On 10 April 2024, the French National Assembly adopted the Bill on Securing and Regulating the Digital Space (known as the “SREN Bill”), following the Senate’s validation a week earlier. The Bill contains a multitude of provisions, regarding a variety of important topics in the digital realm such as the protection of children online and reducing dependence of French companies on cloud service providers. The bill is expected to become law in the coming weeks. For a summary of the SREN Bill’s provisions, please see our IP colleague Pauline Celeyron’s post (in French).
The SREN Bill creates a new category of games under French law – games with monetizable digital objects (or “Jonum” for “jeux à objets numériques monétisables”) – making France one of the first countries in the world to directly regulate a key component of the Web3 gaming ecosystem.
- An existing legal environment in France which hurts the development of Web3 gaming
Games incorporating blockchain-based assets such as non-fungible tokens (“NFTs”) have gained a lot of popularity since 2022 and the French legislature has clearly understood that such games hold a significant potential for the French video games sector, which is already one of the most dynamic in Europe and the world, comprising over 6 billion euros in 2023 according to a recent Entertainment Software Publishers’ Union study. Similarly, a December 2023 report commissioned by the French National Gaming Authority (“ANJ”) observed the emerging market of games allowing players to win rewards in crypto-assets (“play-to-earn” games), and noted that such video games present parallels with traditional gambling including the potential for addictive behaviors.
And the similarities do not stop with public health concerns. Indeed, games of chance are conventionally defined according to four criteria — an offer to the public, a financial sacrifice, the hope of monetary gain and the presence of a mechanism involving chance — all of which may be present in play-to-earn games depending on their functioning.
The similarity between certain gaming mechanics or functionality predates the advent of Web3 games; loot boxes in video games have long been the object of controversy because they can also fit into the games of chance criteria. This similarity is not without consequences for gaming studios and publishers. In France, Article L. 320-6 of the Internal Security Code bans games of chance, which may only authorised if they fit into a very limited list of exemptions set out in the Internal Security Code. Simply put, a large section of Web3 gaming is at risk of being considered illegal in France.
2. Testing, testing and more testing: the Jonum experiment
Enter the SREN Bill and its Jonum. The SREN Bill establishes an experimental framework authorizing Jonum for three years. The objective of this trial is to find a balance between innovation and the protection of the population –especially minors – from public health risks such as gambling addiction.
Jonum are defined as “games offered via an online public communication service that enable adult players who have made a financial sacrifice to obtain monetizable digital objects, excluding any monetary gain, based on a mechanism involving chance.” Jonum therefore meet three of the four criteria defining a game of chance: an offer to the public, financial sacrifice and the presence of a mechanism involving chance. The only missing factor is “monetary gain”: a Jonum cannot offer the possibility to win money directly, only monetizable digital objects (“Onum”).
Such monetizable digital objects are themselves defined as “game elements that grant players one or more rights associated with the game, and which may be transferred, directly or indirectly, for consideration to third parties“. So, what of loot boxes? We shall see, but at first glance the Onum’s transferability criterion would exclude most loot boxes, as loot boxes often function on a “closed-loop” basis and cannot be traded outside of the game they are meant to be used in.
Video gaming operators offering Jonum will need to ensure the integrity, reliability and transparency of gaming operations, as well the protection of minors. They will also be required to prevent excessive or pathological gambling, fraudulent or criminal activities, money laundering and the financing of terrorism.
3. What’s next?
The journey is only beginning, as three further decrees are expected.
- The first will determine the conditions under which rewards other than Onum may be awarded on an ancillary basis. Though cash rewards will still be proscribed, this decree opens the door for crypto-currency rewards, alongside Onum.
- The second decree will list the categories of games authorised under this experimental framework.
- A third decree will specify the procedures for opening, managing and closing player accounts by the gaming operator.
Within 18 months, the French government will also present Parliament with a progress report on the Jonum authorization trial.
Much can be said of this attempt to regulate Jonum. Although France is one of the first jurisdictions in the world to create a specific regime regulating NFTs in gaming, is this response coming too late after the NFT craze of 2022? Can it even capture the complexities of this still emerging space? Alternatively, we can welcome this attempt to compromise between the needs of a potentially vulnerable public and those of creative companies. At a time where all eyes are turned on AI, it is also an important reminder that innovation comes in many forms.
Now, all that remains to be seen are the results of this great experiment.
