Akash Nath and Ankush Nath

The economic value of India’s online gaming industry as per industry approximations was USD 1.8 billion in the year 2020, and the number of online gamers in India is estimated to surge by fifty million by 2024. The Government recently released draft rules requiring the establishment of self-regulatory organisations to address the gaming sphere and to bring about coherency in diverse laws. Existing discourse has criticised certain aspects of the regulation as a whole, without specifically analysing the role of self-regulatory organisations in tandem. The novel contribution of this article is in its usage of regulatory theories in extant literature to assess the lacuna in the draft rules, and to highlight its unfeasibility with regard to the general objectives of self-regulation and theories associated with them. The article argues that the draft rules pose challenges to the objectives of self-regulation and that the lacunae highlighted render difficulties in their feasibility.

I.                INTRODUCTION

India’s online gaming industry is anticipated to experience a compounded annual growth rate of thirty-eight percent and reach the monetary threshold of USD five billion by the year 2025. Consequently, it is of utmost significance to integrate into one central law, the varying legal stances of different state governments concerning the industry. This is owed to the difficulty in enforcing rules such as geo-blocking specific applications or websites within the bounds of a state.

To address the exigent demand for the regulation of online gaming, the report of an inter-ministerial task force established by the Ministry of Electronics and Information Technology (‘Ministry’) in May 2022, had suggested the establishment of a self-regulatory body (‘SRO’) for the online gaming industry, with authority to determine what constitutes a game of skill or chance, certify various gaming formats, and ensure compliance and enforcement. In such light, the Ministry released the draft amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (‘Rules’) for online gaming for public consultation on 2nd January, 2023. The Rules define the approach to be taken by the SRO responsible for the registration and approval of games, also outlining the necessary requirements for customer identification and establishing a formalised system for addressing grievances.

Self-regulation has different interpretations, ranging from its application at an individual-firm level to industry-level targets. Despite its essential role, the state’s involvement is curtailed under self-regulation, in contrast to co-regulation which entails heightened participation by the state. The concept of self-regulation represents a form of digital platform governance in which collective industry platforms regulate their own operations. This is in contrast to such platforms being subjected to government-mandated regulation. This involves the development and adoption of shared codes of conduct or sectoral agreements among digital platform operators while keeping in mind specific criteria such as security of state, and conformity with laws as per draft Rules 5(b) and 5(c). Considering that the targets of self-regulation have the best knowledge of their operations, such a system is desirable. While self-regulation does offer certain benefits such as increased flexibility, speed, and reduced costs, its efficacy as a regulatory instrument must be subject to thorough scrutiny.

In its limited scope, the extant article offers a synopsis of certain issues within the envisaged working of the SROs under the Rules. Part II of the article starts by briefly describing certain flaws within the rules, such as ambiguity in the definition of online games, classification of gaming platforms as intermediaries, and direct concerns over the self-regulatory body, which need to be addressed by the government before finalising the Rules. Part III focuses on examining the anticipated role of SROs and their potential to address the identified problems through prominent theories of self-regulation. In consonance with established practices, it aims to determine the feasibility of the self-regulation mechanisms. Part IV concludes the discussion and addresses the need to bridge the lacuna present.

II.              IDENTIFYING FLAWS WITHIN THE RULES

Some drawbacks identified in discourse related to the Rules include the ambiguity in definition, governmental role, and the direct complexities associated with the self-regulatory approaches. The flaws identified in this section will be further examined in more detail from a regulatory standpoint in the following part of the paper.

A.     AMBIGUITY WITH THE DEFINITION OF ‘ONLINE GAMING’

An ‘online game’ is defined in Rule 2(1)(qb) as 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”. It is pertinent to observe that the definitions of ‘deposit’ and ‘winnings’ in Rule 2(1)(qa)(ii) and (iii) encompass both monetary and non-monetary forms. Although the latter may have been introduced to address non-monetary items such as ‘tokens’ or ‘online game currencies,’ its inclusion may result in games that do not necessitate any monetary investment or offer any monetary rewards to users being brought under the purview of ‘online games’ and thereby subject to regulatory measures. Furthermore, it is not clear whether the ambit of these regulations extends to non-gambling online games.

B.     MEMBERSHIP IN MULTIPLE SELF-REGULATORY ORGANISATIONS

The Rules have the potential to create a fragmented gaming market, as online gaming intermediaries are permitted to approach or join multiple SROs. This may result in different SROs having divergent standards, leading to significant discrepancies in the application of rules. The already broad and potentially ambiguous criteria leave room for online gaming intermediaries to selectively choose an SRO that interprets these terms in a manner that aligns with their interests or even establish a new SRO with lower standards.

A practical example of such an event arising is with references to Indian media houses. In the year 2019, a cohort of Indian media houses, in an attempt to contest the purportedly dominant News Broadcasters Association, established the National Broadcasters Federation. This development has subsequently engendered discordant stances between the two entities on issues that bear significant implications for the industry, such as the dissemination of Broadcast Audience Research Council ratings. The proliferation of diverse regulatory bodies may similarly engender the perilous fracturing of uniform standards governing the gaming industry, ultimately compromising the interests of the end-user.

C.    LACK OF CLARITY WITH STATE LAWS

The current guidelines regarding online games lack precision regarding the interpretation and implementation of state laws within a centralised government framework. Rule 3(1)(ii) and (ix) stipulate that an SRO is responsible for ensuring that an online game adheres to Indian laws, which include state laws governing betting and gambling. However, the applicability of such laws in certain states, such as Tamil Nadu, where games like rummy and poker are prohibited, remains unclear. Moreover, if a game registered by an SRO is subsequently deemed illegal by a state law, there exists no established protocol. Hence, it has been seen imperative that the guidelines be revised to incorporate a comprehensive catalogue of unlawful gaming activities such as offshore betting and gambling, alongside a distinct inventory of game formats recognised for their reliance on skill. Such a revision would promote clarity, consistency, and legality in online gaming practices. Further, this seems to be inconsistent with one of the factors for bringing about uniform law, i.e., reducing the disparity between extant laws.

D.    GOVERNMENTAL ROLE

The proposed amendments confer expansive power to the Ministry, and thereby the government to interfere in the self-regulation mechanism. As per Rule 4B(10), the Ministry may, via an order with written justification, suspend or revoke the registration of a self-regulatory entity. The wording used in in the Rule enhances the arbitrary nature of this authority by employing phrases such as “as it may deem necessary” and “if it is satisfied that it is necessary so to do (sic)” in conjunction with the power to issue instructions or interim directions. However, Rule 4B(10) introduces some safeguards for the self-regulatory entity by allowing an online gaming intermediary to be heard before the Ministry releases an order. The standards and considerations for taking such a decision are listed in Rules 4B(2) to 4B(9).

Further, per Rule 4B(9), should the Ministry determine that the self-regulatory body has failed to adhere to the prescribed rules, it may notify the self-regulatory body in writing and instruct it to take corrective measures.[1] Although self-regulatory bodies are authorised to register online gaming intermediaries, the Ministry’s expansive powers grant it significant discretion in selecting which self-regulatory body will exercise these powers and how it will exercise them, thereby increasing government involvement in the process.

Rule 6A further empowers the Ministry to identify and classify certain games as ‘online games’ under these rules, provided that such games are accessible to users without requiring any deposit, and the Ministry is satisfied that “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”.

This power is exercised through a notification published in the Official Gazette, with the Ministry required to record the reasons for such classification in writing. However, the Ministry has further not provided clarity on what it understands by the phrase “harm among children” in Rule 6A, necessitating the need for establishing the government’s understanding of such concepts to prevent the inconsistent application of rules and misuse of this power. The “risk of harm to sovereignty” allows for further scope of misuse.

E.     UNREASONABLE ADVERTISEMENT REQUIREMENTS

The guidelines for curbing illegal advertisements on social and digital media platforms in India are aimed at addressing the issue of unlawful betting and gambling services advertised by offshore companies. Before carrying out an advertisement, the guidelines do place a burden on these platforms to verify an online game’s registration status with the concerned SRO. However, given the sheer number of gaming apps available on platforms like Google Play Store and Apple’s App Store, such a requirement of verifying the registration status of each game before hosting an advertisement could be rendered impractical.

The identified issues with the proposed Rules for Online Gaming in India include ambiguity in the definition of ‘online gaming’, the potential for creating a fragmented gaming market due to the allowance of membership in multiple self-regulatory organizations, lack of clarity with state laws, and concerns regarding the government’s role and power to interfere in the self-regulation mechanism. These issues will be explored in more detail in the following Part from a regulatory standpoint to provide a comprehensive analysis of the proposed Rules.

III.           ASSESSING FEASIBILITY USING SELF-REGULATION THEORIES AND PRACTICES

This Part of the paper is not limited to, and goes beyond merely addressing the previously identified issues. Rather, it provides a holistic evaluation of the gaming rules in question, recognizing their noteworthy features where appropriate. Nonetheless, the analysis indicates that the feasibility of these gaming rules is compromised overall, despite the inclusion of positive aspects like the integration of fraud prevention and enforcement mechanisms.

A.     LEGAL CERTAINTY

“Legal certainty” is a “principle”, and “outcome-based” regulatory approach often used in the context of fintech, and recognised as a ‘rule of law’. It may be applied to the present Rules to address the issue with the ambiguity in its definition of ‘online gaming’, and the problem of multiple SROs. Legal certainty requires a well-defined and explicit delineation of regulatory boundaries to provide for sufficient clarity. Ambiguous terminology and classification schemes can incentivise regulatory arbitrage, allowing platforms to circumvent less favourable regulation, and thereby undermine the effectiveness of the regulatory framework and constrain innovation. This can lead to a race to the bottom, where SRO’s attract businesses by lowering regulatory standards, ultimately resulting in weaker protections for consumers and a less stable regulatory environment.

To demonstrate using a simplistic hypothetical – imagine there are two SROs, A and B. A requires measures including age verification, monitoring for abusive language and behaviour, and providing a reporting system for users to report inappropriate content. The monitoring however, also includes the implementation of AI to detect abusive behaviour during the use of the game. B on the other hand, has less stringent requirements and does not require any such detection. It is sufficient for companies under B to have a flagging/reporting mechanism. In such light, platforms may find that complying with the regulations of A is costly and time-consuming. Instead by joining platform B, they can effectively circumvent the stricter regulations and save money on compliance costs. They can argue that they are still complying with industry standards and best practices, even if they are not meeting the specific requirements of the A’s regulatory framework.

Further, without clear rules, platforms may struggle to know what is expected of them and may be hesitant to invest in new technologies or services. This could lead to a slower pace of innovation and a less dynamic industry. When regulations are unclear or subject to multiple interpretations, it becomes difficult for companies to plan and invest in new products and services. This can deter innovation by making it harder for entrepreneurs and investors to assess the legal risks associated with new ventures. Thus, the lack of clarity regarding the categorisation of online gaming intermediaries portends deleterious consequences not only for industry innovation but also for its expansion. The same is true regarding the lack of clarity with state laws, and the Rules stating that SROs ‘may register’ and not ‘shall register’ online games, providing them unnecessary discretion. Further, letting SROs determine what a game of chance/skill is, can have detrimental impacts on fairness in the industry, as will be demonstrated below.

B.     DUCK TYPE

The regulatory practice of ‘duck type’, also associated with fintech, is of relevant importance as it requires the regulation of the “same risk with the same rule”. In requiring institutions exposing comparable risks and engaging in akin activities, to be subjected to commensurate levels of regulatory scrutiny, it brings about regulatory fairness by ensuring that no domain is unjustly favoured over the other. As identified before, the Draft Regulations may warrant different online gaming intermediaries to be part of SROs having divergent standards. This would enable companies to opt for bodies with lower compliance requirements, thereby evading the objectives of the rules. Further, to evade laws relating to ‘betting’ or games of chance, companies would choose those SROs whose determination criterion suits their games. This would thus be against the principle of regulatory fairness, which is one of the core objectives of regulation. Thus, this paper proposes that gaming platforms should be able to join only one SRO.

C.    WANING THE OBJECTIVE OF REDUCED GOVERNMENTAL INTERVENTION

One of the highly identified benefits of self-regulation, in general, is reflected in the lower burden on governments, thereby allowing more discretion to industries. The presence of a government nominee in the SRO neutralises part of this benefit. Further, the broad powers given to the government, such as de-registering SROs, may set harmful precedents for industry self-regulation. At the same time, it is important to concede the fact that the participation of government officials is not exactly unknown to industry self-regulation.

D.    POTENTIALLY ADDRESSING FRAUD

SROs for the online gaming industry must undertake regulations to promote trust. Establishing trust using feedback forums has resulted in reducing fraud. This is evident from the case of eBay, which further supplemented its trust mechanisms by utilising ‘Verified eBay User’ programs,[2] and by imposing harsh penalties for shill bidding, which is a practice to inflate the final price by fake bidding on one’s own product. While this is an example of a company-specific self-regulation, instead of industry-wide collective action, it is relevant to the objectives of the Rules.

Interestingly, a counterpart to the ‘Verified eBay User’ program is reflected in Rule 4A. It mandates online gaming intermediaries to adhere to due diligence requirements, which will supplement those already observed under the extant Rule 3. Rule 4A (b)(iii) incorporates a Know-Your-Customer (‘KYC’) procedure that necessitates the online gaming intermediary to verify the user’s identity during account registration, further requiring the online gaming intermediary to authenticate the user’s identity when initiating an account-based relationship for an online game, under the proposed Rule 4A(d). While this has been seen as a breach of governmental powers, it may help in building trust.

E.     ENFORCEMENT

A pertinent issue with industry-specific regulations is the problem of enforcement and the potential absence of such enforcement mechanisms. Notably, self-regulation frequently suffers from weak enforcement mechanisms and is prone to creating conflicts of interest that require careful consideration. This deficiency of self-regulation is not limited to India. Industries have, on a global scale generally struggled to achieve adequate levels of self-regulation, with the 2008 financial crisis being widely attributed to its shortcomings. However, despite such challenges, there has been a consistent increase in the proliferation and adoption of self-regulatory bodies over time, which is being interpreted as indicative of the growing maturity of business ecosystems.

In the event of non-compliance with the Rules, the penalties applicable are identical to those for other categories of intermediaries. Rule 7 specifies that if an intermediary fails to comply with these Rules, it shall not be exempted from liability for third-party information under sub-section (1) of section 79 of the IT Act, 2000. Additionally, the intermediary will be held accountable for punishment under the applicable laws, including the IT Act, 2000 and the Indian Penal Code.[3] This underscores the importance of intermediaries’ adherence to these Rules, as they will be held liable for any breach.

F.     COMMUNITY GUIDELINES AND WELL-BEING OF CHILDREN

Rules 4B(6)(a) and (b) envisage safeguards against self-harm and the protection of children. In such light, self-regulatory mechanisms such as ‘community guidelines’ should be adopted by SROs, requiring certain standards of behaviour. ‘Community guidelines’ serve not only to safeguard the welfare of platform users, but also to mitigate any unfavourable externalities that may arise. By mandating the implementation of such standards of behaviour, SROs can help ensure the well-being of children by protecting them from harmful content and behavior. For instance, prohibiting explicit content and hate speech can help prevent cyberbullying, which is a major concern for children using online platforms.

G.    ROLE OF TECHNOLOGY

Rule 3(iii)(ma) requires intermediaries to “verify from the concerned self-regulatory body”, the registration of online games with such bodies. Overcoming the predicament of inordinate advertising prerequisites, as identified above, demands a technologically advanced approach. Leveraging the prowess of machine learning and other artificial intelligence techniques, SROs may create automated tools or algorithms that can expeditiously and precisely authenticate a game’s registration status prior to displaying any advertisement. Such tools can scrutinise a game’s metadata, ratings, reviews, and other relevant data points to determine its authenticity, thereby ensuring compliance with regulatory norms. For example, there has been considerable research on fake consumer review detection using ‘Supervised Machine Learning’, For example, algorithms can detect patterns of review manipulation, such as a sudden influx of positive reviews after a game’s release.

IV.           CONCLUSION

Establishing a blueprint for meaningful self-regulation is paramount to the gaming industry. The Rules showcase the government’s commitment to fostering self-regulation within the digital space, and industry leaders must strike a delicate balance between government intervention and self-regulation while earning the unwavering trust of their consumers. However, if the lacunae present in the draft rules are not addressed, the approach underlined would not be feasible to address the objectives of the rules. The paper is limited in its analysis as it is based on ‘draft’ regulations on the envisaged roles of SROs for online gaming and not an actual self-regulatory mechanism. The effectiveness of self-regulatory schemes needs to be closely assessed and monitored once SROs are in fact, established. Subsequent literature can focus on the potential of co-regulation in the online gaming space, also termed as a ‘regulated self-regulation’, approach that is both responsive and collaborative, thereby fostering closer relationships between the industries and the government. This approach can promote innovation and efficiency, while still ensuring that vital public interests such as safety, fairness, and consumer protection are maintained.

Akash is a second-year undergraduate law student at the WB National University of Juridical Sciences while Ankush is a fourth-year student at B.Tech (Information Technology) student at Manipal Institute of Technology, with an interest in the legal discourse.

[1] See generally OECD, Industry Self Regulation: Role and Use in Supporting Consumer Interests, OECD Digital Economy Papers, No. 247, (2015). (arguing for the adoption of corrective actions and warning letters to non-complying members).

[2] Michael Liedtke, Should eBay be responsible for the behavior of its buyers, sellers?, Rome News-Tribune (Rome), June 25, 2000.

[3] See generally The Indian Penal Code, 1860.