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Roblox Must Defend Illegal Gambling Claims–Colvin v. Roblox

[A reminder that I don’t do April Fools’ pranks.]

The court summarizes the allegations:

Roblox has a virtual currency designed for use on its platform called “Robux.” Users can buy Robux and exchange them on the platform for in-game experiences. Developers create in-game experiences, and when they make Robux selling those experiences on the platform, Roblox will let them cash out. But, outside the Roblox platform, there are a number of online casinos that take wagers in Robux. Those online casinos entice minors to come gamble away their Robux. To make the Robux available for gambling, an online casino representative engages in a dummy transaction on the Roblox platform that gives the casino access to the minor’s Robux while the minor gambles. Roblox processes that transaction, and it takes a cut. Then, when the minor loses Robux in the online casino, the casino exchanges those Robux with Roblox for cash. Again, Roblox processes that transaction and takes a cut.

Some of the plaintiffs’ claims survive Roblox’s motion to dismiss.

Statutory Standing. Roblox argued that the children didn’t suffer any economic loss because, once purchased, Robux cannot be converted back to cash. In support, Roblox cited Mason v. Machine Zone and Taylor v. Apple. The court is unpersuaded. It analogized Robux to the purchase of an admission ticket to a movie or amusement park, where buyers would suffer an economic loss if a thief stole a non-refundable ticket before it was used.

Second, Roblox argued that the children got what they bargained for when they used their Robux at the gambling sites. The court doesn’t appreciate this argument:

these are children we’re talking about. There is a reason that children are not allowed to gamble, even if they think it will be entertaining: they cannot meaningfully consent to such games, or to the losses that occur as a result….

the parents whose money purchased the Robux allege that they had no idea this virtual currency could be used off-platform for gambling.

Negligence. The court cites the Social Media Addiction ruling for the proposition that “social media companies do have a duty to exercise due care in managing their platforms.” As applied to Roblox, the court rearticulates that legal standard and says the plaintiffs sufficiently pled it:

Roblox had a duty to use reasonable care in its conduct, the creation and management of its platform, to avoid creating an unreasonable risk of harm to others

In this case, the alleged harms relate to Roblox’s activities as a payment processor. Note that payment processors always have the potential to process payments for illegal activities due to their typically limited insights about the nature of remote transactions. Roblox might take greater steps than normal to restrict who can participate in its payment processing ecosystem, which could cut both for and against them. We need to hear Roblox’s side of this story before we can make any further inferences.

Even if you think the court’s articulation of Roblox’s duty makes sense in the payment processor context, note how courts may extend euphemisms like “platform management” to include the publication of third-party content that should be protected by Section 230 and the First Amendment–one of the key ways the Social Media Addiction rulings went wrong.

Section 230. “The plaintiffs’ claims are not barred by Section 230 because they do not treat Roblox as a publisher or speaker. Roblox is not facing liability for the content posted on its platform. It is facing liability for allegedly facilitating transactions between minors and online casinos that enable illegal gambling, and for allegedly failing to take sufficient steps to warn minors and their parents about those casinos.” I’m skeptical about the tenability of the failure-to-warn claims. Otherwise, the Section 230 ruling for facilitating transactions finds support in the cited HomeAway case and perhaps the uncited Gonzalez v. Google case.

Implications

It’s hard to draw too many insights from a ruling like this, because Roblox hasn’t had a chance to explain itself. But perhaps this case is a reminder of the risks of offering monetization schemes to all comers, when some of them may be engaged in illegal activities. Section 230 likely doesn’t help in those circumstances, and courts’ expansive views on negligence and the expected steps to mitigate third-party misconduct make such schemes dangerous. All of these risks are heightened with a player like Roblox, which has a large userbase of children and thus will constantly draw attention from regulators and plaintiffs’ lawyers.

Case Citation: Colvin v. Roblox Corp., 2024 WL 1268420 (N.D. Cal. March 26, 2024). See also the March 28 supplemental order, surviving the unjust enrichment claim. The complaint. The CourtListener page.

Prior Blog Posts on Roblox

Roblox Sanctioned for SAD Scheme Abuse–Roblox v. Schedule A Defendants
If TOS Formation Fails, Bad Legal Outcomes Are Likely to Follow–Doe v. Roblox

The post Roblox Must Defend Illegal Gambling Claims–Colvin v. Roblox appeared first on Technology & Marketing Law Blog.

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