Game makers beware: Virtual goods purchases are about to be regulated

Disclosure: The Dutch government paid my way to Amsterdam, where I moderated a session. My coverage remains objective. 

AMSTERDAM — The free ride for overly aggressive virtual goods schemes is coming to an end.

Because of abuses that regulators view as excessive, virtual goods purchases are going to be increasingly regulated in the future, according to virtual goods legal expert Paul Gardner of the Osborne Clark law firm.

Virtual goods have become a multibillion-dollar money maker for game companies, but they have a downside for consumers. One boy found that out when he drained his parents’ bank account, spending £1,000 (about $1,650) on virtual donuts in Electronic Arts’ The Simpsons: Tapped Out game in the spring of 2013. The boy’s parents were refunded, but incidents like that are increasingly common, and regulators are acting to protect both children and parents from aggressive tactics.

“They have found that some games include potentially unfair and overly aggressive commercial practices,” Gardner said in a talk at Casual Connect Europe in Amsterdam.

The United Kingdom Office of Fair Trading started an investigation in April 2012. It reviewed 38 children’s web and app-based games. In September, it drafted eight principles that games should abide by. It published a final report in January and will begin enforcement of its regulations April 1.

The regulations are based on interpretations of existing UK law, and they are consistent with European Union laws as well. The agency is urging its counterparts in the European Union and elsewhere to adopt similar protections for consumers.

During its investigation, the UK agency found a lack of transparent, accurate, and clear upfront information about costs. You might find, for instance, when you hit level 11 of a game that you have to make an in-app purchase in order to proceed. The games also didn’t always include clear distinctions between in-game currency and real-money currency. And in many games, children were directly incited through in-game statements or images to make a purchase. One game, for instance, urged the player to feed a seagull without clearly saying that the food was a paid virtual good.

Peter Molyneux, head of 22cans and a veteran game developer, said it was “shameful” that some developers were exploiting users in this way.

In its enforcement principles, the agency says developers should be clear about costs, should provide their contact information for queries and complaints, and should be clear about the difference between gameplay content and paid content in a game. The games should also not target a child’s inherent inexperience, vulnerability, or credulity with sales pitches for virtual goods. Payments should also not be made without the authorization of the payment account holder, or parent.

The issue isn’t just a problem in the UK. In Germany, regulators took action against GameForge, whose Runes of Magic game aggressively urged people to purchase armor and weapons. The Federal Trade Commission in the U.S. also forced Apple to refund $32.5 million to consumers for violations of policies against exploiting children.

In June 2012, the European Commission did a study of digital content in freemium apps, and it issued a report in October. The aim was to look at the disproportionate and unexpected charges resulting from in-game purchases by children. The issue of data privacy and online gambling is also a matter for investigation in a variety of venues, and virtual goods play a role in both of those areas.

The burden of enforcing measures is now shifting to publishers and platform owners like Apple. Developers also have to look to the rights of consumers when a game is shut down. Should users get refunds for the goods they purchased? Do you give them some kind of in-kind goods in another game?

“There will be increasing pressure from consumer protection laws,” Gardner said. “And it’s not based on new laws, but existing laws. You have to think about it when designing a game. Ask yourself what is fair and reasonable.”