On March 28, the Ninth Circuit deemed Big Fish Casino’s in-game currency to be a legal “thing of value” pursuant to Washington law’s definition of gambling.

Big Fish Casino is a free-to-download virtual casino app that enables users to play various casino-themed games such as such as blackjack, poker and slots. In order to play each game, users must expend in-game currency called “chips.”
While new users receive a set of free chips, additional gameplay chips are available for purchase within the app and chips are given as rewards for winning games. If the user runs out of chips, users can make an in-game purchase of more chips with values ranging from $1.99 to $249. According to the original complaint, “by wagering 20,000 chips that were purchased for $1.99, consumers have the chance to win hundreds of thousands of additional chips that they would otherwise have to purchase.”

Users are able to “cash out” winnings by making deals outside of the application through secondary markets, despite Big Fish Casino’s Terms of Use forbidding this behavior. Users can then transfer their winnings to other players through Big Fish Casino’s internal transfer system. When the transfer process happens, Churchill Downs takes a transaction fee.
Wow, that sounds a bit like gambling, doesn’t it?

Washington law defines gambling as “[1] staking or risking something of value [2] upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence, [3] upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.”
Additionally, Washington’s Recovery of Lost Money Gambling Act states that “[a]ll persons losing money or anything of value at or on any illegal gambling games shall have a cause of action to recover from the dealer or player winning, or from the proprietor for whose benefit such game was played or dealt, or such money or things of value won, the amount of the money or the value of the thing so lost.”

With all of these protections in place, it wasn’t surprising when the class action suit against Churchill Downs, the owner Big Fish Casino, was brought in the United States District Court for the Western District of Washington in 2015. Cheryl Kater led the class action suit, claiming that she lost over $1,000 worth of chips through Big Fish Casino’s deceptive trade practices.

The original complaint alleged that Big Fish Casino contained illegal games of chance (resulting in violations of Washington gaming law), that Churchill Downs was in violation of the Washington Consumer Protection Act through its practice of unfair or deceptive trade, and that Churchill Downs was unjust enriched from the profit made on its unlawful games.

Originally, the lower Court granted Churchill Downs’s motion to dismiss the claims. In 2015, Churchill Downs had successfully argued that because Big Fish Casino never awarded any cash or merchandise prizes and because the chips did not have independent value, the game did not constitute gambling under Washington law. The court originally agreed with this argument, finding that Big Fish Casino chips could not satisfy the prize element required to establish an instance of gambling under Washington law. Even though the chips could be exchanged for cash on a secondary market, the Terms of Use’s prohibition on this out-of-game exchange was enough to protect Churchill Downs against liability and against assignment of real-world value to the virtual chips.

The power of the legal system, however, is that you get a chance to appeal these decisions. Fortunately, Kater did just that.
In the appeal before the Ninth Circuit Court on March 28, 2018, the Court was tasked with determining whether Big Fish Casino constituted illegal gambling under Washington Law.  Kater’s main argument was that the chips were in fact a “thing of value.” This time, the Court agreed with her.

The Ninth Circuit found that the virtual chips acted as a credit that allowed the user to place wagers, re-spin slot machines, and play the games in Big Fish Casino. Without these chips, the user was totally unable to play Big Fish Casino’s games. In order to have the privilege to play the game, the player must purchase the chips.

The Court’s most influential source for this decision was the 2005 case of Bullseye Distributing LLC v. State Gambling Commission, where the Ninth Circuit held that an electronic vending machine designed to emulate a video slot machine was a gambling device. The “points” utilized to play the game could be obtained by purchase, winning, or voucher. While the points lacked pecuniary value on their own, they were still considered a “thing of value” within the definition of the game itself. Therefore, the Court stated, if something extends the privilege of playing the game without charge, it is “a thing of value.”

The chips herein did just that. Because the Court deemed the chips in Big Fish Casino to be a thing of value and stated that “[s]ince Big Fish Casino, as alleged in the complaint, constitutes an illegal gambling game, Kater can recover ‘the value of the thing so lost’ from Churchill Downs” under the Washington’s Recovery of Lost Money Gambling Act.

This case isn’t over yet, though. The Ninth Circuit remanded the case for further proceedings, meaning that there may be a future discussion regarding, for example, the amount of damages Churchill Downs will have to pay out and the severity of the liability. It is certainly possible that the case will find itself settling out of court and Churchill Downs may even try to appeal the decision, but the Ninth Circuit’s ruling regarding in-game currency will remain. Without a doubt, the holding will have an impact on how free-to-play and paid games implement and manage their virtual prize and currency systems.

Author, Caroline Womack, is a 2L at Quinnipiac University School of Law and primarily studies intellectual property law, focusing on video game and internet law.