ANALYTICS: Are Social Casino Apps Worth The Gamble for Big Tech?

Law Street
 
ANALYTICS: Are Social Casino Apps Worth The Gamble for Big Tech?
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A “social casino” is an app or website where an individual can play standard casino games online, using real money for more chances to play without the chance to win money or a prize. Recently, social casinos have faced increased scrutiny with seemingly more litigation and attention especially around targeting customers.

Google, Apple, and have each faced litigation regarding social casinos, particularly as the platforms hosting the games and processing player payments. However, some game developers, such as Zynga, have also faced litigation for their online gambling games. Google was specifically sued for carrying Zynga’s gambling games.

Generally, each state has its own gambling laws, along with several overriding federal laws. Federally, the Federal Wire Act of 1961 prohibits gambling across state lines and in 2011 the Department of Justice issued a memo clarifying the scope of the act to sports betting. There is also the Unlawful Internet Gambling Enforcement Act of 2006 ( 31 U.S.C. §5361et seq.) which makes it illegal to operate an online gambling website in the United States, but it does not make it illegal for individuals to place bets on an online gambling website; it also prohibits financial institutions from processing payments from certain gambling activity. Gambling in some form is legal in 48 of the 50 states, excluding Utah and Hawaii. However, many states have some form of restrictions, as exemplified in a chart from Lets Gamble USA.

As noted byNational Law Review, social casinos and video-game gambling raise various issues: “Some argue the game industry is so profitable because it delivers a compelling entertainment experience to a broad demographic of people who are willing to pay for that entertainment. Others claim games have become addictive and include elements that constitute gambling.”

The prize-chance-consideration test is often used to determine the legality of a lottery. Gambling often requires making a bet or wager, but what constitutes a bet or wager varies. Most states require that the bet or wager and the prize must be a “thing of value,” but this becomes complicated when virtual items, such as virtual currency or virtual casino chips are at play.

According to a complaint covered in a Law Street Media article, “Paying money in a game for a chance to win more playing time violates the anti-gambling laws of the twenty-five states that are at issue in this case.”

Some of the federal litigation against the companies revolving around social casinos have been filed under the Racketeering Influenced and Corrupt Organizations Act (RICO) nature of suit classification in PACER. Other classifications used include breach of contract and property damage. Often, Google, Apple, or Facebook have been sued as co-conspirators for social casinos. Similarly,game developers have also faced some legal troubles in connection with paid “loot-boxes” that contain randomized in-game items.

Google

While not directly tied to social casinos, Google, via Google Payments,  is currently involved in a pending multidistrict litigation, entitled In Re: Google Play Antitrust Litigation. One of the lawsuits asserted that Google holds a monopoly in the Google Play store because it is the only way for Android users to purchase apps or make in-app purchases. Thus, in the context of social casinos, Android users can only access them as apps via the Google Play store. Google faced litigation alleging that it was a co-conspirator to social casinos, and it was sued for distributing and selling Zynga casino-slot style virtual games after Zynga was sued a few days before for its social slot video games. Similarly, Google was sued for hosting, among other things, DoubleU Games’ casino-style game. 

The antitrust lawsuits mostly started in the summer and fall of 2020, meanwhile the social casino lawsuits started to pick up around March 2021.

Google has been represented by Baker & Mckenzie for the vast majority of social casino suits, but for the antitrust litigation Google is represented by Morgan, Lewis & Bockius.

Looking at Google’s overall law firm representation, Baker & McKenzie and Morgan, Lewis & Bockius are in the top 15 law firms representing Google, although they are not reflected on the above chart. Based on the chart, Google’s litigation from 2019 to 2020 exploded. In 2020, Potter Minton represented Google the most, particularly for patent litigation. 

Apple

Similarly, Apple has also been hit with social casino-related lawsuits alleging that the tech giant is a co-conspirator to illegal gambling because it hosts these games on its App Store and purportedly illegally profits from these sales via its 30% commission. Currently, Apple is facing a consolidated multidistrict litigation to these simulated casino-style games; the lawsuit is centralized in the Northern District of California, where Apple is based. The claims against Apple have ranged from RICO claims to property damage, the case type that the MDL is filed under. Apple has faced most of these types of lawsuits in the fall of 2020 through the spring of 2021. For the lawsuits with counsel available, DLA Piper; Lewis Brisbois Bisgaard & Smith; and Lightfoot Franklin & White are representing Apple.

While not all RICO claims and property damage cases filed against Apple concern social casinos, the below graphs show an increase in those case types since social casino litigation against tech companies picked up towards the end of 2020 into 2021. 

RICO Claims

Property Damage

DLA Piper seems to represent Apple the most both in relation to social casinos and overall. In particular, based on Docket Alarm data, DLA Piper represents Apple in a lot of patent litigation as well as fraud and property damage/product liability lawsuits. Interestingly, the other law firms that represent Apple for social casinos thus far are not in its top list of law firms. 

Facebook is the third tech giant to be sued as a co-conspirator in relation to social casinos, facing a suit as recently as mid-April for its purported role. Reportedly, Facebook uses data to target users for social casinos. Interestingly, Facebook has only faced two lawsuits related to social casinos asserting RICO claims. For both lawsuits, Facebook’s representation has yet to appear, but one of Facebook’s regular law firms could fill the role. 

Plaintiff’s Law Firms

Notably, Edelson PC has brought lawsuits against Google, Apple, and Facebook for their purported roles as co-conspirators to social casinos. In total, Edelson has opposed either Google, Apple or Facebook 11 times, although not all are related to social casinos.

Dovel & Luner represented plaintiffs against Zynga.

Meanwhile, Pearson, Simon & Warshaw; Tycko & Zavareei; and Kopelowitz Ostrow Ferguson Weiselberg Gilbert represented plaintiffs against Google over DoubleU Games.

Bursor & Fisher represented a plaintiff suing Facebook over social casinos. In total, Bursor & Fisher have had 7 lawsuits involving Google, Apple, or Facebook. 

Conclusion

Social casinos as well as other forms of video gambling or online gambling are an emerging trend starting with big tech’s litigation around social casinos in late 2020 and into 2021. Social casinos present an emerging legal gray area for the tech companies, as their role as distributor, rather than developer, of the apps interacts with state and federal gaming laws. As more litigation is likely to follow and as these unfold, suits could reach higher courts setting a precedent for this type of gambling leading to additional lawsuits, class-actions and regulatory reforms.

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