Loot Boxes, Digital Property, and the Valve Litigation

In March 2026, the New York Attorney General issued proceedings against Valve Corporation, alleging that loot boxes in games such as Counter-Strike 2 and Dota 2 amount to unlawful gambling. “Illegal gambling can be harmful and lead to serious addiction problems, especially for our young people,” said Attorney General James. “Valve has made billions of dollars by letting children and adults alike illegally gamble for the chance to win valuable virtual prizes. These features are addictive, harmful, and illegal, and my office is suing to stop Valve’s illegal conduct and protect New Yorkers.”

Although framed as a gambling case, the argument raises a far mor`e interesting question. What, in law, is an in-game item? And where do we draw the line between “gaming” and “gambling”?

Unforeseen Consequences: When Gaming Meets Gambling

 

Valve, known for its genre-defining Half-Life and Portal games, is best understood today as the owner of Steam, the dominant digital distribution platform for PC gaming. Steam operates as both a marketplace and an infrastructure layer for in-game economies, enabling the purchase, sale, and exchange of digital items across titles including Counter-Strike 2 and Dota 2.

The present dispute arises from the use of “loot boxes” or “mystery boxes” within those games. The New York Attorney General’s position is relatively orthodox. In most common law formulations, gambling involves three elements: consideration (something of value is paid), chance (the outcome is determined by randomness), and prize (something of value is won). On the NYAG’s case, loot boxes satisfy each limb. Players pay for a randomised outcome and receive an item which may carry real world value.

Valve rejects that characterisation. It argues that loot boxes are better understood as a digital analogue to longstanding physical products such as trading card packs. As it put it in its public response, “these types of boxes in our games are widely used, not just in video games but in the tangible world as well, where generations have grown up opening baseball card packs and blind boxes and bags, and then trading and selling the items they receive.” It points to products such as Pokémon, Labubu, and Magic: The Gathering as comparable examples, and emphasises that similar mechanics have existed in digital games for over two decades.

Crucially, Valve also stresses that the items obtained are cosmetic and optional. Players are not required to engage with loot boxes in order to play or compete. On that view, the absence of any gameplay advantage and the consumer familiarity of randomised collectibles place these systems outside the scope of gambling regulation.

The dispute therefore turns on a narrower question than it first appears. The issue is not whether chance is involved, but whether the outcome of that chance can properly be regarded as a “prize” in the legal sense.

Testing Chambers: Digital Ownership of Assets

Image © Valve Corporation. Screenshot from Portal (2007). Used for commentary and illustrative purposes.

The central issue beneath the Valve litigation is not really gambling. It is ownership. What, if anything, does a player actually “own” when they acquire a digital item?

“Digital asset” is not a settled legal category. It can cover anything from crypto-tokens to in-game skins, virtual currency, or even accounts. Historically, English law has been cautious about recognising new forms of property, particularly where they do not fit neatly into traditional categories such as choses in possession or choses in action. As a result, most platforms have relied on contract. Users are granted a licence, not ownership, and terms of service typically emphasise that all items remain under the platform’s control.

In the United States, the issue surfaced in Bragg v Linden Research Inc. The federal district court was prepared to entertain the argument that virtual land in Second Life could give rise to legally recognisable interests, despite contractual terms asserting platform control. The case ultimately settled and is not binding authority, but it is often cited as an early indication that courts may look beyond contractual labels where digital assets carry real economic significance.

English law is now moving, cautiously, in the same direction. The Property (Digital Assets etc) Act 2025 does not attempt to define digital assets or to confer ownership rights directly. What it does is remove any technical obstacle to courts recognising them as property. In other words, the question is no longer blocked at the outset. Recent case law suggests that courts are willing to take that invitation seriously. In R v Lakeman (2026), the Court of Appeal held that RuneScape gold could amount to property capable of being stolen under the Theft Act 1968. The decision was fact-specific, but the direction is clear. In-game assets are no longer being treated as legally insignificant.

This matters for the Valve case. If virtual items can be treated as property, the NYAG’s argument becomes more straightforward. Paying for a loot box begins to look less like a game mechanic and more like staking money for the chance of obtaining something of value. Valve’s position depends on keeping those items within a purely contractual and cosmetic frame. This becomes most acute when considering the question of transferability. Valve presents trading as a consumer benefit, allowing users to realise value from unwanted items. That may be right commercially. Legally, it creates difficulty. The easier it is to convert an item into money, the harder it is to argue that it lacks real world value.

The UK position reflects the same compromise. Even if an item is capable of being property, contract still governs the relationship. Terms of service can restrict transfer, prevent inheritance, and deny that users acquire any proprietary interest at all. The result is a hybrid system. Assets may look and behave like property, but remain subject to strict platform control.

There seems to be some limited convergence between the US and UK on this issue. US regulators are testing gambling law to capture digital economies. English law is expanding the concept of property to accommodate them. Both approaches are circling the same question. At what point does a virtual item become something the law has to take seriously?

The Valve litigation will not resolve that question on its own. But it does show where the pressure is building. As in-game economies become more sophisticated, the gap between contractual language and economic reality is becoming harder to maintain.