Cosmetic skins in video games: player and brand rights

14 Nov 2023
by Kayla Casillo and Alexander Powell

Since the ’90s, massive technology advancements have led to the increased popularity of video games. As gaming technologies advanced and with the advent of e-sports, the gamer community has started to demand a greater degree of customisability of their in-game characters or avatars. This has led to the creation of digital marketplaces or stores where players can purchase cosmetic items through microtransactions. Traditionally, cosmetic items were purchased in the form of downloadable content, more commonly known as “DLCs”.

Many video games, such as the Call of Duty franchise, design their game around microtransactions with a focus on purchasable in-game characters or weapon cosmetics. These items apply either a different outfit or camouflage to your in-game character or weapon. Depending on the game publisher, these in-game items could be assigned a monetary value or be purely cosmetic, with no monetary value. If the items are capable of being resold, it creates a marketplace where users can list their items for purchase by other users. These marketplaces are impacted by supply and demand as they are highly dependent on how popular or rare a specific item is to the player base.

The most well-known item economy is for a game called Counter-Strike: Global Offensive 2. The game is developed and owned by Value (the owners of the most popular gaming platform, Steam). A user will purchase an in-game key to open a chest which will deposit a random weapon item into the user’s Steam account. This is tantamount to gambling as the user will have no control over which item they receive and the item’s market value is dependent on the Steam marketplace (namely, the price is determined through supply and demand). The most expensive item in the CS: GO2 marketplace is the “Dragon Lore” with a price range of between $4000 to $410000. These items are sold directly through the Steam marketplace.

Therefore, these cosmetic items can prove to be a valuable commodity which is akin to trading stocks and shares. This begs the question, what recourse is available to a user who is defrauded of these items? As per Steam’s terms and conditions, Steam has disclaimed any and all liability for loss or damages arising from a user’s use or inability to use their Steam account. Accordingly, the user will assume all liability for any loss or damages it suffers and Steam cannot be held liable by the user. It is clear that Steam’s stance is that it will under no circumstances be liable towards the user for any losses or damages which they may suffer whilst utilising the platform.

Steam also offers a virtual store where users can purchase digital versions of video games which can be downloaded and installed onto their devices. After purchasing a game from the Steam store, a user is afforded a 14-day period under which a full refund of the game can be requested. This refund is conditional upon the user having played less than two hours in the respective game and the refund having been requested within the 14-day period.

In addition to the virtual store, Steam offers a marketplace where users can sell and purchase cosmetic items across various video games. However, Steam’s marketplace terms and conditions make it clear that all marketplace purchases are final and that Steam users have no right to a refund or a reversal of any marketplace transactions once completed. This effectively means that once a user purchases a cosmetic item on the Steam marketplace, the user will have no recourse against Steam. From a South African perspective, the Electronic Communications and Transactions Act, 2002 provides consumers with a cooling-off period when purchasing digital goods. From the above, it appears that cooling-off periods are not applicable to transactions concluded on the Steam marketplace, and it is not clear whether Steam (being a foreign entity trading digitally in many jurisdictions, including South Africa) is required by law or regulation to provide the necessary cooling-off periods if it trades in a country in which it does not have a physical presence. Accordingly, users should exercise caution when purchasing and selling cosmetic items on the Steam marketplace.

Fraud is especially relevant where Steam marketplace items are sold on third-party websites and purchased using PayPal. Based on Steam’s liability stance, if a user were to connect their Steam account to a third-party website and were to be the victim of fraud, the user would have no recourse against Steam to the extent that the fraud was wholly or partially caused by Steam, and may therefore be required to assume such liability.

Another example of a popular gaming platform is Riot Games, mostly known for publishing League of Legends and Valorant. Unlike Steam, cosmetic items purchased on the Riot Games platform are non-refundable unless very specific conditions are met. Riot Game’s terms and conditions state that in order to qualify for a refund, the in-game content purchased by the user must be and remain unused (i.e. the user must not use, or play a match with, the cosmetic item purchased) and must be returned within 14 days from the purchase date. Accordingly, provided the conditions are met, Riot Games provides a cooling-off period within which users can request a refund.

The bottom line is that users of gaming platforms should consider the platform terms and conditions before accepting and investing money into cosmetic items, to determine the risks present and the liability that has been disclaimed by the platform provider.

Cosmetic item removed: user and brand rights

Fortnite launched a range of cosmetic items known as “Icon Skins’” Rapper, Travis Scott, was included as a cosmetic character and fans could purchase the character and play as him in-game. However, after the tragedy at Travis Scott’s Astro World concert which resulted in the death of a few concert attendees, Fortnite removed Travis Scott’s character from its store and players were no longer allowed to purchase or use his in-game character. When it comes to the withdrawal of cosmetic items by the platform itself, do the players who rightfully purchase the cosmetic items have any rights or remedies enforceable against the platform?

If this were to be a tangible item, in reality, the company would recall all “defective” goods purchased and would be required to provide a refund to the relevant customers in respect of the purchase price of the recalled goods. It is unclear whether the same would apply to digital cosmetic items if such cosmetic items were removed entirely from the gaming platform. Accordingly, the recourse available to a company or celebrity will depend on the provisions of the licencing agreement that the company or celebrity has with the gaming platform. We recommend that if a company or celebrity is going to allow its brand to be used in video games, such company or celebrity will need to ensure that there is a robust licencing agreement in place which regulates, inter alia, the following:

  • The company or celebrity should, at all times, be and remain the sole and exclusive owner of all intellectual property rights in its brand, likeness, logos, trademarks, and the like. The agreement should also regulate issues such as license rights, exclusivity, use restrictions, derivative works or modifications, royalties, etc.;
  • Indemnities should be included to protect the celebrity or company from the misuse of the licenses granted under the agreement in respect of brand usage;
  • The company or celebrity should ensure that risk in the contract is spread equally, by negotiating the inclusion of a reciprocal (as opposed to one-sided) limitation of liability clause in the contract;
  • The agreement should provide the company or celebrity with a mechanism to maintain control over how its brand is used in the relevant game. If the gaming platform fails to meet these quality standards or represents the brand in an unauthorised or potentially damaging manner, the company or celebrity should ensure that the licence agreement provides substantial rights and remedies that can be enforced against the gaming platform (such as to claim damages); and
  • The company or celebrity should have a right to terminate the licencing agreement for convenience, but in any event immediately in the event of misuse or any unauthorised use of its brand.

Terms and conditions are important in every transaction between contracting parties, and it is no different when it comes to purchasing digital items or licensing a brand or likeness for use in platforms, such as gaming platforms. It is therefore vital to carefully consider, review, and negotiate these contracts to ensure that you, as the contracting party, are not assuming all risk and liability under the contract.

ENS’ Technology, Media and Telecommunications team can assist in reviewing contract terms and conditions, negotiating and drafting agreements, and ensuring that your rights and brand are at all times protected, particularly when entering into digital transactions.

For more information, please contact our experts:

Reviewed by Ridwaan Boda, the Executive and Head of ENS’ TMT practice.

Kayla Casillo
Senior Associate | Corporate Commercial

Alexander Powell
Candidate Legal Practitioner | Corporate Commercial