Concerns over draft amendment to IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 related to online games

There is an immediate need to address the concerns over the recently released draft amendments to the IT Rules, 2021. A robust mechanism for regulating online gaming needs to be introduced that balances the interest of gamers and the gaming industry. 

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What is the draft amendment to the IT Rules, 2021?

THE draft amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 ('IT Rules') were made public on January 2 by the Union Ministry of Electronics and Information Technology. The proposed amendments are aimed at protecting online game players from "potential harm" and regulating different aspects of online gaming. However, the same has raised important concerns that need to be addressed by the authorities, and the rules must be framed only by ruling out the ambiguity persisting in the current draft amendment.

The need for regulating online gaming is due to the burgeoning growth of the gaming industry. According to a report by Lumikai, a gaming and interactive media venture fund, the revenue in the country's gaming industry increased from $2 billion in FY21 to $2.6 billion in FY22, and is projected to increase at a compound annual growth rate of 27 per cent to $8.6 billion in FY27.

Since the revenue and player base of gaming are increasing at such a fast pace, the implications and effect of gaming on the youth of country is an important consideration for the State, pertaining to which the government has introduced the draft amendment to the rules as a measure to regulate online gaming.

Also read: Are Betting Games Based on Cricket and Fantasy League Games Nothing but a Source of Revenues for the Central Government?

What is the scale of the online fantasy games industry in India?

Within the category of online games, 'online fantasy sports' has many grey areas that, until recently, were not regulated by any laws. The exponential growth of online fantasy sports gaming is due to the rapid advancement of technology, internet connectivity, and the widespread usage of smartphones.

As per the India Fantasy Sports Market Size, Statistics, Growth Trend Analysis, and Forecast Report 2022-2032, the size of the Indian fantasy sports market was estimated at Rs. 34,600 crores in 2021, and was projected to grow at a compound annual growth rate of 32 per cent from 2022 to 2032. The report mentioned that over the last ten years, the number of fantasy sports players in India has increased by 700 per cent, while the number of users has increased by 2,500 per cent. Fantasy cricket and fantasy kabaddi are two of the main sports entertainment options available in India. Fantasy sports have also greatly increased Indian gamers' interest in virtual sports due to its enormous potential.

Naturally, when a sector experiences significant financial success, everyone turns their attention to it, and as a result, lawsuits have begun to be filed against online fantasy sports and gambling sites. It has become a major concern of the government to introduce rules to regulate the same.

What has the higher judiciary held on the legality of online-fantasy games?

Several states have taken legal steps towards regulating online gaming that have some elements of monetary risk involved. One such category of these games is fantasy sports.

Also read: Andhra's Gaming Law: A Setback to Liberty and Human Agency?

Earlier this month, the Chhattisgarh Legislative Assembly passed the Chhattisgarh Gambling (Prohibition) Bill, 2022 to outlaw betting or wagering for financial gains in chance-based gaming (whether in person or online). Tamil Nadu went to the extent of banning some skill-based pay-to-play games by passing the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Ordinance, 2022 in October last year.

The issue of legality of fantasy sports has been brought before the Supreme Court multiple times before in challenges to orders passed by Punjab and Haryana High Court, the Rajasthan High Court and the Bombay High Court. However, by its verdict dated September 14 last year, the Supreme Court conclusively upheld the fantasy sports format used by the online gaming platform Dream11 as a "game of skill." The court was of the opinion that the online fantasy sports format is a "game of skill", and does not amount to gambling, wagering and betting.

Last year, in its judgment in All India Gaming Federation versus State of Karnataka, the Karnataka High Court declared that only states have the power to regulate gambling, as the same comes within the state list in the Seventh Schedule of the Constitution.

Also read: Karnataka High Court reaffirms the legality of online gaming: an analysis

What are the major concerns relating to the draft amendment?

As per the draft amendment to the rules, an online game is "a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings." This definition is ambiguous and will only add more confusion for the gaming industry. There is no reference made in the draft amendment to other free-to-play online games that exist on gaming portals, and whether those free-to-play online games will be considered a subject matter of the draft amendment.

Under the Explanation to proposed Rule 2(qa), the definition of 'winnings' is given. It said that winnings "means any prize, in cash or in kind, that is distributed or intended to be distributed to a user of an online game based on the performance of the user and in accordance with the rules of such online game." The problem with how this term is defined is that it is, in some form, legitimising gambling.

The Union Government is likely to hold discussions with organisations representing schools, parents, and teachers on the draft gaming rules; any link between gaming and gambling should be kept at the forefront of the discussion. Any amendment to the rules should ensure that they prevent young children from developing gambling habits through gaming habits.

This definition may not only be detrimental to the interest of gamers, but will also pose difficulties for the gaming industry. For instance, on gaming portals like Steam or Epic Games, games are being offered on the internet and people can buy them online with an expectation of earning winnings if that game has any gaming tournament or any special offer running to incentivise the players to purchase it. The game may not be purely related to gambling or betting (for example, it could be action-adventure, role play, co-op, multiplayer, among many things), but it may be having some element of money involved as the prize money. Whether such a game would be considered as a subject matter of the IT Rules, 2021 or not is not defined or specified under the draft proposal. This would only act as roadblock for the gaming industry, as industry players would now have to think twice before introducing any such incentive for the promotion of a game.

The other problem the gaming industry may face is as to the draft defining an "online gaming intermediary" as "an intermediary that offers one or more than one online game".

To appreciate this issue, it is important to understand the distinction between a game developer and a game publisher. A game developer is the individual or group that chooses the visual style of a video game. They oversee the narrative and aesthetics of the game. On the other hand, the game publishers are larger businesses or, in some cases, the parent company that have the financial means to release the finished product for public consumption. A majority of the games are published by these game publishers, who have a set of game developers working under their umbrella. Therefore, since most of the gaming companies are publishers, it is illogical to classify them as intermediaries as they are solely accountable for the content they publish.

Another problematic aspect of the definition of gaming intermediaries under the draft is that it appears to apply to app stores as well (which may be considered as intermediaries by virtue of the application of the amended rules). There are millions of games available on these app stores, and it is impossible for all of them to be tested and properly verified. This will only act as a roadblock for the independent gaming developers and individual developers, and ultimately affect the propagation of the art of gaming development, as a new standard of rules and regulation would need to be met by these developers, and an extra step of registration of the game would have to be carried out.

Also read: Bans on skill-based online games show the pitfalls of paternalistic laws

The other major concern is with regard to how the Rule 6A of the draft is worded. The rule provides that, "If the Ministry is satisfied in respect of any game made available on the Internet and accessible by a user through a computer resource without making any deposit, that such game may create a risk of harm to the sovereignty and integrity of India or security of the State or friendly relations with foreign States or public order, on account of causing addiction or other harm among children, it may, by a notification published in the Official Gazette, for reasons to be recorded in writing, declare that such game shall be treated as an online game for the purposes of these rules".

In simpler words, the government has the authority to categorise any game as an 'online game' under rule 6A, even if it can be accessed without paying any money, if the government believes that the game might encourage addiction or cause "harm among children", or if it is necessary for national security, public order or foreign relations. However, under the draft, nowhere has the phrase "harm among children" been defined or explained.

The government might employ this rule to obstruct access to other services it does not like, which may not fall under the definition of an online game or an online game intermediary. The Ministry of Electronics and Information Technology and the self-regulatory body constituted under the draft would have a lot of power to act however they see fit. This leads to legitimate concern that so much power is to be delegated to the body by the legislature, without providing enough guidelines pertaining to the same.

The draft rules are a welcome move, as it is the need of the hour to regulate online games due to the socio-economic considerations and these games being taken up by a sizable chunk of the population. However, before finalising any regulations, all states and different stakeholders should be listened to. Due consideration and consultation are needed on the draft amendment in order to make it more comprehensive, and rule out any possible ambiguity and flaw in the regulations.