Is the Free2Play distribution model anti-competitive?

In a case I am representing, the question currently arises, in addition to numerous other problems, as to whether the Free2Play model used by many publishers, often garnished with the currently highly controversial loot boxes, does not violate German law.

First of all, I would like to stress that the following remarks are – still – very academic in nature, that it is often a matter of concrete form and that there is hardly any literature on this problem and certainly not any case law. Politically and legally, however, protests are forming against the extensive design of the Free2Play model. This applies to loot boxes for the Benelux countries and to price transparency issues for the United Kingdom.

The comments therefore refer quite to what I think is a perfectly reasonable opinion. I refrain from constantly overloading the text with a “in my opinion” or “under certain circumstances”. The article also attempts to simplify certain legal issues. I am happy to face up to the discussion and can also garnish individual points with quotations from writing!

As mentioned above, the Free2Play model, in numerous configurations, could be unfair in German law for breach of Section 3 para. 3 UWG in accordance with No 21 of the Annex to Paragraph 3(3) 3 UWG. Pursuant to Section 3 para. 3 UWG in accordance with No 21 of the Annex to Paragraph 3(3) 3 UWG shall be subject to inadmissible commercial acts whenever the offer of a good or service is presented as ‘free’, ‘free’, ‘free’ or the like and if the user nevertheless has to bear the costs of doing so. This shall not apply only if the costs associated with the receipt of the goods or service offer or for the collection or delivery of the goods or the use of the service are unavoidable. Such unavoidable costs would be, for example, the user’s electricity or provider costs in an online game.

In terms of its purpose, the provision is linked to the lure of a product offered free of charge. It seeks to protect the consumer from being misled by the use of terms ‘free’ or ‘free’ and, in particular, from misleading the costs incurred when using the offer, provided that they are not unavoidable. It thus indirectly forces the trader to inform the consumer sufficiently about these costs.

The main purpose of this per-se prohibition rule is therefore price transparency.

The offence requires (1) the offer of a free product and (2) the obligation to bear costs which (3) are not unavoidable. The overall impression is decisive in assessing whether the facts have been met.

The first condition is often met, because games, for example in the appstore, are usually offered free of charge and also aggressively advertised in this way. But also the other prerequisites are often fulfilled, because the user regularly bears costs, which are not unavoidable.

On the one hand, this means costs incurred when the user accepts the offer, i.e. at the time of download or registration. However, it cannot be left alone, since the concept of costs within the meaning of this provision must be understood in a broad sense in order to ensure price transparency and also covers those hidden in the overall offer (i.e. in the whole game) (meaning: later) to cost.

Thus, the standard does not only cover costs that are already fully known at the time of acceptance (i.e. at the time of download and subsequent registration), because such a restrictive interpretation of the provision would neither be in line with the directive nor would it correspond to the meaning and purpose of the standard.

The text of Directive EC/29/2005 explicitly states in the annex to paragraph 20:

“A product is described as “free”, “free of charge”, “free of charge” or similar, although the consumer has to bear costs other than those which are unavoidable in the context of the commercial practice and for the collection or delivery of the goods.

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If one takes the wording of the Directive seriously, but also the meaning and purpose of the standard, it can make no difference whether the costs are already known when the offer is accepted or not. Even in the case of costs which arise in the course of the use of the main service, the principle of price transparency must apply in its full form.

At the very least, the operator of a business model, that it attaches a considerable importance to the customer’s incurring further (avoidable) costs, must provide the customer with full knowledge of the possibility of costs and their possible circumstances and amount from the outset of use. to inform. This includes the fact that the consumer is informed of these circumstances before the download (which is already usually associated with costs, albeit unavoidable costs for him), but at the latest before registration.

It cannot then be objected here that the exact calculation of the costs depends on the behaviour of the user and cannot therefore reasonably be calculated in advance. In such a case, the provider must then clearly inform about the possibility of costs and the individual cost parameters in the course of the game.

This is often the case, because usually only during the game, i.e. when a player is exposed to significant aleatoric incentives and is in a competitive situation with other players, is about purchaseable additions, accelerations or time savings. Informed. In such a situation, a player is more willing to pay money for further success in the game, especially if he sees that he is aware of the behaviour of his teammates and players. competitors would be at significant competitive disadvantages if it continued its free game. It is obvious that there can then be real upswing effects in the game and this is already for adults, but in any case for underage players with a considerable risk potential.

In the overall assessment of these circumstances, therefore, the concrete design of many Free2Play games also falls within the prohibition of Section 3 para. 3 UWG in accordance with No 21 of the Annex to Paragraph 3(3) Uwg.

It should, of course, be explicitly emphasised that it cannot be the task of competition law per se to prevent the Free2Play distribution model, in which the main product is awarded free of charge and the turnover for the entrepreneur is then reduced due to further accessories sales. Such distribution models are permitted in principle, but they are subject to particularly high requirements with regard to the generally consumer-protective and especially youth-protective bid of price transparency in order to make them legally compliant.

This is especially the case in games with a large player vs. player offer, because in such situations there can be uncontrolled rocking effects when buying accessories, possibly even in the form of loot boxes.

Therefore, depending on the design of the game, due to the combination of price intransparency and product-related aleatory and competitive incentives, at least a breach of Paragraph 3(3) of the Game could be at least a violation of Paragraph 3(3) of the Game. 1 UWG.

Section 3 Para. 1 UWG serves as a catch-all for such commercial acts resulting from the particular acts of unfairness or prohibition of the law of fairness, such as those annexed to Paragraph 3(3) of the 3 UWG or only in part.

The valuation possibilities of Section 3 para. 1 UWG therefore also offer space for novel case-making. This is a novel case in which the Free2Play distribution model of the gaming industry has been practised for several years. Whereas in the past games were always marketed in the classic licensing model for a one-off payment by the consumer and were thus completely price-transparent for the user, Free2Play” represents a conscious paradigm shift in sales and distribution revenue structures of the game manufacturers. However, this conscious decision is a decision for more revenue and not for less.

For good reason, individual designs of this distribution model meet significant legal and also political concerns, for example from the consumer protection centres or the EU Commission.

In the next article, I dedicate myself to the question of whether there could be a UWG violation of many Free2Play games due to the violation of price transparency clauses.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.