Q What is the context ?
A Many Indian gaming companies have expressed their interest in introducing elements of Blockchain technology into their games in the near future.
Q 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.
Q What are blockchain games?
- To revisit our definition of blockchain games: they are online video games that are developed by integrating blockchain technology into them.
- It can be diversified into the following components-
- Non-fungible tokens
- NFTs represent in-game virtual assets that can be owned by players, such as maps, armour 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, 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.
Q Why is there a need to regulate such games ?
- 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,
- It also involves transfers of assets from one player to another.
- It needs to be ensured that if 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.
Q What are regulatory aspects in India ?
A 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.
(A) Legality Check
- Since blockchain is merely the underlying technology, there is no express regulation in India.
- It would, however, be relevant to explore the legality of the games from the lens of existing Indian gaming regulation.
- Most Indian states regulate gaming on the basis of a distinction in law between ‘games of skill’ and ‘games of chance’.
- Staking money or property on the outcome of a ‘game of chance’ is prohibited and subjects the guilty parties to criminal sanctions.
- However, 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.
(B) Dominant Element Test
- 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.
(C) Gaming house regulations
- The Delhi District Court has, in the past, held that a gaming portal would be covered within the definition of a ‘common gaming house’.
- This would be subjected to conditions where the gaming developers 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.
Q Where does blockchain gaming lie within this framework?
- There is currently a lacuna in gaming law and there are lingering question marks on its interpretation and applicability to online gaming.
- 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.
- In the past, the Supreme Court has rejected the notion of video games being ‘games of skill’.
Q What are possible protections available to blockchain games ?
A (a) Patents:
- For a blockchain game or any of its elements to be patented in India if it meets the requirements of novelty, involving an inventive step, and industrial application.
- 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.
- 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, 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.
Q What can be the future roadmap ?
- The Finance Ministry had announced in late-2021 that The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 would seek to prohibit all private cryptocurrencies.
- If the legislature does indeed successfully, then, to the extent that existing blockchain games rely on cryptocurrencies, they would be considered illegal in India.
- Independent of this, the Budget 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%.
- Policy pronouncements of this nature would need to be carefully considered by publishers of blockchain games while designing their pricing models.