Regulating the Online Gaming Industry- A Loose Attempt

The authors are Aayush Panwar and Ayush Pratap Singh, fourth year students at Gujarat National Law University, Gandhinagar.

Introduction

On January 2, 2023, the Ministry of Electronics and Information Technology [“MeitY”] proposed the Draft Amendments 2023 [“Amendments”] to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 [“IT Rules, 2021”]. The Amendments sought to regulate online gaming under the IT Rules, 2021. These Amendments come in the aftermath of the change in the allocation of business rules which designated MeitY as the nodal ministry for online gaming. According to a report, the revenue of the gaming industry was $2 billion in FY 21 and is projected to have a Compound Annual Growth Rate of 27 percent..

The Bombay High Court had put a stay on the operative provisions of Part III of the IT Rules 2021, citing threats to independence of the media and the fundamental rights provided in our constitution. However, the Government – disregarding the court’s remarks – notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022 that further strengthened the Government’s powers to control free speech.

The MeitY has now further proposed amendments to include the field of online gaming under the IT Rules, 2021. The parent act is silent on the regulation of online gaming entities and thus regulating this area by Rules made by the executive can lead to issues of constitutionality of such law under the principles of administrative laws. Therefore, the authors aim to analyze the implications of the amendments with respect to the regulation of online gaming in India. This analysis shall cover aspects relating to a lack of definitional clarity, ambit of online gaming intermediaries among others.

The ambit of online games: Lack of clarity?

Rule 2(1)(qb) of the Amendment provides that an online game is a “game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings”. The definition fails to take into consideration whether online non-gambling games are included or not within its scope. The lack of definitional clarity had led to ambiguity on the ambit of online games. It is also not clarified whether portals like Steam, which offer games on the internet conducting special gaming tournaments involving money, will be covered under these rules.

Additionally, the scope of both deposits and winnings has been defined to include both cash and kind. Hence, a possibility arises that the kind component could cover non-monetary tokens or online game currencies. Kind component refers to any non-monetary tokens, which are used primarily in gaming platforms. This may mean that games not requiring monetary deposits may also be covered under the ambit of online games as per the Amendment. This concept of ‘kind’ appears to be outdated in the times when the market is moving towards a ‘play to earn’ approach. This approach allows gamers to collect digital currencies such as crypto, NFT, tokens, etc. which can be sold in the market. This play to earn approach has been implemented by countries such as Hong Kong and Switzerland.

The authors believe that definitional ambiguity can be detrimental to the gamers as well as the whole industry. It will be a roadblock for the game publishers to incentivise the promotion of any games. Malicious and pirated gaming websites would be able to circumvent government and regulatory agencies due to the definitional ambiguity. There is a clear need for conceptual as well as textual clarity in the proposed amendments. The executive needs to clarify the ambit of online games and secondly, do away with the cash and kind approach and instead frame guidelines to implement this ‘play to earn’ approach in India.

Interpretation of online gaming intermediaries: Too broad?

Previously, under the IT Rules, 2021, social media intermediary and significant social media intermediary had been defined. The amendment has also defined Online Gaming Intermediary [“OGI”] as an intermediary that offers one or more than one online game. The definition has a very wide coverage and thus leads to ambiguity. The Amendments lack the distinction between game publishers and game developers, both collectively being referred to as OGI. Further, it fails to clarify whether offline and online games available on platforms such as app store as well as through online multiplayer modes such as EA Sports etc. would be covered under the definition of OGI. Additionally, testing and verifying millions of games on app stores appears next to impossible.

Moreover, consider a situation where both the service provider as well as the game provider offers online gaming services. The question arises whether both the service provider as well as the game provider will be under an obligation to observe due diligence requirements under the IT Rules 2021. This would subsequently lead to a lack of clarity as to the application of due diligence requirements. The authors believe that the term ‘intermediary’ should be replaced with ‘publisher’. This will make sure that these cannot claim protection under Section 79 of the IT Act, which provides for the immunity to intermediaries in case of third party information hosted by them.

Self-Regulatory Body- A Solution or a Remote Control?

The proposed amendment provides for Self-Regulatory Bodies to oversee the online gaming intermediaries in India. These bodies, which can be registered under the Societies Registration Act, 1860, or under Section 8 of the Companies Act, 2013, will be registered with the government under Rule 4B of the IT Rules, 2021 after consultation with its agencies if required. These bodies are entrusted with the task of registering the gaming intermediaries, and such intermediaries are required to always display such registration marks in all games. The objective is to monitor the gaming platforms indulging in online betting or gambling. Gaming will include both games of chance and a game of skills.

Such registered bodies are mandated to develop a framework to test and verify the online games, secure the interest of users, and put the same on their website as well as the mobile application. This will also include the content of registered games in order to safeguard children, safeguarding against gaming addiction, and repeated warning messages for gaming sessions beyond a reasonable period. It is required to deal with sexual and violent content in online games and such self-regulatory mechanisms can be very helpful. On the down side, the amendments relating to self-regulatory mechanisms provide for suspension and revocation of registration of such bodies, which may act as a two-sided sword in the hands of the executive. The word “as it may deem necessary” in Rule 4B(10) gives arbitrary power to the executive. They are also bound by the directives of MeitY “as they deem necessary” under Rule 4B(10). Thus, the amendment gives arbitrary power to the executive to suspend a self-regulatory body if it deems necessary.

Self-Regulatory bodies also have to ensure rigorous Know Your Customer [“KYC”] norms for the gamers, including age verification, and taking safeguard measures against financial distress and addiction. These proposed KYC norms and registration requirements not only raise privacy concerns but also act as a hindrance to prospective gamers. Not every gamer will have the necessary documentation, financial know-how to enter the industry. The authors believe that the gamers must be asked to complete a normal registration process which would involve giving basic details of the gamers such as name, date of birth, place of birth etc. while the gamers who eventually win tournaments must be obliged with rigorous KYC norms to claim earnings, as it is indeed necessary to regulate financial transactions. Hence it is suggested that the requirement of KYC norms as well as registration should be limited in scope.

Gaming literacy provision: A glare omission

The Amendment fails to provide any provision that talks about measures to help youngsters understand the impact online games can have on them. While online gaming can be a leisurely activity, it can also bring mental issues as well as financial ruin. The authors therefore believe the amendments should provide general information regarding online games as well as online gaming platforms so that people can make well-informed decisions. Countries such as Spain and Netherlands have made it mandatory for platforms to clarify how they reward or pay out their players.

Conclusion: The Way Ahead

The authors believe that while the amendments are a step in the right direction due to the rapid emergence of the online gaming industry, the executive should stay clear of giving itself arbitrary powers as this goes against the very ethos of public discourse. The executive should also try and provide more textual as well as conceptual clarity in the framing of the provisions in order to avoid ambiguity as has been suggested in the previous sections. Moreover, guidance can be taken from foreign jurisdictions such as Spain, Netherlands, Switzerland and Hong Kong on issues such as the outdated cash and kind approach as well as issues relating to gaming literacy in the country. The authors believe that such changes can help us take maximum advantage of this booming sector.