Virtual Casino Doesn't Violate California's Gambling Law--Mason v. Machine Zone (Guest Blog Post)

Virtual Casino Doesn’t Violate California’s Gambling Law–Mason v. Machine Zone (Guest Blog Post)

By Guest Blogger Angie Jin

[Eric’s note: Angie Jin is a Cornell Law 3L who volunteered to write up this post on a case that was festering in my queue for a few months.]

Plaintiff, Mia Mason, filed a Class Action Complaint against Defendant, Machine Zone Inc., a mobile video game developer. Mason claimed that Machine Zone’s mobile game, Game of War: Fire Age (“GOW”), had an unlawful component that violated a California statute criminalizing the manufacture, ownership, or possession of a “slot machine or device.” Cal. Penal Code § 330b.

Photo credit: "color wheel luck with the amount of money" // ShutterStock

Photo credit: “color wheel luck with the amount of money” // ShutterStock

The alleged unlawful component of GOW is a chance spinning wheel that awards players a virtual prize usable only in the game. GOW itself is a massively multiplayer online strategy game, available on Android and Apple iOS devices, where players construct a simulated empire and coordinate with other players in real time to ultimately “conquer the world.” GOW is free to play, but players can use real money to purchase virtual “gold” to hasten their advancement in the game. Players can use their gold in the game’s “Casino” to purchase virtual “chips” and wager on the virtual spinning wheel.  There is no real-dollar value attached to the gold, chips, or any Casino prizes.

Mason made the following claims:

  1. The Casino function is an unlawful slot machine or device under Cal. Penal Code § 330b;
  2. Machine Zone violated California’s Unfair Competition Laws (“UCL”), Cal. Bus. & Prof. Code §§ 17200, by owning and operating GOW;
  3. Machine Zone was unjustly enriched by Mason; and
  4. Mason is entitled to restitution under Maryland law, Md. Code Ann., Crim. Law § 12-110.

Because the California Penal Code does not provide a private right of action, Mason sought recovery under the UCL, theory of unjust enrichment, and Maryland law. In response, Machine Zone filed a Motion to Dismiss, which was granted by the Federal District Court of Maryland.

California’s Unfair Competition Laws: The UCL allows private recovery for persons who have suffered injury due to unfair competition. Unfair competition means any unlawful business act. Cal. Bus. & Prof. Code § 17200. Hence, Mason’s recovery under the UCL turns on whether GOW’s Casino function is an unlawful “slot machine or device” under Cal. Penal Code § 330b . § 330b defines a “slot machine or device” as a “machine, apparatus, or device” operated by coin, or other means, and grants the user a prize by reason of chance. A prize could be a “thing of value,” an additional chance to use the machine, or a token exchangeable for a “thing of value” Cal. Penal Code § 330b(d). The Court acknowledged that the Casino function satisfied most of the criteria, but ultimately determined that it is not an unlawful slot machine or device. Relying on the literal definition of the phrase “machine, apparatus or device,” the Court concluded that a slot machine requires an element of physical hardware. Because GOW is merely software downloaded onto a personal gadget, the Court held that the Casino function does not violate California law prohibiting slot machines or devices.

The Court does not rely solely on the lawfulness of the Casino function for granting the Motion to Dismiss. The Court further finds that Mason also lacked standing and did not sufficiently allege an economic injury, as required by the UCL.

Standing: The Court held that Mason lacked standing to assert a claim under the UCL. Instructive case law comes from Tidenberg v., Inc., which ruled that a non-California resident has standing only if (1) the injury occurred in California, or (2) the defendant’s alleged misconduct transpired in California. Here, the Court found no injury in California because Mason–a non-California resident–did not download or play GOW in California. Moreover, Mason’s claim that Machine Zone’s misconduct transpired in California is insufficient because the only alleged connection between the company and the state is that Machine Zone’s headquarters is located there. Thus, Mason’s claims did not create the necessary standing.

Economic Injury: Mason’s claim also failed because she did not sufficiently allege economic injury attributable to Machine Zone’s misconduct. Mason claimed to have lost $100, but she was not wagering with real money; she was playing with virtual gold. The Court found that when Mason exchanged her real-world currency for virtual currency, that was for entertainment purposes in accordance with GOW’s Terms of Services (“TOS”). The TOS also provides that the virtual currency/goods can never be redeemed for real-world money, goods, or other monetary value. Thus, Mason was paying for the pleasure of entertainment, and not for the prospect of economic gain. There was no economic injury because Mason was given the benefit of her bargain.

The Court further supports its ruling by reasoning that the game also falls under an exception to Cal. Penal Code § 330b, which excludes machines that are predominately games of skill. The Court held that strategy-based GOW–as a whole–is a game of skill, and not chance.

Unjust Enrichment: Mason also failed to recover under the equitable theory of unjust enrichment. As previously stated, the Court determined that Mason received the benefit of her bargain. The Court believed it would be unjust to require Machine Zone to return the funds to Mason after she benefited from the enhanced gaming experience that her buying gold delivered.

Maryland Law: Maryland law allows a person to recover money lost from prohibited gaming devices. Md. Code Ann., Crim. Law § 12-110. Here, the Court found that Mason failed to state a claim under the Maryland statute because she did not lose any money while playing in the Casino. Any loss that Mason sustained was voluntarily accepted when Mason chose to spend real-world dollars to buy virtual currency for her personal entertainment.

Mason defends that her chips/gold lost real-world value because GOW accounts can be sold in secondary markets. But, this entirely separate (and forbidden by the TOS) transaction does not constitute money lost at a gaming device within the statute’s meaning. Moreover, Mason did not allege that Machine Zone sanctioned these secondary markets. Neither did she allege that she ever attempted to sell her account nor that she intends to do so in the future.

Public Policy Grounds: Mason was already fighting a losing battle because of California’s strong broad policy against judicial resolution of civil claims arising out of gambling transactions. The Court here maintained California’s public policy position.

* * *

This case attempts to distinguish between real and virtual realms by reading a hardware requirement into California’s statute against slot machines. This distinction opens an avenue to create gambling-styled games that satisfy the meaning of “slot machine,” but are lawful so long as there is no hardware attached. Thus, every mobile game developer could potentially add a “gambling” function to its games without violating California law. From reading the opinion, it seems that the Court does not grasp the constructive sameness between virtual roulette wheels and conventional slot machines. The opinion relies on a rigid construction of the phrase “machine, apparatus, or device” that does not consider the developing technological world. This Court’s reasoning is similar to other cases involving offline applicability to online activities, which all create an impression that virtual domains are not taken as seriously as real ones. Difficult precedents have formed, but it is understandable considering the traditionally cautious behavior of judges. Technology is new and rapidly growing, but the court system does not grow alongside it.

Despite the narrow reading of § 330b, the opinion draws a useful line between real-life harm and virtual harm. Similar to other cases involving online activity, damages are recoverable only when the harm is real. Mason did not suffer injury because there was no real-life economic benefit receivable from GOW’s Casino. She could neither exchange her virtual currency for real currency nor could she sell her GOW account without violating the game’s TOS. The case emphasized its point that Mason received the “benefit of her bargain,” the benefit being her enjoyment of playing GOW. Hence, it stands that if Mason could prove real economic harm, then she could have standing to recover.

The Court’s opinion demarcates a clear boundary for future cases where plaintiffs seek recovery based on online circumstances. It would be unreasonable to let people receive actual money when harm occurs only virtually, especially given society’s increasing dependence on electronics. However, the court’s inability to connect old laws to new technology creates a problematic obstacle that must be overcome before claimants can viably seek damages.

A Notice of Appeal has been filed by Mason.

Eric’s Comments: The defendant won only because the court adopted two types of exceptionalism at once: (1) online exceptionalism, by reading a hardware requirement in the statutory prohibition on gaming, and (2) virtual world exceptionalism, by dismissing the virtual currency losses as “just a game.” I’m not sure how many courts will simultaneously embrace both exceptionalisms in the future, so this seems like shaky precedent to rely upon for anyone hoping to offer virtual casinos or other forms of in-world gaming options. (Cf. the raging battles over DraftKings/FanDuel. When the Empire Strikes Back, the blowback can be severe).

Case citation: Mason v. Machine Zone, Inc., No. JKB-15-1107 (D. Md. Oct. 20, 2015).

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