Blockchain Gaming: Assessing the Legal Considerations & Intellectual Property Protection in India

Have you ever thought of keeping a pet at home but are unable to do so? Ever thought of raising a pet in virtual mode, breeding it, feeding and seeing it grow? Yes, it is possible now. With the use of blockchain technology in gaming, developers have made this possible. My DeFi Pet is one such game where a user can feed their pets, and raise them in a virtual mode. This has become one of the top pet gaming among blockchain games. This game is inspired by Pokémon which is based on a similar concept of breeding and raising but what makes it different is here the pets are in the form of Non-Fungible Tokens (NFTs). The whole setup of My DeFi Pet is based on Metaverse. In this game, each pet is an NFT where it can’t be replicated or taken away anytime from its users. Presently this game has a userbase of 10,36,339 globally where a total of 33,32,772 has been minted by the gamers in the game. Cryptokitties is another pet-raising game that is based on similar lines to My DeFi Pet but where My DeFi Pet gives the option to raise several different kinds of pets, Cryptokitties only gives the option to raise Cats.

Blockchain technology contains immense potential in itself, and this is the primary reason why in a short span of time this technology has attracted game developers to use it during game development. Not only this, the games developed on blockchain has attracted a massive user-base and were safer than the games developed on normal platforms. Popular gaming companies like Ubisoft have expressed their interest to use blockchain technology in their games in the coming years. Popular Indian gaming companies like Avisa Ventures & NODWIN Gaming have already started to use blockchain in developing their games in the market.

In this article we will be analysing the use of blockchain in gaming and its legal considerations, moreover, we will also be discussing the IP issues arising in the blockchain domain and how the position of law related to the blockchain can be improved in India by taking a comparative study from foreign jurisdictions.

Use of Blockchain vis a vis Gaming Technology

Blockchain technology is an advanced-level database mechanism that allows transparency in sharing of the information within a business network. In blockchain technology blocks are linked in a form of a chain together. This is all about how blockchain technology and how it works. Whereas if we look at Blockchain solely then we can say that a Blockchain is a digital ledger of transactions that is duplicated and distributed across the entire computer systems.

Now coming to the most important aspect of our topic, how does blockchain gaming work? In blockchain gaming majorly 2 aspects are involved which make the games work on blockchain technology and they are Non-Fungible Tokens (NFT) & Cryptocurrency.

NFTs majorly represent in-game virtual assets that gamers can own. Assets such as maps, armour, land, pets, and weapons are in the form of NFTs that the players own in the game. When these NFTs are on a blockchain platform it allows the players to have a secure record of these in-game assets. It also provides these assets to survive for a long time in the game and depending upon how the game is designed and customised by the developers. Blockchain also allows in-game assets to be transferred from one game to another. Blockchain helps in maintaining transparency in the game as the record of ownership can be easily verified by the 3^rd parties independently. This helps to make in-game assets marketable so that they can be bought & sold easily in the decentralised market by the people.

Apart from NFTs, another important aspect of Blockchain Gaming Technology is the Use of Crypto for purchasing in-game assets as discussed above. Majorly cryptocurrencies are in the forms of gaming coins like Enjin Coin (ENJ) & Axie Infinity (ACS) which are based on the Ethereum Blockchain. These coins enable gamers to purchase extra lives, maps, and weapons in the game. And these gaming coins can be purchased either by winning the game or from crypto exchanges.

The Legality Debate of Blockchain Gaming in India

For determining the legality of blockchain gaming in Indian Jurisdiction we have to first look into the definition of blockchain games which states “They are online games which are developed by the integration of blockchain technology in them”.

Presently there is no such concrete legal framework for regulating blockchain in India however the government has recently made some regulations regarding blockchain in the existing legislation.

National Strategy on Blockchain

Ministry of Information Technology in December 2021 released a National Strategy on Blockchain which advocated the development of a national blockchain infrastructure PAN India to create “blockchain as a service”. Via this guideline, the government aims at integrating blockchain technology in different sectors.

SEBI Security & Covenant Monitoring

In March 2022 SEBI issued Operational Guidelines for Security & Covenant Monitoring using Distributed Ledger Technology (DLT) which intends, for maintaining statutory information creation of the DLT platform. And it became applicable to all the issuers who are proposing to issue non-convertible securities post 1^st July 2022.

CERT-In Guidelines

In April 2022, MeitY issued directions under Section 70B (6), Information Technology Act, 2000 regarding Information security practices, procedures, prevention, response, and reporting of cyber incidents for safe & trusted internet. These directions were aimed at mandatory reporting of all the cyber security incidents to CERT-In by the body corporates, intermediaries, data centers, service providers, etc. These directions will directly impact the Virtual Digital Assets, Web3 Industry, and Blockchain. As per these guidelines, all the attacks or malicious activities affecting systems/serves/networks/software/applications related to virtual assets, blockchains, virtual asset exchanges, and custodian wallets have to be mandatorily reported within 6 hours of acknowledgment of such incidents by the aggrieved party.

Income Tax Act, 1961

Recently, the central government introduced amendments to the Income Tax act to incorporate “Virtual Digital Assets” to be taxed under the law. The amendment introduced the definition of Virtual Digital Assets (VDA) which also includes NFTs, a 30% tax slab on income earned from the transfer of VDA, withholding tax on the transfer of VDA from 1 entity to another, guidelines for the peer-to-peer transaction, etc.

From the developments in the regulations abovementioned, we can infer that the government has realized the potential of blockchain technology and started to recognize its use. So, talking about the use of blockchain in Gaming we have to first look into some important considerations such as Is the game “a game of skills or a chance” or whether the game played is within the “common gaming house”.

In India, laws prohibit those games which involve an element of chance i.e., where the winning or losing of the game is based on chance or luck for example casinos, online gambling, etc., whereas if we look at a game of skill, it involves several interpretations, analysis, and does not involve chance factor in it, for example, Fantasy Sports is a game of skill. So, all those blockchain games which involve a game of skill will be legal in India whereas those involving chance factors will be deemed to be illegal.

Another concept of gaming in most of the states is the idea of a ‘common gaming house’. Although it is prohibited by most of the state gambling laws judiciary has interpreted it in some different manners as well. When we say common gaming house then what do we mean by that? 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 these offerings mounds on whether the game is being offered for the profit or gain of any person who is organizing such game. Merely charging an extra fee for playing cards unless excessive will not amount to the club making a gain to render it as a common gaming house as happened in the case of State of Andhra Pradesh v. K Satyanarayana (AIR 1986). Therefore, club owners need to be careful about how fees are charged to the players to avoid falling under the penalty of gambling laws.

After considering all these aspects a central question that lies in front of us is Where does blockchain gaming lie in this framework? For this to happen each blockchain game should pass a test of ‘game of skill’ versus ‘game of chance’ to pass the legality test in the Indian framework. In past decisions, the supreme court opined rejecting the notion of video games being a game of skill only; holding out that the result of these games can be manipulated easily if any sort of tampering is done with the machines which are used to play the game and hence in that case skill factor can’t be a dominating factor of the game.

In Gaussian Networks Pvt. Ltd. v. Monica Lakhanpal & State of NCT, it was held that if a gaming portal is earning revenue from the game offered or taking any commission out of it then it will be covered under the definition of ‘common gaming house’. Since the publishers & game developers are likely to earn revenue for offering such games by charging fees it raises an important concern over whether these online gaming portals are analogs to common gaming houses under the Indian Gaming laws.

Intellectual Property Protection to Blockchain Gaming

Patent Protection

Game Developers while writing the code and including the blockchain technology in a particular game make it an inventive step that will affect a target industry at a large. Later on, it could be Patented by them to protect their creation. To get a Blockchain game patented the creators are required to fulfill certain pre-requisites which are as follows:

1. The product is having novelty i.e., being a new product/process;
2. The product is capable of having applicability in an Industry; and
3. The product involves an inventive step.

As per Section 3(k) of the Patents Act, 1970 computer programs can’t be patented as they are not an invention, however, in Ferid Allani v. Union of India and Ors it was held that if an invention had a technical effect or contribution and it is not merely a computer code or program then it can be patented. So, we can say that, if a blockchain game meets the requisites of novelty, industrial application, and involving an inventive step then a patent may be sought for it. It is pertinent to note that the whole game can’t be patented but a specific segment of the game is patentable. For example, A systematic method for delivery & exchange of digital coins, offloading of game data to the blockchain, purchasing method of digital tokens in the game, etc.

Copyright Protection

Under the Indian Copyright Law, computer software, cinematographic work, artistic work, dramatic work, sound recordings, and musical works are capable of being protected. Under the Copyright Act 1957, there aren’t any specific provisions related to video games or online games but they have been granted protection under the category of ‘multimedia’. In Mattel v. Jayanth Agarwalla, the court held that mere arrangements in the game in a particular way of a particular color similar to another game won’t amount to copyright protection. However, the artwork and sound clippings used in blockchain games are eligible to be protected under audiovisual work whereas the source code used in blockchain games can be copyrighted under literary work. It was held in Brown v. Entertainment Merchants Association that video games containing artistic elements can be protected under copyright law.

Trade mark Protection

A trade mark is obtained to protect the reputation and goodwill of the brand. In simple terms, a trade mark is used as an identifying mark to determine the source of a product or a service. If we look into it from a blockchain gaming perspective, certain aspects of it such as tagline, name, logo, name of the character, and name of the in-game tokens/coins can be trade marked but not the game as a whole can be trade marked.

Way Forward

The use of blockchain technology in Online Games is likely to benefit game developers as well as publishers at large in long run. However, it’s the regulatory framework that might create a little bit of hindrance in creating such blockchain-based games. The key to the growth of such games in India is a concrete regulatory framework and protection of the assets of the games in the form of Intellectual property rights.

I would like to make certain recommendations to improve the position of the legal framework in India related to Gaming & E-Sports. If we look at Malta’s framework for Gaming it took a Sandbox approach. In 2018 the Malta Gaming Authority (MGA) launched its legislative sandbox, the first of its kind where this approach allowed the govt. to get feedback[1] from the users without restricting tech within its ecosystem. One of the key goals of this approach was to prevent money laundering and terror funding, this same approach can be approached by the Indian Government as try and test method for blockchain gaming as it will allow the government to analyse the potential risks in the market within a short period. If we look at Japan’s gaming market, it is the 3^rd largest international[2] gaming market in the world. Japan regulates its crypto exchanges via its statute Payment Service Act, 2010. According to this act to be a crypto operator, all businesses are required to register themselves with the Japanese Finance Bureau. For this, they have separate accountants who review the management of different businesses that have registered themselves. These financial regulations of Japan for crypto are one of the major reasons why its gaming industry is booming as they have provided customers with this payment method. Hence India could, in the same manner, regulate the crypto market by passing specific legislation for regulating it as it will help the Indian gaming market to boom at a massive rate.

Citation:

Manvee, Blockchain Gaming: Assessing the Legal Considerations & Intellectual Property Protection in India, Metacept- Communicating the Law, accessible at https://metacept.com/blockchain-gaming:-assessing-the-legal-considerations-&-intellectual-property-protection-in-india

Resources:

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[1] Nicole Bastos, A Change on the Horizon for the Gaming Industry: Trends, Blockchain Technology, and Cryptocurrency, 10 UNLV GAMING L.J. 117 (2020).

[2] David Idokogi, Decentralizing Creativity: A Tenable Case for Blockchain Adoption in the Entertainment Industry, 47 Rutgers COMPUTER & TECH. L.J. 274 (2021).