Valve Responds To Washington State Regulators: ‘We Do Not Facilitate Gambling’

Written By Will Green on October 18, 2016

[toc]Valve Corporation has formally responded to the regulatory agency investigating its proximity to and alleged enabling of skin betting, and has insisted it does not facilitate gambling—legal or illegal.

Valve counsel Liam Lavery wrote in a three-page letter to the Washington State Gambling Commission that the operation of its Steam API, which unlicensed third-party gambling sites use to facilitate casino and sportsbook-style betting, is lawful under Washington state law.

Techraptor posted the letter Monday night.

The WSGC had originally ordered Valve to respond by Oct. 14, and told the company to stop allowing the transfer of skins, which are virtual in-game items, via Steam.

Valve questions legal basis for WSGC’s demand

Lavery asked the commission to provide it with a specific law that it was violating, and said Valve did not understand the “legal and factual reasoning” supporting the commission’s position.

He also said he was unsure of how the WSGC expected it to shutter illegal gambling.

In the following sentence, however, the letter alluded to one way of doing this: shutting down Steam entirely.

“The commissions (sic) main argument seemed to be, ‘Valve could stop this, so it should.’ We do not want to turn off the Steam services,” Lavery wrote.

Valve reiterates lack of financial, promotional connection with skin sites

Lavery wrote that Valve is aware that websites offer gambling propositions “outside of Steam and, we believe, outside of the United States,” and that those websites may accept skins “as wagers from other users.”

He told the WSGC that Valve neither receives revenue from these sites nor promotes them.

The comments echoed the only public comment the company has made regarding skin gambling this year, which came in mid-July when it posted a note on Steam itself threatening action against gambling sites that continued to use Steam.

On Tuesday, Lavery wrote that skin gambling sites utilize the API in two ways.

The first is in using it to facilitate the transfer of skins. This can occur between two players trading skins, or it can happen between two players buying or selling skins for Steam Wallet funds, which constitute Steam’s virtual currency to use in its marketplace.

(Another method of transferring skins, between a player and a trade bot, allows an automated bot to trade skins to a player as payout for winning a gambling bet. Steam’s API prohibits this.)

The second way, Lavery said, is by facilitating Steam authentication. This allows users to identify themselves by their Steam credentials without having to give that website their personal information. Many other tech companies also employ this “OpenID” system.

“None of these activities are illegal in Washington or any other jurisdiction, and we do not believe the commission contends to the contrary” Lavery wrote.

But the WSGC did not ask if Valve made money off of, or partnered with, these sites. Nor did it ask if third-party sites’ use of Steam was legal. It asked that Valve stop facilitating the use of skins for gambling through Steam.

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Valve says it’s not necessarily able to identify all bot accounts

Lavery noted that Valve has taken several steps to address the use of skins. He cited a July note that threatened action against Steam accounts that violated its user agreement, and the two cease and desist letters it sent later that month to 42 skin gambling sites.

But Lavery characterized the extent and scope of the problem as too vast for Valve to control.

“We do not know all the skins gambling sites that may exist or may be newly created, and we are not always able to identify the ‘bot’ accounts that particular skins gambling sites may use to effectuate trades,” his letter read.

“Cleverly designed bots can be indistinguishable from real users performing legitimate trades.”

Despite Lavery and Valve’s confusion over how to comply with the WSGC, the letter concludes by describing yet another way the game maker can do just that.

Lavery appeared to address the potential identification of bots based on the gambling site in connection with which they were used to facilitate trades.

“Valve can enforce its user agreement against the Steam accounts of skins gambling sites, where we can identify the site and identify the corresponding account. In fact, we would be happy to cooperate with the commission, if it is able to identify more skins gambling sites that are illegal in Washington,” Lavery said.

This policing of skin gambling sites could require significant time and legwork, and it’s unclear if the WSGC would identify the sites for Valve as the game maker appeared to ask.

Either way, it could foreshadow a potential way forward in combatting skin gambling not just in Washington, but all over the US.

Effect of the C&D letters was muted at best

A few of the sites in Valve’s July cease and desist letters reported trade bots being banned, but the majority either voluntarily shut down or brazenly kept running.

Those letters noted that the sites in receipt were gambling sites, and told the sites to stop utilizing its API for any commercial purposes. The C&Ds did not specify gambling (legal or illegal) as the specific use it was referring to.

After the letters were sent, Valve’s apparent enforcement of its own user agreement came to a halt. Now, the problem of skin gambling is growing for Valve, regulators, and others, not shrinking.

Three months after Valve sent its C&Ds, roughly half of the sites it ordered to shut down were still operating commercial gaming or gambling products using Steam and CS:GO skins.

Just in the time since the WSGC sent its Oct. 5 C&D letter, at least four new skin gambling websites have launched:

  • CSGO4Rolls
  • CSGOLuminance
  • CSGOUber

As many as 100 skin gambling sites are believed to be in existence.

Do not expect swift action to Valve’s response

Sources close to the investigation have indicated that regardless of the content of Valve’s response or non-response, it will likely proceed with especial caution. The timetable could be reflective of a slower, step-by-step approach that’s already underscored the WSGC’s investigation so far.

Despite the WSGC saying that Valve’s communication and cooperation broke down soon after the February meetings with Lavery, and despite the skin gambling industry growing over the first half of 2016, it wasn’t until Sept. 27 that the WSGC sent a blunt letter to Valve CEO Gabe Newell.

That letter threatened search and seizure of gambling-related property. While that specific action still appears unlikely, it would require time-consuming preparation, the cooperation of other law enforcement agencies, and possibly the securing of a warrant.

Following the February meetings, further attempts to contact Lavery and the corporation were not successful, according to the commission.

That account contrasts with Lavery’s letter, which alludes to conversations ongoing between both parties for 18 months, since April 2015. Lavery wrote that Valve and the WSGC last spoke on Oct. 3, two days before the WSGC send its cease and desist notice.

The WSGC could also be looking to other game developers’ reaction to the third-party use of in-game items as guidance.

Last week, game maker CCP changed the in-game license agreement for its game Eve to prevent items from being bought and sold, with the aim of discouraging skin gambling.

Another reason the process could take inordinate time is the makeup of Washington state’s gambling laws, which are among the most expansive and rigorous in the nation.

A two-part response

WSGC Executive Director David Trujillo expressed disappointment at the company missing the initial deadline. The game maker first responded to the WSGC on Friday in a brief email, in which it said it needed until Monday, Oct. 17, to prepare everything it needed for its full response.

“I am disappointed that Valve Corporation missed Friday’s deadline, but encouraged that they have committed to responding today. I look forward to reviewing their response in detail,” Trujillo said Monday, before Valve’s full response came through.

“The type of approach Valve decides to take will be very important,” said WSGC Commissioner Chris Stearns on Monday in regards to the investigation.

Stearns’ remark could foreshadow the wide-open nature of the investigation, and the special and detailed scrutiny the commission is giving to Valve’s response.

The same sources that spoke to the potential timetable of the investigation characterized Valve’s response prior to Monday’s letter as “extremely cavalier.”

The WSGC did not respond to comment Tuesday morning following Valve’s full letter, but said in a statement it was considering Valve’s response to see if it satisfactorily addressed its concerns.

The commission said it will “continue to evaluate its options” regarding the violation of Washington’s gambling laws.

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