Legal considerations of Blockchain Gaming

Context: Many Indian gaming companies have expressed their interest in introducing elements of Blockchain technology into their games in the near future.
Blockchain Technology

• It is a decentralized database that stores information.
• It relies on technology that allows for the storage of identical copies of this information on multiple computers in a network.
• It collects information together in groups, known as blocks, that hold sets of information.
• Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain.
• Data on a blockchain is unable to be modified, which makes it a legitimate disruptor for industries like payments, cybersecurity, healthcare, etc.

Blockchain games

• They are online video games that are developed by integrating blockchain technology into them.

Non-fungible token (NFTs)

• It represents in-game virtual assets that can be owned by players, such as maps, armor, or land. 
• These NFTs act as asset tags, identifying ownership of the in-game assets, and are stored on the blockchain.
• Being on the blockchain, allows the player to have a secure record of ownership of the in-game assets and also gives the assets the ability to outlive the game itself.
• It also allows for the in-game assets to be transferred from one game to another.
• It also creates transparency, since ownership records can independently be verified by any third party as well.

Cryptocurrency

• Cryptocurrency, such as tokens based on the Ethereum blockchain, may be used for the purchase of in-game assets.
• These in-game purchases usually enable gamers to buy items like extra lives, coins, and so on directly from the game.

Gaming coins

• These are in-game cryptocurrencies that may be acquired and then used for the purchase of in-game assets.
• These gaming coins may be purchased from crypto exchanges or, in certain cases, be acquired as winnings in games that have adopted the ‘play-to-earn’ model.
• In such games, gamers are rewarded for dedicating their time and skill to play the game with gaming coins and in-game assets.

Are blockchain games legal in India?

• Since blockchain is merely the underlying technology, there is no express regulation of it in India.
• Indian states regulate gaming based on a distinction in law between ‘games of skill’ and ‘games of chance’.
• Staking money or property on the outcome of a ‘game of chance’ is prohibited and subjects the guilty parties to criminal sanctions, placing any stakes on the outcome of a ‘game of skill’ is not illegal per se and may be permissible.
• Most of the gaming laws were brought into effect prior to the internet era and, therefore, only contemplate regulation of gaming activities taking place on physical premises.
• Intellectual property protections available to blockchain games.

Patents

For a blockchain game or any of its elements to be patented in India, it will need to satisfy the patentability requirements of:

• Being a new product or process, i.e., having novelty.
• Involving an inventive step, i.e., having a feature that involves technical advancement as compared to the existing knowledge or having economic significance or both, and that makes the invention not obvious to a person skilled in the art.
• Being capable of industrial application, i.e., the capability of being made or used in industry.
• In terms of Section 3(k) of the Patent Act, 1970, computer programs are per se not inventions and hence, cannot be patented.
• However, judicial pronouncements in the past have clarified that if an invention has a technical contribution or a technical effect and is not merely a computer program per se, then it would be patentable.
• The Office of the Controller General of Patents, Designs and Trade Marks has issued the Guidelines for Examination of Computer Related Inventions (“CRI Guidelines”), stating that ‘databases’ would be considered computer programs and are, therefore, not patentable.

Trademarks

• It is used as an identifying mark to determine the source of a particular good or service and is obtained to protect the goodwill and reputation of the brand.
• Any distinguishing mark in a blockchain game or NFT that would allow consumers to identify the source of that particular game or NFT may be trademarked.
• In India, certain underlying aspects of the blockchain game may be trademarked, including the name of the game, a tag line attached to it, the logo of the game, the character names in the game, and the name of the in-game currency.
• In the case of an NFT, if the inventor of an NFT decides to give proprietary names to their own tokens, then such names may be protected as trademarks.

Copyrights

• In India, artistic work, musical work, cinematographic films, dramatic works, sound recordings, and computer software are capable being of being protected under copyright law.
• Although there is no specific provision in the Copyright Act that deals with video games.
• Copyright protection of video games may be sought under the category of ‘multimedia products’.

Legality of blockchain games that rely on cryptocurrency

• The Finance Ministry of the Government of India had announced in late-2021 that The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was to be tabled in the Parliament soon and would seek to prohibit all private cryptocurrencies.
• If the legislature does indeed successfully place a ban on private cryptocurrencies, then, to the extent that existing blockchain games rely on cryptocurrencies, they would be considered illegal in India.
• Independent of this, the Minister of Finance, in her budget speech for 2022-2023, announced that the income from the transfer of any ‘virtual digital assets’ (which include cryptocurrency and non-fungible tokens) would be subject to income tax at the rate of 30%.
• Interestingly, those who have received any such virtual digital assets by way of a gift shall be taxed at the rate of 30%.
• Policy pronouncements of this nature would need to be carefully considered by publishers of blockchain games while designing their pricing models.