Legal Considerations of Blockchain Gaming in India

In Context 

• 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.

What are Blockchain games?

• Blockchain games are a new type of online video games. They use blockchain technology to integrate cryptocurrencies into their internal economies and enable public trading of digital assets
• Launched in 2017 as the first ever blockchain game, CryptoKitties now has over 1,28,000 current users worldwide.
  • Each CryptoKittie is a non-fungible token (“NFT”).
• 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.
• Several Indian companies have also commenced their foray into blockchain game development. 
  • Prominent amongst them are Avisa Ventures and NODWIN Gaming.

Elements of Blockchain Games

• Non-Fungible Token(NFTs):
  • 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 decentralised 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?

• The blockchain games 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. 

• 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 organising 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  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;
    • 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. 

• 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 tagline, 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 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.

Way 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.

Source:IE