The team is joined by GuestKats Mirko Brüß, Rosie Burbidge, Nedim Malovic, Frantzeska Papadopolou, Mathilde Pavis, and Eibhlin Vardy
InternKats: Rose Hughes, Ieva Giedrimaite, and Cecilia Sbrolli
SpecialKats: Verónica Rodríguez Arguijo (TechieKat), Hayleigh Bosher (Book Review Editor), and Tian Lu (Asia Correspondent).

Saturday, 24 February 2018

Repair or reconstruction: Where do you draw the line for exhaustion under patent law?

What can the buyer of a patented product do with the product in question under the doctrine of exhaustion? Stated otherwise: when does the use of a patented invention fall outside the scope of what a buyer is allowed or even expected to do and   instead enters the grey zone of patent infringement? This question becomes even more compelling  when it comes to drawing the line between repair (permissible from a patent law perspective) and reconstruction (which constitutes patent infringement).

The difficulties in distinguishing between the two, repair or reconstruction, becomes more important when it comes to products that need refilling and  third parties are thus given the opportunity  (along with providing  refills) to also provide substitutes  for parts of the patented invention. There is  certainly room for further interpretation of the scope of the principle of exhaustion with regards to repair/reconstruction, since the caselaw relating to  it is  limited.

The German Federal Court of Justice (FCJ) decision,  in the case of “Trommeleinheit” [Drum Unit] – court docket: X ZR 55/16, GRUR-Prax 2018, 50 of the 24th  of October 2017, provides a valuable contribution in this respect. The FCJ, has now clarified that the central point of reference, when determining whether it is a question of repair or reconstruction, is the technical effect of the invention and whether this is reflected in the replaced element.

 The case

The patentee, Canon K.K., manufactures and distributes copying machines and printers as well as their respective toner cartridges. In the toner market, Canon has to compete with companies that reuse toner cartridges by replacing the photosensitive drum with a new drum. Canon filed a law suit and claimed direct patent infringement of claim 1 of its European Patent  2 087 407 in Germany.  Claim 1 covers a photosensitive drum unit, and further independent claims cover a cartridge and an electrophotographic image-forming apparatus, both of which  encompass a drum unit. The defendants distribute recycled printer cartridges, which may be used instead of the cartridges manufactured and distributed by the plaintiff.
Both the Düsseldorf District Court and the Düsseldorf Court of Appeal found that the defendant, by substituting the drum, had engaged in act equivalent to reconstruction i.e. an act of infringement.
The ruling of the FCJ

A previous ruling of the FCJ, namely the Palettenbehälter II case, provided  useful guidance  by establishing that the starting point for determining if  a certain use constitutes repair or reconstruction is to ask whether the identity of the processed object is maintained, despite the replacement of components, or alternatively  whether the replacement of the component constitutes the making of a new patented product. An important parameter is whether the components in question are of such a kind that their replacement can  usually be expected during the working life of the device. If this is the case, the use (the replacement of the part) per se is not an infringement, and a further aspect then needs to be investigated, namely, whether the technical effect of the invention is reflected in the components replaced. If this is the case, then the use constitutes reconstruction and thus patent infringement.

The FCJ, just as previously the Regional Court and the Higher Regional Court, concluded that the relevant point of reference was the claimed unit. However, and contrary to the lower courts, the FCJ ruled that,  in the specific case  before it, members of the trade would have  no opinion  whether replacement of the drum is to be expected during the working life of the drum unit, since the drum unit was  not sold separately, but only sold as part of the cartridges. Since the  the “opinion of the trade” criterion was not available, the FCJ applied the second step in the Palettenbehälter II test, whereby what is determinative is whether inventive character was embodied in the replaced spare part. The Court concluded "no", and thus  the action of the defendants did not constitute infringement.
The conclusions

In the view of this Kat, The FCJ’s ruling is not surprising, since it confirms its previous ruling in ““Palettenbehälter II”. The ruling in “Trommeleinheit” is nevertheless  noteworthy  because it relates to the application of previous case law in a rather special case, namely where a patented (drum) unit  is exclusively placed on the market as part of a comprehensive device (the toner cartridge) rather than as a stand-alone product. This ruling has also entailed a slight adjustment in how the distinction between repair and reconstruction is to be made, namely, changing the focus from how the product is viewed in the trade in favour of focusing on the objective aspect of technical effect as embodied in the repaired spare part. The outcome in the specific case might also influence how patent applicants will claim their inventions going forward, so as to guarantee that the claims cover all of the invention’s different components and protect the inventive character of the invention at all possible levels.

Friday, 23 February 2018

Friday Fantasies

IPKat is here with your weekly update of the latest news and upcoming events in IP! 

Artificial Intelligence - Training Program and Call for Papers

The Centre of International and Intellectual Property Studies (CEIPI), University of Strasbourg, is offering a new advanced training program in Artificial Intelligence (AI) and Intellectual Property, to be held on 24-26 May 2018. Registration and further details can be found here.

AI is certainly a hot topic. Elsewhere, the Italian intellectual property journal Aida has issued a call for papers on AI and intellectual property relating to European or Italian law. The deadline for abstract submission is 30 March 2018. Final papers can be written in Italian or English. See here for further details.

Conference on IP disputes - Vienna 

A free conference on "IP disputes and their effective resolution" is being held in Vienna next week, 2 March 2018. The conference aims to provide an opportunity for relaxed networking between members of the IP and the arbitration/dispute resolution communities. Details of the full program, speakers and registration can be found here

Young Lawyers Contest - France

The Academy of European Law (ERA) is organizing a "Young Lawyers Contest" in cooperation with Council of Bars and Law Societies of Europe (CCBE), to be held on 6-7 September 2018 at the ERA Conference Centre in Trier. The aim of the contest will be to bring together young lawyers and to spotlight the importance of European law for their future legal practice. Contestants will be judged on their knowledge of European law and advocacy skills. Further details can be found here. Young lawyers wishing to compete should contact their relevant participating Bar before 12 April 2018. See here for a list of participating Bars.

Hague System Seminar - Denmark

On 15 March 2018MARQUES is hosting a seminar in collaboration with WIPO on the practical aspects of the functioning and use of the Hague system, with a focus on providing European users of the system with guidance on Japan, the Republic of Korea or USA designations under the Hague Agreement. The seminar will be held at the offices of NJORD Law Firm in Copenhagen. See here for further details and registration. 

IP inclusive event
Kat revising for EQEs

IP Out is holding an evening event on 14 March 2018 on the topic of "The Gender Spectrum: What should firms be doing and why?", hosted by Bird & Bird, London. As with all IP inclusive events, everyone is welcome. Further details and free registration can be found here

More UK IPO intellectual videos!

Did your kids enjoy Nancy and the Meerkats? Are they looking for some more IP-related fun? Do not fear, the UK IPO has launched a new series, Meet the Malwares, in which four less-than-lovable characters, Malware, Ransomware, Adware and Spyware, warn us of the danger of downloading movies from illegal sites. 

Good luck message

Finally, good luck from IPKat to everyone across Europe taking their pre-EQE or EQEs next week! 

EPO looking for new legally qualified members of the Boards of Appeal

Fancy a trip to Munich in April?  The Boards of Appeal
are looking to hire...
Via a long-time IPKat friend, comes news that the European Patent Office (EPO) is looking to appoint new legally qualified members of the Boards of Appeal (Board 3.1.01) in Munich. Details of the post can be found here (all vacancies can be found here).

The blurb from the announcement reads:
"The European Patent Office (EPO) is the second-largest intergovernmental organisation in Europe, employing almost 7 000 staff from over 30 countries. The EPO strives to support innovation and promote a knowledge-based society in Europe. Its mission is to secure the highest quality standards in patenting.
The persons appointed will be legally qualified members of the boards of appeal of the EPO, which under the European Patent Convention have final-instance jurisdiction with respect to European patents.

A member of the boards of appeal performs duties of a judicial nature fully independently, not bound by any instructions and in compliance only with the provisions of the European Patent Convention (Article 23(3) EPC).

Main duties
  • Participation in all written and oral procedural stages of proceedings of the Legal Board and the technical boards of appeal 
  • As rapporteur: making proposals for communications to the parties, preparing draft decisions and oral proceedings, including all related tasks, and, where necessary, taking evidence
  • After gaining experience in the duties of a legally qualified member of the boards of appeal, helping to train new board members and assistants
  • Taking part in the meetings of the Legal Board"
The closing date for applications is 30 March 2018.

German FCJ: doctors can have their profile deleted from rating site - but can they?

A healthy ECG
Germans like to rate things online. We have rating sites for hotels, restaurants, playgrounds and of course - doctors. Jameda is one (of about 10) such websites that focusses on user-generated, anonymous reviews of doctors. 

It has been around for over 10 years, lists around 250.000 German doctors and attracts more than 10m visitors each month. These numbers show how important it is for doctors who appear on the website to be described in a positive light by their patients in order to remain competitive.

Jameda offered two types of listings for doctors. The first, ‘basic’, option included the name, academic title, specialization (if any), address and opening hours. This ‘basic’ option was free, and in fact doctors did not even have to sign up. Instead Jameda has always tried to (proactively) list every doctor in Germany on its website. Next to each listing, the average of the available user ratings was presented in the form of a grade, similar to (German) school grades that range from 1 (best) to 6 (worst). Users could also leave feedback in the form of written reviews in addition to the grading system.

A ‘premium’ option was also available for doctors. This package had the following benefits: doctors could add a profile picture and additional information about their practice. The most notable feature however was that when viewing a ‘basic’ profile, Jameda would show (marked as ‘advertisement’) profiles of ‘premium’ users in the surrounding area that had higher user ratings than the ‘basic’ profile that was being viewed. When ‘premium’ profiles were viewed, no such advertisements were shown.

Obviously, doctors that were subjected to negative reviews either tried to have those reviews deleted or went a step further and asked for their whole profile to be deleted from the website.

let's hope the doctor is good!
The 2014 case

In 2014, Germany’s Federal Court of Justice (FCJ) decided upon a case in which a gynaecologist sought to have his profile deleted from the website. 

In an interesting turn of events, the distinction between ‘basic’ and ‘premium’ profiles was not ruled upon by the courts due to procedural reasons. 

To make a long story short: the plaintiff’s attorneys failed to introduce the relevant facts to the case. As a result, the FCJ looked upon the site as if all profiles were treated equally by Jameda. This turned out to be a decisive factor.

The court’s decision in 2014 was in favour of Jameda, dismissing the doctor’s request for deletion of his profile. According to the judges, Jameda’s processing of doctors’ data is governed by § 29 BDSG (Bundesdatenschutzgesetz, the Federal Data Protection Act). The norm states that:

“the commercial collection, storage, modification or use of personal data for the purpose of transfer, in particular when this serves the purposes of advertising, the activities of credit inquiry agencies or trading in addresses shall be admissible if

1.  there is no reason to assume that the data subject has a legitimate interest in excluding such collection, storage or modification”.

As the required ‘legitimate interest’ (here: of the doctor) can only be assumed after balancing the opposing rights and interests at issue, the court looked at the doctor’s right to informational self-determination and Jameda’s and the reviewing users’ right to freedom of expression, while the professional freedom of both parties was also taken into account.

The FCJ conceded that the inclusion of the doctor in Jameda’s database was able to affect the doctor significantly. Reviews are able to influence patients’ decision which doctor to visit, as well as the doctor’s social and professional reputation. However, the court continued, these aspects only touch the plaintiff’s ‘social sphere’ as opposed to the ‘private’ and ‘secret’ spheres, which are more worthy of protection. Reviews that were factually wrong or otherwise offensive could be removed via a notification process that was implemented by Jameda. In the case at hand, no such reviews regarding the plaintiff were present, he ‘merely’ objected being included in the database at all.

Weighing against these interests of the plaintiff, the FCJ highlighted a considerable interest of the general public with regards to medical services and their quality. While it would indeed be possible for Jameda to continue its business after removing the plaintiff’s data, the judges viewed this as a danger to the informative value of the website as a whole. There would be a good chance that many doctors with negative reviews would ask for removal of their profiles, which would impede Jameda’s goal to present a ‘complete picture’ of medical services in Germany.

In the end, Jameda’s rights and interests outweighed those of the doctor, and his profile remained online.

The 2018 FCJ ruling

Two years after the first Jameda verdict, another doctor took offence not only at some negative reviews (she had an average grade of 4.7), but also at her being included in the database at all. She also highlighted and criticized that other doctors’ profiles (those of ‘premium’ users) were shown next to her entry in the database, and initiated court proceedings in 2016.

While both the Court of first instance and the Court of appeal rejected the plaintiff’s claims, the FCJ sided with her and granted the request for removal of her profile. To this date, only the press release of the FCJ is available. It will be a couple of months before the written reasons are published.

For now, we can confirm that indeed the distinction between ‘basic’ and ‘premium’ profiles was the decisive factor. The judges stress that by providing different information about doctors, depending on whether they are paying customers or not, Jameda had left its position as a ‘neutral’ information facilitator. This became especially visible (or rather ‘invisible’) when viewing the profile of a ‘premium’ doctor, whose profile was presented without showing any nearby alternatives, as opposed to ‘basic’ profiles, that were shown alongside other doctors who had better reviews. This shift in Jameda’s function resulted in a lower weight of the right to freedom of expression on behalf of Jameda, the court found. When balanced against the interests and rights of the plaintiff, the latter came out on top, resulting in the opposite outcome compared to the earlier case.

Future prospects

Reading only the headline of this week’s ruling one could expect a new wave of claims for deletion from the Jameda website by doctors who are discontent with their ratings or just not happy to be in the database at all. However, Jameda appears to have put a stop on such claims before they even gained any traction. On the day of the FCJ’s decision, Jameda stopped the practice the FCJ criticized and is now no longer advertising ‘premium’ customers’ profiles on ‘basic’ customers entries. As a result, we are now back to the situation the FCJ has ruled upon in 2014, meaning it is very unlikely doctors will be able to have their profiles removed. While this move by Jameda might make many of their paying customers unhappy, it should effectively put a stop to further claims for the deletion of profiles. It remains to be seen if the status quo will be contested by other doctors who do not want to be included in Jameda’s website.

Thursday, 22 February 2018

Top 10 issues from submissions before UK Supreme Court in Warner-Lambert v Actavis second medical use battle

The IPKat and team watching last week's Supreme
Court hearing...
Like many across the IP world, the IPKat was glued to his computer screen last week watching the drama unfold in the UK Supreme Court between Warner-Lambert and Actavis/Mylan.  The IPKat's friends, Katie Cambrook, Rachel Mumby and Claire Phipps-Jones of Bristows LLP, attended in person and, with the support of a team of other keen watchers in place each day, have summarized their Top 10 issues coming out of the hearing.  The IPKat expects that the very vocal panel of judges in the form of Lord Mance, Lord Sumption, Lord Reed, Lord Hodge and Lord Briggs will be grappling with these issues and much more in preparing their judgment. For those who missed the action, you can watch the recordings on the UK Supreme Court's website here.  Over to Katie, Rachel and Claire: 
"Last week, the UK Supreme Court held a 4-day hearing in Warner-Lambert v Actavis et al., the latest (perhaps last?) installment in the long-running Lyrica® saga concerning the validity and infringement of Warner-Lambert’s (Pfizer) second medical use patent with Swiss-type claims covering pregabalin for the treatment of pain. The central issues in dispute in this appeal were the role of plausibility in the test for sufficiency of disclosure, the allowability of post-trial amendments, and the direct and indirect infringement of Swiss-type claims. 
As readers may recall (see all previous IPKat posts here), the Court of Appeal had upheld Arnold J’s finding that inter alia claim 3 (to neuropathic pain, the only claim which is the subject of the Supreme Court appeal) of Pfizer’s patent was invalid for lack of sufficiency. The Court of Appeal had held that the data in the patent, which related to animal models of inflammatory pain, rendered it plausible that pregabalin would be effective in treating peripheral neuropathic pain but not central neuropathic pain. Whilst such data may have encouraged the skilled person to test the effectiveness of pregabalin in the treatment of peripheral neuropathic pain (rendering that invention plausible), the same was not true of central neuropathic pain and therefore not of neuropathic pain as a whole, rendering the claim insufficient.
The Court of Appeal also upheld the rejection of Pfizer’s application to amend the claim down to peripheral neuropathic pain after the first instance judgment had been handed down as being an abuse of process. On infringement, the Court of appeal provided obiter guidance, proposing a test for direct infringement based on the manufacturer’s knowledge or reasonable foreseeability of the ultimate intentional use for the patented indication, qualified by a caveat that the element of intention can be negated where the manufacturer has taken all reasonable steps to prevent infringement. On indirect infringement, the Court of Appeal reiterated that what is required is that means are provided which are for putting the invention into effect, but that there is no requirement for a downstream act of manufacture. 
On appeal, the UK Supreme Court panel was composed of Lords Mance, Sumption, Hodge, Reed and Briggs. Tom Mitcheson QC argued Pfizer’s case on plausibility, and Lord Pannick QC took over the case on abuse of process and infringement, with both sharing issues of construction. For Actavis/Mylan, Adrian Speck QC made submissions on plausibility and infringement, with Pushpinder Saini QC dealing with the remaining issues of construction and abuse of process. Michael Silverleaf QC also made submissions on behalf of the Secretary of State for Health. A number of interveners also made written submissions that were occasionally referred to in the course of the hearing.
Our “Top 10” points of interest or questions arising from the submissions before the Supreme Court are as follows:

On plausibility 
1.  Is plausibility a disease that is spreading and which must tackled by the Court before it is too late, as argued by Pfizer? 
2.  Alternatively, should the test for plausibility and obviousness be the same (i.e. require a reasonable expectation of success), or must the patent show a direct effect on the mechanism of the claimed disease, as argued Actavis/Mylan?
On abuse of process
3. Should the patentee have a right to amend following them being made aware of the judicial decision, as is the case before the OD of the EPO and some other national courts? 
4. Should the rules on partially valid patents apply to “partially valid claims”, as argued by Pfizer?
5. Is it disproportionate not to allow amendment post-trial where any prejudice could arguably be adequately dealt with in costs?
On construction
6. Pfizer suggested that the “validating principle” from contract law should be imported into patent law. Is it right to draw an analogy between a patent and a bilateral instrument such as a contract or deed, or a regulation which the court must interpret to ensure its validity? 
On infringement 
7. Does this issue require a judicial rewriting of s60 of the Patents Act, as initially argued by Pfizer?
8. Or is this simply a case of construction of the word “for”? 
9. How important is the label in determining infringement? 
10. Is it relevant that patents with Swiss-form claims will disappear from the patent landscape in the future, as argued by the Secretary of State for Health?
At the end of the hearing, the panel thanked counsel for all parties for their submissions and announced that it would take “some time” to prepare the judgment. If last year’s Supreme Court case in Actavis v Eli Lilly is to be taken as a guide, the Court may take around three months to make its judgment available."

UK IPO publishes consultation on implementing Trade Mark Directive 2015 into UK law

UK IPO - loving the public consultations on European
directives at the moment....
Monday was a blockbuster day for the UK Intellectual Property Office (UK IPO) in publishing consultations on implementing EU legislation into national law.  After publishing its consultation for the EU Trade Secrets Directive (see post here), the UKIPO then published its consultation on the implementation of the Trade Mark Directive 2015.  This consultation closes 16 April 2018.  Both were well timed given the calls this week for Brexit to be negotiated over a longer period of time. Tristan Sherliker (Bird & Bird) reports for the IPKat's readers on the Trade Mark Directive consultation (a separate post from another guest Kat on the trade secrets consultation will follow).  Over to Tristan:    


The IP community will remember that in 2015, the EU legislation governing Community Trade Marks was overhauled.  These are now set out in the new Trade Marks Regulation, which included renaming the harmonised system to the EU Trade Marks system. Alongside this comes the 2015 Trade Marks Directive, which will carry the reforms into Member State national law and must be implemented by 14 January 2019.

Since then, of course, the Brexit vote occurred. It was not initially clear whether the UK would implement the new directive or not. The consultation now makes it explicitly clear that the Directive will be implanted into UK national law in line with the UK’s existing obligations.  However, the consultation is also clear that the revisions to UK law will be “limited only to those that [the IPO] considers necessary”, in particular meaning that they see no need to amend wording to match that of the Directive if the principle of a provision (such as Article 15 on exhaustion) is already adequately covered by the Trade Marks Act 1994 (TMA 1994) or any other UK law.

Key Issues

Here’s a list of some important issues that fall to be discussed and an overview of the questions they raise.  For a full list of issues and impact assessment, it’s best to look at the consultation itself (which is drafted quite clearly and accessibly).
  • Removal of graphical representation requirement – how should it be implemented and what categories of marks does it open up?  Specifically, a call to identify possible new mark types and preferred practicalities. 
  • Interpretation of “competent authorities” under Article 3 
Is the Registrar the only competent authority that needs to be named for the purposes of determining what constitutes a trade mark, or should this include the Appointed Person and the Courts? The current proposal is to limit it to the Registrar, with the (unhappy) possibility that he or she would need to be called as a witness to proceedings. 
  • New grounds for refusal
New grounds of refusal to be included to allow explicitly refusals on absolute grounds, on the basis of any conflict with words protected under other regimes - including geographical indications, traditional terms for wine, TSGs and plant variety rights.
  • Should assessments of acquired distinctive character take into consideration use of trade mark after the application date? 
This is an optional provision.  At the moment, the plan is not to implement it into UK law. Views  and requests for evidence are sought as to whether stakeholders agree with this view.  
  • The possibility of removing s6(3) TMA 1994 (taking into account of expired marks for relative grounds of refusal for 1 year after expiry) 
This also brings with it the question of adapting the test of whether it is ‘just’ to restore a lapsed mark, converting the test to a new factual test of whether the failure to renew is ‘unintentional’. This change would bring the test for restoration into line with patent and design provisions.
  • Protections against registrations in bad faith based on overseas registrations 
The 2015 Directive contains an optional provision that bad faith grounds can be based on an overseas registrations. The consultation asks whether this is already covered by the general power to consider bad faith applications under UK law or rather an explicit provision is necessary.  
  • Comparative advertising – s10(6) TMA 
S 10(6) TMA is considered a ‘home grown’ comparative advertising exception within UK law. In the light of the body of CJEU decisions, is that now redundant and should it be removed?
  • Generic marks and entries in Dictionaries 
A proposed new mechanism that court orders be available to compel dictionaries to make amendments in respect of mis-identified generic terms. A secondary question might be whether there is a need to do so, or whether it already falls within the court’s inherent jurisdiction.
  • Goods in transit and “third countries” 
This arises in the context of goods being detained by customs authorities while in transit to ‘third countries’. The UK IPO remarks that the term ‘third countries’ is unclear, which is particularly understandable in light of Brexit (will the UK be a third country to the EU?).
  • “Industrial property” 
Article 5.4(b)(iv) includes a right of refusal based on other ‘industrial property’ rights. Does this just mean designs and registered designs, or is there some other right to be included as well?
  • How to implement non-use as an infringement defence 
The proposed introduction of non-use as a defence (which can be deployed in the same proceedings as an infringement claim) rather than requiring a defendant to raise different proceedings to challenge use. 
  • No need for TM Proprietors to be joined to licensee proceedings 
Proposal to remove the need for proprietors to be joined to enforcement proceedings brought by licensees, on the basis that it exceeds the wording of the 2015 Directive (which is silent).
  • Should collective marks be owned by everyone? 
Collective marks are those able to be used by all who fall within a defined group of people (according to the rules associated with a particular mark). The 2015 Directive provides that these may be owned by “legal persons governed by public law”. Although this makes sense in certain civil law jurisdictions, it does not seem to have relevance to the UK legal system and it is proposed that this restriction be ignored when transposing the law into the UK.
Closing remarks

Some of these issues are big questions, and others are technical. Either way, given the questions underlying UK-EU relations after Brexit and the international power of brands, this importance of the consultation takes on a new light.  Indeed, it may even, in a small way, help to shape the UK’s TM system on the international stage. It would be encouraging to see a thorough response to assist this purpose."

More than Just a Game (Report 3): Loot boxes and gambling

A box full of kitten loot - not to be confused with "loot boxes"
in the video game context
Now in its fourth year, the More than Just a Game conference organized by Queen Mary University of London brings together academics, practitioners and industry members to discuss the key legal trends in, and issues facing, the gaming and interactive entertainment industries. For the first time, an edition of the conference was held in Paris. KatFriends Daniel Lim, Alex Woolgar and Shohta Ueno (Allen & Overy) report on the proceedings in this third, and final, installment (the first installment can be found here and second installment here):
"Loot Boxes
Andreas Lober explained that “loot boxes” are a form of microtransaction (i.e. in-game real money transaction) which has become increasingly common as part of the business model of video games. Loot boxes are a mechanism whereby players receive in-game items as a prize at random. The prizes vary in quality and are typically drawn from a pool of potential prizes of varying in-game quality and rarity; the likelihood of receiving a prize will generally be inversely proportional to its rarity and in-game value. Loot boxes may be earned through in game actions (e.g. in return for points or currency that can be earned in-game, or via the completion of in-game accomplishments) but can also increasingly be bought with real money. Loot boxes and microtransactions in general provide an on-going source of revenue for publishers and in the case of “free to play” or “freemium” games, together with advertising revenue, often comprise the vast majority of the income from the game. This business model is very popular in the mobile gaming sphere, but has increasingly spread to traditional console and PC games, including where consumers pay a significant upfront sum to purchase the game. 
Outside of gaming circles, loot boxes had not really been brought to the attention of the regulatory authorities.  Then in 2017 the practice hit the headlines as a result of the manner in which the loot box system had been implemented in flagship title Star Wars Battlefront II. In the beta version of that game, loot boxes provided the player with a small chance of winning access to powerful end-game characters such as Luke Skywalker and Darth Vader.  This circumvented the need for players to spend an average of 40 hours of game play to unlock these characters (i.e. the more conventional route).  The feedback from the beta version was that this amounted to a “pay to win” mechanic which rewarded and encouraged the purchase of loot boxes rather than earning rewards through gameplay.  In response, the early access version of the game removed the highest tier reward (including Darth Vader) from the loot boxes. This frustrated one user who had spent $80 to acquire 12,000 Crystals of in-game currency with the intention of purchasing Darth Vader (either directly or via the randomised loot box mechanic).  The user then found out that the character could only be purchased with a different type of in-game currency, Credits.  Credits could only be earned through in-game actions.  No surprise that this user then vented their frustration online, leading to the most downvoted Reddit thread in history.
There are numerous controversies surrounding the issue of loot boxes and microtransactions.  Are they a necessary evil or do they imbalance and harm gameplay/user experience?  Do consumers have a legitimate expectation to be able to play their favourite characters “out of the box” without investing significant gameplay time?  These issues are complex and beyond the scope of this article (although plenty of virtual ink has been spilled on these subjects, see e.g. this brief analysis of the place of microtransactions in the modern gaming economy).
The key legal issue here is whether loot boxes should be considered as gambling. If it is categorised as gambling, a licence would normally be required in most countries.
Position in Germany
Andreas discussed this issue from a German law perspective – under which one needs to look at three elements: stake, prize and luck. With loot boxes there is no way of getting out of the element of "luck". Meanwhile, the "stake" could be regarded as the in-game currency (or actual currency, depending on the logistics of the microtransaction) which one has spent in return for the loot box.
Accordingly the key definitional issue comes down to the "prize" element, namely whether the "prize" can be considered to be money or money’s worth. If the item did not add any value to the gaming experience, such as a skin (which is an item that can modify the appearance of game avatar), does this mean it adds no value outside of the video game? Until now the prevailing view seems to have been that the in-game rewards from loot boxes are not money’s worth and so fall outside the definition of a "prize", with the result that loot boxes are not considered to be gambling. However, it remains to be seen whether this will continue to be the case; for example an article by Desiree Martinelli reported that wagers on skin gambling in 2016 were worth around $7.4bn.
Position in France
Andrea Dufaure discussed the recent views expressed by the French Gambling Authority in relation to loot boxes. She stressed that the Authority did not make any firm comments but rather they tiptoed around the issue by saying: (1) the consumer is not aware that there will be a further charge during the game in addition to the price of the game itself; (2) luck may mean gambling; and (3) the ability to “cash out” winnings (i.e. convert back to real money) can be gambling, but stressed that this is a matter from the French Courts to decide.

She mentioned that in a recent statement the French Secretary of State focused on the impact it might have on the consumers. In particular, he recommended that loot box mechanisms should clearly indicate to the consumers what the odds of winning are within the video game.
Position in the UK
Finally, Paul Gardner from Wiggin mentioned that gambling is something which is not harmonised at the EU level. In the UK, what constitutes gambling is dictated by Gambling Act 2005. The nature of loot boxes mean that they would fall under the definition of ‘gaming’. “Gaming” means playing a game of chance for a prize.  The definition does not require you to play against anyone, nor (unlike Germany) put up a stake - all you need is the element of luck and a prize which is money or money’s worth.
Paul noted that the Gaming Commission has been very interested in skin gambling.  It published a discussion paper in 2016 and a position paper in 2017. So far it seems like the Gaming Commission has not deemed loot boxes to be gambling but it has raised concerns in relation to children being affected by loot boxes.
As the growth of gaming continues, it will be increasingly important that the industry is regulated at an appropriate level and in an appropriate way. Equally, as inventive game designers continue to push the boundaries of technology and creativity (particularly with AI, VR and AR), IP will need to retain the flexibility to continue to protect the investments made in the industry, without stifling further innovation. 
The More the Just a Game Paris edition conference represented a fascinating snapshot into some of the hottest topics in gaming law. Appropriately mirroring the rapid rise in gaming, the conference series is expanding this year to take in sessions in Spain and Germany, as well as returning to its roots in London on 5-6 April for its main edition.  This year it will be focusing on “the impact of Artificial Intelligence on Interactive Entertainment and our Culture, Identities and Freedoms”. Certainly not to be missed by anyone with an interest in games or gaming law!"

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