Singapore-based Cognosphere, the developer of the popular mobile game Genshin Impact, has agreed to pay a $20 million fine and face significant restrictions on its loot box sales practices.
The Federal Trade Commission (FTC) announced on Friday that Cognosphere has reached a settlement to resolve allegations of deceptive and unfair business practices. The FTC contends that the company misled players, particularly children, about the odds of winning valuable in-game items through loot boxes, a controversial monetization model often compared to gambling.
Key Accusations:
- Deceptive Loot Box Marketing: The FTC alleges that Cognosphere aggressively marketed loot boxes to children, employing tactics like social media campaigns and in-game banners. The company is accused of failing to transparently disclose the true odds of winning rare items, leading players to spend significant sums of money with little chance of obtaining desired rewards.
- Misleading Pricing and Currency Exchanges: The complaint highlights Cognosphere's use of a multi-tiered virtual currency system, requiring players to purchase in-game currency with real money and then use that currency to buy loot boxes. This complex process allegedly obscured the true cost of loot boxes for players, particularly children.
- Data Privacy Violations: The FTC also accused Cognosphere of violating the Children's Online Privacy Protection Rule (COPPA) by collecting personal information from children without obtaining verifiable parental consent.
Settlement Terms:
- $20 Million Fine: Cognosphere will pay a substantial $20 million penalty to the government.
- Loot Box Restrictions: The company is mandated to offer players the option to purchase loot boxes directly with real money, eliminating the need for multiple currency exchanges.
- Transparency Requirements: Cognosphere must clearly disclose the odds of winning specific items in loot boxes and provide accurate information regarding pricing and exchange rates for all in-game currencies.
- Data Deletion: The company is required to delete the personal information of children under 13 whose parents did not provide consent for data collection.
Impact on the Gaming Industry:
This settlement marks a significant step in the ongoing debate surrounding loot boxes in video games. The FTC's action sends a clear message to game developers that deceptive marketing practices and the exploitation of children will not be tolerated.
Industry Implications:
- Increased Scrutiny: This case is likely to intensify scrutiny of loot box practices across the gaming industry. Developers can expect increased regulatory oversight and potential legal challenges regarding their monetization models.
- Shift Towards Transparency: The settlement may encourage greater transparency in loot box mechanics, with developers being more forthcoming about the odds of winning and the true cost of in-game purchases.
- Enhanced Consumer Protection: The FTC's action aims to better protect consumers, particularly children, from potentially harmful spending practices associated with loot boxes.
Conclusion:
The Genshin Impact settlement serves as a crucial reminder of the importance of ethical and transparent business practices within the gaming industry. As the popularity of video games continues to grow, it is essential that developers prioritize player protection and adhere to consumer protection laws. This case sets an important precedent for the future of loot box regulation and underscores the need for continued dialogue between regulators, developers, and players to ensure a fair and sustainable gaming ecosystem.
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