The Turkish Technology Ecosystem: Loot box mechanics

The gaming industry's annual global revenue is expected to surpass the US$200bn mark for the first time ever in 2022. Despite its size and rapid growth, commercialization of gaming is a relatively new phenomenon, which can be traced back to arcade and console games, popularized after the 1970s.

The commercial potential of the gaming industry was not truly unlocked until the advent and widespread use of mobile devices. Add to that the popularization of credit card use, enabled by decreasing processing fees, which resulted in a business model built on "microtransactions" – a model that has reshaped the gaming industry in the 2010s, a decade some have described as the "gaming boom."

Turkey was at the forefront of the gaming boom, both as a producer and consumer. In recent years, hundreds of new gaming start-ups have been founded, some having reached multi-billion dollar valuations. The rapid growth of the Turkish gaming market has witnessed simultaneous efforts to regulate the industry. As a result, questions arise as to whether and to what extent the industry, including and especially gaming mechanics such as loot boxes, is subject to Turkish laws and regulations.

What exactly are loot boxes?

Loot boxes are virtual "boxes", obtained through gameplay or payment (via virtual or real currencies), which contain randomized items that can be used in-game for functional or aesthetical benefit. While loot boxes may come in different shapes and forms, their key characteristic is their random reward mechanism, which distinguishes them from in-game purchases where the player knows what they will receive in return for their payment.

Loot boxes are very prevalent among gamers. According to one recent survey from 2020, more than half of the top 100 most-played games on both Google Play Store and Apple's App Store contain loot boxes.

Characterizing loot boxes and distinguishing them from other gaming concepts such as gambling, sweepstakes and trading cards can be difficult but has become necessary, especially for jurisdictions that prohibit some of these activities (such as gambling) but do not explicitly address others (such as loot boxes).

What is the current state of the Turkish regulatory framework?

The Turkish Penal Code defines gambling as "games played for a gain where profit or loss depends on chance" and makes the facilitating of a place or means for gambling a crime. Facilitating gambling activities for minors and the use of IT systems to facilitate such activities are both aggravating factors.

While participating in gambling itself does not constitute a criminal offense, it is still prohibited and is subject to administrative fines. There are no exceptions to these prohibitions based on nationality and there are no exempt territories or facilities, as may be the case in certain jurisdictions. These prohibitions have been consistently and widely enforced by Turkish authorities.

Certain other activities, such as lotteries, sweepstakes, and sports betting; are not criminalized, but are conducted under an exclusive license from the government. For example, the Turkish National Lottery, which was privatized in 2019 for a period of ten years, holds the exclusive license to organize cash reward sweepstakes.

Non-cash reward sweepstakes, on the other hand, may be organized with the permission of the Turkish National Lottery. There are various exemptions to this permission requirement under the relevant regulation, which may be applicable to certain types of loot boxes.

Are loot boxes prohibited in Turkey?

From a historical perspective, the regulatory framework explained above was not created with loot boxes in mind. However, unless and until a legislation or regulation specifically addresses the question of loot boxes, whether a specific loot box mechanism is prohibited (or even deemed a criminal offense) will have to be determined by the current regulatory framework. Accordingly, whether a particular loot box mechanism is prohibited will depend on a case-by-case determination by the Turkish authorities who will need to weigh the specifics of each case.

Most relevant to this case-by-case determination is whether the loot box in question offers the player the ability to cash out the rewards it obtains by opening the loot box. To the extent that the items (whether functional to the gameplay or not) in the loot box stay within the confines of the game, without a meaningful way to be converted into cash, it would be difficult to argue that the use of such loot box constitutes gambling.

Consideration should also be given to whether it is possible to transfer items between players in a virtual market within the game, which would open up the possibility for real currency payments through third-party platforms for the transfer of such items, indirectly allowing the player to cash out the rewards of the loot box. In such cases, authorities may be more inclined to characterize the use of loot boxes as constituting gambling.

Even when it can be established that a certain loot box mechanism does not constitute gambling and does not trigger permission requirements under non-cash reward sweepstake regulations, it is advisable for the publisher to provide transparent and accessible information on the loot box mechanics to its users. Although not explicitly required, disclosures that are easily accessible on the probability of obtaining each item through loot boxes, as well as disclaimers on respective app store pages that the game contains "paid random items," are advisable. Ability to restrict the amount that can be spent by a given player account is also advisable, especially to ensure more effective parental controls.

In any case, publishers should refrain from unfair commercial practices towards consumers such as obscuring the cost of obtaining loot boxes, intentionally confusing the player on the probability of obtaining a certain item or targeting children and potentially vulnerable persons, which could result in sanctions unrelated to gambling.

Conclusion

Currently, there is no specific legislation in Turkey that regulates loot box mechanisms in gaming. However, the general regulatory framework applicable to gambling and related activities, summarized above, may apply to and impact game publishers.

Local and international game publishers that operate in Turkey should keep themselves apprised of any future legal and regulatory developments that may impact their operations and should consult their legal advisors on questions of compliance.

H. Alper Tüzün and Cem Tecimer are lawyers at Norton Rose Fulbright. Norton Rose Fulbright has global experience representing gaming development studios and publishers, NFT and blockchain gaming companies, mobile game platforms, e-sports organizations, sweepstakes and lotteries. The firm advises innovative companies as they continue their growth through financings or otherwise and implement their strategies.