Section 230 Doesn’t Protect App Stores That Sell Virtual Chips for Casino Apps–In re Apple App Store

Introduction

This case relates to “social casino apps” that simulate casino games like slot machines. Players pay real cash to buy virtual chips, which they can only use in the app, i.e., the player can never cash out their virtual chips no matter how many they win (though it may be possible to sell them out-of-app and do a virtual chip transfer to the buyer). Despite the lack of financial payouts, the plaintiffs claim the apps are highly addictive.

The plaintiffs allege that the app stores are engaged in illegal gambling. The app stores defended on Section 230 grounds. They have good reason to think 230 might apply to apps in their app store, considering that courts have reached that conclusion in Ginsburg v. Google (re Telegram), Coffee v. Google (re loot boxes), Free Kick Master v. Apple, and Evans v. HP (re the Chubby Checker). Curiously, despite the court’s lengthy discussion of Section 230’s history, the court didn’t mention any of these precedents for their 230 analysis. 🤔

Mostly applying Gonzalez v. Google, the court finds two of the plaintiffs’ theories are preempted by 230 but one theory is not. The judge also offers unsolicited negative thoughts about 230 and certifies (sua sponte!) an appeal to the Ninth Circuit so they can figure out the mess they created in Gonzalez v. Google. Thus, it’s highly likely this opinion isn’t the final word in this case.

(Note: the court did a lengthy discourse (pages 9-30) about Section 230’s history and key 9th Ninth Circuit precedents. I’m not sure why the court did this, because its analysis then lightly draws on the historical narrative. Maybe this explanatory material was designed to encourage the Ninth Circuit take the appeal? I’m skipping over the opinion’s 230 recap because it seemed like a lot of extra words for not a lot of benefit).

Section 230

The court starts with a Roommates.com-style overview: “a website does not become responsible for the development of a third-party’s offensive content merely by providing ‘neutral tools’ that a third-party might use to create the offensive content.” Applying the typical three-part 230 prima facie elements, the court says the only contested element is whether the claims treat the app stores as publishers/speakers of third-party content. To establish this factor, the plaintiffs tried three liability theories:

• “the Platforms are liable because they promoted the illegal casino applications in their App Stores and thus induced users to play the illegal games.” This one is easily dismissed per Dyroff and Gonzalez. “Allegations that the Platforms are liable for actions that rely on algorithms to ‘amplify and direct users to content,’ like the social casino apps, cannot withstand section 230’s grant of immunity.” Enough already with the argument that the algorithms negate 230!
• the app stores are “bookies” because “players must buy virtual chips from the Platforms app stores and may only use these chips in the casino apps. It is this sale of virtual chips that is alleged to be illegal.” The court says that, like Gonzalez and HomeAway, “Plaintiffs seek to impose liability for the Platforms processing of unlawful transactions for unlawful gambling.”
• the app stores boosted user engagement with the illegal apps to increase their profits (I’m paraphrasing–the court never concisely summarizes the third argument). The court says this is just a remix of the recommendations argument rejected in Gonzalez. “Plaintiffs hold the Platforms liable for sharing data with the social casino app developers to make their illegal product more appealing and addicting. Further, Plaintiffs point out that the Platforms had an incentive to do so. The social casino apps bring the Platforms significant profits. Making the games more appealing and addicting through data driven analytics inures to the benefit of the Platforms. Nonetheless, unlike Roommates.com, where the website actively elicited responses that formed the basis of violations of the Fair Housing Act, Plaintiffs do not allege that the Platforms contribution of data and advertisements helped create and develop the application itself….this case directly turns on how the Platforms aid the social casino developers in developing social casino apps. The Platforms are thus acting in their role as a ‘platform.'” [UGH. Reminder that 230 protects both “platforms” and “publishers” of third-party content.] The court continues its downward spiral: “the Platforms have behaved as ‘editors’ by helping develop the social casino apps using big data to make the games more profitable and more addicting. Providing social casino developers with big data is like an editor providing edits or suggestions to a writer.” Just no. “Big data” has nothing to do with editorial comments. Fortunately, despite this analytical mess, the court ends up in the right place.

So the net result is that, despite Section 230, the plaintiffs may proceed on their theory that the app stores take a cut of illegal revenue.

Bonus Dicta on Section 230

The judge could have and should have stopped there, but instead he adds his own editorializing about Section 230. The court agrees with Berzon’s concurrence in Gonzalez and Katzmann’s dissent in Force to conclude that “the history of section 230 does not support a reading of the CDA so expansive as to reach a websites-generated message and functions.” The term “websites-generated message and functions” is gibberish, but the court amplifies: “Immunizing a website’s own targeted advertisements and algorithms does not advance a website’s internal policing of indecent content or promoting third-party speech.” This is insane, amirite? The court says that the website’s “algorithms” don’t advance the website’s “promotion” of third-party speech. What other purpose do they serve? What is the court trying to say?

The court then says: “The data-driven targeting of consumers by big social-media platforms can hardly be compared to the Internet of 1996.” Perhaps, but so what? Cox and Wyden spoke to this point, saying that the changes over time were both anticipated and increase the need for Section 230. Without proper briefing, the court literally is making stuff up about Section 230’s origin and goals.

The court ends his dicta detour with this statement: “Platforms like Facebook, Google, and Apple are more than mere message boards, they are creators of content themselves, and they should be treated as such.” I mean…I might agree? When services create content, then 230 doesn’t apply. That proposition isn’t being contested, so it’s a strawman argument. If the court is saying that app stores always “create” all third-party apps they include in their store, then that’s a terrible assessment of the law and inconsistent with the uncited precedent.

Certification for Interlocutory Appeal

Without either party asking for it, the judge self-certified an interlocutory appeal to speed up the case getting to the Ninth Circuit. Basically, the court is so unsure of how to interpret the Gonzalez precedent that it would rather have the Ninth Circuit look at its 230 analysis now rather than get reversed later. The court explains: “This case involves controlling questions of law, namely whether the Platforms are entitled to immunity for their hosting of the allegedly unlawful social casino apps. While the Court believes it has followed the Ninth Circuit’s precedent on this complicated question, the Court finds that reasonable minds could differ as to the outcome of this case.” In other words, the Gonzalez opinion was so murky that this judge can’t confidently interpret it. (Hard to blame the judge–Gonzalez was a 3-opinion hairball from a 3-judge panel, which the Ninth Circuit should have taken en banc but did n0t, leaving a mess in place).

UPDATE: Google has appealed the ruling.

Implications

The court seems to be saying that payment services never qualify for Section 230 protection for processing payments for illegal items. EXCEPT…in the ccBill case in 2007, the Ninth Circuit held that payment services ARE protected by Section 230, but this court did not properly analyze ccBill for its 230 proposition (another odd omission given the court’s prolixity). So what should we take away from this? Either the court botched its precedent review, or it may be implying that the Ninth Circuit implicitly or explicitly overturned ccBill’s 230 holding in HomeAway and Gonzalez. Indeed, HomeAway could stand for the proposition that Section 230 never applies when a service processes transactions between third parties. However, if this court is correct, then it reinforces that Gonzalez may have created an enormous hole in Section 230–that 230 won’t apply whenever a defendant pays a third party (because those payments will always reach the “illegal” stuff that’s the basis of the plaintiff’s lawsuit). The consequences of a payments-forecloses-230 exclusion are potentially seismic, so I hope the Ninth Circuit fixes this rather than ratifying it or, worse, expanding the exclusion further. With the Ninth Circuit nowadays, we have no idea what to expect.

Because the court is (appropriately) focused on 230, it doesn’t address the deep doctrinal issues lurking here. First, can an app engage in “gambling” if the player can never accumulate a financial benefit? I presume that the app stores approved these apps because they lack the essential financial payoffs that define gambling.

Second, is the app maker, or anyone else, liable for “addicting” users? Deconstructing the complaint, the plaintiffs are saying that players are enjoying the game so much that they lose self-restraint. (Of course, the addiction issue is raging in the multitudinous lawsuits against social media for “addicting” teens). But how does this differ from any other video game where players need to buy assets to enjoy the game and are subject to random outcomes in gameplay? Indeed, if the games act as a substitute for going to the casinos, it’s possible that they actually help gambling addicts manage their addiction or even reduce their gambling spend. So what the plaintiffs style as “addiction” could be something more pro-social.

Case citation: In re Apple App Store Simulated Casino-Style Games Litigation, 2022 WL 4009918 (N.D. Cal. Sept. 2, 2022)