Commentary Addressing Risks and Opportunities Through the Life Cycle of Data, Technology, Advertising and Innovation

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If you play a game and buy a shirt for your avatar, shouldn’t you be able to keep it forever? After all, isn’t that the ultimate closet hack? Your avatar should be able to keep all their aesthetics in bits of data and no additional storage is necessary. However, that is not the reality of in-game assets. Most in-game assets are borrowed. You purchase a limited and very temporary license to access that asset. One day, you could wake up, and your avatar’s shirt is gone! Or changed. It’s no different than borrowing your siblings’ favorite shirt. It has to go back some day.

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Despite a long history of digital goods licensing, some consumers still wrongly believe that when they own digital goods that they obtain.

This tension is not new. Back in the early 2000s, a lawsuit was filed against an e-book distributor when consumers realized that many of their e-books were deleted from their digital libraries. The consumers pointed to the terms of service, which stated that the e-book distributor granted a non-exclusive right to keep a&nbsp;permanent copy of&nbsp;the digital content and to view the content an unlimited number of times. AKA, the consumers interpreted this as owning that content indefinitely.

It is more common, two decades later, that terms of service are explicit about limited licenses for digital goods. However, legislators in one state seem to believe that relying on the terms of service for communicating this is not enough.

<a href="https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB2426" target="_blank" rel="noreferrer noopener">California Assembly Bill 2426 (AB-2426)</a>, which came into effect January 1, 2025, and codified at Section 17500.6 of the California Business and Professions Code, is a consumer protection law aimed at curbing misleading advertising practices related to digital goods licensing. It also directly impacts the video game industry.

AB-2426 applies to exchanges of money for “digital goods”, which is defined as “digital audiovisual work, digital audio work, digital book, digital code, or digital application or game, whether electronically or digitally delivered or accessed.” This would include (1) digital applications or games (including add-ons or downloadable content); (2) digital audio works (e.g., music, audio books, podcasts; ringtones); (3) digital audiovisual works (e.g., movies, TV shows, news programs, musicals, live events); (4) digital books (including fiction or nonfiction works); and (5) digital codes (e.g., redemption codes for digital content).

AB-2426 prohibits using prompts, such as “buy” or “purchase”, that leads an average consumer to believe they own the digital good, if in fact they are only purchasing a limited license to access the digital good. There are certain exemptions to this prohibition.

There are already lawsuits emerging where plaintiffs have raised AB-2426. In one case, defendants cited AB-2426 to support arguments in their Motion to Dismiss that the in-game purchases at issue are intangible and thus fall outside the scope of the plaintiff’s claims under consumer protection statutes like California’s Consumer Legal Remedies Act and False Advertising Law. Additionally, two large entertainment conglomerates were sued, the plaintiffs alleging that the use of the words “buy” and “purchase” on its platform misled consumers into believing they had indefinite possession of digital goods when in reality the digital goods could be revoked by defendant without notice or refund. One of these companies was previously sued for unfair and deceptive business practices for using the word “buy”, where a federal judge found that that this term could mislead a reasonable consumer.

In light of these lawsuits as well as the text of the law itself, while AB-2426 provides one framework for how digital goods should be marketed to prevent allegations of false or misleading advertising, there are still gray areas.

For example, how does the law handle indirect purchases and in-game currency? For instance, a player could buy in-game currency with fiat money (e.g., buying “diamonds” or “gold” using one’s debit card) and then use that currency to acquire digital items. The law covers the initial purchase—the “diamonds” or “gold”—but it is unclear whether the law also applies to the subsequent use of the digital currency to acquire other digital items, like that digital t-shirt. It could be argued that digital currencies retain monetary value. Typically, however, the terms of service explicitly state that in-game assets do not have monetary value. Yet since AB-2426 is concerned with how consumers obtain in-time information and transparency prior to purchase, it is unclear if this disclaimer is sufficient for consumer expectations.

Additionally, while the law explicitly carves out an exception for digital goods “that can be permanently downloaded and stored offline” (such as a game cartridge), it is unclear how this exception applies to hybrid cases, such as where a video game’s core features are dependent on internet access. Many modern games, even in game cartridge form, rely on additional online features and server support, requiring players to be connected to the internet to play the game. If these services, especially if they are core to the gameplay, are discontinued, does the consumer still “own” the game they paid for? And does the purchasing of online features, such as online-only Downloadable Content (DLC) within the game, now bring the whole game within AB-2426’s scope? &nbsp;

Ultimately, what the average consumer understands is dependent on the type of consumer that obtains goods within a certain industry. Gamers, who are used to constant game updates, beta releases leading to in-game asset changes, nerfing, patches, switching game memory between devices, hardware becoming defunct, and sudden lack of technical support, may be savvier on average. If there is a consumer understanding within the gaming community that in-game assets are ephemeral, how does that affect the law’s interpretation?

Navigating through the landscape that AB-2426 creates can feel a lot like an unexplored area of a video game map—plenty of uncertainty lies ahead where the fog has not fully lifted, and any turn could reveal a hidden challenge or unexpected consequence. BakerHostetler’s Digital Assets and Data Management (DADM) group can help shed light on this portion of the map with its attorneys who have deep experience in the intersection of technology, privacy governance, advertising, consumer protection, and regulatory compliance.

California AB-2426: The Ephemeral Nature of In-Game Assets