The FTC complaint alleges that HoYoverse not only collected information from children but also shared it with third-party analytic firms and advertisers
Cognosphere, the developer of the famous gacha game Genshin Impact risks a $20 million penalty over violations related to loot boxes.
Genshin Impact Under Fire for Violations
Genshin Impact, in classical gacha game style, offers randomized prizes to its players. Originating from the Japanese gachapon machines, the term gacha designates titles where players can spend in-game currency to obtain random items.
While most gacha games are free-to-play, they often offer opportunities to buy in-game currency with real money, sparking debates about whether such mechanics constitute gambling or not. Because of that, people have pointed out inherent similarities, if not parity, between gacha mechanics and loot boxes.
According to the Federal Trade Commission, Cognosphere’s game “unfairly marketed loot boxes to children, obscured real costs and misled all players about the odds of obtaining prizes.”
Samuel Levine, director of the FTC’s Bureau of Consumer Protection, slammed Cognosphere for deceiving its players into spending hundreds of dollars on prizes they had statistically minuscule chances of winning.
Companies that deploy these dark-pattern tactics will be held accountable if they deceive players, particularly kids and teens, about the true costs of in-game transactions.
Samuel Levine, director of the Bureau of Consumer Protection
Genshin Impact Violated Several Rules
The DOJ’s complaint insisted that Genshin Impact was not honest about the odds of winning rare five-star characters and how much it would cost to win these sought-after rewards. To make matters worse, Cognosphere allegedly used a confusing virtual currency system and the game’s promotion tactics were unfair to minor players.
The FTC pointed out that, once bought with real money, the in-game currency had to be re-exchanged several times in order for players to open boxes. The body insisted that this system was misleading as to the money players had to spend in order to win rare prizes.
Promotions for the game, meanwhile, “glamorized the excitement” of opening loot boxes and enticed players by promising limited prizes. According to the complaint, Genshin Impact’s Event Banners and Influencer campaigns led many to believe that they would have better odds of obtaining the five-star characters being promoted.
Based in Singapore and operating as HoYoverse in America, Cognosphere allegedly marketed Genshin Impact to Children and collected personal information. According to the Department of Justice, this comprised a violation of the Children’s Online Privacy Protection Rule (COPPA).
COPPA, for context, requires digital services directed to children under 13 to inform parents about the personal information they collect. Additionally, such services must obtain verifiable parental consent before collecting or using data from children.
HoYoverse not only collected information from children but also shared it with third-party analytic firms and advertisers.
FTC Approved a $20M Fine
As a result of its violations, the FTC proposed an order, which would require Cognosphere to pay a $20 million fine. In addition, the game developer will be required to stop under-16s from buying loot boxes and cease misrepresenting loot box odds, prices and features.
Additionally, Genshin Impact and other games would be required to disclose loot box odds and exchange rates for multi-tiered virtual currency.
Last but not least Cognosphere will be required to fully comply with COPPA.
The proposal was approved for referral to the DOJ by all FTC commissioners. The complaint was subsequently filed in the US District Court for the Central District of California and will have to be approved by a judge before it can go into effect.
