Volume: 17 Issue: 4
Washington State judge Milan Smith of the Ninth Circuit Court of Appeals ruled on 28 March 2018 that the interactive social casino app Big Fish Casino constitutes illegal gambling under Washington State law, in a verdict seen by many commentators as surprising. Judge Smith classified the virtual chips used in the games as a ‘thing of value’ under Washington State law, noting that “the virtual chips extended the privilege of playing Big Fish Casino,” and therefore Big Fish Casino is illegal gambling under state law.
“For now, and because this case is premised on Washington state laws, this puts some uncertainty in the Washington market as to the ability to offer freemium-style social gaming,” notes Jessica Feil, Associate at Ifrah Law. “However, this case is not over as the parties can seek further appeal, which might end up with a different result.”
The case was originally brought in 2015 as a putative class action by class representative Cheryl Kater against Churchill Downs Inc, which at that time was the parent company behind Big Fish Casino. Kater bought and later lost over $1,000 worth of virtual chips, an in-game currency used in order to play Big Fish Casino games such as blackjack and slots. She asserted in the suit violations of Washington State’s Recovery of Money Lost at Gambling Act and Consumer Protection Act, and unjust enrichment. The Ninth Circuit decision reverses an earlier verdict by the lower District Court, which found that Big Fish Casino did not constitute gambling under state law and dismissed the suit.
Big Fish Casino’s virtual chips can be purchased by players but are also given to players on occasion through the game. These chips have no direct monetary value and cannot be exchanged for cash, though according to the Big Fish Casino terms of service, users can transfer chips between themselves. Players require virtual chips to continue to play the games, and the Ninth Circuit Court found that the chips extend the privilege of playing the game and thus fall under Washington State law as a ‘thing of value.’
In its defence Churchill Downs argued that the chips enhance rather than extend gameplay and thus are not things of value, but the Ninth Circuit rejected this argument since users require virtual chips to continue to play Big Fish Casino games. “The opinion itself seems focused on the nuances of how players are able to obtain continued gameplay - that is, whether they must pay money to continue to play or if they have meaningful opportunity to continue free,” explains Feil. “With this focus, the case opens up a number of questions about how social games should be structured to avoid the risk of being labeled illegal gambling.”
“It seems to me that the decisive feature in this case is that Churchill Downs failed to use its most effective argument, namely that the virtual chips used in the Big Fish Casino games can be, and are, obtained in other ways than direct purchase for money, and therefore do not constitute ‘consideration’ in terms of state gambling law,” said Martin Owens, Attorney-at-Law. “The fact that Churchill Downs did not mention this key argument in their defence gave the Ninth Circuit an excuse to take the path of least resistance and uphold the state law.”
“The real question is about one of the other elements needed for establishing the existence of gambling, namely the element of prize. The Ninth Circuit, in this case, seems to have subscribed to a rather narrow and extreme view, which is ‘anything of value’ - including replays,” adds Owens.
Churchill Downs now has until 11 May 2018 to decide if it wishes to pursue an en banc review of the case, which could, if pursued, conclude with a finding for Churchill Downs and confirmation that the lower Court properly dismissed the case, or, if the rehearing finds for the plaintiff, the case would be remanded back to the District Court. If the case ultimately favours the plaintiff, there will be implications for operators offering free-to-play games in Washington State in terms of how they structure their games in order to achieve compliance. However, Feil believes “this is unlikely to be the end of free-to-play games in Washington” but that “Operators will need to review their products closely to ensure they do not fall into the same issues the Court raised as to when virtual currency becomes a ‘thing of value.’ So long as operators can demonstrate compliance with the Court’s ultimate understanding of ‘thing of value,’ they should be able to continue offering the free-to-play games. Of course, operators will need to work with the App Store and others to ensure their games are also consistent with those stores’ terms of service and understanding of the opinion.”