Is the EU going to regulate free to play games and ‘free’ mobile apps? An initial analysis

This blog post was originally posted on my interactive entertainment law blog, Gamer/Law.

News broke yesterday that the European Commission, one of three arms of the European Union, will be holding a consultation over the next two days regarding in-app purchases and free to play games and any mobile apps that call themselves ‘free’. This post is my initial analysis of this interesting (but not entirely unexpected) development, which potentially bodes a future of big changes for this part of the mobile industry worldwide.

Here is the full press release, which I recommend you read fully before we go on because I’ll be talking with you about sections from it.

First things first: who and what is the European Commission?

The European Commission (or 'Commission' for short) is one of three law-making bodies in the EU: the other two are the European Parliament (democratically elected representatives of the EU Member States) and the Council of Ministers (the heads of government of each Member State).  The Commission is traditionally charged with proposing legislation in the European Union, although it needs the consent and involvement of the other two arms of EU government for its initiatives to become law (this is important for later on).  You can read more about the EU's structure here.

So what’s actually happening?

This is: “Following complaints from all over Europe, the European Commission is meeting today and tomorrow (27 and 28 February) with national enforcement authorities and large tech companies in order to discuss these concerns. Industry will be asked to commit to providing solutions within a clear timeframe so as to ensure proper consumer protection for apps customers.”

The Commission is holding two days of talks with consumer protection authorities (specifically from France, the United Kingdom, Italy, Belgium, Luxembourg and Lithuania, led by the Danish Consumer Ombudsman), Apple, Google and the Interactive Software Federation of Europe (the Europe-wide industry association for interactive entertainment).

What are the EU authorities investigating?

The Commission says in its press release:

“The four most important issues raised by consumers and which will be discussed at the meetings are :

The EU authorities have spelt these issues out in more detail in a “Common Position” document buried at the end of the press release.  It’s worth reading.  Anyway, more on these issues in a minute.

Why is the Commission kicking this off now?

Technically, it isn’t.  The various national consumer protection authorities of the EU are.  There is a slightly esoteric EU law called the Consumer Protection Regulation 2004 which essentially says that if there is a consumer protection issue too large for any one Member State, then they can group up to deal with it together and nominate one Member State to take it forward, with the assistance of the Commission.  In this case, it’s been decided for some reason that Denmark will lead the Member State authorities.  (This isn’t the first time that this law has been used at all, but equally it isn’t invoked on a daily basis either).

Despite the Member States ultimately calling the shots, the Commission clearly is kicking things off from the PR perspective with this press release.  It says, as spokesperson on this matter:

“For the app economy to develop its full potential and continue innovating, consumers need to trust the products. At present over 50% of the EU online games’ market consists of games advertised as “free”, although they often entail, sometimes costly, in-app purchases. Often consumers are not fully aware that they are spending money because their credit cards get charged by default. Children are particularly vulnerable to marketing of “free to download” games which are not “free to play”.”  The Commission says that this has led to “complaints from all over Europe“.

What’s really happening?  Why start this now?

If you look at it from a realpolitik perspective then the previous question still stands: why is this kicking off now?  Who or what is prompting action now?  We don’t know for sure.  No doubt there really have been legitimate complaints by consumers to their local authorities.  After all, in-app purchases and free to play games have been around for some time now; see for example my post from back in 2012 called “How much longer free to play and in-app purchases are regulated?”

That said, I wonder whether the recent investigation by the UK’s Office of Fair Trading, leading to its 8 Principles for free to play games (summarised by my colleagues at Osborne Clarke here), has stirred the other regulators into action. Maybe the UK, in the eyes of other Member States, leapt ahead of the pack by conducting its investigation.  Or maybe it’s the other way around: the regulators always intended to act at an EU level, after the OFT had completed its investigation.  It’s all pure speculation – we don’t know and really it doesn’t matter anyway.  What happens next is what’s important for mobile apps and free to play games.

But mobile apps and free to play games aren’t the same thing!

Good point.  There is something odd about the press release: its literal first words are to refer to “Europe’s “app economy”“, then it talks about a marvelous technology “commonly called “in-app” purchases“, but the rest of the press release goes on to talk specifically about free to play games – suggesting that this is the true focus of the consultation.   Which is all well and good, but free to play games exist on PC and now console as well.  Does that bring those platforms within the consultation?  We don’t know.  On the one hand, the fact that only Apple and Google are named as participants suggests the focus is on mobile free to play games.  Why not represent PC and console free to play games too?  (Well, maybe they are or will be, but we don’t know yet).  In any event, from a purely legal standpoint, any statements made about mobile free to play games may well in principle apply to all free to play games anyway.  But it’d be nice if there was a little more clarity.

So does that mean that ONLY free to games are under review?

No, I don’t think so.  As I mentioned above, the Commission appears to be talking about mobile apps generally, in particular in-app purchases and any app that calls itself ‘free’.  In practice free to play games seem to be the focus of the investigation – but that doesn’t mean we should ignore the more general references to apps.  We’ll have to see whether the results of the consultation are wider than just free to play games in due course (but in the meantime it’s prudent to assume it would be).

So are the EU authorities out to attack free to play games?

I really don’t think so, based on the information so far.  In my view, this was a carefully crafted press release that seeks to praise the growth in the mobile app industry and by extension therefore praises mobile free to play games, but also points out the dangers of EU consumer protection legislation not being followed (“for the app economy to develop its full potential and continue innovating, consumers need to trust the products“).  On that analysis, this really would be a consultation seeking to ensure that mobile apps and free to play games comply with the law.

Are these all real issues being raised?  Are there real dangers here?

A tricky subject.  Opinion is divided even within the games industry, let alone consumers or regulators, regarding the rights or wrongs of free to play games and to what extent (if at all) they transgress ethical or legal lines and if so when.  The only time so far that this has been considered publicly in any detail is the recent UK OFT investigation which I mentioned above, which resulted in its Principles.  One of the things which the OFT was at pains to point out in its findings was that it felt that free to play games needed in general to respect existing consumer protection laws.  This wasn’t about creating new laws, but rather to highlight existing ones and ensure they were being followed.  The OFT did this by a series of fairly helpful examples to illustrate when a game would “likely to comply” or “less likely or unlikely to comply” with the law.

For a partially contrasting view on whether regulation of this area is appropriate, see this article discussing some views expressed by Joshua Wright, one of the commissioners of the US Federal Trade Commission (which in this context is roughly analogous to the European Commission).  When the FTC commenced (and then settled) a decision to settle an investigation against Apple over its in-app purchases strategy in relation to children, he disagreed strongly with the FTC’s approach in bringing the investigation at all for a series of reasons, including questioning what evidence there was that any users were actually being harmed by the existing use of in-app purchases.  The point is: it’s not guaranteed that all regulators would see in-app purchases (and by extension free to play games) as being in need of regulation.

Isn’t this going over what the OFT has already done?

Yes, partly.  The Commission even recognises this.  It says: “The cooperation is applicable to consumer rules covering various areas, such as the unfair commercial practices Directive or the unfair contract terms Directive [legislation which was expressly part of the OFT's review]…The principles on online games and in-app purchases which the UK Office of Fair Trading published on 30 January 2014 are consistent with this action.”

That’s rather mysterious wording at the end: the OFT report is “consistent with this action“.  I have no idea what it means but will be interested to find out (hopefully!) in due course.

There’s one more relevant point.  In that “Common Position” document I mentioned earlier, which explains what the EU authorities want to discuss in the consultation, they refer expressly to the OFT Principles.

Again though, we have to bear in mind the realpolitik considerations I discussed above.  Plus there’s another simple but important point: just because the Commission and the EU authorities acknowledge the work of the OFT, doesn’t mean that they will arrive at the same conclusions.

OK, that’s all very nice.  What happens now?

Well, according to the press release, the first day of the consultation was today (!) and it continues tomorrow.  The Commission has left itself lots of room for interpretation with its “Next Steps”: “The meetings are an opportunity for the Commission and Member State authorities to reach a common understanding with industry to address the concerns raised by consumers. In any case, the European Commission, together with the national consumer rights enforcement authorities will continue to follow up with any necessary action.”

Once again, the word ‘speculation’ is coming to my lips regarding what the next steps might be.  One likely outcome, in my early view, is some form of statement of best practices eventually being arrived at in conjunction between the EU authorities, the mobile industry and other stakeholders.

But it could go further in theory.  Another possibility – and it is just a possibility – is that the EU authorities  may decide to carry out further investigations or even enforcement action against anyone involved for alleged breaches of existing consumer protection law which the authorities identify.  There’s no reason at this point to believe that they have identified such breaches, but on the other hand clearly there have been consumer complaints motivating this action.

Yet another speculation is that this could lead in the future to specific legislation regarding mobile apps/in-app purchases/free to play games, proposed by the Commission (who as I said at the start of the article are traditionally the legislation-proposing arm of the EU).  This would, if it went all the way through the EU legislative process, eventually become binding across the whole EU (though it would take some time and be rather complicated to get there).  That really would shake things up: it’s one thing for the plucky little British to speak up about free to play games and mobile apps, but if the EU speaks with (more or less) one voice then the world has to pay more attention.  That’s the theory at least.

What about the position in the US?

The main action is coming from federal regulator the FTC, which is increaasingly watching the mobile app world closely.  For example, there was its investigation into Apple's IAP strategy which I mentioned earlier, as well as whole series of other reports and investigations in mobile apps which it has conducted.  That said, when it comes to 'free' mobile apps and free to play games, I'm not aware of any specific action by the FTC...yet.  However, it's just a matter of time before we see some action from the FTC.  In fact, there were suggestions that the FTC was in regular contact with the UK's OFT during the British free to play investigation.  No doubt similar contact will be underway during the present Commission-led consultation (and FYI the EU legislation under which the consultation is taking place does permit the sharing of information and findings with non-EU regulators under certain conditions).

Let’s put all that together in a summary: