’free’….if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item” or to falsely state “that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice”. The OFT works with a network of local Trading Standards offices to implement these requirements.
What specifically is the OFT investigating?
Based on the very limited information made public so far, the OFT is investigating:
1. the interaction between children and free to play games and whether they involve ” ‘direct exhortations’ to children – a strong encouragement to make a purchase, or to do something that will necessitate making a purchase, or to persuade their parents or other adults to make a purchase for them”;
2. Whether “the full cost of some of these games is made clear when they are downloaded or accessed”; and
3. “Whether these games are misleading, commercially aggressive or otherwise unfair”.
The scope of the first two of these objectives is relatively well defined (being limited to children and an analysis of what information is provided alongside free to play games generally). However, the third objective is very wide and, depending on how it is interpreted by the OFT, could in principle amount to a wider investigation of how free to play games work from a consumer perspective.
What powers does the OFT have under the Unfair Trading Regulations?
The OFT has a range of powers including the power to investigate businesses and require them to disclose relevant information during the investigation. The OFT may propose ‘soft’ remedies such as educational measures, working via other regulators (such as the UK’s Advertising Standards Authority) and the adoption of codes of conduct and also, if necessary ‘hard’ remedies – being civil or criminal action via the court system. However, the OFT does not itself have the power to impose civil or criminal penalties on a business.
The OFT rarely uses its powers to pursue civil or criminal action and it is more common for it to work together with businesses to redress identified issues. Indeed, under the UK Regulators’ Compliance Code, the OFT is required to consider the proportionality of action in each case and must give the offending business the opportunity to try to remedy the breaches before enforcement is taken. In most situations, the OFT will accept undertakings from the non-compliant party to change their business practices so as to comply with consumer protection regulation as an alternative to pursuing civil or criminal court proceedings. In the (relatively rare) situation that court proceedings are brought against a business or its directors, the OFT would need to persuade a judge of the need for civil or criminal penalties under the usual judicial process.
What are the next steps?
The OFT says it has already written to certain games companies to seek information on “in-game marketing to children”. Typically it would need now to go through with them its normal process of asking them questions, seeking relevant information and conducting interviews with a view to then reaching a conclusion as to what next steps are required, including whether enforcement action is merited.
At the same time, the OFT is seeking views from parents, games businesses and other stakeholders on these issues. It proposes to publish a report on its next steps in October 2013.
Does this mean the OFT intends to ban free to play games?
No – the OFT was careful to state that it “is not seeking to ban in-game purchases, but the games industry must ensure it is complying with the relevant regulations so that children are protected.”
What does this mean for the UK games industry?
This investigation is coming at an uncertain time for the free to play business model in the games industry (both in the UK and worldwide). While it has achieved very considerable business success (the majority of the most successful mobile apps and online games are free to play) there has been lively debate for some time now within the industry about the policy and practice of free to play games generally, not just in relation to children. Indeed, the UK industry was in the very early stages of discussing steps towards self-regulation. If ultimately the OFT or the UK government now take steps towards creating any form of legal regulation, it would face a number of difficulties:
1. the regulation would have to accommodate the legal and practical issues regarding the involvement of the platforms on which these games operate (such as Apple or Facebook);
2. the regulation would have to reflect how the business models actually work (as opposed to how they are sometimes reported in the media);
3. this sector and the business models change rapidly and the regulation would therefore need to be sufficiently broad and flexible in order to remain relevant;
4. this is a global sector and so clearly there are significant difficulties in creating a regulatory system that only applies to the UK when these games are distributed worldwide; and
5. the danger of hasty ‘precedent’ which negatively impacts the games sector more widely, particularly since this is one of the UK’s largest and fastest growing creative industries.
It is important to note however that at this early stage we do not know the OFT or the UK government intend to delve into these matters and it may ultimately prove to be a more limited investigation.
Does this actually set a precedent in the UK, EU or worldwide?
Not in the legal sense. The OFT is not bound technically by its previous decisions and could if it wished reach different decisions regarding other games businesses investigated under the Unfair Trading Regulations in the future. A legal precedent would only be set if court action was brought to trial and, even then, it would likely be confined to its facts and circumstances.
However, in a wider sense this development does set a precedent: this is, to our knowledge, the first time that a national regulator in one of the major games markets has investigated free to play games or the wider application of consumer protection law specifically to the games industry. It is unclear what wider effect this may have in the EU (where other regulators are charged with enforcing the local versions of the Unfair Commercial Practices Directive, just as the OFT enforces the Unfair Trading Regulations), or what effect it could have on regulation worldwide.
In the meantime, it remains to be seen whether the investigation will be limited to focusing on the interaction of children and free to play games in the UK, or whether it becomes a wider-ranging investigation, with all the difficulties that would involve – in terms of legal, administrative and public relations issues – for the games industry. This is a sensitive and challenging area and one that the OFT will need to navigate with considerable care.