Valve Wins First Round Of Class Action Skin Betting Case, But The Fight Is Not Yet Over

Written By Joss Wood on October 7, 2016 - Last Updated on January 22, 2018

[toc]In the class action case against the Valve Corporation, CSGO Lotto and Trevor Martin, US District Judge John Coughenour has granted the defendants’ motion to dismiss.

The court order can be found here.

The judge dismissed “with prejudice in its entirety” the first amended complaint against CSGO Lotto and its owner Trevor Martin. As a result of that dismissal, the Motion to Compel submitted by Valve was “denied as moot.”

Class action alleged RICO violation as well as illegal gambling infractions

The plaintiffs alleged that the Valve Corporation “allowed an illegal gambling market,” based on CS:GO skins, through “its Steam Platform.”

Furthermore they alleged that Martin promoted illegal gambling to minors through his CSGOLotto site by filming himself winning substantial sums of money and distributing the video on YouTube.

The judge’s order mainly revolved around the legal basis for the one Racketeer Influenced and Corrupt Organizations Act (RICO) charge that was levied.

The judge referred to a prior case ruling that stated:

“RICO is not expanded to provide a ‘federal cause of action and treble damages to every tort plaintiff.”

The judge ruled that case law in the 9th Circuit was clear on the issue that “gambling losses are not sufficient injury to business or property for RICO standing.”

In simple terms, the very fact that the plaintiffs are claiming damages suffered as the result of illegal gambling means that the RICO Act does not apply. As the only federal count alleged, this meant that the case should not be heard in federal court.

Plaintiff arguments of fraud also lacked factual substance

Judge Coughenour ruled that the arguments used by the plaintiffs to try to establish the case as having RICO standing amounted to a “misstatement of the law.”

Among other arguments, the plaintiffs stated that the gambling on CSGOLotto was “rigged” because Martin failed to disclose that he was the owner of the site in his YouTube videos. They used this to argue that the defendants’ actions were fraudulent, and could thus qualify for federal consideration under the RICO Act.

The judge ruled that the plaintiffs failed to provide factual evidence connecting Martin’s apparent deception with the losses they had suffered.

The judge also caught one instance where the defendants appeared to shoot themselves in the foot.

In claiming that the activity qualified as gambling, the plaintiffs argued that skins are “put into a large pool, and one winner is chosen at random to take all of the Skins.”

The judge pointed out that if the winner was chosen at random, then this amounted to “an explicit statement that the results were random, not rigged,” and therefore couldn’t qualify as “fraudulent activity.”

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Federal case over but the case now moves to state court

The attorney for the plaintiffs, Jasper Ward of Jones Ward, was not disturbed by the court ruling.

Ward told ESBR:

“Yes, all the Judge said was that Federal Court is not the right place for this case if there is no RICO standing. So we are moving forward in state court, likely King County (WA), where Valve is located.”

The dismissal was forecast by Jeff Ifrah of Ifrah Law, who told ESBR when the case was first filed, “I’d call this lawsuit frivolous and say it is likely to be dismissed,” adding:

“Valve created a platform for play and on this platform, virtual items were played in a virtual world for virtual rewards. First, this doesn’t meet the standard for a RICO violation. Second, based on the recent Mason V. Machine Zone ruling in the Maryland courts, virtual gambling under those conditions is not illegal.”

Jasper Ward told ESBR that he saw the issue in a wider context:

“I think a key difference between what Valve has created and normal in-game purchases is that, because of Valve-supported third-parties, consumers have the ability to cash out the skins for real money.”

Possible benefit will be further legal clarity for skin betting

This week the Washington State Gambling Commission (WSGC) ordered the Valve Corporation to stop the transfer of skins via its Steam API.

The WSGC press release expressed its concern about the growth of skin gambling, which it said had “proliferated so much that a recent market report by Esports Betting Report indicates that one specific gambling website, CSGO Lounge, brought in approximately $1 billion in ‘skin’ gambling between January 1st and, August 1st this year alone.”

The latest skin gambling report by ESBR’s Will Green is available free to download here.

The WSGC has determined for itself that skin gambling is both gambling, and against the law.

WSGC Gambling Commissioner Chris Stearns said:

“In Washington, and everywhere else in the United States, skins betting on esports remains a large, unregulated black market for gambling. And that carries great risk for the players who remain wholly unprotected in an unregulated environment.

We are also required to pay attention to and investigate the risk of underage gambling which is especially heightened in the esports world.”

The current class action case raises the profile of skin gambling, and in doing so has contributed to attracting the attention of the WSGC. There is no doubt that lawmakers and regulators in other states, and indeed other countries, will now be moving the subject higher up their priority lists.

Even if the plaintiff’s case is “frivolous,” as Jeff Ifrah suggests, the final court rulings will bring some much needed clarity to how the law applies to online skin betting.

Politicians and regulators may then be in a better position to make their own determinations as to what action is required to either regulate or prohibit this new form of gambling.

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Joss Wood

Joss Wood holds an English degree from the University of Birmingham and also earned a master’s degree in organizational development from the University of Manchester. Joss has a special focus on the international online gambling market, though he also writes extensively on US regulated markets, sports betting, and esports betting.

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