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Big Fish Casino. (Big Fish Photo)

A federal appeals court ruled Wednesday that Big Fish Games’ Big Fish Casino constitutes illegal online gambling, according to Washington state law, in a case that could have major implications for the casual games market.

Big Fish Casino is a series of games like slots, blackjack and roulette that use virtual chips. The chips have no monetary value themselves, but players can only play as long as they have chips. If they run out, they have to wait until the game offers more free chips or they can buy more chips and jump back in.

“Without virtual chips, a user is unable to play Big Fish Casino’s various games,”Judge Milan D. Smith of the Ninth Circuit of U.S. Court of Appeals wrote in his opinion Wednesday. “Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have ‘the privilege of playing the game.’ Likewise, if a user wins chips, the user wins the privilege of playing Big Fish Casino without charge. In sum, these virtual chips extend the privilege of playing Big Fish Casino.”

The legal dispute dates back to 2015 when Cheryl Kater sued Big Fish’s then-parent company Churchill Downs. She claims to have spent more than $1,000 on Big Fish Casino virtual chips. The suit argued that the chips represent “something of value,” a vague clause within Washington state law governing gambling.

In 2016, a U.S. District Court Judge in Seattle threw out Kater’s complaint. Today’s decision reverses that ruling.

“Despite collecting millions in revenue, Churchill Downs, like Captain Renault in Casablanca, purports to be shocked — shocked! — to find that Big Fish Casino could constitute illegal gambling. We are not,” Milan wrote.

Smith continued: “We therefore reverse the district court and hold that because Big Fish Casino’s virtual chips are a ‘thing of value,’ Big Fish Casino constitutes illegal gambling under Washington law.”

In addition to the “something of value” argument, Kater argues that Big Fish Casino players are able to “cash out” on their virtual chips by agreeing to sell them for real money on a secondary market and then transferring them to other users. The appeals court rejected that argument because Big Fish prohibits those transactions in its terms of service.

This microscope on Big Fish comes as it is under changing ownership. Churchill Downs purchased Big Fish Games in 2014 for $885 million. Three years later, it agreed to sell Big Fish to Australia-based Aristocrat Technologies for $990 million.

Today’s ruling kicks the case back down to district court. Churchill Downs could also request to have the case heard in front of a large appeals court panel or petition to argue the case in front of U.S. Supreme Court.

“It sounds like an emphatic win for the plaintiff, and it is a clear win, but at the same time it’s just based on the allegations of the complaint which Big Fish has an opportunity to rebut,” Venkat Balasubramani, an attorney at Focal PLLC who is not involved in this case but is participating in another online gaming lawsuit. His firm is representing gamers in California suing Trion Worlds, developer of a game called ArchAge, which is marketed as “free-to-play” but includes in-game purchases, arguing that the company violated false advertising and consumer laws.

We’ve reached out to Churchill Downs for comment and will update this post if we hear back.

It’s easy to see the implications the case could have on the mobile gaming world. A lot of popular games use the concept of a virtual currency of some sort that reloads over time for free or can be purchased to continue playing.

If rulings continue to favor the plaintiff, it could open up other gaming companies to lawsuits from players who have spent a lot of money on these games. Online gambling lawsuits are fairly common, from small mobile game-makers to gaming giants like Valve. However, this case is in rare company because the game companies came out victorious in past cases.

Smith in his opinion acknowledged past cases, arguing that each one dealt with different state laws as there are no specific federal laws governing online gambling. That broad “something of value” phrase is what makes this case stand out from the others.

That these are state laws throws a wrench into the issue, says Balasubramani. Would gaming companies based elsewhere have to comply with state law? Can they write into their terms of service that by playing a game they agree to another state’s laws?

“The fact that it’s state law is a wrinkle because it’s not easy for Washington to reach outside its borders and enforce Washington law against foreign companies,” Balasubramani said. “That’s always a tricky issue in the legal arena.”

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