Valve moves to dismiss Counter-Strike gambling lawsuit in New York

MANHATTAN (CN) — PC game developer Valve has moved to dismiss a sweeping lawsuit in which the New York attorney general accuses it of promoting unregulated gambling via its flagship title Counter-Strike 2.

In a 42-page memo filed late Monday night, Valve warns that it’d be a slippery slope to punish it over so-called “loot boxes” or “cases,” in which players can pay roughly $2.50 to receive an in-game item that varies in rarity. If New York deems that illegal gambling, it may say the same for baseball cards, Happy Meal toys, Labubus, comic book grab bags and more, the developer argues.

“Each of those transactions — and many more like them — involves a purchase of randomized items that can be resold for cash,” Valve writes in the filing. “No court has allowed the executive branch to criminalize overnight such ‘a breathtaking amount of commonplace’ conduct not specifically proscribed by a statute. This court should not be the first.”

New York Attorney General Letitia James sued Valve in February, accusing the company of profiting billions by letting “children and adults alike illegally gamble for the chance to win virtual prizes” in the form of Counter-Strike weapon skins.

Those skins, the state claims, have real-world value, evidenced by the fact players can sell them on Valve’s own virtual marketplace and several third-party sites. Some particularly coveted cosmetics can go for thousands of dollars — a rare AK-47 skin recently sold for $1 million.

However, users are far more likely to unbox common items worth mere cents.

James compared the process of unboxing these virtual items to spinning a slot machine with the “potential of winning a large prize.” But in its bid to dismiss the case, Valve rejected the casino parallel, instead likening the practice more to mystery collectible packs.

“People enjoy surprises,” the company says. “Part of the appeal of many popular collectibles, from baseball cards to cereal boxes, is the possibility of opening a sealed package and being surprised with a rare item. … No legislature or court has ever deemed that act illegal gambling.”

Like baseball cards, Valve argues Counter-Strike skins “are designed for entertainment and have subjective and aesthetic value to users.” They also both have vast secondary markets for collectors, with resale prices based on desirability.

Banning Counter-Strike cases would “inject uncertainty into hundreds of daily commercial transactions,” the company warns.

“Can parents purchase packs of baseball cards for their children? Can families go to Chuck E. Cheese to play games of chance and exchange winning tickets for prizes? Can a child reach into a cereal box and grab a surprise toy? All these actions and more could lead to chargeable crimes under NYAG’s interpretation of gambling,” Valve argues.

That outcome would be “nonsensical,” the developer claims. It’s asking a New York judge to dismiss the lawsuit with prejudice, arguing that their virtual cases simply don’t amount to gambling under state law. Players receive exactly what they pay for, one weapon skin per mystery box, according to Valve.

“There is no ‘stake’ or ‘risk,’” it argues.

James’ lawsuit threatens to upend a more than $4 billion economy of in-game Counter-Strike items. She is seeking damages worth three times the amount Valve has profited from loot boxes and could preclude the company from selling them to New Yorkers in the future.

Valve has faced similar regulatory scrutiny around the world. Earlier this year, the company was forced to change how unboxings work for German Counter-Strike players. Now, those players get to see what item is inside a case before purchasing a key to unlock it, putting it in line with local gambling regulations.

Stateside, however, Valve says it has been offering mystery boxes across several games for more than a decade without objection from any state regulator.

“No other state has ever criminalized mystery boxes,” the company argues. “Valve had no reason to think its conduct was illegal.”

New York Supreme Court Justice Nancy Bannon is presiding over the case. Valve is being represented by global white-shoe firm Milbank LLP.

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