Posted in: Games, Genshin Impact, Video Games | Tagged: Cognosphere, FTC, Genshin Impact

Genshin Impact Developer Banned From Selling Lootboxes To Minors

Genshin Impact developer Cognosphere has agreed to pay the FTC $20m in fines for selling lootboxes to minors in a new settlement

The Federal Trade Commission announced today that it has banned Genshin Impact developer Cognosphere from selling loot boxes to minors under 16 without parental consent. The company has agreed to pay $20m in fines and will set in place a system to block children under the age of 16 from making in-game purchases without parental consent as part of a settlement. According to the FTC, which released the statement you see below, they alleged that the company "violated a children's privacy law and deceived children and other users about the real costs of in-game transactions and odds of obtaining rare prizes." How exactly they will enforce this has yet to be revealed by either them or North American publisher HoYoverse.

UPDATE

HoYoverse offered a statement on the FTC's decision:

"Animation-style games and shows are well-received by global audiences and players across various ages. Genshin Impact is a popular free-to-play, anime-style game designed for older teens and adults. While we believe many of the FTC's allegations are inaccurate, we agreed to this settlement because we value the trust of our community and share a commitment to transparency for our players. Under the agreement, we will introduce new age-gate and parental consent protections for children and young teens and increase our in-game disclosures around virtual currency and rewards for players in the U.S. in the coming months."

FTC Decision on Genshin Impact

A complaint, filed by the Department of Justice upon referral from the Commission, alleged that Singapore-based Cognosphere Pte. Ltd and its California-based subsidiary Cognosphere LLC, which do business in the United States as HoYoverse, actively marketed Genshin Impact to children and collected personal information from them in violation of the Children's Online Privacy Protection Rule (COPPA). The complaint further charged that HoYoverse deceived players about the odds of winning particular sought-after "five-star" loot box prizes and how much it would cost to open loot boxes to win the prizes. It also alleged that the confusing virtual currency system that players had to navigate to open loot boxes and the marketing and promotion tactics used to entice players to open loot boxes were unfair to children and teenagers.

Popular among children and teens, Genshin Impact is free to download but has generated significant revenue through the sale of in-game virtual currency and other content. Players advance in the game by collecting virtual heroes, forming a team and using heroes' abilities to complete tasks. Five-star heroes are the most desirable to collect given their powers, and they can only be obtained by opening loot boxes, which players can purchase using virtual currency.

The complaint alleges that Genshin Impact's purchasing process obscures the reality that consumers commonly must spend large amounts of real money to obtain "five-star prizes," and that some children have spent hundreds or even thousands of dollars to win them. The complaint alleges that the system is challenging and confusing, particularly for children and teens. Players must exchange real dollars for bundles of virtual currency that then have to be re-exchanged multiple times to open loot boxes, with exchange rates in unusual denominations. This complicated system, according to the complaint, misleads consumers about the amount of money that players spend on loot boxes on an ongoing basis, and the amount of money that players would likely need to spend to obtain certain prizes.

HoYoverse drives consumer demand for Genshin Impact's loot boxes through several promotional channels inside and outside of the game, which advertise that desirable prizes will be available only on a limited basis, according to the complaint. This includes using virtual in-game "Event Banners" to promote these limited time prizes and social media influencers to glamorize the excitement of opening loot boxes.

Genshin Impact uses anime-style cartoon graphics, bright and colorful animation, and several characters who have the speech or appearance of children to appeal to children. HoYoverse has spent millions of dollars hiring social media influencers—many of whom are popular with children—to promote Genshin Impact to their respective audiences on social media platforms including YouTube, TikTok, and the video game streaming site Twitch. The complaint alleges that the company's Event Banners and influencer campaigns give players the impression that they will have better odds of obtaining the five-star prize being promoted than they have in reality.

COPPA Violations

In addition to unfairly marketing loot boxes to children, the complaint alleges that HoYoverse failed to comply with the COPPA Rule, which requires online services and websites directed to children under 13 to notify parents about the personal information they collect and to obtain verifiable parental consent before collecting and using any personal information collected from children.

The complaint alleges that Genshin Impact is a child-directed online service that collects personal information from children under 13 and therefore is required by COPPA to notify parents about the information they collect from children and to obtain their consent for the collection of that personal data. The complaint, however, alleges that even though HoYoverse was aware that children under 13 were using its service, it continued to collect personal information from children and use it without obtaining parental consent or complying with other COPPA requirements. HoYoverse shared with third-party analytics firms and advertisers user IDs as well as device-related persistent identifiers to track players' progress, purchases, settings, and friends lists, according to the complaint.

Under the proposed order, which must be approved by a federal judge before it can go into effect, Cognosphere Pte. Ltd and Cognosphere LLC will be required to a pay a $20 million monetary penalty and make changes to address the allegations outlined in the complaint. The companies will be:

• Prohibited from allowing children under 16 to purchase loot boxes in their video games without a parent's affirmative express consent;
• Prohibited from selling loot boxes using virtual currency without providing an option for consumers to purchase them directly with real money;
• Prohibited from misrepresenting loot box odds, prices and features;
• Required to disclose loot box odds and exchange rates for multi-tiered virtual currency;
• Required to delete any personal information previously collected from children under 13 unless they obtain parental consent to retain such data; and
• Required to comply with COPPA including its notice and consent requirements.

The Commission vote to refer the complaint and stipulated order to the Department of Justice for filing was 5-0. Commissioners Andrew Ferguson and Melissa Holyoak concurred as to Counts I-II, but dissented as to Counts III-V. Commissioners Ferguson and Slaughter issued separate statements. The Department of Justice filed the complaint and stipulated order upon referral from the Commission, in the U.S. District Court for the Central District of California.

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