Blockchain gaming in India
Source: By Amrut Joshi and Saket Rachakonda: The Indian Express
Love cats but can’t take up the responsibility of bringing one home? Imagine experiencing the joy of adopting and breeding a cat, except, virtually. What’s more, your cat cannot be replicated and can never be taken away from you. Games based on blockchain technology, such as Dapper Labs’ CyrptoKitties, where each CryptoKittie is a non-fungible token (“NFT”), facilitate just that. Launched in 2017 as the first ever blockchain game, CryptoKitties now has over 1,28,000 current users worldwide.
The vast scope and potential of blockchain technology has attracted the gaming industry over the past few years. With the success that CryptoKitties has garnered, more blockchain games, such as Axie Infinity, have now been introduced. The popularity and success of blockchain games has been such that it has pushed close to 60% of American and UK-based online game developers to start using blockchain technology, according to Business Insider. Even major companies such as Ubisoft and Electronic Arts have expressed their interest in introducing elements of blockchain technology into their games in the near future.
Closer home, several Indian companies have also commenced their foray into blockchain game development. Prominent amongst them are Avisa Ventures and NODWIN Gaming.
To comprehend this dynamic environment, we have published this primer, where we explore the concept of blockchain games, the legal validity of making such games available in India, the various intellectual property protections that game developers and players may avail under Indian law, and whether the current regulatory framework in India is sufficient to protect the interests of game developers and players.
But first, what is blockchain?
Blockchain is a decentralised database that stores information. It relies on technology that allows for the storage of identical copies of this information on multiple computers in a network.
What are blockchain games?
NFTs
NFTs represent in-game virtual assets that can be owned by players, such as maps, armor or land. These NFTs act as asset tags, identifying ownership of the in-game assets, and are stored on the blockchain. Being on the blockchain allows the player to have a secure record of ownership of the in-game assets and also gives the assets the ability to outlive the game itself. Based on the manner in which the games are designed, it also allows for the in-game assets to be transferred from one game to another. It also creates transparency, since ownership records can independently be verified by any third party as well. In doing so, it makes in-game assets marketable and creates a decentralized market, where they can be bought and sold by people.
Cryptocurrency
Cryptocurrency, such as tokens based on the Ethereum blockchain, may be used for the purchase of in-game assets. These in-game purchases usually enable gamers to buy items like extra lives, coins and so on directly from the game.
Gaming coins
Gaming coins, such as Axie Infinity (ACS) and Enjin Coin (ENJ), are in-game cryptocurrency which may be acquired and then used for the purchase of in-game assets. These gaming coins may be purchased from crypto exchanges (and eventually be traded on these crypto exchanges as well) or, in certain cases, be acquired as winnings in games that have adopted the ‘play-to-earn’ model. In such games, gamers are rewarded for dedicating their time and skill to play the game with gaming coins and in-game assets (and, in certain cases, with cryptocurrency as well).
Are blockchain games legal in India?
To revisit our definition of blockchain games: they are online video games that are developed integrating blockchain technology into them. Since blockchain is merely the underlying technology, there is no express regulation of it in India. This renders any questions over its legality moot. It would, however, be pertinent to explore the legality of the games from the lens of existing Indian gaming regulation.
Games of skill vs. games of chance
Most Indian states regulate gaming on the basis of a distinction in law between ‘games of skill’ and ‘games of chance’. While staking money or property on the outcome of a ‘game of chance’ is prohibited and subjects the guilty parties to criminal sanctions, placing any stakes on the outcome of a ‘game of skill’ is not illegal per se and may be permissible. As per two seminal judgments of the Supreme Court on this aspect, the Supreme Court recognized that no game is purely a ‘game of skill’ and almost all games have an element of chance.
As such, a ‘dominant element’ test is to be utilized to determine whether chance or skill is the dominating element in determining the result of the game. This ‘dominant element’ may be determined by examining whether factors such as superior knowledge, training, experience, expertise or attention of a player have a material impact on the outcome of the game. While the outcomes of any ‘games of skill’ are affected by these factors, outcomes of ‘games of chance’ are premised on luck and are largely independent of the skills of the players involved.
Common gaming house
A second concept common to the gaming law in most states is the idea of a ‘common gaming house’. Owning, keeping, or having charge of a common gaming house or being present for the purpose of gaming in any such common gaming house is ordinarily prohibited in terms of these state gaming laws. A common gaming house is defined as “any house, walled enclosure, room or place in which… instruments of gaming are kept or used for the profit or gain of the person owning, occupying, using or keeping such house, enclosure, room or place, whether by way of charge for the use of the instruments of gaming, or of the house, enclosure, room or place, or otherwise howsoever”. The legality of offering, or engaging, in gaming in terms of such state gaming laws, therefore, hinges on whether it is being offered for the profit or gain of any person organizing the game. Pertinently, courts have clarified in the past that the mere charging of an extra fee to facilitate playing the game and / or to maintain the facilities may not necessarily be seen as making a profit or gain.
Where does blockchain gaming lie within this framework?
It is important to note that most of the gaming laws were brought into effect prior to the internet era and, therefore, only contemplate regulation of gaming activities taking place in physical premises. Other than states such as Sikkim, Nagaland, and Telangana, which recognize online gaming, in most Indian states and union territories, there is currently a lacuna in gaming law and there are lingering question marks on its interpretation and applicability to online gaming.
That being said, as the law currently stands, each blockchain game must first pass muster as a ‘game of skill’, as against a ‘game of chance’, to legally be made available in most Indian states. It is also relevant to note that in the past, the Supreme Court has rejected the notion of video games being ‘games of skill’, holding that the outcomes of these games could be manipulated by tampering with the machines used to play and, therefore, the element of skill of players could not be a dominant factor of the game.
Further, by making in-game assets available for purchase, developers and publishers stand to earn revenue from the sale of such assets. They may also embed certain rules when implementing the code for in-game assets such that a fee is paid to them every time a certain action is taken, including when an item is transferred from one player to another.
A Delhi District Court has, in the past, held that a gaming portal would be covered within the definition of a ‘common gaming house’, if it were to take commission / earn revenue from the game offered. This is because such portals merely seek to replace the brick and mortar common gaming houses that Indian law currently envisages and has outlawed.
Since developers and publishers of blockchain games are likely to earn revenue / charge fee for offering such games, it does raise questions over whether they may be seen as playing a role analogous to that played by common gaming houses under Indian law.
Legality of blockchain games that rely on cryptocurrency
The Finance Ministry of the Government of India had announced in late-2021 that The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was to be tabled in the Parliament soon and would seek to prohibit all private cryptocurrencies. If the legislature does indeed successfully place a ban on private cryptocurrencies, then, to the extent that existing blockchain games rely on cryptocurrencies, they would be considered illegal in India.
Independent of this, the Minister of Finance, in her budget speech for 2022-2023, announced that the income from the transfer of any ‘virtual digital assets’ (which include cryptocurrency and non-fungible tokens) would be subject to income tax at the rate of 30%. Interestingly, those who have received any such virtual digital assets by way of a gift shall be taxed at the rate of 30%. Policy pronouncements of this nature would need to be carefully considered by publishers of blockchain games while designing their pricing models.
What intellectual property protections may be available to blockchain games?
Patents
For a blockchain game or any of its elements to be patented in India, it will need satisfy the patentability requirements of:
being a new product or process, i.e., having novelty;
involving an inventive step, i.e., having a feature that involves technical advancement as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art); and
being capable of industrial application, i.e., capability of being made or used in an industry
being a new product or process, i.e., having novelty;
involving an inventive step, i.e., having a feature that involves technical advancement as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art); and
being capable of industrial application, i.e., capability of being made or used in an industry.
In terms of Section 3(k) of the Patent Act, 1970, computer programs are per se not inventions and hence, cannot be patented. However, judicial pronouncements in the past have clarified that if an invention has a technical contribution or a technical effect and is not merely a computer program per se, then it would be patentable. The Office of the Controller General of Patents, Designs and Trade Marks has also issued the Guidelines for Examination of Computer Related Inventions (“CRI Guidelines”), stating that ‘databases’ would be considered computer programs and are, therefore, not patentable.
Thus, a patent for a blockchain game may be sought if it meets the requirements of novelty, involving an inventive step, and industrial application. While we do not believe that a game, as a whole, would be patentable, game developers or publishers may seek patent protection for any element of the game (such as its game play method) which has led to technological advancement. For instance, in the US, we note that patents have been granted for specific elements of blockchain games, such as ‘wagering gaming systems for utilizing bitcoins and bitcoin fractions’, ‘game data offloading to a blockchain’, and a ‘system and method for digital token exchange and delivery.
As for the CRI Guidelines, since neither are they legally binding, nor are developers or publishers likely to seek patent protection for the entirety of the blockchain, we believe that these are unlikely to act as an impediment to seeking patent protection.
Trademarks
A trademark is used as an identifying mark to determine the source of a particular good or service, and is obtained to protect the goodwill and reputation of the brand. Any distinguishing mark in a blockchain game or NFT that would allow consumers to identify the source of that particular game or NFT may be trademarked. In India, certain underlying aspects of the blockchain game may be trademarked, including the name of the game, a tag line attached to it, the logo of the game, the character names in the game, and the name of the in-game currency (similar to the trademark held by Stiftung Ethereum for the name ETHEREUM’ in the United States), as they would be considered as a trademark.
In the case of an NFT, if the inventor of an NFT decides to give proprietary names to their own tokens, then such names may be protected as trademarks. It is important to clarify that trademark protection, if any, can be sought for underlying identifiers of the game / NFT, such as the name and tag line, not for the overall game / NFT itself.
Copyrights
In India, artistic work, musical work, cinematographic films, dramatic works, sound recordings and computer software are capable being of being protected under copyright law. Although there is no specific provision in the Copyright Act that deals with video games, copyright protection of video games may be sought under the category of ‘multimedia products’.
Similar to the position with trademarks, the process of obtaining a copyright for a blockchain game would be the same as any other online video game. Certain aspects of blockchain games, such as the artwork and sounds used in the game as audiovisual work along with the underlying source code as a literary work can be copyrighted. For example, the user manual for the game, characters in the game, the background music and source codes for the digital games can be protected under copyrights.
Steps forward
The use of blockchain technology for online games is likely to be beneficial for game developers, publishers, and players. However, key to their growth is regulation which ensures that it is permissible to offer such games in the Indian territory and also offers protection in the form of intellectual property rights. Other concerns, such as privacy and cyber security, along with how financial regulations would apply to blockchain games, would also need to be addressed. Most recently, the Advertising Standards Council of India (“ASCI”) has introduced guidelines for advertising of virtual digital assets and linked services, requiring, among others, that disclaimers be included in such advertisements and that terms such as ‘currency’ not be used in them.
As a larger number of game developers and publishers prepare to step foot in this this as yet uncertain/unknown legal landscape, we recommend:
seeking legal counsel on whether their game is likely to be identified as a ‘game of skill’ and whether they are likely to be identified as a ‘common gaming house’, if they were to be subject to judicial scrutiny;
scrutinizing their games to understand which elements, if any, can be modified such that superior knowledge, training, experience, expertise or attention of players becomes the dominant element of such games;
consider / re-consider their use of cryptocurrency in providing their games, or seek out alternatives to the use of cryptocurrency, in view of the possible ban on them pursuant to the introduction of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021;
factoring the recently introduced tax on virtual digital assets into their pricing model;
seeking requisite intellectual property protection for elements of their games that are capable of such protection; and
ensuring that any advertising be compliant with the ASCI’s Guidelines for Advertising of Virtual Digital Assets and Linked Services.
