The Ninth Circuit Court of Appeals recently found a social casino game platform, Big Fish Casino, to constitute illegal gambling under Washington State law.

This decision departs from a recent line of social game cases where the courts found no gambling. The reason for the departure was a combination of the specific facts and a specific definition in the relevant Washington State statute. The social casino game industry is scurrying to assess whether this case may have broader repercussions. In short, it may.

The relevant statute defined “Gambling” as:

 •  The staking or risking something of value;

 •  Upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence; and

 •  Upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.

A significant focus was placed on the meaning of “something of value.” Pursuant to Washington law, a “thing of value” includes an “extension of a service, entertainment or a privilege of playing at a game or scheme without charge.”

The court found that the virtual chips at issue are a credit that allows a user to place another wager or re-spin a slot machine. It further noted that if a user runs out of virtual chips and wants to continue playing, they must buy more chips to have “the privilege of playing the game.” Likewise, if a user wins chips, the user wins the privilege of playing the game without charge.  The court rejected defendant’s argument that the virtual chips do not extend gameplay, but only enhance it, and therefore are not things of value.

The court also rejected the defendant’s argument that other courts have held that certain “free to play” games are not illegal gambling.  In these prior cases, players could acquire virtual currency and risk that for a chance to win more virtual currency or other virtual items within the game. The items won could only be used in the games and the game publishers did not offer a method to cash out the virtual items for money or other value. The plaintiffs in those cases alleged that this was gambling because they asserted that the virtual items had value, in part because they could be sold on (unauthorized) secondary markets. In these cases, the courts held that these virtual items that players won did not have value, in large part because the games’ terms of service prohibited the sale of the virtual items and the games’ publishers did not participate in those markets. These cases were welcomed by social games companies.

Interestingly, the plaintiff in the Big Fish case also argued that the items won had value because users could sell them for money on a secondary market. The court rejected this argument for reasons consistent with the prior cases. It noted that Big Fish’s terms of use prohibited the transfer or sale of virtual chips, and that therefore the sale of virtual chips for cash on a secondary market violates the terms of use. As a result, the court held that Big Fish’s virtual chips cannot constitute a thing of value based on this prohibited use.

So why did the Ninth Circuit deviate from this line of cases? According to the court, the cited cases involve the analysis of different state statutes, state definitions and games. The court added, “[O]ur conclusion here turns on Washington statutory law, particularly its broad definition of thing of value, so these out of state cases are unpersuasive.”

This might suggest that this case is a unique decision based on the specific facts and specific state law. However, a number of other states’ gambling statutes define a thing of value to include an extension of a service, entertainment or a privilege of playing at a game or scheme without charge. It is possible that cases will be brought under these other states’ laws to test the applicability of those laws to similar game mechanics. Companies operating with this mechanic may want to consider whether serving users in those states is prudent pending further developments.